TIDMGIF
RNS Number : 6770M
Gulf Investment Fund PLC
18 September 2019
Gulf Investment Fund PLC
18 September 2019
Legal Entity Identifier: 2138009DIENFWKC3PW84
Gulf Investment Fund plc
Annual Report for the year ended 30 June 2019
-- Net asset value rose 12.7% vs the benchmark + 9.8%
-- Share price rose 18.7% (2018: 13%)
-- Board recommends a dividend for the year of 3c a share (2018: 3c)
-- The fund is still overweight Qatar given its macro-economic resilience
-- Saudi Arabia upgraded to emerging market status by MSCI and
Kuwait scheduled to become an Emerging Market in early 2020
Nicholas Wilson, Chairman of Gulf Investment Fund plc,
commented:
"Over the year your company has benefitted greatly from the
expanded investable universe following the strategy change in early
December 2017. The fund continues to outperform its benchmark. $100
invested in the fund on 11 December 2017 would have been worth $140
at the end of June 2019, while the benchmark would have given
shareholders $122.
The investment managers delivered good results this year for our
shareholders, despite falling oil prices and regional tensions, by
fully utilising the flexibility in their GCC-wide mandate.
Your Board of Directors continues to view the future of the
company with confidence expecting healthy growth in the region as a
whole, as the expansion in the non-hydrocarbon sector and
infrastructure spending in a number of GCC member states helps to
strengthen and balance their economies."
Enquiries:
Nicholas Wilson
Gulf Investment Fund Plc
+44 (0) 1624 622 851
William Clutterbuck / Alasdair Lennon
Maitland/AMO
+44 (0) 20 7379 5151
gulfinvestmentfund-maitland@maitland.co.uk
Chairman's Statement
On behalf of the Board, I am pleased to present your Company's
twelfth Annual Report and Financial Statements for the year to 30
June 2019.
During the 12 months, your Company's Net Asset Value per Share
("NAV") rose by 12.7% to US$1.3504 which compares with a gain of
8.2% in the S&P GCC composite index and a fall of -1.40% in the
MSCI Emerging Markets Index. Following a narrowing of the discount
at which the shares trade to NAV, the shares rose by from US$1.015
to US$1.205 for a gain over the year of 18.7%. This against a
background of a 16% fall in the price of Brent crude oil.
Shareholders also received a dividend of 3.0c per share which was
paid on 21 December 2018.
Results
Results for the period under review showed a profit of US$16.85m
generated from fair value adjustments, realised losses and dividend
income. This is equivalent to a basic profit per share of 18.22c
(2018 9.95c)
As will be seen in the investment managers report, the
geographical split of the portfolio has changed significantly
during the period with Qatar still overweight at 30.4% of NAV
because of its macro-economic resilience, followed by Saudi Arabia
with a weighting of 27.6%, UAE 15.5% and Kuwait 12.6%. 13.9% of NAV
is in cash.
As at 30 June 2019, we had 49 holdings: 27 in Saudi Arabia, 8 in
Qatar, 6 in the UAE and 8 in Kuwait. Once again our largest sector
is financial at 40.4%.
During the year Saudi Arabia was upgraded to emerging market
status by MSCI and Kuwait is scheduled to join in May 2020.
The Company's Ongoing Charges fell to 1.88% from 1.95% in the
previous year. The charges were calculated in accordance with the
methodology recommended by the Association of Investment
Companies.
Proposed dividend
The Board is pleased to recommend to shareholders a dividend of
3.0c a share (2018: 3.0c), subject to shareholder approval at the
forthcoming Annual General Meeting, the dividend will be paid in
January 2020. Further details on the ex-date, record date and
payment date will be announced in due course.
Related party transactions
Details of any related party transactions are contained in note
10 of this report.
Post balance sheet events
Details of these can be found in note 14 following the
accompanying financial statements.
Outlook, risks and uncertainties
Fluctuations in oil and gas prices will continue to impact GCC
economies, as countries deal with budget challenges. The
geopolitics of the region and, in particular, the dispute between
Qatar and other members of the GCC brings continuing economic
uncertainty as does the situation with Iran and potential ongoing
problems in the straits of Hormuz.
The Board believes that the principal risks and uncertainties
faced by the Company continue to fall in the following categories;
geopolitical events, market risks, investment and strategy risks,
accounting, legal and regulatory risks, operational risks and
financial risks. Information on each of these is given in the
Business Review section of our Annual Report each year.
The Board continues to view the future of the Company with
confidence expecting healthy growth in the region as a whole, as
growth in the non-hydrocarbon sector in a number of GCC members
helps to strengthen and balance their economies.
Annual general meeting
I look forward to welcoming shareholders to our twelfth Annual
general meeting on 8 November 2019, which will be held at 11.00 am
at the Company's registered office at Millennium House, 46 Athol
Street, Douglas, Isle of Man.
Nicholas Wilson
Chairman
17 September 2019
Business Review
The following review is designed to provide information
primarily about the Company's business and results for the year
ended 30 June 2019. It should be read in conjunction with the
Report of the Investment Manager and the Investment Adviser on
pages 7 to 14 which gives a detailed review of the investment
activities for the year and an outlook for the future.
Investment objective and strategy
The Company's investment objective is to capture the
opportunities for growth offered by the expanding GCC economies by
investing in listed companies on one of the GCC exchanges or
companies soon to be listed on one of the GCC exchanges.
The Company applies a top-down screening process to identify
those sectors which should most benefit from sector growth trends.
Fundamental industry and company analysis, rather than
benchmarking, forms the basis for both stock selection and
portfolio construction.
The Company's investment policy is on pages 15 to 16.
Performance measurement and key performance indicators
In order to measure the success of the Company in meeting its
objectives and to evaluate the performance of the Investment
Manager, the Directors take into account the following key
performance indicators:
Returns and Net Asset Value
At each quarterly Board meeting the Board reviews the
performance of the portfolio versus the S&P GCC Composite Index
(local benchmark) as well as the net asset value, income, share
price and expense ratio for the Company.
Discount/Premium to Net Asset Value
On a weekly basis, the Board monitors the discount/premium to
net asset value. The Directors renew their authority at the Annual
general meeting in order to be able to make purchases through the
market where they believe they can assist in narrowing the discount
to net asset value and where it is accretive to net asset value per
share.
