18 June 2024
Ashoka
WhiteOak Emerging Markets Trust plc
(the
‘Company’)
Annual
Report and Notice of AGM
For
the period from incorporation to 31 March
2024
Ashoka
WhiteOak Emerging Markets Trust plc, the alpha driven global
emerging markets equity trust, is pleased to report the Company’s
maiden Annual Report for the period from incorporation on
15 March 2023 to 31 March 2024.
The
Company also announces that its first Annual General Meeting
(‘AGM’) will be held at 10.00am on
16 July 2024 at the offices of JTC
(UK) Limited, The Scalpel, 18th
Floor, 52
Lime Street, London, EC3M
7AF.
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 the
London Stock Exchange on 3 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:
- DOMS, an
Indian children’s stationery and art/craft materials
business.
- Senco
Gold, the leading jewellery retailer in Eastern India.
- Disco
Corporation, which manufactures capital equipment for the
semiconductor industry.
- Qualitas
Controlodara, the leading automobile insurer in Mexico.
-
Key
detractors for the period included:
- Hong Kong
Exchanges & Clearing, the owner of the only stock and futures
exchange in Hong Kong and the
London Metals Exchange.
- Budweiser
Brewing APAC, the leading premium brewer in China.
- AIA, a
Hong Kong listed insurer with a
presence in multiple emerging markets.
-
The
Company has traded at an average premium of 0.1% over the period to
31 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 on
21 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.
Martin Shenfield, Chair of the Company,
commented:
“We are
delighted to be issuing our maiden Annual Report, covering the
period since the Company’s incorporation on 15 March 2023 to 31 March
2024. Since the Company’s landmark IPO in May 2023, the first premium-listed equity-focused
investment company listing since 2018, the Company has continued to
deploy capital through WhiteOak’s unique
OpcoFIncoTM
and
ABLExTM
methodologies
to identify a highly diversified portfolio of attractively valued
stocks with positive catalysts.
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
|
|
|
WhiteOak
Capital Partners Pte Ltd.
Prashant
Khemka
|
Via
Buchanan
|
Fadrique
Balmaseda
|
|
Lim Wen
Loong
Ben
Hayward
|
|
Ellora
Partners
Mark
Thompson
|
+44 (0) 20
7016 6711
|
Eddie
Nissen
|
+44 (0) 20
7016 6713
|
Oliver
Kenyon
|
+44 (0) 20
7016 6704
|
Buchanan
Henry
Harrison-Topham
|
+44 (0) 20
7466 5000
|
Henry
Wilson
|
AWEM@buchanancomms.co.uk
|
George
Beale
Samuel
Adams
|
|
About Ashoka
WhiteOak Emerging Markets Trust plc
Ashoka
WhiteOak Emerging Markets Trust plc (AWEMT) is a UK investment
trust seeking to achieve long-term capital appreciation primarily
through investing in a multi-cap portfolio of equities that provide
exposure to global emerging markets. AWEMT is advised by WhiteOak
Capital Partners Pte. Ltd, founded by Prashant Khemka with leading Emerging Markets
investment experience. WhiteOak Capital Group has delivered an
exceptional track record for its other strategies, and has £5.5
billion in assets under management or advisory. WhiteOak Capital
Group pursues a disciplined research process underpinned by its
proprietary frameworks OpcoFinco™ for valuation and
ABLExTM
for ESG
research. While Emerging Markets remain under-researched and
inefficient, AWEMT leverages WhiteOak's investment approach to
capture the higher alpha potential in these markets. There is no
fixed management fee, instead the Investment Manager is remunerated
solely as a function of outperformance over the benchmark and hence
is directly aligned with shareholders' interests.
STRATEGIC
REPORT
Chair’s
Statement
This is
the Company’s maiden Annual Report for the period from the date of
incorporation on 15 March
2023 to 31 March
2024, reflecting its Initial Public Offering (‘IPO’) and
subsequent commendable performance.
The
Company’s listing on the Premium Segment of the Main Market of the
London Stock Exchange in May 2023
is the sole premium-listed investment company to launch since 2021
and the first premium-listed equity-focused investment company
listing since 2018. Since the Company’s launch up to
31 March
2024, there have been no further investment company IPOs.
With this challenging backdrop in mind, the Board would like to
take this opportunity to thank again all shareholders who supported
the Company’s IPO and the subsequent share issues under the
Company’s placing programme.
The
investment trust industry has faced increasing challenges over the
last few years, particularly from the current inappropriate and
inconsistent interpretation of UK cost disclosure rules. Following
the broad global capital markets correction in 2022, this has
exacerbated the average discount at which investment trust shares
trade versus their NAV. It is to be hoped that this will be
resolved sooner rather than later, but it is encouraging that the
Company’s discount rating by contrast has remained
robust.
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, Ellora
Partners, all options to accomplish this. On
7 May
2024, the Company announced a proposed transaction to effect
a combination with Asia Dragon Trust plc.
Accordingly, we were pleased to see the subsequent announcement by
Asia Dragon Trust plc
on 21 May
2024 that it was initiating a full strategic review of its
future, and the Company has announced that it intends to
participate in that process. Further updates will be announced by
the Company as appropriate in due course.
