Ashoka WhiteOak Emerging Markets Trust Plc - Annual Report and Notice of AGM
(the ‘Company’)
Annual Report and Notice of AGM
For the period from incorporation to
The Company also announces that its first Annual General Meeting (‘AGM’) will be held at
The Annual Report and the formal Notice of AGM (included in the Annual Report) are available on the Company's website at https://awemtrust.com/reports-account/ and will also shortly be available to view on the FCA’s National Storage Mechanism https://data.fca.org.uk/#/nsm/nationalstoragemechanism .
Highlights for the period:
-- The Company listed on the Premium Segment of the Main Market of theLondon Stock Exchange on3 May 2023 and is the sole premium-listed investment company to launch since 2021, as well as the first premium-listed equity focused investment company listing since 2018. -- Net Asset Value (NAV) total return of 11.81%, outperforming the Company’s benchmark (MSCI EM (GBP) Index) performance of 7.94% and producing +3.87% (+387bps) of excess returns. -- The Investment Manager’s approach to bottom-up stock selection remains robust and a key driver of performance. From a country perspective, stock selection has been strong across nearly all stock markets, but the most significant contribution has come from the Company’s Indian holdings. -- Key contributors for the period included: o DOMS, an Indian children’s stationery and art/craft materials business. oSenco Gold , the leading jewellery retailer inEastern India . o Disco Corporation, which manufactures capital equipment for the semiconductor industry. o Qualitas Controlodara, the leading automobile insurer inMexico . -- Key detractors for the period included: o Hong Kong Exchanges & Clearing, the owner of the only stock and futures exchange inHong Kong and the London Metals Exchange. o Budweiser Brewing APAC, the leading premium brewer inChina . o AIA, aHong Kong listed insurer with a presence in multiple emerging markets.
-- The Company has traded at an average premium of 0.1% over the period to31 March 2024 . The Company was also able to take advantage of its rating to issue 1,663,530 new shares through six separate issues. -- Post period-end the Company announced a proposed transaction to effect a combination with Asia Dragon Trust plc. The Company was pleased to see the subsequent announcement by Asia Dragon Trust plc on21 May 2024 , that it was initiating a full strategic review of its future, the Company has announced that it intends to participate in that process.
“We are delighted to be issuing our maiden Annual Report, covering the period since the Company’s incorporation on
This differentiated and distinctive approach has enabled the Company already to outperform against the benchmark reference index despite its short history and the volatile nature of the EM sector during the period. It was pleasing that the key positive contributors came from a range of sectors and regions, especially mid and small cap stocks, highlighting the success of the team’s focus on rigorous bottom-up stock selection.
Finally, the Board would like to reiterate its thanks to all shareholders who have supported the Company’s IPO and share issues since incorporation.”
For further information:
Company Secretary
AWEMT.Cosec@jtcgroup.com +44 207 409 0181
Prashant Khemka ViaBuchanan Fadrique Balmaseda Lim Wen Loong Ben Hayward
Mark Thompson +44 (0) 20 7016 6711Eddie Nissen +44 (0) 20 7016 6713Oliver Kenyon +44 (0) 20 7016 6704
Buchanan
Henry Harrison-Topham +44 (0) 20 7466 5000 Henry Wilson AWEM@buchanancomms.co.ukGeorge Beale Samuel Adams
About
STRATEGIC REPORT
Chair’s Statement
This is the Company’s maiden Annual Report for the period from the date of incorporation on 15
The Company’s listing on the Premium Segment of the Main Market of the
The investment trust industry has faced increasing challenges over the last few years, particularly from the current inappropriate and inconsistent interpretation of
However, the Board and Investment Manager are committed to and confident of growing the Company over time and are considering with the Company’s Corporate Broker,
Performance
During the period between
Since launch, the Company has traded close to NAV, supported by what we consider to be a “best-in-class” discount control mechanism in the form of its annual redemption facility, as explained later. The share price rose by 5.00% and the average premium at which the shares traded versus NAV was 0.1%.
The Company’s capital has been deployed in accordance with the Investment Manager’s stated investment process, utilising its unique OpcoFinco™ methodology to identify attractively valued stocks with positive catalysts, which in turn is complemented by its proprietary ABLEx TM Environmental Social and Governance (ESG) screening filter analysis, designed to avoid companies with inherently poor governance.
Moreover, the Investment Manager’s fundamental local knowledge and breadth of in-house analytical research coverage supported its anticipated overweighting of mid and small cap stocks. The latter tend to be under-researched and inefficiently valued, thereby offering superior stock picking selection alpha opportunities in which the Investment Manager has a proven track record and performance edge.
It is thus encouraging that the Company’s portfolio benefitted from the significant outperformance of its small cap holdings, notably amongst Indian stocks. The Investment Manager, by virtue of its local knowledge and connections, has a strong track record in accessing high quality pre-IPO and anchor IPO opportunities and the Company has already notably benefitted from one such holding (viz
The Board remains focused on keeping costs as low as possible given the relatively small size of the Company’s asset base. It should be remembered that the Investment Manager does not receive a fixed management fee and is instead only entitled to an
Shareholders should note that the Alpha Fee is a relative measure and as such remains payable if the Investment Adviser outperforms a falling benchmark. The Board has engaged the Investment Adviser on behalf of shareholders to invest in Global Emerging Markets equities with the aim to outperform the Company’s reference benchmark, the MSCI EM (GBP) Index, over the medium-term and thus believes a benchmark relative fee measure is appropriate for the Company. The Board believes that the Company’s fee structure in totality creates a very strong alignment of interest with the Investment Adviser and results in shareholders only paying fees to the Investment Adviser when they have demonstrated positive value. Shareholders can find full details of the Alpha Fee in the Company’s Prospectus.
An
Revenue and Dividends
The Company’s principal objective is to provide attractive returns through long-term capital appreciation rather than a focus on income generation. Therefore, the Company is unlikely to pay an annual dividend under normal circumstances. Where the Company’s portfolio may in future generate a small amount of income this will, in the first instance, be allocated to offset its operational costs. If required, the Company may declare an annual dividend to maintain its
Share Issuance
At IPO, the Company took the authority to issue further shares subject to its Placing Programme. On 26
Since launch up to 31
* Through five separate issues the Company has issued a further 650,000 shares since 31
Annual Redemption Facility
The Company aims to provide an investment opportunity for shareholders seeking long-term capital appreciation. The Company also employs a redemption facility through which shareholders will be entitled to request the redemption of all or part of their shareholding on an annual basis. The objective of the redemption facility is to assist with the limiting of any discount at which the Company’s shares may trade from time to time. It should be noted that the authority to approve any redemption rests at the sole discretion of the Board.
It was pleasing to see that only 14,014 of the Company’s shares (0.04%) were redeemed at the first redemption point in December 2023.
Annual General Meeting
The first Annual General Meeting (“AGM”) of the Company is scheduled to take place at the offices of
Those shareholders who are unable to attend the AGM in person are encouraged to raise any questions in advance with
Outlook
After a somewhat challenging and at times volatile 2023 for EM economies and capital markets, notably in the case of
The major uncertainties, apart from renewed US Dollar strength, are firstly whether the Chinese economy, given its massive overhang of non-performing property debt, can be stabilised through various fiscal and policy measures. Secondly, it is uncertain who the next US President may be, and to what degree US tariffs may be ramped up as a result. The Investment Manager, as part of its core strategy has, however, mitigated some of these
Moreover, it is now well understood that China’s challenges and decoupling from the rest of the world will continue to benefit other EMs as multinationals reconfigure their supply chains. Although the latter are vulnerable to any further escalation of the current various regional conflicts, it is to be hoped that these will be resolved over time.