On 22 February 2017, the Company announced the details of its
annual share buy-back programme. Pursuant to, and during the term
of this share buy-back programme, the Company may purchase ordinary
shares provided that:
1) the maximum price payable for an ordinary share on the London
Stock Exchange is an amount equal to the higher of:
a. 105 per cent. of the average market value of the Company's
ordinary shares as derived from the London Stock Exchange Daily
Official List for the five business days immediately preceding the
day on which such share is contracted to be purchased; and
b. In order to benefit from the exemption laid down in Article
5(1) of Regulation (EU) No 596/2014, the Company will not purchase
shares at a price higher than the higher of the price of the last
independent trade and the highest current independent purchase bid
on the trading venue where the purchase is carried out; and
2) the aggregate number of ordinary shares which may be acquired
on behalf of the Company in connection with this share buy-back
programme shall not exceed 17,548,355 ordinary shares (updated at
last AGM to 13,859,940).
Due to the limited liquidity in the ordinary shares, a buy-back
of ordinary shares pursuant to the share buy-back programme on any
trading day is likely to represent a significant proportion of the
daily trading volume in the ordinary shares on the London Stock
Exchange (and is likely to exceed the 25% limits of the average
daily trading volume as laid down in Article 5(1) of Regulation
(EU) No 596/2014 and as such the Company will not benefit from this
exemption). The share buy authority resolution is for up to 14.99%
of the Company's issued share capital. The Board has no present
intention to exercise the authority in full but will keep the
matter under review, taking into account the overall financial
position of the Company and the discount to net asset value at
which the Company's shares trade.
Whilst the Company has the requisite shareholder authority to
conduct share buy-backs, the Company has not announced a share
buy-back programme since the above programme which expired on 17
November 2017, however this is under regular review by the
Board.
A Board member is responsible for close monitoring of the
Company's share price and working with our broker to buy back
shares when we believe appropriate so as to manage any discount to
net asset value.
Yield
The Board monitors the dividend income of the portfolio and the
amount available for distribution and considers the impact on the
Company's annual dividend policy of future progressive dividend
payments, subject to the absence of exceptional market events.
Principal risks and uncertainties
The Board confirms that there is an on-going process for
identifying, evaluating and managing or monitoring the key risks to
the Company. These key risks have been collated in a risk matrix
document which is reviewed and updated on a quarterly basis by the
Directors. The risks are identified and graded in this process,
together with the policies and procedures for the mitigation of the
risks.
The key risks which have been identified and the steps taken by
the Board to mitigate these are as follows:
Market
The Company's investments consist of listed companies. There are
no investments in companies soon to be listed. Market risk arises
from uncertainty about the future prices of the investments. This
is commented on in Note 1(a) and 2 on pages 48 to 52.
Investment and strategy
The achievement of the Company's investment objective relative
to the market involves risk. An inappropriate asset allocation may
result in underperformance against the local index. Monitoring of
these risks is carried out by the Board which, at each quarterly
Board meeting, considers the asset allocation of the portfolio, the
ratio of the larger investments within the portfolio and the
management information provided by the Investment Manager and
Investment Adviser, who are responsible for actively managing the
portfolio in accordance with the Company's investment policy. The
net asset value of the Company is published weekly.
Accounting, legal and regulatory
The Company must comply with the provisions of the Isle of Man
Companies Acts 1931 to 2004 and since its shares are listed on the
London Stock Exchange, the UK Listing Authority's Listing Rules and
Disclosure Guidance and Transparency Rules ("UKLA Rules")' A breach
of company law could result in the Company and/or the Directors
being fined or the subject of criminal proceedings. A breach of the
UKLA Rules could result in the suspension of the Company's shares.
The Board relies on its Company Secretary and advisers to ensure
adherence to company law and UKLA Rules. The Board takes legal,
accounting or compliance advice, as appropriate, to monitor changes
in the regulatory environment affecting the Company.
From 3 July 2016 the Company must also comply with the Market
Abuse Regulation (MAR) which contains prohibitions for insider
dealing and market manipulation, and provisions to prevent and
detect these.
Operational
Disruption to, or the failure of, the Investment Manager, the
Investment Adviser, the Custodian or Administrator's accounting,
payment systems or custody records could prevent the accurate
reporting or monitoring of the Company's financial position.
Details of how the Board monitors the services provided by the
Investment Manager and its other suppliers, and the key elements
designed to provide effective internal control, are explained
further in the internal control section of the Corporate Governance
Report on pages 19 to 25.
Financial
The financial risks faced by the Company include market price
risk, foreign exchange risk, credit risk, liquidity risk and
interest rate risk. Further details are disclosed in Notes 1(a), 2,
6 and 8.
Report of the Investment Manager and Investment Adviser
Regional Market Overview
After positive gains in 1Q19, regional markets tracked by the
S&P GCC Composite index (S&P GCC) exhibited volatility in
2Q19 as geopolitical events kept investors on tenterhooks.
The standoff between the US and Iran hardened after Iran shot
down a US drone. The event was the first direct Iranian-claimed
attack on US military assets. This was the latest in an escalating
series of incidents in the Gulf since mid-May this year, including
suspected attacks on six tankers, and has prompted international
concern that the standoff could escalate into an open
confrontation.
S&P GCC index was up 9.8 per cent year-to-date (YTD), led by
Saudi Arabia, which rose 12.7 per cent on much-anticipated
inclusion into the FTSE and MSCI EM indices. Kuwait market also
rose 14.8 per cent YTD supported by favorable stock re-weightings
by the FTSE in March. Markets also reacted positively to the news
of Kuwait's MSCI EM inclusion expected to take place in 2020.
Markets in Qatar, Dubai and Abu Dhabi rose 1.5 per cent, 5.1 per
cent and 1.3 per cent, respectively. Oman, the only market in red
amongst the GCC peers, declined 10.1 per cent, while Bahrain market
reported gains of 10.0 per cent.
Oil prices rose 23.7 per cent YTD 2019 led by decreasing US
inventories, US imposed sanctions on Venezuela and OPEC+ decision
to continue production cut. However, trade tensions dampened the
demand outlook, limiting further upside.