Performance
During the
period between 3 May 2023 to
31 March 2023 the Company’s NAV
recorded a total return of 11.81% compared to the benchmark MSCI EM
(GBP) Index of 7.94%. Given how volatile and challenging Emerging
Markets (‘EMs’) have been at times since launch, this
outperformance is testimony to the Investment Manager’s portfolio
construction and risk management disciplines. Notably, any
temporary drawdown in NAV has been kept to a bare
minimum.
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 ABLExTM
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
Senco Gold).
Alpha
Fee
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 Alpha Fee,
measured over discrete three-year periods and which is only earned
if the Company’s adjusted NAV exceeds the benchmark MSCI EM (GBP)
Index during that time. Moreover, any Alpha Fee is capped at 12% of
time weighted average Adjusted Net Assets and is only paid out in
the Company’s shares, 50% of which are subject to a three-year
lock-up.
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 Alpha
Fee was able to be accrued following the investment of at least 70%
of the Company’s net IPO proceeds, which occurred on
12 May
2023. From 12 May
2023 to 31 March
2024, an Alpha Fee of £384,732 was accrued, reflecting the
Company’s outperformance over this time.
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 UK investment trust status. During the period under
review no dividend has been declared.
Share
Issuance
At IPO,
the Company took the authority to issue further shares subject to
its Placing Programme. On 26 May
2023, the Company was granted a Block Listing facility by
the Financial Conduct Authority, enabling it to issue shares
efficiently on an ad hoc basis to the market to manage the premium
at which the Company’s shares trade to their NAV from time to
time.
Since
launch up to 31 March
2024, the Company has issued 1,663,530 new shares through
six separate issues, representing 5.4% of the shares issued at
IPO*. All issuances have been undertaken at the prevailing NAV plus
a premium to cover the costs and expenses of each issue. We look
forward to growing the Company through further share issuances in
due course and point to the parallel experience of Ashoka India
Equity Investment Trust plc,
also managed by our own Investment Manager, where the NAV has grown
significantly since its IPO from a comparably small initial
base.
* Through
five separate issues the Company has issued a further 650,000
shares since 31 March
2024 to 7 June
2024, raising £741,700.
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 JTC (UK) Limited, 18th Floor, The Scalpel,
52 Lime Street, London, United
Kingdom, EC3M 7AF
at 10:00 on 16 July
2024.
Those
shareholders who are unable to attend the AGM in person are
encouraged to raise any questions in advance with JTC (UK) Limited,
the appointed Company Secretary, at AWEMT.cosec@jtcgroup.com
(please include ‘AWEM AGM’ in the subject heading). Questions must
be received by 5.00 p.m.
on 2 July
2024. Any questions received will be replied to by either
the Investment Manager or the Board, via the Company Secretary,
before the AGM. A shareholder presentation will be made available
on the Company website following the AGM, updating shareholders on
the activities of the Company.
Outlook
After a
somewhat challenging and at times volatile 2023 for EM economies
and capital markets, notably in the case of China which is still the largest constituent
of the benchmark MSCI EM (GBP) Index, the outlook is now more
promising. Global Trade and PMIs, to which most EMs are
particularly sensitive, are recovering and both Developed Markets
(“DM”) and leading EM central banks are generally set upon a path
of easing monetary policy. This should be broadly supportive of
both EM economies and corporate earnings growth as well as
valuations, which remain close to historic lows relative to DM
equity markets.
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 China investment risks, both economic and
governance related, through its holding in large DM multinationals
but which derive a significant part of their revenue and profits
from China and/or other EM
economies.
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 India, where the Investment Manager has a
notable stock-picking edge amongst mid and small cap stocks due to
being able to draw upon the resources of one of the largest local
research teams.
The
elections in Taiwan and
Indonesia earlier this year passed
without, as yet, any major turbulence and although the Indian
election result was a disappointment for the ruling Bharatiya
Janata Party, there is unlikely to be any major change in the
successful reform policies of recent years. The Korean election
outcome was, something of a stalemate but should not materially
impact the investment case for the Investment Adviser’s preferred
companies or negatively influence the local equity
market.
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
Latin America, Brazil offers a strong longer term outlook
despite shorter term unhelpful political interference, driven by
various structural reforms including tax and financial inclusion
initiatives as well as its competitive strengths in renewable
energy.
Mexico continues to benefit from the robust US economy
propelling exports and remittances. In both countries, improving
inflation dynamics should allow real yields eventually to decline
in turn supporting local equities.
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).
Martin Shenfield
Chair
17 June
2024
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 March
2024. In the same period, the MSCI World Index was 22.91%
and S&P 500 was 27.37% (all in sterling terms). Over this
period, IT Services, Energy and Utilities outperformed, while
Communication Services, Materials and Real Estate underperformed.
Large caps broadly outperformed mid and small caps over this
period. Among major EM markets, Taiwan, India, and Brazil outperformed, while China, South
Africa, and Indonesia
underperformed.
Performance
Review
The
Company has delivered a NAV total return of 11.81% over the period
from 3 May
2023 to 31 March
2024, significantly outperforming the benchmark MSCI EM
(GBP) Index by 3.87%. Despite a turbulent market environment, the
portfolio has generally outperformed during this timeframe as it is
very well diversified and balanced across both sectors and regions.
The portfolio has a low concentration with the top 10 holdings
making up 26.3% of the portfolio, further reducing the Company’s
risk profile. The key positive contributors came from a range of
sectors and regions, highlighting the team’s focus on bottom-up
stock selection.