The Investment Manager’s report contains a more detailed exposition of the positive structural outlook for
The elections in
The artificial intelligence boom has predictably turbocharged the semiconductor upcycle to the advantage of major Taiwanese and Korean technology companies. Although the recent Korean government sponsored corporate governance reforms were well-intentioned, these, however, have for now turned out to be something of a damp squib.
Within
In conclusion, EM economies and capital markets will remain, as ever, sensitive to global macro-economic forces and geopolitics. However, the Investment Manager eschews any overreliance on such ‘top-down’ analysis, and focuses instead on disciplined individual stock-picking, complemented by its proprietary ESG screening process.
The Company’s history is short but the Investment Manager’s strengths and differentiated approach has been refined for over a decade and can be readily gleaned from its outperformance so far.
On behalf of the Board and the Investment Manager, I would like to thank you for your continued support as a shareholder of this Company. The Board welcomes any shareholder feedback and engagement and further information about the Company can be found on its dedicated website ( https://awemtrust.com/ ), as well as its Company profile on the AIC website ( https://www.theaic.co.uk/companydata/ashoka-whiteoak-emerging-markets ).
Chair
17
Investment Manager’s Report
Market Review
The MSCI EM (GBP) Index (in sterling terms) rose by 7.94% since the listing of the Company to 31
Performance Review
The Company has delivered a NAV total return of 11.81% over the period from 3
From a market capitalisation perspective, even as stock selection was positive across all segments, it was more pronounced within the small and mid-cap bucket. The Company provides exposure to great business franchises which are well-governed and are leaders in their respective market segments and
From a country perspective, stock selection has been strong across nearly all stock markets but the most significant contribution has come from the Company’s Indian holdings. In the Investment Manager’s experience, compared to its large peers, the Indian market has the most heterogeneous composition at a sectoral level, and within that, it is the most diverse at a company level providing significant opportunities for alpha value creation. And here, just as is the case generally with small and mid cap stocks, the Investment Manager has a particular stock picking edge.
The team at
The sectoral and geography exposures reflect the disciplined bottom-up stock selection process. From a country perspective, the biggest positions are in
Key contributors & detractors
Contributors
DOMS
is, in our view, the best-managed children’s stationery and art/craft materials business in
Disco Corporation (Disco) manufactures capital equipment for the semiconductor industry, the main products being grinders (which reduce the thickness of semiconductor wafers), dicers (which cut completed wafers into individual chips) and the related consumables. Owing to its technical prowess, Disco commands a market share of more than 80% in this critical industry. Recent developments within the semiconductor industry, such as quicker than expected adoption of silicon carbide in electric vehicles and the adoption of chiplets/advanced packaging, have led to Disco’s strong operating performance compared to its peers. Silicon carbide is amongst the hardest materials, so dicing and grinding such materials takes longer and requires more equipment and consumables which plays to Disco’s competitive strengths.
Qualitas Controlodara (Qualitas)
is the leading automobile insurer in
Detractors
Hong Kong Exchanges
& Clearing (HKEX)
owns and operates the only stock and futures exchange in
Budweiser Brewing APAC (Budweiser APAC)
is the leading premium brewer in
Prosus is a global internet and entertainment group and one of the largest technology investors in the world. Its listed investments include stakes of 25% in Tencent and 29.5% in Delivery Hero. The underlying value of Tencent is central to Prosus along with Prosus’s own holding company discount and unlisted assets. The multi-year buyback, funded by Tencent sales, should support a narrower discount. The decline in Prosus’s share price primarily reflects the decline in the listed value of Tencent.
AIA
is a
Investment Outlook
Global GDP growth is projected to increase by 3.1% in 2024 and 3.2% in 2025, slightly higher than the consensus forecasts made six months ago. With the prospect of gradual disinflation and steady growth, the likelihood of a hard landing has receded, and risks to global growth are now more broadly balanced. As per the
US monetary policy is expected to become more accommodative, which could represent a positive development for EMs in the short term, especially given the previously weak cross border flows in 2023. Global headline inflation is expected to fall from an estimated 6.8% in 2023 (annual average) to 5.8% in 2024 and 4.4% in 2025. The drivers of declining inflation differ by country but generally reflect lower core inflation due to still-tight monetary policies and relative softening across labour markets. This should allow most central banks to move progressively to an easier monetary policy stance.
India’s economy delivered solid, above expectation GDP growth of 8.2% for the fiscal year ending March
2024. Its healthy macro-economic fundamentals, resilient corporate earnings as well as promising growth prospects continue to garner strong FDI as well as portfolio flows. A moderating inflation trajectory and benign current account deficit opens up room for RBI monetary easing. Fiscal policy will remain in consolidation mode, driven by a pickup in tax revenues and improved rationalisation of government outlays even as capex spending will likely remain robust. The imminent initial inclusion of Indian government bonds into the JP
India’s diverse corporate sectors and generally improving ROE suggests it will remain one of the best EM equity markets within which to capture sustained outperformance. Also noteworthy has been the corporate deleveraging and cleaning up of banks’ balance sheets with a marked decline in non-performing loans. This in turn has kickstarted a robust recovery in private sector credit and capex underpinning stronger economic growth and profits, further enhanced by the government’s extensive infrastructure investment upgrade. ‘Made in India’ is still in its very early stages, but the likes of Apple and Samsung are expanding local production with
China’s economy has been grappling with persistent deflationary pressures, exacerbated by its property crisis and stubbornly weak domestic demand. Over the past three years, policy uncertainty, muted fiscal stimulus and certain regulatory interventions have weighed on investor confidence. US-
Meanwhile, despite some unhelpful domestic political interference,
In summary, even though the global growth outlook has improved over the last year, the Investment Manager is still operating against the backdrop of a macroeconomic environment characterised by challenges pertaining to potential commodity price spikes amid geopolitical risks, climate change, weather shocks, and faltering growth in
Despite the volatile macroeconomic environment, EMs collectively present attractive individual investment opportunities, backed by favourable demographics, rising incomes and pockets of economic resilience, although identifying positive performance differentiation will be key going forward.
The Investment Adviser never relies on aggregate market valuations in isolation, but it is worth noting that EMs are trading at a significant discount to DMs as well as their own long-term history. On a one year forward P/E, compared to its developed market peers, EMs are trading at a discount of 35%, much below the average discount of 25%. Irrespective of market levels, the Investment Adviser looks for attractively valued businesses on a relative basis. Our proprietary OpcoFinco TM analytical framework provides insights into economic cash flow generation characteristics and the intrinsic value of a business. Within the market, sectors or businesses trade at different valuations based on their respective risk-reward dynamics, but within the rankings of relative attractiveness we identify the best opportunities.
The Investment Adviser’s investment philosophy of seeking compelling combinations of great businesses at attractive valuations together with strong portfolio risk management has placed the Company in good stead in the current environment. For the most part, the Company’s portfolio comprises industry leaders, dominant players or companies gaining market share in their respective industries on the back of strong execution. These businesses typically have superior returns on invested capital, robust cash flow generation, and, as a result, strong balance sheets. Together with the Investment Adviser, we place great credence on the resilience of their operating models and their ability to adapt quickly and thrive in an often volatile environment caused by rising geopolitical tensions and resultant spikes in commodity prices. Therefore, we expect the Company’s portfolio companies to emerge stronger through any period characterised by macro uncertainties, as was the case during the global Covid-19 pandemic.