Country Index Jun-18 Dec-18 2H18 Jun-19 1H19 LTM
Qatar DSM Index 9,024 10,299 14.1% 10,456 1.5% 15.9%
================ ======= ======= ======= ======= ======= =======
Bahrain BHSEASI Index 1,311 1,337 2.0% 1,471 10.0% 12.2%
================ ======= ======= ======= ======= ======= =======
Dubai DFMGI Index 2,821 2,530 -10.3% 2,659 5.1% -5.8%
================ ======= ======= ======= ======= ======= =======
Abu Dhabi ADSMI Index 4,560 4,915 7.8% 4,980 1.3% 9.2%
================ ======= ======= ======= ======= ======= =======
Oman MSM30 Index 4,572 4,324 -5.4% 3,885 -10.1% -15.0%
================ ======= ======= ======= ======= ======= =======
Kuwait KWSEAS Index 4,890 5,080 3.9% 5,832 14.8% 19.3%
================ ======= ======= ======= ======= ======= =======
Saudi Arabia SASEIDX Index 8,314 7,827 -5.9% 8,822 12.7% 6.1%
================ ======= ======= ======= ======= ======= =======
S&P GCC Index SEMGGCPD Index 109 107 -1.4% 118 9.8% 8.2%
================ ======= ======= ======= ======= ======= =======
Emerging Markets MXEF Index 1,070 966 -9.7% 1,055 9.2% -1.4%
================ ======= ======= ======= ======= ======= =======
MSCI World MXWO Index 2,089 1,884 -9.8% 2,178 15.6% 4.3%
================ ======= ======= ======= ======= ======= =======
Brent CO1 Comdty 79 54 -32.3% 67 23.7% -16.2%
================ ======= ======= ======= ======= ======= =======
Source: Bloomberg
During 2H18, a steep decline in oil prices (Brent oil price was
down 32.3 per cent) led to a mixed performance for GCC markets.
S&P GCC index was down 1.4 per cent led by subdued performance
by Saudi and Dubai markets which fell 5.9 per cent and 10.3 per
cent, respectively. Qatar market reported gains of 14.1 per cent,
outperforming GCC peers. Markets in Abu Dhabi and Kuwait followed
Qatar with 7.8 per cent and 3.9 per cent returns.
Investment demand from international investors
Saudi Arabia has attracted US$14.3 billion in foreign inflows so
far in 2019 following its inclusion into the MSCI and FTSE emerging
markets indices. The MSCI upgrade began in May and takes place in
two tranches; the second tranche will be in August. FTSE Russell's
upgrade started in March and is spread over five tranches. As at 30
June 2019, three tranches were complete and the remaining two will
take effect in September and in March 2020.
In the absence of major domestic and external shocks, based on
Saudi Arabia's weight in the index, inflows from investors could
reach US$40bn.
MSCI confirmed Kuwait's inclusion in its EM index starting June
2020. This decision is expected to attract c.US$2.8 billion of
inflows from passive funds. Nine Kuwaiti stocks will be added,
giving the Kuwaiti market c.0.5 per cent weight in the index.
The reclassification is subject to the implementation of further
market reforms to be introduced by Kuwait this year. These are due
to be implemented before the end of November.
Table: Saudi Arabia Upcoming FTSE / MSCI Inclusion Timeline
FTSE (Expected Weight: 2.7%)
Date Phase % inclusion Expected Inflows (US$ Bn)
19-Sep-19 IV 25% 1.5
19-Mar-20 V 25% 1.5
MSCI (Expected Weight: 2.6%)
Date Phase % inclusion Expected Inflows (US$ Bn)
28-Aug-19 II 50% 5.5
Source: EFG Hermes Estimates
Economic Outlook
Economic reforms and infrastructure spending by regional
governments has started yielding positive results for GCC
economies, which can be seen in a pickup in non-oil growth for most
countries.
GCC Non-oil GDP Growth:
Avg. 2000-15a 2016a 2017a 2018a 2019f 2020f
Bahrain 7.1 4.3 4.9 2.5 2.2 2.5
-------------- ------ ------ ------ ------ ------
Kuwait 6.2 1.4 2.1 2.5 3.0 3.5
-------------- ------ ------ ------ ------ ------
Oman 6.9 6.2 0.5 2.5 2.5 3.0
-------------- ------ ------ ------ ------ ------
Qatar 12.3 5.3 3.8 5.3 4.6 4.3
-------------- ------ ------ ------ ------ ------
Saudi Arabia 6.2 0.2 1.3 2.1 2.6 2.9
-------------- ------ ------ ------ ------ ------
UAE 6.2 3.2 2.5 1.3 2.7 4.0
-------------- ------ ------ ------ ------ ------
GCC 6.9 1.9 1.9 2.3 2.9 3.3
-------------- ------ ------ ------ ------ ------
IMF REO April 2019
Saudi Arabia's fiscal, labor and capital market reforms,
undertaken over the past few years, have started bearing fruit.
Non-oil growth has picked-up, female participation in the labour
force has increased, the introduction of VAT has underpinned an
increase in non-oil tax revenues, while energy price reforms have
helped reduce per capita consumption of gasoline and electricity.
Measures have also been introduced to shield lower and
middle-income households from higher costs resulting from these
reforms. Reforms to the capital markets, legal framework, and
business environment are also progressing well.
During the period, Saudi Aramco sold US$12 billion of
international bonds across five tranches, in one of the most
oversubscribed debt issuances of all time.
Saudi Arabia Purchasing Managers' Index (PMI) improved to a
19-month high of 57.4 in June from 57.3 in May, as Saudi Arabian
firms reported rising output and new orders. Meanwhile, the
unemployment rate among Saudi nationals fell for the third
consecutive quarter in the first quarter of 2019 to 12.5 per
cent.
The UAE economy continued to adjust in 2018, when non-oil growth
slowed to 1.3 per cent, while the overall economy grew 1.7 per
cent, benefiting from increased oil production. The economy is now
at a turning point, supported by public spending. A substantial
amount of Expo 2020 investment should be completed by end-year,
while some government related businesses are embarking on
investment plans. This is expected to raise the growth rate to over
2 per cent this year and to nearly 3 per cent in 2020-21.
The stimulus plan for Dubai is directed at technology
entrepreneurship, including waiving property registration fines for
60 days, freezing school fees and scrapping 19 fees related to the
aviation industry. The Abu Dhabi economic stimulus plan aims to
create at least 10,000 jobs for Emiratis in the private and public
sectors over the next five years, as well as boosting the
competitiveness of SMEs.
The Abu Dhabi government continued its efforts to open the
economy, announcing plans to permit the sale of land and property
in investment areas to foreigners on a freehold basis - previously
limited to Emiratis and other GCC citizens. This should help boost
property demand and ultimately prices. UAE also announced plans to
issue permanent 'Golden Card' residency visas to high-net-worth
individuals and highly skilled workers, in a bid to support foreign
investment and retain exceptional talent. Around 6,800 individuals
with a combined worth of about US$27 billion are currently eligible
for the visa.
The UAE PMI rose to a four-year high of 59.4 in May from 57.6 in
April, led by gains in new orders and output, which rose to
multi-year highs.
Abu Dhabi Commercial Bank, Union National Bank and Al Hilal Bank
merged and with combined assets of US$115 billion became the third
largest lender in the UAE. The merger comes amid ongoing
consolidation efforts in the UAE banking industry to strengthen
profit margins.
Qatar's overall GDP growth is projected to reach 2.6 per cent in
2019 from 2.2 per cent in 2018, supported by a recovery in
hydrocarbon output and robust growth of the non-hydrocarbon sector.