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 Acorn Asset Management
Limited, (referred to as the “Investment Manager”) has a notable
stock picking expertise amongst small and mid cap stocks due to
being able to draw upon the resources of one of the largest EM
investment research teams.
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 White Oak Capital Partners Pte. Ltd (hereafter referred to as
the “Investment Adviser”) is rigorously focused on stock selection.
The sector exposures reflect this robust and rigorous bottom-up
stock selection process. The team does not make any top-down
sectoral bets as the team believes that such investment decisions
are fraught with high risk of substantial absolute and relative
losses. Having said that, given the investment philosophy, there
are certain sectors where the team might expect to find more
attractive opportunities compared to other sectors from a bottom-up
perspective. For example, at the present time, the team finds a
greater number of opportunities in consumer, IT services, and
industrials.
The
sectoral and geography exposures reflect the disciplined bottom-up
stock selection process. From a country perspective, the biggest
positions are in India,
China, Taiwan, Korea, Mexico and Brazil. From a relative perspective,
India is the biggest overweight
while China is the biggest
underweight. There is also an allocation towards developed world
companies. These companies derive the majority of their revenues or
value from emerging markets, mostly countries that the Company is
underweight on, like China. Though
not a perfect hedge, the Company’s investments in these companies
do mitigate the risk of lower exposure to countries like
China.
Key
contributors &
detractors
Contributors
DOMS
is, in our
view, the best-managed children’s stationery and art/craft
materials business in India. Run
by an exceptional promoter CEO, Santosh
Raveshia, the company has been growing revenues at a 20%
CAGR over the past decades at a pace that is twice as fast as the
wider industry. The operating performance is characterised by
healthy profitability supported by an exceptionally strong balance
sheet with regards to working capital management. Strong results
over the reporting period, as well as an increasing awareness and
understanding of the company by investors, have driven recent
outperformance. Looking forward, the stationery business remains a
very fragmented market and we believe DOMS’s market share gains and
CAGR can be sustained.
Senco
Gold is the
leading jewellery retailer in Eastern
India with a strong leadership position in its home state of
West Bengal. The key drivers include firstly the continued
formalisation of the large (US$70 bn+) Indian retail market; as the
unorganised sector still represents 60% of the market
share &
most well-run organised national and regional chains continue to
gain share from the fragmented players on the back of trust, design
and aggressive store expansion. Secondly, an advantageous
competitive positioning as apart from Titan, Senco is the only
other player in the industry to have a well-established franchisee
model which aids quicker expansion and shores up the return on
capital employed and thirdly a solid, eager-to-learn and
ever-improving management team led by Suvankar Sen, the son of the founder Shankar
Sen. Senco was also among the early adopters of IT infrastructure
across the supply chain (for artisans, franchise partners, store
and inventory management), which has led to an improvement in its
operational efficiency. This successful holding was originally
initiated as an anchor position before the stock’s IPO and thus
validates the Investment Manager’s ability to
identify &
access under-researched investment opportunities.
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 Mexico, with nearly a 35% market share. At
93.8%, the combined ratio (claims cost plus operating expenses plus
commissions paid to agents as proportion of net earned premiums) is
among the lowest in the Mexican Auto Insurance segment. Qualitas
has held onto a 30%+ market share in Mexico’s Auto Insurance
segment for almost a decade, with a 40%+ market share in the
fast-growing Trucks and Commercial Vehicle Segment. Qualitas has
built a strong moat with its brand, easy claims process, and large
network of third-party agents. In addition, the company’s foray
into health insurance and expansion into other Andean countries
like Peru provide future growth
optionality. The operating performance has improved with a 9.2%
Return on Invested capital (9M23), compared to 1.6% during 9M22.
The positive momentum in operating performance has been one of the
contributing factors to the recent stock price
outperformance.
Detractors
Hong
Kong Exchanges &
Clearing (HKEX) owns and
operates the only stock and futures exchange in Hong Kong and the London Metals Exchange
(LME). HKEX functions as a monopoly in Hong Kong, which is unlikely to change,
although it competes for listings with other global exchanges.
Overall, HKEX operates in a supportive ecosystem, with the number
of listings and their trading volumes growing consistently over the
years. The ‘Stock Connect Programme’, a market access platform
between Hong Kong and mainland
China, already represents 34% of
trading volume and provides a structural growth driver as
China liberalises its capital
markets. The stock underperformed due to subdued trading volumes on
the back of poor equity market performance in Hong Kong and China. Investor sentiment in the stock was
further dampened by an increase in operating expenses which put its
profit margin under pressure.
Budweiser
Brewing APAC (Budweiser APAC) is the
leading premium brewer in China
(85% of EBITDA) with c. 16% of overall volumes on the back of
leading brands, including Budweiser and Corona. It also has a
smaller but market-leading position in Korea. Over time, beer
markets globally tend to ‘premiumise’, resulting in attractive
earnings growth together with high barriers to entry, particularly
for breweries that are able to manage their brands well. Although
the benefit of the reopening of the economy was slower than
expected across all brewers in China, Chinese brewers have been following
this premiumisation path over the last 5-10 years.