The Investment Adviser employs significant research resources to build a deep understanding of various business models across EMs and DMs, including engaging with experts and industry professionals from across the world, and has scaled up its research and investment team, now 40+ strong, including dedicated resources to track ESG issues. The Investment Adviser also uses its proprietary ESG risk assessment framework ABLEx TM (Assessment of Business Longevity and Excellence) to assess companies on their ESG practices. The framework contains a sector-specific list of ESG risks and opportunities against which a company’s practices, policies and disclosures are assessed. As such, owing to its bottom-up stock selection philosophy, the investment advisory team aims to generate alpha from its stock selection, rather than market timing, sector rotation or other macroeconomic views.
ACORN ASSET MANAGEMENT
LTD
17
____________________________________________________________________________ |As at 31March 2024 |Sector |% of net assets| |_____________________________________|______________________|_______________| |Taiwan Semiconductor Manufacturing Co|Information Technology|6.5 | |Ltd | | | |_____________________________________|______________________|_______________| |Samsung Electronics Co Ltd |Information Technology|5.3 | |_____________________________________|______________________|_______________| |Hermes International SCA |Consumer Discretionary|2.4 | |_____________________________________|______________________|_______________| |Naspers Ltd |Consumer Discretionary|2.1 | |_____________________________________|______________________|_______________| |Hong Kong Exchanges & Clearing Ltd |Financials |1.9 | |_____________________________________|______________________|_______________| |SK Hynix Inc |Information Technology|1.8 | |_____________________________________|______________________|_______________| |DOMS Industries Ltd |Industrials |1.6 | |_____________________________________|______________________|_______________| |Prosus NV |Consumer Discretionary|1.6 | |_____________________________________|______________________|_______________| |DBS Group Holdings Ltd |Financials |1.6 | |_____________________________________|______________________|_______________| |LVMH Moet Hennessy Louis Vuitton SE |Consumer Discretionary|1.5 | |_____________________________________|______________________|_______________| |Top ten holdings | |26.3 | |_____________________________________|______________________|_______________| |Other holdings | |68.8 | |_____________________________________|______________________|_______________| |Capital gains tax provision plus cash| |4.9 | |and other assets/liabilities | | | |_____________________________________|______________________|_______________| |Total holdings | |100.0 | |_____________________________________|______________________|_______________|
_______________________________________________________________________ |As at 31March 2024 |Sector |Country of listing|Active weight, %| |_____________________|_____________|__________________|________________| |Hermes International |Consumer |France |2.4 | | |Discretionary| | | |_____________________|_____________|__________________|________________| |Hong Kong Exchanges &|Financials |Hong Kong |1.9 | |Clearing | | | | |_____________________|_____________|__________________|________________| |Naspers |Consumer |South Africa |1.7 | | |Discretionary| | | |_____________________|_____________|__________________|________________| |DOMS Industries |Industrials |India |1.6 | |_____________________|_____________|__________________|________________| |Prosus NV |Consumer |Netherlands |1.6 | | |Discretionary| | | |_____________________|_____________|__________________|________________| |DBS Group Holdings |Financials |Singapore |1.6 | |_____________________|_____________|__________________|________________| |LVMH Moet Hennessy |Consumer |France |1.5 | |Louis Vuitton |Discretionary| | | |_____________________|_____________|__________________|________________| |ASM International NV |Information |Netherlands |1.5 | | |Technology | | | |_____________________|_____________|__________________|________________| |CIE Financiere |Consumer |Switzerland |1.5 | |Richemont SA |Discretionary| | | |_____________________|_____________|__________________|________________| |ASML Holding NV |Information |Netherlands |1.5 | | |Technology | | | |_____________________|_____________|__________________|________________|
Active weight refers to the deviation vis-a-vis the benchmark (MSCI EM GBP) weight.
Investment Policy, Results and Key Performance Indicators
Investment Policy
The Company shall invest primarily in securities admitted to trading on any stock exchange (which may include stock exchanges in Developed Markets) that provide exposure to companies that are domiciled in Global Emerging Markets, or that are domiciled in Developed Markets but, at the time of investment, derive a majority of their economic value, revenues or profits from, or whose assets or cost base are mainly located in, Global Emerging Markets (“Global Emerging Markets Companies”).
The Company may also invest:
• up to 10% of Gross Assets (calculated at the time of investment) in securities admitted to trading on any stock exchange (which may include stock exchanges in Developed Markets) that provide exposure to companies that are domiciled in Frontier Markets, or companies which are domiciled in Developed Markets, but, at the time of investment, derive a majority of their economic value, revenues or profits from, or whose assets or cost base are mainly located in Frontier Markets (“Frontier Markets Companies”);
• up to 10% of Gross Assets (calculated at the time of investment) in unquoted Global Emerging Markets Companies or Frontier Markets Companies; and
• up to 10% of Gross Assets (calculated at the time of investment) in companies domiciled in Developed Markets that may not derive a majority of their economic value, revenues, profits, assets or cost base from Global Emerging Markets or Frontier Markets.
“Global Emerging Markets” means the constituent countries of the MSCI EM (GBP) Index from time to time; “Developed Markets” means the constituent countries of the MSCI Developed Markets Index from time to time; and “Frontier Markets” means those countries that are neither constituents of the MSCI Emerging Markets (GBP) Index nor the MSCI Developed Markets Index from time to time.
The Company shall invest primarily in equities and equity-related securities (including ordinary shares, preference shares, convertible unsecured loan stock, rights, warrants and other similar securities). The Company may also, in pursuance of its investment objective:
• hold publicly traded and privately placed debt instruments (including bonds, notes and debentures);
• hold American Depository Shares (“ADS”) as part of American Depository Receipt issuances, European Depository Receipts and Global Depositary Receipts (“GDRs”) or their equivalent, such as structured securities, including structured participation notes (“P-Notes”);
• hold equity-linked derivative instruments (including options and futures on indices and individual securities);
• hedge against directional risk using index futures and/or cash;
• hold participation notes;
• invest in index funds, listed funds and exchange traded funds; and
• hold cash and cash equivalents including money market liquid / debt mutual funds, treasury bills, municipal bonds and commercial paper for the purposes of cash management.
Notwithstanding the above, the Company does not intend to utilise derivatives or other financial instruments to take short positions, nor to increase the Company’s gearing in excess of the limit set out in the borrowing policy, and any restrictions set out in this investment policy shall apply equally to exposure through derivatives. The Company may invest, calculated at the time of investment, no more than:
• 50% of Gross Assets in companies that are domiciled in, or which derive a majority of their economic value, revenues or profits from, or whose assets or cost base are mainly located in, a single Global Emerging Market jurisdiction;
• 40% of Gross Assets in any single sector;
• 15% of Gross Assets in any single holding or in the securities of any one issuer (calculated at the time of investment) save that any investment in unlisted securities of any one issuer will be limited to no more than 5% of Gross Assets (calculated at the time of investment);
• 10% of Gross Assets in other listed closed-ended investment funds, except that this restriction shall not apply to investments in listed closed-ended investment funds which themselves have stated investment policies to invest no more than 15% of their gross assets in other listed closed ended investment funds; and
• 15% of Gross Assets in other investment companies or investment trusts which are listed on the Official List.