The projected non-hydrocarbon growth for 2019 reflects the
persistent multiplier effects of continued increases in capital
expenditure in recent years, the gradual pace of fiscal
consolidation, ample liquidity, and increased private sector
activity. Medium-term growth will be supported by increased gas
production from the Barzan field and a planned increase in LNG
production capacity.
Qatar's banking system remains well capitalised and asset
quality is strong. Liquidity pressures that emerged following the
blockade in June 2017 have waned, and foreign exchange reserves
have recovered to pre-blockade levels.
In Kuwait growth has resumed, with hydrocarbon output rising by
1.2 percent in 2018 after contracting a year earlier. Buoyed by a
rebound in confidence and government spending, non-oil growth has
accelerated to 2.5 per cent. After the first deficit in more than
two decades in 2016, the current account shifted back into surplus
in 2017 and reached an estimated surplus of 12.7 per cent of GDP in
2018.
Overall growth in Kuwait is expected to strengthen. The recent
OPEC+ (the grouping of OPEC members plus Russia and other oil
producers) decision to cut production is expected to limit oil
output growth to 2 per cent in 2019, which should rebound to 2.5
per cent in 2020 given the spare capacity. Non-oil growth is
projected to increase to 3 per cent in 2019 and 3.5 per cent in
2020, driven by accelerated capital project execution. Once the
headwinds from new taxes wear off, non-oil growth could reach 4 per
cent. As growth strengthens, and capital projects come on stream,
credit growth should pick up, aided by bank liquidity and the
recent easing of lending limits on personal loans.
Oman is reportedly preparing for an international debt issue
(US$2 billion) in a bid to help finance its budget deficit
(estimated at 7 per cent of GDP in 2019). This comes after recent
downgrades that have left its credit rating at non-investment
grade. Early this year the government announced that it plans to
finance 86 per cent of its deficit with foreign and domestic
borrowing and the rest from its reserves.
Additionally, the Oman government plans to make changes to FDI
laws to encourage investment inflows. The changes include granting
foreign firms 100 per cent ownership and lowering minimum capital
requirements. These laws are expected to be passed by the end of
this year. Also, to boost non-oil revenues, in June the government
implemented an excise tax of 100 per cent on selected goods,
including sugary drinks and tobacco. A 5 per cent VAT originally
planned for 2018 is likely to follow in 2020.
Other Recent Developments
In February 2019, Saudi Crown Prince Mohammed bin Salman visited
China, India and Pakistan, where he signed multibillion investment
contracts. This is part of the Kingdom's plan to strengthen ties
with Asian countries to fuel its economic transformation
programme.
In 1Q19, Saudi Arabia closed six privatisation deals worth
SAR13.3 billion in the Water, Healthcare and Transportation
sectors. A further 23 privatization projects, due for completion in
2022, are in the pipeline. Saudi Arabia has begun the construction
of residential units in the US$500 billion Neom city project with
phase 1 expected to complete in 2020. Saudi also announced the
"Employment Subsidy Program for Upskilling" to encourage local
nationals to work in the private sector with a subsidy equivalent
to 30 per cent of their salaries for their first year.
In a bid to lure more investment to the real estate sector,
Qatar plans to open further its property market to foreign
investors. In line with this decision, ten locations have been
identified allowing 100 per cent foreign ownership.
Portfolio structure
Country allocation
GIF's weightings in GCC markets are based on the Investment
Adviser's views on investment outlook and valuation. Compared to
the benchmark, GIF remains overweight Qatar (30.4 per cent of NAV)
because of Qatar's macro-economic resilience. GIF's weighting in
Saudi, UAE and Kuwait are 27.6 per cent, 15.5 per cent and 12.6 per
cent, respectively. The investment advisor took some profits from
its Saudi Arabia holdings during the period, as a result of which
GIF's cash position stood at 13.9 per cent of NAV as at 30 June
2019 (30 December 2019: 1.3 per cent).
As of 30 June, GIF had 49 holdings: 29 in Saudi Arabia, 8 in
Qatar, 4 in the UAE and 8 in Kuwait (vs. 42 holdings in 4Q18: 23 in
Saudi Arabia, 11 in Qatar, 4 in the UAE and 4 in Kuwait).
Embedded image removed - please refer to the Company's website
www.gulfinvestmentfundplc.com for charts depicting Country
allocation.
Portfolio
Top 5 Holdings
Company Country Sector % share of GIF NAV
Emirates NBD UAE Financials 9.7%
--------- ------------ -------------------
Qatar Gas Transport Qatar Energy 8.4%
--------- ------------ -------------------
Commercial Bank of Qatar Qatar Financials 4.7%
--------- ------------ -------------------
Qatar International Islamic Bank Qatar Financials 4.0%
--------- ------------ -------------------
Gulf International Services Qatar Energy 4.0%
--------- ------------ -------------------
Source: QIC
The Investment Adviser raised its holdings in Emirates NBD, a
leading bank in the UAE with c.20 per cent market share of UAE's
loans and deposits. The bank is consistently improving its
operating metrics and earnings. It already operates in Egypt and
Saudi Arabia and plans to enter the Turkish market with the
acquisition of DenizBank. The Investment Adviser remains positive
on Qatar Gas Transport Company as the company is well placed to
benefit from increased transport demand arising from the expansion
of Qatar's 'North Field' gas field.
The Investment Adviser increased the holding in Gulf
International Services Co. (GISS), one of the key beneficiaries of
Qatar's North Field expansion. GISS recently secured a major
drilling contract from Qatar Petroleum which is expected to boost
earnings in the medium-term. The Investment Adviser also increased
holdings in Qatar Int'l Islamic Bank as the valuation was
attractive.
The holding in Al Rajhi Bank, National commercial bank and
National Bank of Kuwait were sold at a profit.
Embedded image removed - please refer to the Company's website
www.gulfinvestmentfundplc.com for a chart depicting Sector
Allocation as at 30 June 2019.
The Financials sector remains GIF's major sector, making up 40.4
per cent of the fund. However, this has decreased from 55.2 per
cent in 4Q18, as the Investment Adviser reduced holdings and booked
profits.
The Investment Adviser increased holdings in the Consumer sector
to 13.4 per cent from 5.6 per cent in December 2018. The long-term
outlook of the sector remains good, thanks to favorable
demographics (high young and working age population) and an
expected strong growth in tourism and per capita income. Saudi
government initiatives such as allowances for public sector
employees, the continuation of the citizen's account programme
(cash transfers deposited directly in the accounts of the
beneficiary citizens) to support low income families should help
boost consumer spending.