We believe that COVID has obscured some of Budweiser APAC’s
underlying strengths, given its relatively short listing history
(the IPO was in 2019). During the last few quarters, the stock has
performed mostly in line with its peers in the beer space but the
beer industry in China has seen
headwinds from a weak consumption environment where c.50%
consumption is on-premise (restaurants/pubs). However, the company
has highlighted that the premiumisation trend is progressing and
noted that Jan/Feb 2024 continued to
see a strong product mix upgrade driven by Premium and Super
Premium segment growth (up double digits year-on-year).
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
Hong Kong listed insurer with a
presence in multiple EMs, including Hong
Kong (35% of Embedded Value or EV), Mainland China (18% of
EV), and Thailand (12% of EV),
along with a growing presence in other ASEAN countries as well as
India. AIA is primarily an
agency-driven business with a focus on selling protection products.
In partnership with South Africa
based Discovery, AIA launched ‘AIA Vitality’, bringing the
successful health insurance and loyalty program to its Asian
markets. AIA maintains a prudent investment portfolio with 75% of
its book in fixed-income securities (50% of which is in government
bonds), while lower quality securities with BB rating or below make
up only c.7% of the portfolio. The company’s focus to return excess
capital to shareholders is noteworthy, with US$3.6 billion
returned in 1H23. However, operational performance was likely
affected by a slower than expected economic rebound in China.
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 International
Monetary Fund (‘IMF’), EM economies are likely to record relatively
higher growth, led by the momentum from stronger structural reforms
which could bolster productivity. On the downside, renewed
commodity price spikes from geopolitical shocks could prolong tight
monetary conditions and any further aggravation of the property
crisis in China, the dominant EM
economy by market capitalisation, could impinge on market
sentiment.
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 Morgan
Bond index will also be supportive of local debt
markets.
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 India clearly one of the major beneficiaries
of global supply chain reconfiguration. Furthermore, the value of
India’s IT exports recently exceeded its oil import bill providing
a cushion to the external sector. Moreover, unlike China, India’s economy is much more
consumption than investment driven, and the thrust of policymaking
in recent years has been towards capacity building which is likely
to ensure that economic growth is sustainable and broad-based and
not propelled by a rise in leverage.
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-China
relations, since the trade tensions began in 2018, have also been
one of the factors constraining equity returns in China. While we are not influenced by strong
‘top-down’ macroeconomic views on China, we do expect domestic sentiment to
improve gradually, driven by more proactively supportive government
policies and stimulus, albeit the latter is likely to remain
moderate by historic standards. The government’s ongoing focus on
technology and innovation, manufacturing capacity upgrades and
decarbonisation should also underpin economic growth. However, the
private credit money multiplier remains impaired and both
households’ and corporates’ animal spirits somewhat muted. Chinese
companies are, however, actively exploring commercial opportunities
abroad resulting in some potential new revenue streams, assuming
tariffs do not become more of a challenge again post the US
election.
Taiwan and Korea are significantly benefitting from the AI
boom given their semiconductor and technology expertise whilst the
recovery in global economic growth and trade is an added
boon.
Meanwhile,
despite some unhelpful domestic political interference,
Brazil is poised to deliver a new
positive structural growth story supported by tax reform and new
financial inclusion policies which should raise productivity and
trend growth rates.
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 China together with
potentially unpredictable policies given the impending elections in
many geographies. However, the fundamentals of EM economies have
generally strengthened despite this challenging environment and, at
present at an aggregate level, are recording lower inflation, lower
debt levels and higher growth compared to their DM counterparts.
However, at a disaggregated level, EMs offer different opportunity
sets, with the most significant negative risk being from China’s
slowdown (but this provides a rewarding backdrop for active stock
picking).
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 OpcoFincoTM
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 ABLExTM
(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 June
2024
Top
Ten Holdings
As
at 31 March
2024
|
Sector
|
%
of net assets
|
Taiwan
Semiconductor Manufacturing Co Ltd
|
Information
Technology
|
6.5
|
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 and other
assets/liabilities
|
|
4.9
|
Total
holdings
|
|
100.0
|
Top
Ten Active Holdings
As
at 31 March
2024
|
Sector
|
Country
of listing
|
Active
weight, %
|
Hermes
International
|
Consumer
Discretionary
|
France
|
2.4
|
Hong Kong
Exchanges &
Clearing
|
Financials
|
Hong
Kong
|
1.9
|
Naspers
|
Consumer
Discretionary
|
South
Africa
|
1.7
|
DOMS
Industries
|
Industrials
|
India
|
1.6
|
Prosus
NV
|
Consumer
Discretionary
|
Netherlands
|
1.6
|
DBS Group
Holdings
|
Financials
|
Singapore
|
1.6
|
LVMH Moet
Hennessy Louis Vuitton
|
Consumer
Discretionary
|
France
|
1.5
|
ASM
International NV
|
Information
Technology
|
Netherlands
|
1.5
|
CIE
Financiere Richemont SA
|
Consumer
Discretionary
|
Switzerland
|
1.5
|
ASML
Holding NV
|
Information
Technology
|
Netherlands
|
1.5
|
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 Investment Trust (Approved Company) (Tax) Regulations
2011 provides that, subject to certain exceptions, an investment
trust may not retain more than 15% of its income (as calculated for
tax purposes) in respect of each accounting period. Accordingly,
the Company may declare an annual dividend from time to time for
the purpose of seeking to maintain its status as an investment
trust.
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 March
2024 in accordance with the Company’s dividend policy,
outlined above.