The Company is not restricted to investing in the constituent companies of any benchmark. It is expected that the Company’s portfolio will comprise approximately 100 to 200 investments although, in order to allow the Investment Manager and Investment Adviser flexibility to take advantage of opportunities as they arise, the portfolio may comprise holdings outside this range.
For the avoidance of doubt, the Company will not be compelled to divest of any of its investments should, after the time of investment, such an investment cease to adhere to the limits set out in the investment policy.
The Company does not expect to take controlling interests in investee companies and will at all times invest and manage the portfolio in a manner consistent with spreading investment risk.
It is expected that the Company’s investments will predominantly be exposed to non-Sterling currencies in terms of their revenues and profits. The base currency of the Company is Sterling, which creates a potential currency risk exposure. Whilst the Company retains the flexibility to do so, it is expected in the normal course that this potential currency exposure will not be hedged using any sort of foreign currency transactions, forward transactions or derivative instruments.
Borrowing policy
The Company may deploy gearing to seek to enhance long-term capital growth and for the purposes of capital flexibility and efficient portfolio management. The Company may be geared through bank borrowings, the use of derivative instruments that have the effect of gearing the Company’s portfolio, and any such other methods as the Board may determine. Gearing will not exceed 25% of Net Asset Value at the time of drawdown of the relevant borrowings or entering into the relevant transaction, as appropriate.
No gearing has been employed since inception.
No material change will be made to the investment policy without the approval of Shareholders by ordinary resolution.
Asset allocation at period end
The breakdown of the top ten holdings, top ten active weights and the industrial classification of the portfolio at the Company’s period-end are shown below.
Dividend policy
The Directors intend to manage the Company’s affairs to achieve Shareholder returns primarily through capital growth rather than income. Any income derived from the Company’s operations would normally, in the first instance, be used to cover operating expenses. Therefore, it should not be expected that the Company will pay a significant annual dividend, if any.
Regulation 19 of the
Results and dividend
The Company had a revenue shortfall for the period of £788,252 but made a capital surplus after tax of £4,468,793. Therefore, the total surplus after tax for the Company was £3,680,541.
The Board is proposing that no dividend be paid in respect of the period ended 31
Key performance indicators
The Board measures the Company’s success in attaining its investment objective by reference to the following KPIs (for information on how these have been calculated please refer to the Alternative Performance Measures).
(i) Achievement of NAV and share price growth over the long term
The Board monitors both the NAV and share price performance and compares them with the MSCI Emerging Markets NR index (sterling) and other similar investment trusts. A review of performance is undertaken at each quarterly Board meeting and the reasons for relative under and over performance against various comparators is discussed. The Company’s NAV and share price total returns for the period from the IPO to 31
The Chair’s Statement incorporates a review of the highlights during the period. The Investment Manager’s Report highlights investments made during the period and how performance has been achieved.
(ii) Maintenance of premium or discount of share price to NAV
With the assistance of
(iii)
Maintenance of a reasonable level of ongoing charges (excluding
The Board receives quarterly management accounts which contain an analysis of expenditure, and these are formally reviewed at quarterly Board meetings. The Management Engagement Committee reviews the fees payable to the Company’s main service providers on an annual basis. The Board reviews the ongoing charge ratio as well as the Alpha Fee accrual on a quarterly basis. The Company’s ongoing charge ratio, based on the Company’s average net assets during the period ended 31
Risk and Risk Management
Principal and emerging risks
The principal risks and emerging risks have all been reviewed in detail, including the significant economic risks that might impact the Company and the attainment of its investment objectives. The Board recognises that there are risks and uncertainties that could have a material effect on the Company’s financial results. Under the 2019 AIC Code of Corporate Governance (the ‘AIC Code’), directors of listed companies are required to confirm in the annual report that they have performed a robust assessment of the Company’s emerging and principal risks, including those that would threaten its business model, future performance, solvency or liquidity and reputation.
The Board is ultimately responsible for the Company’s risk management with oversight of the risk assessment framework and management process delegated to the Audit Committee. The Board recognises the importance of identifying and actively monitoring the risks facing the business and has in place a risk management framework, details of which can be found in the Audit Committee report.
The Company’s risk register is the core element of the risk management process. The register is prepared, in conjunction with the Board, by the
The Board receives a risk report on the material risks facing the Company on a quarterly basis, assessing the likelihood and potential impact of each risk on the Company as well as the strength of controls operating in relation to each risk. The Audit Committee also review and challenge the full register on an annual basis.
The below table provides a summary of the Board’s assessment of the Company’s principal risks as well as an explanation of how these are being managed or mitigated is detailed in the table below.
______________________________________________________________________________ |Principal Risk |Mitigation | |______________________________________|_______________________________________| | |The Company has appointed a Corporate | | |Broker to procure subscribers to the | | |shares, and to guide on opportunities | | |related to raising additional capital | | |to support its growth. The Board | | |regularly evaluates the progress of the| | |Corporate Broker with respect to their | | |marketing efforts along with monitoring| | |market sentiment, peer activities and | | |investor feedback to consider any | | |initiatives to support an increase in | | |NAV. | | | | | | | | |The Company has contracted out relevant| | |services to appropriately qualified | | |professionals. The services are subject| | |to ongoing oversight of the Board and | | |the performance of the principal | | |service providers is reviewed on a | | |regular basis. | |Company Risk | | |The Company is still relatively small | | |in terms of size and may need to raise|HSBC Bank is the Company’s Custodian | |additional capital to support growth |(hereafter referred to as the | |and to ensure it achieves an adequate |“Custodian”). Its responsibilities | |scale. There is no guarantee that the |include safe keeping of the Company’s | |Company will be able to raise |financial instruments, verifying | |sufficient levels of further capital |ownership and maintaining a record of | |and a failure to do so may result in |other assets and monitoring the | |the Company becoming unviable. |Company’s compliance with any borrowing| | |requirements. The Custodian is liable | | |for any loss of financial instruments | |Like many other investment companies, |held in custody and will ensure that | |the Company has no employees. The |the sub-custodians segregate the assets| |Company therefore relies upon the |of the Company. The Custodian provides | |services provided by third parties. |a report on its key controls and | | |safeguards (ISAE 3402) that is | | |independently assessed by | |Failure by any service provider to |PricewaterhouseCoopers LLP. | |carry out its obligations could have a| | |materially detrimental impact on the | | |activities of the Company and on the |JTC (UK) Limited (hereafter referred to| |value of the Company and the Ordinary |as the “Company Secretary”) is the | |Shares. |appointed Company Secretary and | | |provides full company secretarial | | |services to the Company, ensuring that | | |it complies with all legal, regulatory | | |and corporate governance requirements | | |and also officiating at Board meetings | | |and Shareholders’ meetings. JTC (UK) | | |Limited is also the appointed | | |Administrator, providing general fund | | |administration services (including | | |calculation of the NAV) in addition to | | |being responsible for bookkeeping and | | |accounts preparation for the Company. | | |The Administrator provides these | | |functions through the use of an | | |affiliate entity, JTC Fund Solutions | | |RSA (PTY) Ltd, based in South Africa. | | |The Company is provided with an | | |internal controls report (ISAE 3402) in| | |respect of the affiliate entity that | | |documents the key controls maintained | | |by the Administrator through the use of| | |the affiliate entity. | |______________________________________|_______________________________________| |Key Personnel Risk | | |The Company’s future success is | | |dependent on the continued service of |The Investment Manager and Investment | |the Investment Manager and Investment |Adviser endeavour to ensure that the | |Adviser’s investment professionals. |principal members of its management | |The departure of these investment |teams are suitably incentivised and | |professionals and a failure by the |monitor key succession planning | |Investment Manager or Investment |metrics. The Board discusses this risk | |Adviser to recruit, retain and |regularly with the Investment Manager. | |motivate new talented personnel could | | |adversely affect the Company’s ability| | |to achieve its investment objective. | | |______________________________________|_______________________________________| | |The Board monitors the level of | | |discount/premium at which the shares | |Discount Risk |trade and has an active investor | |The discount/premium at which the |relations programme. The Company has | |Company’s shares trade relative to its|authority to buy back its existing | |net asset value can change. The risk |shares when deemed by the Board to be | |of a widening discount, and/or related|in the best interests of the Company | |volatility, could reduce shareholder |and its shareholders and also operates | |returns and confidence in the Company.