Holdings in Industrials sector rose to 8.7 per cent from 4.0 per
cent in 4Q18, as the valuations were attractive. While, holdings in
the Materials sector were substantially reduced to 0.8 per cent
from 9.9 per cent in 4Q18, as the Investment Adviser booked
profits.
Investments in the Communication Services and Healthcare sector
were increased while holdings in the Real estate and Utilities
sector were reduced during the period.
Qatar Gas Transport (8.4 per cent of NAV)
Qatar Gas Transport Company (Nakilat), established in 2004, is a
key midstream player in the hydrocarbon sector in the state of
Qatar. The company's LNG shipping fleet is the largest in the
world, comprising of 69 LNG vessels. It also owns 1 FSRU vessel and
four large LPG carriers. Out of the 69 LNG vessels, 25 are wholly
owned and 44 are under joint ventures (JV). Nakilat also provides
shipping and marine-related services to a range of participants
within the Qatari hydrocarbon sector. Nakilat is an integral
component of the supply chain of some of the largest, most advanced
energy projects in the world undertaken by Qatar Petroleum,
Qatargas and their joint venture partners for the State of Qatar.
For 1H19, Nakilat reported a net profit of US$131 million compared
to US$122 million during the same period in FY18, an increase of
7.1 per cent. Going forward, Qatar's North Field expansion plan
paves the way for increased transportation of gas, which may
benefit the Company in the longer run.
Commercial Bank of Qatar (4.7 per cent of NAV)
Commercial Bank of Qatar (CBQ) is the second largest commercial
bank in Qatar established in 1975 offering banking solutions
worldwide, with primary focus on corporate and retail banking. The
Bank's nationwide network includes 31 full-service branches and 174
ATMs. Under its diversification strategy, CBQ has expanded its GCC
footprint through strategic partnerships with associated banks -
the National Bank of Oman (NBO) in Oman, United Arab Bank (UAB) in
the UAE and subsidiary Alternatifbank in Turkey. Under the 5-year
turnaround strategy, the Bank is strengthening its balance sheet by
prudently managing the risks. Bottom line is expected to improve
substantially once the high provision cycle comes to an end,
moreover, ongoing cost optimisation will also add to the
bottom-line. For 1H19, CBQ reported net profit of US$257 million,
an increase of 9.2 per cent, reflecting effective execution of the
strategy. As of 30(th) June 2019, the Bank has total assets of
US$38.7 billion.
Qatar International Islamic Bank (4.0 per cent of NAV)
Established in 1991, Qatar International Islamic Bank (QIIB) is
an Islamic bank in the State of Qatar offering personal and
corporate Islamic banking solutions. The Bank operates through its
head office located in Grand Hamad Street in Doha and 19 local
branches. The bank witnessed strong growth in financing assets in
the period 2011-2018 (CAGR 14.9 per cent). QIIB's total assets at
end of the 1H19 stood at US$14.9 billion vs. US$13.1 billion in
1H18 representing a growth of 13.9 per cent, while financing assets
grew by 13.1 per cent to reach US$8.6 billion. For 1H19, the bank's
net profit grew 5.5 per cent YoY to US$140.3 million.
Gulf International Services Co. (4.0 per cent of NAV)
Gulf International Services (GISS) Co., through its
subsidiaries, operates in four distinct segments - insurance and
reinsurance, drilling and associated services, helicopter
transportation services and catering services. Gulf drilling
international (GDI), a major subsidiary, operates in the onshore
and offshore oil and natural gas drilling business in Qatar. GDI
currently has direct ownership of 16 drilling rigs (8 offshore rigs
and 8 onshore rigs), which are used to drill wells suitable for oil
and natural gas extraction, 1 jack-up accommodation barge and 2
lift boats. GDI is one of the key beneficiaries of Qatar's North
Field expansion Plan. Recently, GDI secured a major drilling
contract from Qatar Petroleum which is expected to boost earnings
in the medium-term. For 1Q19, the Company reported net profit of
US$6.9 million vs. US$1.9 million loss reported in 1Q18.
GIF Performance
YTD 2019, the NAV is up 16.8 per cent against the benchmark's
+9.8 per cent. This continues the outperformance trend since the
investment policy extended to include the Gulf Cooperation Council
(GCC) region in late 2017.
Embedded image removed - please refer to the Company's website
www.gulfinvestmentfundplc.com for a chart depicting GIF
Performance.
GCC Outlook
Growth in the region is expected to improve to 2.1 per cent in
2019, up from 2 per cent in 2018 (source: IMF estimates).
Government spending and multiyear infrastructure plans will likely
provide support to economic activity in Kuwait and Saudi Arabia,
while Dubai Expo 2020-related spending in Dubai, and Abu Dhabi's
stimulus plan are expected to support growth in the UAE. In Qatar,
the beginning of the Barzan Gas Project operations will boost oil
growth; however, non-hydrocarbon growth there is projected to
moderate in 2019.
With large investments expected over the next few years, the
Investment Adviser expects to see rising investment opportunities
in sectors such as banking, infrastructure and industrials. The key
risk remains the direction of oil prices, which if they drop
further, will start to limit spending by governments in the region.
The Investment Adviser remains positive on growth in the region,
led by the planned infrastructure projects and the momentum of
reforms across nations.
Valuations
Market Market Cap. PE (x) PB (x) Dividend Yield (%)
US$ billion 2019E 2020E 2019E 2020E 2019E 2020E
============ ====== ====== ====== ====== ========== =========
Qatar 139.1 14.56 13.45 1.73 1.64 3.95 4.17
============ ====== ====== ====== ====== ========== =========
Saudi Arabia 550.0 16.55 15.22 1.99 1.90 3.48 3.73
============ ====== ====== ====== ====== ========== =========
Dubai 77.8 7.40 7.11 1.06 0.98 4.68 4.93
============ ====== ====== ====== ====== ========== =========
Abu Dhabi 147.6 13.92 12.79 1.72 1.64 4.77 5.08
============ ====== ====== ====== ====== ========== =========
Kuwait 112.5 14.69 13.64 1.18 1.08 5.54 6.01
============ ====== ====== ====== ====== ========== =========
S&P GCC 933.9 15.03 13.80 1.65 1.56 4.01 4.32
============ ====== ====== ====== ====== ========== =========
MSCI EM 14,670.4 13.07 11.50 1.53 1.37 2.97 3.26
============ ====== ====== ====== ====== ========== =========
MSCI World 47,500.4 16.59 15.17 2.33 2.19 2.48 2.62
============ ====== ====== ====== ====== ========== =========
Source: Bloomberg, as of 24(th) July 2019; Market Cap. as of
23(rd) July 2019
Epicure Managers Qatar Limited Qatar Insurance Company
S.A.Q.