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 March
2024 were 11.81% and 5.00% respectively compared to a total
return of 7.94% for the MSCI EM (GBP) Index.
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 Ellora Partners (hereafter referred to as the
Company’s “Corporate Broker”), the Board monitors the premium or
discount of the Company’s share price to NAV on an ongoing basis
and at quarterly Board meetings reviews the share price rating in
the period since the previous meeting in comparison with other
investment companies with a similar mandate. 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 authority to approve any redemption
request rests at the sole discretion of the Board). The Company’s
shares traded at an average premium of 0.1% over the period to
31 March
2024.
(iii) Maintenance
of a reasonable level of ongoing charges (excluding Alpha
Fee)
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 March
2024, was 1.94%. The Board considers this to be reasonable
given the size and short life of the Company but will endeavour to
undertake all reasonable efforts to reduce this over
time.
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 Investment Adviser and Company Secretary, is updated
frequently and is used to assess all the operational, performance
and other risks that might impact the Company. The register also
provides detail as to how these risks are potentially mitigated by
the Board or third-party service provider controls.
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
|
Company
Risk
The Company
is still relatively small in terms of size and may need to raise
additional capital to support growth and to ensure it achieves an
adequate scale. There is no guarantee that the Company will be able
to raise sufficient levels of further capital and a failure to do
so may result in the Company becoming unviable.
Like many
other investment companies, the Company has no employees. The
Company therefore relies upon the services provided by third
parties.
Failure by
any service provider to carry out its obligations could have a
materially detrimental impact on the activities of the Company and
on the value of the Company and the Ordinary Shares.
|
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.
HSBC Bank
is the Company’s Custodian (hereafter referred to as the
“Custodian”). Its responsibilities include safe keeping of the
Company’s financial instruments, verifying ownership and
maintaining a record of other assets and monitoring the Company’s
compliance with any borrowing requirements. The Custodian is liable
for any loss of financial instruments held in custody and will
ensure that the sub-custodians segregate the assets of the Company.
The Custodian provides a report on its key controls and safeguards
(ISAE 3402) that is independently assessed by
PricewaterhouseCoopers LLP.
JTC (UK)
Limited (hereafter referred to as the “Company Secretary”) is the
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 Adviser’s investment
professionals. The departure of these investment professionals and
a failure by the Investment Manager or Investment Adviser to
recruit, retain and motivate new talented personnel could adversely
affect the Company’s ability to achieve its investment
objective.
|
The
Investment Manager and Investment Adviser endeavour to ensure that
the principal members of its management teams are suitably
incentivised and monitor key succession planning metrics. The Board
discusses this risk regularly with the Investment
Manager.
|
Discount
Risk
The
discount/premium at which the Company’s shares trade relative to
its net asset value can change. The risk of a widening discount,
and/or related volatility, could reduce shareholder returns and
confidence in the Company.
|
The Board
monitors the level of discount/premium at which the shares trade
and has an active investor relations programme. The Company has
authority to buy back its existing shares when deemed by the Board
to be in the best interests of the Company and its shareholders and
also operates an annual redemption facility in order to limit any
entrenched significant discount.
|
Emerging
and Frontier Market Risk
Investing
in emerging and frontier markets involves additional risks not
typically associated with investing in more established economies
and markets. Such risks may include greater social, economic and
political uncertainty.
|
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.
The
Investment Adviser employs significant research resources to build
a deep understanding of various business models across Emerging and
Frontier Markets, including engaging with experts and industry
professionals from across the world, and has scaled 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
Market risk
is the risk that the market will go down in value, with the
possibility that such changes will be sharp and unpredictable.
Selection risk is the risk that the investments that the Company’s
portfolio managers select will underperform the market or other
funds with similar investment strategies.
|
The Board
ensures that the Investment Manager has a well-defined investment
strategy and process which are regularly and rigorously reviewed by
the Board.
The Board
undertakes a review of the performance of the Company at each
quarterly Board meeting, including all transactions.
|
Foreign
currency
The base
currency of the Company is Sterling, which creates a potential
currency exposure. Currency exchange rate movements may affect the
Company’s performance. In general, if the value of sterling
increases compared with a foreign currency, an investment traded in
that foreign currency will be worth less in sterling terms. This
can have a negative effect on the Company’s performance.
|
The Board
monitors currency risk as part of the regular portfolio and risk
management oversight. The Company does not normally hedge currency
risk.
|
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 from
macroeconomic and geopolitical circumstances and conditions. Many
of the companies in which the Company invests are, by reason of the
locations in which they operate, exposed to the risk of
unpredictable political or economic change. In addition, sanctions,
exchange controls, tax or other regulations introduced in any
country in which the Company invests may affect its income and the
value and the marketability of its investments. EMs can be subject
to greater price volatility than developed markets.
Geopolitical
risks pose risks to global trade and could result in sanctions
which in turn could lead to inflation and volatility in asset
prices.
|
The Board
reviews regularly and discusses with the Investment Manager the
portfolio, the Company’s investment performance and the execution
of the investment policy against the agreed long-term objectives of
the Company. The Investment Adviser takes a disciplined approach to
portfolio construction which is aimed at minimising the volatility
of returns. The Investment Manager with the assistance from the
Investment Adviser performs systematic risk analysis, including
country and industry specific risk monitoring, as well as stress
testing. The Board also regularly reviews reports from the
Investment Manager’s risk and compliance team.
|
Cybersecurity
The
Company, together with its service providers (including the
Investment Manager, the Investment Adviser and the Administrator),
may be prone to operational, information security and related risks
resulting from failures of, or breaches in,
cybersecurity.
|
The Company
benefits from the Investment Adviser’s Group technology framework
designed to mitigate the risk of a cyber security breach. For key
third-party providers, the Audit Committee receives regular
independent certifications of their technology 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 UK-adopted international accounting
standards.