|an annual redemption facility in order | | |to limit any entrenched significant | | |discount. | |______________________________________|_______________________________________| | |The Investment Manager believes that | | |EMs present a set of diverse and | | |attractive multi-year growth | | |opportunities. While Ems can be | | |volatile the Investment Manager’s | | |strategy of employing a | | |well-diversified portfolio should | | |mitigate this. | | | | | | | |Emerging and Frontier Market Risk |The Investment Adviser employs | |Investing in emerging and frontier |significant research resources to build| |markets involves additional risks not |a deep understanding of various | |typically associated with investing in|business models across Emerging and | |more established economies and |Frontier Markets, including engaging | |markets. Such risks may include |with experts and industry professionals| |greater social, economic and political|from across the world, and has scaled | |uncertainty. |up its research and investment team, | | |including dedicated resources to assess| | |financially material ESG risks. | | |The Investment Adviser also follows a | | |disciplined investment policy which | | |includes strict investment | | |restrictions. The Board is apprised of | | |relevant market developments and a | | |detailed investment monitoring report | | |is shared with the Board during the | | |Board meetings to closely monitor any | | |emerging risks. | |______________________________________|_______________________________________| |Market and Selection Risk |The Board ensures that the Investment | |Market risk is the risk that the |Manager has a well-defined investment | |market will go down in value, with the|strategy and process which are | |possibility that such changes will be |regularly and rigorously reviewed by | |sharp and unpredictable. Selection |the Board. | |risk is the risk that the investments |The Board undertakes a review of the | |that the Company’s portfolio managers |performance of the Company at each | |select will underperform the market or|quarterly Board meeting, including all | |other funds with similar investment |transactions. | |strategies. | | |______________________________________|_______________________________________| |Foreign currency | | |The base currency of the Company is | | |Sterling, which creates a potential | | |currency exposure. Currency exchange | | |rate movements may affect the |The Board monitors currency risk as | |Company’s performance. In general, if |part of the regular portfolio and risk | |the value of sterling increases |management oversight. The Company does | |compared with a foreign currency, an |not normally hedge currency risk. | |investment traded in that foreign | | |currency will be worth less in | | |sterling terms. This can have a | | |negative effect on the Company’s | | |performance. | | |______________________________________|_______________________________________| |Market and geopolitical | | |Market risk arises from volatility in | | |the prices of the Company’s | | |investments, and from the risk of | | |volatility in global markets arising |The Board reviews regularly and | |from macroeconomic and geopolitical |discusses with the Investment Manager | |circumstances and conditions. Many of |the portfolio, the Company’s investment| |the companies in which the Company |performance and the execution of the | |invests are, by reason of the |investment policy against the agreed | |locations in which they operate, |long-term objectives of the Company. | |exposed to the risk of unpredictable |The Investment Adviser takes a | |political or economic change. In |disciplined approach to portfolio | |addition, sanctions, exchange |construction which is aimed at | |controls, tax or other regulations |minimising the volatility of returns. | |introduced in any country in which the|The Investment Manager with the | |Company invests may affect its income |assistance from the Investment Adviser | |and the value and the marketability of|performs systematic risk analysis, | |its investments. EMs can be subject to|including country and industry specific| |greater price volatility than |risk monitoring, as well as stress | |developed markets. |testing. The Board also regularly | | |reviews reports from the Investment | | |Manager’s risk and compliance team. | |Geopolitical risks pose risks to | | |global trade and could result in | | |sanctions which in turn could lead to | | |inflation and volatility in asset | | |prices. | | |______________________________________|_______________________________________| |Cybersecurity |The Company benefits from the | |The Company, together with its service|Investment Adviser’s Group technology | |providers (including the Investment |framework designed to mitigate the risk| |Manager, the Investment Adviser and |of a cyber security breach. For key | |the Administrator), may be prone to |third-party providers, the Audit | |operational, information security and |Committee receives regular independent | |related risks resulting from failures |certifications of their technology | |of, or breaches in, cybersecurity. |control environment. | |______________________________________|_______________________________________|
Emerging Risks
The key emerging risks faced by the Company during the year under review were the impact of climate change, geopolitical risk (as mentioned above), and technological advances. These emerging risks are discussed in detail as part of the Company’s risk framework and management process to ensure emerging risks as well as well-known risks are identified and mitigated as far as possible.
Climate Change
Investors can no longer ignore the impact that the world’s changing climate will have on businesses and their customers. It is likely to have a potentially material impact on emerging market investment portfolio returns. The energy transition to a low carbon economy may also provide attractive new investment opportunities. The Board receives ESG reports from the Investment Adviser on the portfolio and the way financially material ESG considerations, including climate change, are integrated into the investment decision-making, both to mitigate risk and to enhance investment gains at the level of stock selection and portfolio construction.
Artificial Intelligence
The Board is also monitoring the potential risks on the portfolio and investee companies posed by the dramatic progress of Artificial Intelligence (AI). Cyber-attacks (for example impersonation, spoofing and deepfakes) using AI systems are a new type of threat that exploit limitations in underlying AI algorithms. In addition, the use of AI could be a significant disrupter to business processes and whole companies leading to added uncertainty in corporate valuations. The Board will work closely with the Investment Manager in identifying these threats and, in addition, monitor the strategies of the service providers to address these concerns.
Statement of Directors’ Responsibilities
The Directors are responsible for preparing the Annual Report in accordance with applicable laws and regulations.
The Companies Act
2006 (the “company law”) requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the Company financial statements in accordance with
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 during and as at the end of the year. In preparing these financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates, which are reasonable and prudent;
• present information including accounting policies and additional disclosures as required to ensure the report is presented in a manner that provides relevant, reliable, comparable and understandable information;
•
state whether applicable
• prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and which disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the accounts 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 accounts are published on the Company’s website, which is maintained by the Investment Manager. The work carried out by the auditors does not involve consideration of the maintenance and integrity of this website and, accordingly, the auditors accept no responsibility for any changes that have occurred to the accounts since being initially presented on the website. Legislation in the
Directors’ confirmation statement
The Directors each confirm to the best of their knowledge that:
(a)
the financial statements, prepared in accordance with
(b) this Annual Report comprising the Strategic Report and Governance Statements includes a fair review of the development and performance of the business and position of the Company, together with a description of the principal and emerging risks that it faces as required by DTR 4.1.8R and DTR 4.1.9R.