17 September 2019 17 September 2019
Investment Policy
Investment objective
The Company's investment objective is to capture the
opportunities for growth offered by the expanding GCC economies by
investing in listed companies on one of the GCC exchanges or
companies soon to be listed on one of the GCC exchanges.
The Company applies a top-down screening process to identify
those sectors which should most benefit from sector growth trends.
Fundamental industry and company analysis, rather than
benchmarking, forms the basis of both stock selection and portfolio
construction.
Assets or companies in which the Company can invest
The Company invests in listed companies on any GCC Exchanges in
addition to companies soon to be listed. The Company may also
invest in listed companies, or pre-IPO companies, in other GCC
countries. The Company will also be permitted to invest in
companies listed on stock markets not located in the GCC which will
have a significant economic exposure to and/or derive a significant
amount of their revenues from GCC countries.
Whether investments will be active or passive investments
In the ordinary course of events, the Company is not an activist
investor, although the Investment Adviser will seek to engage with
investee company management where appropriate.
Holding period for investments
In the normal course of events, the Company expects to be
fully-invested, although the Company may hold cash reserves pending
new IPOs or when it is deemed financially prudent. Although the
Company is a long-term financial investor, it will actively manage
its portfolio.
Spread of investments and maximum exposure limits
The Company will invest in a portfolio of investee companies.
The following investment restrictions are in place to ensure a
spread of investments and to ensure that there are maximum exposure
limits in place (see investment guidelines under Investing
Restrictions).
Policy in relation to gearing and derivatives
Borrowings will be limited, as at the date on which the
borrowings are incurred, to 5% of NAV. Borrowings will include any
financing element of a swap. The Company will not make use of
hedging mechanisms.
The Company may utilise derivative instruments in pursuit of its
investment policy subject to:
-- such derivative instruments being designed to offer the
holder a return linked to the performance of a particular
underlying listed equity security;
-- a maximum underlying equity exposure limit of 15 per cent of
NAV (calculated at the time of investment); and
-- a policy of entering into derivative instruments with more
than one counterparty in relation to an investment, where possible,
to minimise counterparty risk.
Policy in relation to cross-holdings
Cross-holdings in other listed or unlisted investment funds or
ETFs that invest in Qatar or other countries in the GCC region will
be limited to 10 per cent. of Net Asset Value at any time
(calculated at the time of investment).
Investing restrictions
The investing restrictions for the Company are as follows:
(i) Foreign ownership restrictions
Investments in most GCC listed companies by persons other than
citizens of that specific GCC country have an ownership restriction
wherein the law precludes persons other than citizens of that
specific GCC country from acquiring a certain proportion of a
company's issued share capital. It is possible that the Company may
have problems acquiring stock if the foreign ownership interest in
one or more stocks reaches the allocated upper limit. This may
adversely impact the ability of the Company to invest in certain
companies listed on the GCC exchanges.
(ii) Investment guidelines
The Company has established certain investment guidelines. These
are as follows (all of which calculated at the time of
investment):
-- No single investment position in the S&P GCC Composite
constituent may exceed the greater of: (i) 15 per cent. of the Net
Asset Value of the Company; or (ii) 125 per cent. of the
constituent company's index capitalisation divided by the index
capitalisation of the S&P GCC Composite Index, as calculated by
Bloomberg (or such other source as the Directors and Investment
Manager may agree):
-- No single investment position in a company which is not a
S&P GCC Composite Index constituent may at the time of
investment exceed 15 per cent. of the NAV of the Company; and
-- No holding may exceed 5 per cent. of the outstanding shares
in any one company (including investment in Saudi Arabian listed
companies by way of derivative investment in P-Note or Swap
structured financial products); and
(iii) Conflicts management
The Investment Manager, the Investment Adviser, their officers
and other personnel are involved in other financial, investment or
professional activities, which may on occasion give rise to
conflicts of interest with the Company. The Investment Manager will
have regard to its obligations under the Investment Management
Agreement to act in the best interests of the Company, and the
Investment Adviser will have regard to its obligations under the
Investment Adviser Agreement to act in the best interests of the
Company, so far as is practicable having regard to their
obligations to other clients, where potential conflicts of interest
arise. The Investment Manager and the Investment Adviser will use
all reasonable efforts to ensure that the Company has the
opportunity to participate in potential investments that each
identifies that fall within the investment objective and strategies
of the Company. Other than these restrictions set out above, and
the requirement to invest in accordance with its investing policy,
there are no other investing restrictions.
Returns and distribution policy
The Company's primary investment objective is to achieve capital
growth. However, the Company has instituted an annual dividend
policy to return to Shareholders distributions at least equal to
reported income for each reporting period. Shareholders should note
that this cannot be guaranteed and the level of distributions for
any period remains a matter to be determined at the discretion of
the Board.
Life of the Company
The Company currently does not have a fixed life but the Board
considers it desirable that Shareholders should have the
opportunity to review the future of the Company at appropriate
intervals. Accordingly, at the annual general meeting of the
Company in 2021, a resolution will be proposed that the Company
continues in existence. More than 50 per cent. of Shareholders
voting must vote in favour for this resolution to be passed. If the
resolution is passed, a similar resolution will be proposed at
every third annual general meeting thereafter. If the resolution is
not passed, the Directors will be required to formulate proposals
to be put to Shareholders to reorganise, unitise or reconstruct the
Company or for the Company to be wound up.
Report of the Directors
The Directors hereby submit their annual report together with
the audited consolidated and Company financial statements of Gulf
Investment Fund plc (the "Company") for the year ended 30 June
2019.
The Company
The Company is incorporated in the Isle of Man and has been
established to invest primarily in quoted equities of Qatar and
other Gulf Co-operation Council (GCC) countries. The Company's
investment policy is detailed on pages 15 to 16.
Results and Dividends
The results of the Company for the year and its financial
position at the year- end are set out on pages 37 to 47 of the
financial statements.
The Directors manage the Company's affairs to achieve capital
growth and the Company has instituted an annual dividend policy.
The quantum of the dividend is calculated based on a proportion of
the dividends received during the year, net of the Company's
attributable costs. Any undistributed income will be set aside in a
revenue reserve in order to facilitate the Company's policy of
future progressive dividend payments. This policy will be subject
to the absence of exceptional market events.
For the year ended 30 June 2018, the Directors declared a
dividend of US$2,773,837 (3.0c per share) which was approved by
Shareholders and paid by the Company in December 2018. The
Directors recommend a dividend of 3 cents per share in respect of
the year ended 30 June 2019.
Directors
Details of Board members at the date of this report, together
with their biographical details, are set out on page 26.
Director independence and Directors' and other interests have
been detailed in the Directors' Remuneration Report on pages 30 and
31.