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 UK-adopted international accounting standards
have been followed, subject to any material departures disclosed
and explained in the financial statements; and
• 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
United Kingdom governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
Directors’
confirmation statement
The
Directors each confirm to the best of their knowledge
that:
(a) the
financial statements, prepared in accordance with UK adopted
international financial reporting standards in conformity with the
requirements of the Companies Act 2006,
give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Company as required by
DTR 4.1.12R;
and
(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
Martin Shenfield
Chair
17 June
2024
FINANCIAL
STATEMENTS
Statement
of Comprehensive Income
For
the financial period ended 31 March
2024
|
|
For
the period ended 31 March
2024
|
|
Note
|
Revenue
£’000
|
Capital
£’000
|
Total
£’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 March
2024.
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 Association of Investment Companies.
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 March
2024
|
Note
|
31 March
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 June
2024 and signed on its behalf by:
Howard Pearce
Director
The
notes below
form an integral part of these financial statements.
Statement
of Comprehensive Income
For
the financial period ended 31 March
2024
|
Notes
|
Share
Capital
£’000
|
Management
Shares
£’000
|
Share
premium
account
£’000
|
Capital
Reduction
distributable
reserve
£’000
|
Capital
reserve
£’000
|
Revenue
reserve
£’000
|
Total
£’000
|
Opening
balance as at 3 May
2023
|
|
—
|
|
—
|
—
|
—
|
—
|
—
|
Profit for
the year
|
|
—
|
|
—
|
—
|
4,468.7
|
(788.2)
|
3,680.5
|
Issue of
Ordinary Shares
|
12
|
322.0
|
50.0
|
31,903.7
|
—
|
—
|
—
|
32,275.7
|
Share issue
costs
|
|
—
|
|
(532.7)
|
—
|
—
|
—
|
(532.7)
|
Share
premium cancellation
|
|
—
|
|
(29,694.7)
|
29,694.7
|
—
|
—
|
—
|
Redemption
|
12
|
(0.1)
|
|
—
|
—
|
(14.6)
|
—
|
(14.7)
|
Closing
balance as at 31 March
2024
|
|
321.9
|
50.0
|
1,676.3
|
29,694.7
|
4,454.1
|
(788.2)
|
35,408.8
|
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 March
2024
|
Note
|
For
the period ended 31 March
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 activities
|
|
(563.0)
|
Cash
flows from investing activities
|
|
|
Purchase of
investments
|
|
(71,965.4)
|
Sale of
investments
|
|
43,193.3
|
Net
cash flow used in investing activities
|
|
(28,772.1)
|
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 period
|
|
2,393.2
|
The
notes below
form an integral part of these financial statements.
Notes to
the Financial Statements
1. Reporting
entity
Ashoka
WhiteOak Emerging Markets Trust Plc
is a public limited company, registered and incorporated in
England and Wales on 15 March
2023. The Company’s registered office is 18th Floor, The
Scalpel, 52 Lime Street, London, United
Kingdom, EC3M 7AF.
Business operations commenced on 3 May
2023 when the Company’s Ordinary Shares were admitted to
trading on the London Stock Exchange. Its share capital is
denominated in British Pounds Sterling (£) and currently consists
of ordinary shares. The audited report and accounts (the “Financial
Statements”) of the Company are presented for the period from
15 March
2023 to 31 March
2024.
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 UK-adopted international accounting
standards. The financial statements have been prepared on a
historical cost basis, except for the measurement at fair value of
investments.
When
presentational guidance set out in the Statement of Recommended
Practice (“SORP”) for Investment Companies issued by the
Association of Investment Companies (“the AIC”) in
July 2022
is consistent with the requirements of IFRS, the Directors have
sought to prepare the financial statements on a basis compliant
with the recommendations of the SORP.
In
preparing these Financial Statements the Directors have considered
the impact of climate change risk as an emerging risk. In line with
the UK-adopted international accounting standards, investments are
valued at fair value, being primarily quoted prices for investments
in active markets at the balance sheet date, and therefore reflect
market participant’s view of climate change risk.
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 June
2025. As such the Directors have adopted the going concern
basis in preparing the financial statements.
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 March
2024 of £188,238 in respect of unrealised gains on
investments held. Please refer to Note 9
for further details related to this provision.
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 UK based.
The Company’s expenses and dividends are also paid in sterling.
Therefore, the financial statements are presented in sterling,
which is the Company’s functional currency. All financial
information has been rounded to the nearest thousand
pounds.
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 March
2024. None of these are expected to have a material impact
on the measurement of the amounts recognised in the financial
statements of the Company.
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 Investment Trust Company (ITC) under
sections 1158 and 1159 of the Corporation Taxes
Act 2010
and Part 2
Chapter 1
Statutory Instrument 2011/2999 for accounting periods commencing on
or after 25 May
2018.
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 UK capital gains tax.