Having taken advice from the Audit Committee, the Directors consider that the Annual Report taken as a whole is fair, balanced and understandable and provides the information necessary for Shareholders to assess the Company’s performance, business model and strategy.
For and on behalf of the Board
Chair
17
FINANCIAL STATEMENTS
Statement of Comprehensive Income
For the financial period ended 31
For the period ended 31March 2024 Note Revenue Capital Total £’000 £’000 £’000 Gains on investments — 5,231.1 5,231.1 Gains/(losses) on currency movements — (325.2) (325.2) Net investment gains 4 — 4,905.9 4,905.9 Income 5 410.4 — 410.4 Total income 410.4 4,905.9 5,316.3 Alpha Fee 7 (384.7) — (384.7) Operating expenses 8 (774.7) (26.1) (800.8) Operating profit before taxation (749.0) 4,879.8 4,130.8 Taxation 9 (39.2) (411.1) (450.3) Profit for the period (788.2) 4,468.7 3,680.5 Earnings per Ordinary Share (pence) 10 (2.52) 14.27 11.75
There is no other comprehensive income and therefore the ‘Profit for the period’ is the total comprehensive income for the period ended 31
The total column of the above statement is the profit and loss account of the Company. The supplementary revenue and capital columns, including the earnings per Ordinary Share, are prepared under guidance from the
All revenue and capital items in the above statement derive from continuing operations.
The notes below form an integral part of these financial statements.
Statement of Comprehensive Income
As at 31
Note 31March 2024 £’000 Non-current assets Investments held at fair value through profit or loss 4 33,678.0 Current assets Cash and cash equivalents 2,393.2 Dividends receivable 46.9 Other receivables 80.6 Total assets 36,198.7 Current liabilities Other payables 6 (217.0) Non Current liabilities Alpha Fees provision 7 (384.7) Capital gains tax provision (188.2) Total liabilities (789.9) Net assets 35,408.8 Equity Share capital 12 371.9 Share premium account 1,676.3 Special distributable reserve 13 29,694.7 Capital reserve 13 4,454.1 Revenue reserve (788.2) Total equity 35,408.8 Net asset value per Ordinary Share 14 109.86p
Approved by the Board of Directors on 17
Director
The notes below form an integral part of these financial statements.
Statement of Comprehensive Income
For the financial period ended 31
Share Capital Share Management premium Reduction Capital Revenue Total Notes Capital Shares account distributable reserve reserve £’000 £’000 £’000 £’000 reserve £’000 £’000 £’000 Opening balance as — — — — — — at 3May 2023 Profit for — — — 4,468.7 (788.2) 3,680.5 the year Issue of Ordinary 12 322.0 50.0 31,903.7 — — — 32,275.7 Shares Share issue — (532.7) — — — (532.7) costs Share premium — (29,694.7) 29,694.7 — — — cancellation Redemption 12 (0.1) — — (14.6) — (14.7) Closing balance as 321.9 50.0 1,676.3 29,694.7 4,454.1 (788.2) 35,408.8 at 31March 2024
The Company’s distributable reserves consist of the special distributable reserve and revenue reserves
The notes below form an integral part of these financial statements.
Statement of Comprehensive Income
For the financial period ended 31
Note For the period ended 31March 2024 £’000 Cash flows from operating activities Operating profit before taxation 4,130.8 Adjusted for: — Tax paid (262.1) (Gains) on investments (5,231.1) Losses on exchange rate movements 325.2 (Increase) in receivables (127.5) Increase in payables 601.7 Net cash flow used in operating (563.0) activities Cash flows from investing activities Purchase of investments (71,965.4) Sale of investments 43,193.3 Net cash flow used in investing (28,772.1) activities Cash flows from financing activities Net proceeds from issue of shares 12 32,275.7 Net proceeds from redemption of shares 12 (14.7) Share issue costs (532.7) Net cash flow from financing activities 31,728.3 Increase in cash and cash equivalents 2,393.2 Cash and cash equivalents at start of — period Cash and cash equivalents at end of 2,393.2 period
The notes below form an integral part of these financial statements.
Notes to the Financial Statements
1. Reporting entity
The Company shall invest primarily in securities admitted to trading on any stock exchange (which may include stock exchanges in Developed Markets) that provide exposure to companies that are domiciled in Global Emerging Markets (EMs), or that are domiciled in Developed Markets but at the time of investment, derive a majority of their economic value, revenues or profits from, or whose assets or cost base are mainly located in EMs.
2. Basis of preparation
Statement of compliance
These financial statements have been prepared in accordance with applicable law and the
When presentational guidance set out in the Statement of Recommended Practice (“SORP”) for Investment Companies issued by the
In preparing these Financial Statements the Directors have considered the impact of climate change risk as an emerging risk. In line with the
The Financial Statements are also prepared on the assumption that approval as an investment trust will continue to be granted.
Going concern
The Directors have concluded that there is a reasonable expectation that the Company will have adequate liquidity and cash balances to meet its liabilities as they fall due and continue in operational existence for the foreseeable future and continue as a going concern for the period to 30
Use of estimates and judgements
The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. The resulting accounting estimates and assumptions will, by definition, seldom equal the related actual results.
Estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.
The Indian capital gains tax provision represents an estimate of the amount of tax payable by the Company. Tax amounts payable may differ from this provision depending on when the Company disposes of investments. The current provision for Indian capital gains tax is calculated based on the long-term or short-term nature of the investments and the applicable tax rate at the year end. Currently, the short-term tax rate is 15% and the long-term tax rate is 10%. The estimated tax charge is subject to regular review including a consideration of the likely period of ownership, tax rates and market valuation movements.
As disclosed in the statement of financial position, the Company made a capital gains tax provision as at 31
The Company’s investments are denominated in the currency that the underlying investment is traded. However, the Company’s shares are issued in sterling and the majority of its investors are
New and revised standard and interpretations
New and revised IFRSs in issue but not yet effective
A number of new standards, amendments to standards and interpretations are effective for the annual periods beginning on or after 31
Basis of measurement
The financial statements have been prepared on the historical cost basis except for financial instruments at fair value through profit or loss, which are measured at fair value.
3. Accounting policies
(a) Investments
Listed investments
Changes in the fair value of investments held at fair value through profit or loss and gains or losses on disposal are included in the capital column of the Statement of Comprehensive Income within “gains on investments”.
Investments are derecognised on the trade date of their disposal, which is the point where the Company transfers substantially all the risks and rewards of the ownership of the financial asset.
Transaction costs directly attributable to the acquisition of investments at fair value through profit or loss are recognised under gains/(losses) on investments.
(b) Foreign currency
Transactions in currencies other than pounds sterling are recorded at the rates of exchange prevailing on the dates of the transactions. At the date of each Statement of Financial Position, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on that date. Non-monetary assets and liabilities carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Gains and losses arising on retranslation are included in the Statement of Comprehensive Income within the revenue or capital column depending on the nature of the underlying item. Foreign exchange movements on investments are included in the Statement of Comprehensive Income within “losses on currency” movements.
(c) Income from investments
Dividend income from shares is accounted for on the basis of ex-dividend dates. Overseas income is grossed up at the appropriate rate of tax.