Creditor payment policy
It is the Company's policy to adhere to the payment terms agreed
with individual suppliers and to pay in accordance with its
contractual and other legal obligations.
Gearing policy
Borrowings will be limited, as at the date on which the
borrowings are incurred, to 5% of NAV (or such other limit as may
be approved by the Shareholders in general meeting). The Company
will not make use of any hedging mechanisms.
There were no borrowings during the year (2018: US$ nil).
Donations
The Company has not made any political or charitable donations
during the year (2018: US$ nil).
Adequacy of the Information Supplied to the Auditors
The Directors who held office at the date of approval of this
Directors' Report confirm that, so far as each is aware, there is
no relevant audit information of which the Company's auditors are
unaware; and each Director has taken all steps that he ought to
have taken as a Director to make himself aware of any relevant
audit information and to establish that the Company's auditors are
aware of that information.
Statement of going concern
The Directors are satisfied that the Company and the Group have
adequate resources to continue to operate as a going concern for
the foreseeable future and have prepared the financial statements
on that basis, however Shareholders will be given the opportunity
to vote for a 100% tender in 2020 and to vote for the continued
existence of the Company at the annual general meeting (AGM) in
2021 and every third AGM thereafter.
Independent Auditors
KPMG Audit LLC has expressed its willingness to continue in
office in accordance with Section 12 (2) of the Companies Act
1982.
Annual general meeting
The Annual General Meeting of the Company will be held on 8
November 2019 at the Company's registered office.
A copy of the notice of Annual General Meeting is contained
within this Annual Report. As well as the business normally
conducted at such a meeting, Shareholders will be asked to renew
the authority to allow the Company to continue with share
buy-backs.
The notice of the Annual General Meeting and the Annual Report
are also available at www.gulfinvestmentfundplc.com.
Corporate governance
Full details are given in the Corporate Governance Report on
pages 19 to 25, which forms part of the Report of the
Directors.
Substantial shareholdings
As at the date of publication of this annual report, the Company
had been notified, or the Company is aware of the following
significant holdings in its Share Capital.
Ordinary Shares
Name %
----------------
City of London Investment Management
Company 28.24
----------------
Qatar Insurance Company S.A.Q. 18.73
----------------
1607 Capital Partners LLC 15.47
----------------
Qatar Investment Authority 11.66
----------------
Lazard Asset Management 5.99
----------------
Aberdeen Emerging Capital 3.15
----------------
Certain of these substantial shareholdings can be further broken
down as follows:
Qatar Insurance Company S.A.Q.:
QIC 12,768,260 13.81%
QIC - separately managed 3,779,107 4.09%
----------- -------
Q-Re LLC - separately
managed 772,391 0.84%
----------- -------
Total 17,319,758 18.73%
----------- -------
Lazard Asset Management:
Lazard - voting rights 3,609,169 3.90%
Lazard - non voting
rights 1,930,266 2.09%
---------- ------
Total 5,539,435 5.99%
---------- ------
The above percentages are calculated by applying the
Shareholdings as notified to the Company or the Company's awareness
to the issued Ordinary Share Capital as at 31 May 2019.
On behalf of the Board
Nicholas Wilson
Chairman
17 September 2019
Millennium House
46 Athol Street
Douglas
Isle of Man
IM1 1JB
Corporate Governance Report
Compliance with Companies Acts
As an Isle of Man incorporated company, the Company's primary
obligation is to comply with the Isle of Man Companies Acts 1931 to
2004. The Board confirms that the Company is in compliance with the
relevant provisions of the Companies Acts.
Compliance with the Association of Investment Companies (AIC)
Code of Corporate Governance
The Company is committed to high standards of corporate
governance. The Board is accountable to the Company's shareholders
for good governance and this statement describes how the Company
applies the principles identified in the UK Corporate Governance
Code which is available on the Financial Reporting Council's
website: www.frc.org.uk. The Board confirms that the Company has
complied throughout the accounting period with the relevant
provisions contained within the UK Code.
The Board of the Company has considered the principles and
recommendations of the AIC 2014 Code of Corporate Governance (AIC
Code) by reference to the AIC Corporate Governance Guide for
investment Companies (AIC Guide). The AIC Code, as explained by the
AIC Guide, addresses all the principles set out in the UK Corporate
Governance Code, as well as setting out additional principles and
recommendations on issues that are of specific relevance to the
Company.
The Board considers that reporting against the principles and
recommendations of the AIC Code, and by reference to the AIC Guide
(which incorporates the UK Corporate Governance Code), will provide
better information to shareholders.
The Company has complied with the recommendations of the AIC
Code and the relevant provisions of the UK Corporate Governance
Code, except the length of service of Mr. Wilson and Mr. MacDonald
and as set out below.
The UK Corporate Governance Code includes provisions relating
to:
-- the role of the chief executive
-- executive directors' remuneration
-- the need for an internal audit function
For the reasons set out in the AIC Guide, and as explained in
the UK Corporate Governance Code, the Board considers these
provisions are not relevant to the position of the Company, being
an externally managed investment company. In particular, all of the
Company's day-to-day management and administrative functions, with
the exception of portfolio management, risk management and service
provider performance management, are outsourced to third parties.
As a result, the Company has no executive directors, employees or
internal operations. The Company has therefore not reported further
in respect of these provisions.
Directors
The Directors are responsible for the determination of the
Company's investment policy and strategy and have overall
responsibility for the Company's activities including the review of
the investment activity and performance.
All of the Directors are non-executive. The Board considers each
of the Directors to be independent of, and free of any material
relationship with, the Investment Manager and Investment
Adviser.
The Board of Directors delegates to the Investment Manager
through the Investment Management Agreement the responsibility for
the management of the Company's assets in GCC securities in
accordance with the Company's investment policy and for retaining
the services of the Investment Adviser. The Company has no
executives or employees.
The Articles of Association require that all Directors submit
themselves for election by Shareholders at the first opportunity
following their appointment and shall not remain in office longer
than three years since their last election or re-election without
submitting themselves for re-election.
The Board meets formally at least 4 times a year and between
these meetings there is regular contact with the Investment
Manager. Other meetings are arranged as necessary. The Board
considers that it meets regularly enough to discharge its duties
effectively. The Board ensures that at all times it conducts its
business with the interests of all Shareholders in mind and in
accordance with Directors' duties. Directors receive the relevant
briefing papers in advance of Board and Board Committee meetings,
so that should they be unable to attend a meeting they are able to
provide their comments to the Chairman of the Board or Committee as
appropriate. The Board meeting papers are the key source of regular
information for the Board, the contents of which are determined by
the Board and contain sufficient information on the financial
condition of the Company. Key representatives of the Investment
Manager attend each Board meeting. All Board and Board Committee
meetings are formally minuted.