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 January
2024. None of these are expected to have a material impact
on the measurement of the amounts recognised in the financial
statements of the Company.
4. Investments
held at fair value through profit or loss
(a) Investments
held at fair value through profit or loss
|
As
at
31 March
2024
£’000
|
Quoted
investments
|
33,678.0
|
Closing
valuation
|
33,678.0
|
(b) Movements
in valuation
|
As
at
31 March
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 31 March
2024
£’000
|
Realised
gains on disposal of investments
|
1,659.5
|
Movement in
unrealised gains/(losses) on investments held
|
3,246.4
|
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 31 March
2024
|
|
Level
1
£’000
|
Level
2
£’000
|
Level
3
£’000
|
Total
£’000
|
Investments
at fair value through profit and loss – Quoted
investments
|
33,678.0
|
|
|
33,678.0
|
5. Income
|
As
at
31 March
2024
£’000
|
Income
from investments:
|
|
Overseas
dividends
|
366.9
|
Other
Income:
|
|
Bank
interest
|
43.5
|
Total
income
|
410.4
|
6. Other
payables
|
As
at
31 March
2024
£’000
|
Accrued
expenses
|
(217.0)
|
Total
other payables
|
(217.0)
|
7. Alpha
Fee provision
|
Period
ended 31 March
2024
|
|
Revenue
£’000
|
Capital
£’000
|
Total
£’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 Alpha Fee subject to
the Company delivering excess returns versus the MSCI Emerging
Markets Net Total Return GBP Index (sterling). The Alpha Fee will
be measured over periods of three years (Performance Period), with
the first period ending (approximately three years from
3 May
2023) on 31 March
2026. The Alpha Fee in any Performance Period shall be capped at
12% of the time weighted average adjusted net assets during the
relevant Performance Period.
The Alpha
Fee is calculated at a rate of 30% of the excess returns between
adjusted NAV per share on the last day of the performance period
and the MSCI Emerging Markets Net Total Return GBP Index (sterling)
over the performance period, adjusted for the weighted average
number of Ordinary Shares in issue during the performance period.
The Alpha Fee in respect of each Performance Period will be paid
100% in shares of the Company at the end of the three year period,
50% of which are subject to a further three year lock-up
period.
An Alpha
Fee was able to be accrued following the investment of at least 70%
of the Company’s net IPO proceeds, which occurred on
12 May
2023. Further detail on the Alpha Fee can be found in the
Prospectus. As at 31 March
2024, there was a £384,732 provision for the Alpha Fee liability to
the Investment Manager.
8. Expenses
|
Period
ended 31 March
2024
|
|
Revenue
£’000
|
Capital
£’000
|
Total
£’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 31 March
2024
|
|
Revenue
£’000
|
Capital
£’000
|
Total
£’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 UK corporation tax rate for the year is 25%.
Reconciliation below:
|
Period
ended 31 March
2024
|
|
Revenue
£’000
|
Capital
£’000
|
Total
£’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 March
2024 the Indian securities held had a market value of £8,065,383.
If the market value of the Indian securities had increased or
decreased by 10%, this would have led to an estimated increase or
decrease of the year end tax provision by £16,308 in the provision.
A provision of £188,200 was raised at the end of the accounting
period to account for this. It is difficult to predict the actual
realised gain/unrealised gain in the future as its calculated on an
individual investment level and it is difficult to estimate the
disposal date of individual investment which is further dependent
on various market factors affecting the investment
decision.
Investment
Trust Companies which have been approved by HM
Revenue &
Customs are exempt from UK corporation tax on their capital gains.
Due to the Company’s status as an approved Investment Trust
Company, and the intention to continue meeting the conditions
required to maintain that approval for the foreseeable future, the
Company has not provided for deferred tax in respect of any gains
or losses arising on the revaluation of its investments. Taxes are
based on the UK Corporate tax rates which existed as of the balance
sheet date which was 25%.
The
Company has an unrecognised deferred UK Corporation tax asset of
£297,000 based on the prospective UK corporation tax rate of 25%.
This asset has accumulated because deductible expenses exceeded
taxable income for the period ended 31 March
2024. No asset has been recognised in the accounts because, given
the composition of the Company’s portfolio, it is unlikely that
this asset will be utilised in the foreseeable future.
10. Earnings
per Ordinary Share
|
Period
ended 31 March
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 March
2024 of 31,314,383. Revenue and capital profits are £(788,252) and
£4,468,793 respectively.
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 UK investment
trust status. The Board is proposing that no dividend be paid in
respect of the year ended 31 March
2024 in accordance with the Company’s Dividend
policy.
12. Share
capital
|
As
at 31 March
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 March
2023, the issued share capital of the Company was 1 ordinary share
of 1p and 50,000 Management Shares of nominal value £1.00 each. On
3 May
2023, 30,532,278 ordinary shares were allotted and issued to
shareholders as part of the placing and offer for subscription in
accordance with the Company’s prospectus dated
18 April
2023. Following admission of the Company’s Ordinary Shares to
trading on the London Stock Exchange, the Directors applied to the
Court to cancel the amount standing to the credit of the share
premium account of the Company. On 12 September
2023, the share premium amount of £29,694,678 was cancelled and
credited to the Capital reduction reserve.
From
5 October
to 5 December
2023, a total of 1,663,530 Ordinary shares were issued on the
London Stock Exchange utilising the Block Listing.