Special dividends are assessed on their individual merits and may be credited to the Statement of Comprehensive Income as a capital item if considered to be closely linked to reconstructions of the investee company or other capital transactions. All other investment income is credited to the Statement of Comprehensive Income as a revenue item.
(d) Capital reserves
Profits or losses arising on the sale of investments and changes in fair value arising upon the revaluation of investments are credited or charged to the capital column of the Statement of Comprehensive Income and allocated to the capital reserve.
Company’s redemption facility is subject to approval by the Board and as such the redemption facility does not represent a contractual obligation on the Company and the shares are accordingly classified as equity.
3. Accounting policies (continued)
(e) Expenses
All expenses are accounted for on an accrual’s basis. Expenses are recognised through the Statement of Comprehensive Income as revenue items except that the Alpha Fee, if any, is payable directly by reference to the capital performance of the Company as per the Investment Management Agreement and are therefore charged to the Statement of Comprehensive Income as a capital item. No other management fees are payable.
(f) Cash and cash equivalents
Cash comprises cash at hand and demand deposits. For purposes of the statement of cash flows, cash equivalents, including bank overdrafts, are short-term, highly liquid investments that are readily convertible to known amounts of cash, are subject to insignificant risks of changes in value, and are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes.
(g) Taxation
Irrecoverable taxation on dividends is recognised on an accrual basis in the Statement of Comprehensive Income.
The Company is approved as an
The approval is subject to the Company continuing to meet the eligibility conditions of the Corporations Tax Act 2010 and the Statutory Instrument 2011/2999. The Company intends to ensure that it complies with the ITC regulations on an ongoing basis and regularly monitors the conditions required to maintain ITC status.
Current tax is the expected tax payable on any taxable income for the period, using tax rates enacted or substantively enacted at the end of the relevant period. The current tax rate is 25%.
The tax charges on Indian capital gains are shown in the Statement of Comprehensive Income, recognised on an accrual basis. The Company is not subject to
The tax charges on Indian capital gains taxes are shown in the Statement of Comprehensive Income, recognised on an accrual basis.
Deferred taxation
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the statement of financial position liability method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Investment trusts which have approval as such under Section 1158 of the Corporation Tax Act 2010 are not liable for taxation on capital gains.
(h) Adoption of new IFRS standards
A number of new standards, amendments to standards and interpretations are effective for the annual periods beginning on or after 1
4. Investments held at fair value through profit or loss
(a) Investments held at fair value through profit or loss
As at 31March 2024 £’000 Quoted investments 33,678.0 Closing valuation 33,678.0
(b) Movements in valuation
As at 31March 2024 £’000 Opening valuation — Opening unrealised gains on investments — Opening book cost — Additions, at cost 71,965.4 Disposals, at cost (43,193.3) Closing book cost 28,772.1 Revaluation of investments 4,905.9 Closing valuation 33,678.0
(c) Gains on investments
Period ended 31March 2024 £’000 Realised gains on disposal of investments 1,659.5 Movement in unrealised gains/(losses) on investments 3,246.4 held Total gains on investments 4,905.9
Under IFRS 13 ‘Fair Value Measurement’, an entity is required to classify investments using a fair value hierarchy that reflects the significance of the inputs used in making the measurement decision.
4. Investments held at fair value through profit or loss (continued)
The following shows the analysis of financial assets recognised at fair value based on:
Level 1
Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date.
Level 2
Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3
Unobservable inputs for the asset or liability.
The classification of the Company’s investments held at fair value is detailed in the table below:
As at 31March 2024 Level 1 Level 2 Level 3 Total £’000 £’000 £’000 £’000 Investments at fair value through profit and 33,678.0 33,678.0 loss – Quoted investments
5. Income
As at 31March 2024 £’000 Income from investments: Overseas dividends 366.9 Other Income: Bank interest 43.5 Total income 410.4
6. Other payables
As at 31March 2024 £’000 Accrued expenses (217.0) Total other payables (217.0)
7.
Period ended 31March 2024 Revenue Capital Total £’000 £’000 £’000 Alpha Fees expense 384.7 — 384.7
The Investment Manager does not receive a fixed management fee in respect of its portfolio management services to the Company. The Investment Manager will become entitled to a
The
An
8. Expenses
Period ended 31March 2024 Revenue Capital Total £’000 £’000 £’000 Administration & secretarial fees 186.9 — 186.9 AIFM Fee 15.0 — 15.0 Statutory Audit Fee 78.0 78.0 Interim Audit fee 48.0 48.0 Custody services 17.8 17.8 Directors’ fees and expenses 93.1 93.1 Directors’ Insurance 13.4 13.4 Financial Public relations fees 55.5 55.5 Issuance commission — 15.1 15.1 Legal & professional fees 64.2 64.2 London Stock Exchange 46.0 46.0 Sundry expenses[1] 116.2 116.2 Tax Services 40.6 40.6 Trade Charges — 11.0 11.0 Total 774.7 26.1 800.8
Expenses include VAT where applicable
9. Taxation
Analysis of tax charge for the period:
Period ended 31March 2024 Revenue Capital Total £’000 £’000 £’000 Capital gains expense — — — Capital gains deferred tax provision — 411.1 411.1 Withholding tax paid 39.2 — 39.2 Total tax charge for the period 39.2 411.1 450.3
A deferred tax provision on Indian capital gains is calculated based on the long term or short nature of the investments and the applicable tax rate at the period end. The short-term tax rate is 15% and the long-term tax rate is 10%.
Factors affecting the tax charge for the year:
The effective
Period ended 31March 2024 Revenue Capital Total £’000 £’000 £’000 Operating profit before taxation (749) 4,879.8 4,130.8 UK Corporation tax at 25% (198.1) 1,220.0 1,021.9 Effects of: Indian capital gains tax provision 411.0 411.0 Gains on investments not taxable — (1,226.5) (1,226.5) Overseas dividends (92.1) — (92.1) Unutilised management expenses 290.3 6.5 296.8 Withholding tax paid 39.2 — 39.2 Total tax charge 39.2 411.1 450.3
The Company is liable to Indian capital gains tax under Section
115 AD of the Indian Income Tax Act
1961. A tax provision on Indian capital gains is calculated based on the long term (securities held more than one year) or short term (securities held less than one year) nature of the investments and the applicable tax rate at the period end. The short-term tax rate is 15% and the long-term tax rate is 10%, given the Company has been in operation for less than a year the short term rate of 15% has been applied. The provision is raised based on both realised and unrealised capital gains on the Indian investments held by the Company. As at 31
Investment Trust Companies which have been approved by HM Revenue
& Customs are exempt from
The Company has an unrecognised deferred
10. Earnings per Ordinary Share
Period ended 31March 2024 Revenue Capital Total Profit for the period (£’000) (788.2) 4,468.7 3,680.5 Earnings per Ordinary Share (p) (2.52) 14.27 11.75
Earnings per Ordinary Share is based on the profit for the period of £3,680,541 attributable to the weighted average number of Ordinary Shares in issue during the period ended 31
11. Dividend
The Company’s objective is to provide shareholder returns through capital growth with income being a secondary consideration. It should not be expected that the Company will pay a significant annual dividend, but the Board intends to declare such annual dividends as are necessary to maintain the Company’s
12. Share capital
As at 31March 2024 No. of shares £’000 Ordinary shares of 1p each 32,181,795 321.8 Management shares 50,000 50.0 Total 32,231,795 371.8
Ordinary Shares
On incorporation, 15
From 5
October to 5
Redemption
The Company has a redemption facility through which shareholders will be entitled to request the redemption of all or part of their holding of Ordinary Shares on an annual basis. The objective of the redemption facility is to assist with the limiting of any discount at which the Company’s Ordinary Shares may trade from time to time. The first
Reserves
The nature and purpose of each of the reserves included within equity as at 31
• Share premium reserve: represents the surplus of the gross proceeds of share issues over the nominal value of the shares, net of the direct costs of equity issues and net of conversion amount.
• Capital reduction reserve: represents a distributable reserve created following a Court approved reduction in capital. This reserve is distributable and maybe used, where the Board considers it appropriate, by the Company for the purpose of paying dividends to Shareholders.
• Revenue reserve: represents a distributable reserve of cumulative net gains and losses recognised in the Revenue account of the Statement of Comprehensive Income.
• Capital Reserves: represents a non-distributable reserve of cumulative net capital gains and losses recognised in the Statement of Comprehensive Income
The only movements in these reserves during the period are disclosed in the Statement of Changes in Equity.
Management shares
In addition to the above, on incorporation the Company issued 50,000 Management Shares of nominal value of £1.00 each.
The holder of the Management Shares undertook to pay or procure payment of one quarter of the nominal value of each Management share on or before the fifth anniversary of the date of issue of the Management Shares. The Management Shares are held by an associate of the Investment Manager.
The Management Shares do not carry a right to attend or vote at general meetings of the Company unless no other shares are in issue at that time. The Management Shares have been treated as equity in accordance with IFRS.
13. Capital Reduction distributable reserve
As indicated in the Company’s prospectus dated 18
14. Net asset value (“NAV”) per Ordinary Share
Net assets per ordinary share as at 31
15. Financial instruments and capital disclosures
(i) Market risks
The Company is subject to a number of market risks in relation to economic conditions in the emerging markets. Further detail on these risks and the management of these risks is included in the Strategic report.
The Company’s financial assets and liabilities comprised:
As at 31March 2024 Interest Non-interest bearing Total bearing £’000 £’000 £’000 Investments — 33,678.0 33,678.0 Total investment — 33,678.0 33,678.0 Cash and cash equivalent — 2,393.2 2,393.2 Short term debtors — 127.5 127.5 Short term creditors — (405.2) (405.2) Long term creditors — (384.7) (384.7) Other assets — — — Total financial assets — 35,408.8 35,408.8
Market price risk sensitivity
The effect on the portfolio of a 10.0% increase or decrease in market prices would have resulted in an increase or decrease of £3,367,803 in the investments held at fair value through profit or loss at the period end, which is equivalent to 9.51% of the net assets attributable to equity holders. This analysis assumes that all other variables remain constant.
Management of liquidity risks
The Company has a diversified portfolio which is readily realisable. The liquidity of the portfolio is reviewed regularly by the Investment Manager and the Board.
(iii) Currency risks
Although the Company’s performance is measured in sterling, a high proportion of the Company’s assets are denominated in Indian rupees and various other currencies. Change in the exchange rate between sterling and respective currencies may lead to a depreciation of the value of the Company’s assets as expressed in sterling and may reduce the returns to the Company from its investments.
Currency sensitivity
The below table shows the foreign currency profile of the Company.
Foreign currency risk profile
As at 31March 2024 Investment exposure Net monetary exposure Total currency £’000 £’000 exposure £’000 Brazillian Real 743.7 1.2744.9 Canadian Dollar 239.4 — 239.4 Chinese Yuan 1,652.4 —1,652.4 Euro 3,046.6 —3,046.6 Swiss Franc 543.9543.9 Hong Kong Dollar 3,370 203.0 3573.0 IndonesianRupee 818.3 —818.3 Indian Rupee 8,065.4 1,284.09349.40 Japanese Yen 134.7 —134.7 South Korean Won 2,740.9 167.02907.9 Mexican Peso 1,227.6 —1,227.6 Malaysian Ringgit 286.0 —286.0 Polish Zloty 836.5836.5 Swedish Krona 302.4302.4 Singapore Dollar 705.5 —705.5 Taiwan Dollar 3,568.8 13.7 3,582.5 United StatesDollar 3,798.0 3,798.0 South African Rand 1,332.1 1,332.1 Total investment 33,412.2 1668.9 35,081.1
15. Financial instruments and capital disclosures (continued)
Based on the financial assets and liabilities at 31
As at 31March 2024 Increase in fair value Decrease in fair value £’000 £’000 Brazillian Real 74.474.4 Canadian Dollar 23.9 23.9 Chinese Yuan 165.2165.2 Euro 304.7304.7 Swiss Franc 54.454.4 Hong Kong Dollar 337.0 337.0 IndonesianRupee 81.8 81.8 Indian Rupee 806.5806.5 Japanese Yen 13.513.5 South Korean Won 274.1 274.1 Mexican Person 122.8122.8 Malaysian Ringgit 28.628.6 Polish Zloty 83.783.7 Swedish Krona 30.230.2 Singapore Dollar 70.670.6 Taiwan Dollar 356.9 356.9 United StatesDollar 379.8 379.8 South African Rand 133.2 133.2 Total investment 3,341.3 3,341.3
Management of currency risks
The Company’s Investment Manager monitors the currency risk of the Company’s portfolio on a regular basis. Foreign currency exposure is regularly reported to the Board by the Investment Manager.
The Board does not intend to use hedge currency risk using any sort of foreign currency transactions, forward transactions or derivative instruments.
(iv) Credit risks
Credit risk is the risk that the issuer of a financial instrument will fail to fulfil an obligation or commitment that it has entered into with the Company.
Cash and securities are held by the custodian.
Management of credit risks
The Company has appointed
The Investment Manager monitors the Company’s exposure to its counterparties on a regular basis and trades in equities are performed on a delivery versus payment basis. Impairment assessment based on an expected credit loss model is not considered material to the Company.
At 31
(v) Capital management policies and procedures
The Company considers its capital to consist of its share capital of Ordinary Shares of 1p each, Management Shares of £1 each, and reserves totalling £33,360,574.
The Company is not subject to any externally imposed capital requirements.
The Investment Manager and the Company’s Broker monitor the demand for the Company’s shares and the Directors review the position at Board meetings.
16. Related party transactions
The
Since commencement of operations on 3
The Directors had the following shareholdings in the Company, all of which are beneficially owned.
_________________________________________ | |As at | | |31March 2024 | |___________________________|_____________| |Martin Shenfield (Chairman)|40,000 shares| |___________________________|_____________| |Howard Pearce |20,000 shares| |___________________________|_____________| |Tanit Curry |20,000 shares| |___________________________|_____________|
17. Post balance sheet events
The NAV per share of the Company has increased by 2.75% from 28
On 7
As part of the Company’s share issuance programme by way of its block listing facility, a further 650,000 shares were issued post period end to 7
OTHER INFORMATION
Financial calendar
________________________________________________________ |Financial year end |31March | |___________________________|____________________________| |Final results announced |June | |___________________________|____________________________| |Annual General Meeting |July | |___________________________|____________________________| |Half year end |30 September | |___________________________|____________________________| |Half year results announced|December | |___________________________|____________________________| |Annual redemption point |December (last business day)| |___________________________|____________________________|
[1]
Sundry expenses consist of AIC annual subscription, bank charges,
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