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 Redemption Point for the Ordinary Shares is
29 December
2023. The Directors have absolute discretion to operate the annual
redemption facility on any given Redemption Point. On
15 January
2024, 14,014 shares were redeemed.
Reserves
The nature
and purpose of each of the reserves included within equity as at
31 March
2024 are as follows:
• 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 April
2023, following admission of the Company’s Ordinary Shares to
trading on the LSE, the Directors applied to the Court and obtained
a judgement on 12 September
2023 to cancel the amount standing to the credit of the share
premium account of the Company. The amount of the share premium
account cancelled and credited to a Capital Reduction distributable
reserve was £29,694,678. This reserve may also be used to fund
dividend/distribution payments.
14. Net
asset value (“NAV”) per Ordinary Share
Net assets
per ordinary share as at 31 March
2024 of 109.86p is calculated based on £35,408,685 of net assets of
the Company attributable to the 32,181,795 Ordinary Shares in issue
as at 31 March
2024.
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 31 March
2024
|
|
Interest
bearing
£’000
|
Non-interest
bearing
£’000
|
Total
£’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 31 March
2024
|
|
Investment
exposure
£’000
|
Net
monetary exposure
£’000
|
Total
currency exposure
£’000
|
Brazillian
Real
|
743.7
|
1.2
|
744.9
|
Canadian
Dollar
|
239.4
|
—
|
239.4
|
Chinese
Yuan
|
1,652.4
|
—
|
1,652.4
|
Euro
|
3,046.6
|
—
|
3,046.6
|
Swiss
Franc
|
543.9
|
|
543.9
|
Hong Kong
Dollar
|
3,370
|
203.0
|
3573.0
|
Indonesian
Rupee
|
818.3
|
—
|
818.3
|
Indian
Rupee
|
8,065.4
|
1,284.0
|
9349.40
|
Japanese
Yen
|
134.7
|
—
|
134.7
|
South
Korean Won
|
2,740.9
|
167.0
|
2907.9
|
Mexican
Peso
|
1,227.6
|
—
|
1,227.6
|
Malaysian
Ringgit
|
286.0
|
—
|
286.0
|
Polish
Zloty
|
836.5
|
|
836.5
|
Swedish
Krona
|
302.4
|
|
302.4
|
Singapore
Dollar
|
705.5
|
—
|
705.5
|
Taiwan
Dollar
|
3,568.8
|
13.7
|
3,582.5
|
United
States Dollar
|
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 March
2024, and with all other variables remaining constant, if the
respective currencies had weakened/strengthened against the Great
British Pound by 10%, the impact on the Company’s net assets at
31 March
2024 would have been an increase/(decrease) in fair value as
follows:
|
As
at 31 March
2024
|
|
Increase
in fair value
£’000
|
Decrease
in fair value
£’000
|
Brazillian
Real
|
74.4
|
74.4
|
Canadian
Dollar
|
23.9
|
23.9
|
Chinese
Yuan
|
165.2
|
165.2
|
Euro
|
304.7
|
304.7
|
Swiss
Franc
|
54.4
|
54.4
|
Hong Kong
Dollar
|
337.0
|
337.0
|
Indonesian
Rupee
|
81.8
|
81.8
|
Indian
Rupee
|
806.5
|
806.5
|
Japanese
Yen
|
13.5
|
13.5
|
South
Korean Won
|
274.1
|
274.1
|
Mexican
Person
|
122.8
|
122.8
|
Malaysian
Ringgit
|
28.6
|
28.6
|
Polish
Zloty
|
83.7
|
83.7
|
Swedish
Krona
|
30.2
|
30.2
|
Singapore
Dollar
|
70.6
|
70.6
|
Taiwan
Dollar
|
356.9
|
356.9
|
United
States Dollar
|
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 Hongkong and Shanghai Banking Corporation
Limited (“HSBC”) as its custodian bank and Barclays the provider of
the cash account. The credit rating of HSBC and Barclays was
reviewed at the time of appointment and is reviewed on a regular
basis by the Investment Manager and the Board.
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 March
2024, HSBC held 33,678,027 GBP in respect of quoted investments. A
total cash balance of 2,393,154 GBP was held by the Company in the
HSBC and Barclays accounts.
(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 Alpha
Fee payable to the Investment Manager is disclosed in
Note 7.
White Oak
Capital Partners provides investment advisory services to the
Investment Manager and no fees are paid to them from the
Company.
Since
commencement of operations on 3 May
2023 fees were payable at an annual rate of £35,000 to the
Chairman, £30,000 to the Chair of the Audit Committee, and £27,500
to the other Directors.
The
Directors had the following shareholdings in the Company, all of
which are beneficially owned.
|
As
at
31 March
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 March
2024 (last reported NAV of financial year) to 11 June
2024 (latest available reported NAV).
On
7 May
2024, the Company announced a proposed transaction to effect a
combination with Asia Dragon Trust plc.
Following the announcement by Asia Dragon Trust plc
on 21 May
2024 that it was initiating a full strategic review of its future,
the Company announced that it intended to participate in that
process. Further updates will be announced by the Company as
appropriate in due course.
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 June
2024 raising additional funds of £741,700.
OTHER
INFORMATION
Financial
calendar
Financial
year end
|
31 March
|
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, FCA
charges, KID review fees and miscellaneous charges