Board composition and succession plan
Objectives of Plan
-- To ensure that the Board is composed of persons who
collectively are fit and proper to direct the Company's business
with prudence, integrity and professional skills
-- To define the Board Composition and Succession Policy, which
guides the size, shape and constitution of the Board and the
identification of suitable candidates for appointment to the
Board.
Methodology
The Board is conscious of the need to ensure that proper
processes are in place to deal with succession issues and the
Nomination Committee assists the Board in the Board selection
process, which involves the use of a Board skills matrix.
The matrix incorporates the following elements: finance,
accounting and operations; familiarity with the regions into which
the Company invests; diversity (gender, residency, cultural
background); Shareholder perspectives; investment management;
multijurisdictional compliance and risk management. In adopting the
matrix, the Nomination Committee acknowledges that it is an
iterative document and will be reviewed and revised periodically to
meet the Company's on-going needs.
The Nomination Committee monitors the composition of the Board
and makes recommendations to the Board about appointments to the
Board and its Committees.
Directors may be appointed by the Board, in which case they are
required to seek election at the first AGM following their
appointment and triennially thereafter. Directors who are not
regarded as independent are required to seek re-election annually.
In making an appointment the Board shall have regard to the Board
skills matrix.
A Director's formal letter of appointment sets out, amongst
other things, the following requirements:
-- bringing independent judgment to bear on issues of strategy,
performance, resources, key appointments and standards of conduct
and the importance of remaining free from any business or other
relationship that could materially interfere with independent
judgement;
-- having an understanding of the Company's affairs and its
position in the industry in which it operates;
-- keeping abreast of and complying with the legislative and
broader responsibilities of a Director of a company whose shares
are traded on the London Stock Exchange;
-- allocating sufficient time to meet the requirements of the
role, including preparation for Board meetings; and
-- disclosing to the Board as soon as possible any potential conflicts of interest.
The Board authorises the Nomination Committee to:
-- recommend to the Board, from time to time, changes that the
Committee believes to be desirable to the size and composition of
the Board;
-- recommend individuals for nomination as members of the Board;
-- review and recommend the process for the election of the
Chairman of the Board, when appropriate; and
-- review on an on-going basis succession planning for the
Chairman of the Board and make recommendations to the Board as
appropriate.
The Plan will be reviewed by the Board annually and at such
other times as circumstances may require (e.g. a major corporate
development or an unexpected resignation from the Board). The Plan
may be amended or varied in relation to individual circumstances at
the Board's discretion.
The Board will review Mr. Wilson's position as Chairman after
the 100% tender offer in 2020.
Board Committees
The Board has established the following committees to oversee
important issues of policy and maintain oversight outside the main
Board meetings:
-- Audit Committee
-- Remuneration Committee
-- Nomination Committee
-- Management Engagement Committee
Throughout the year the Chairman of each committee provided the
Board with a summary of the key issues considered at the meeting of
the committees and the minutes of the meetings were circulated to
the Board.
The committees operate within defined terms of reference. They
are authorised to engage the services of external advisers as they
deem necessary in the furtherance of their duties, at the Company's
expense.
Audit Committee
The Board has established an Audit Committee made up of at least
two members and comprises Paul Macdonald, Nicholas Wilson, Neil
Benedict and David Humbles. The Audit Committee is responsible for,
inter alia, ensuring that the financial performance of the Company
is properly reported on and monitored. The Audit Committee is
chaired by Paul Macdonald. The Audit Committee normally meets at
least twice a year when the Company's interim and final reports to
Shareholders are to be considered by the Board but meetings can be
held more frequently if the Audit Committee members deem it
necessary or if requested by the Company's auditors. The Audit
Committee will, amongst other things, review the annual and interim
accounts, results announcements, internal control systems and
procedures, preparing a note in respect of related party
transactions and reviewing any declarations of interest notified to
the Committee by the Board each on six monthly basis, review and
make recommendations on the appointment, resignation or dismissal
of the Company's auditors and accounting policies of the Company.
The Company's auditors are advised of the timing of the meetings to
consider the annual and interim accounts and the auditors shall be
asked to attend the Audit Committee meeting where the annual
audited accounts are to be considered. The Audit Committee chairman
shall report formally to the Board on its proceedings after each
meeting and compile a report to Shareholders on its activities to
be included in the Company's annual report. At least once a year,
the Audit Committee will review its performance, constitution and
terms of reference to ensure that it is operating at maximum
effectiveness and recommend any changes it considers necessary to
the Board for approval.
The terms of reference for the Audit Committee are available on
the Company's website www.gulfinvestmentfundplc.com.
Significant Issues
During its review of the Company's financial statements for the
year ended 30 June 2019, the Audit Committee considered the
following significant issues, in particular those communicated by
the auditor during their reporting:
Valuation and existence of investments
The valuation of investments is undertaken in accordance with
the accounting policies, disclosed in note 1(a) to the financial
statements. The audit includes independent confirmation of the
existence of all investments from the Company's custodian. All
investments are considered liquid and priced based on quoted
process in active markets and have been categorised as Level 1 or
level 2 within the IFRS 13 fair value hierarchy. The portfolio is
reviewed and verified by the Manager on a regular basis and
management accounts including a full portfolio listing are prepared
each month and circulated to the Board. The Company uses the
services of an independent Custodian HSBC Bank Middle East Limited
to hold the assets of the Company. The investment portfolio is
reconciled regularly by the Manager and a reconciliation is also
reviewed by the Auditor.
Carrying value of Parent Company's loan to and investment in
subsidiary
The carrying value of the Parent Company's loan to and
investment in subsidiary represents 98.9% (2018: 98.9%) of the
Parent Company's total assets. The assessment of carrying value is
not at a high risk of significant misstatement or subject to
significant judgement as the carrying value is equal to the net
asset value of the subsidiary. However, due to its materiality in
the context of the Parent Company financial statements, this is
considered to be the area that had the greatest effect on the
Parent Company balance sheet.
Remuneration Committee
The Company has established a Remuneration Committee. The
Remuneration Committee is made up of at least two non-executive
Directors who are identified by the Board as being independent. Its
members are Neil Benedict (Chairman), Nicholas Wilson, Paul
Macdonald and David Humbles. The Remuneration Committee normally
meets at least once a year and at such other times as the chairman
of the Remuneration Committee shall require. The Remuneration
Committee reviews the performance of the Directors and sets the
scale and structure of their remuneration and the basis of their
letters of appointment with due regard to the interests of
Shareholders. In determining the remuneration of Directors, the
Remuneration Committee seeks to enable the Company to attract and
retain Directors of the highest calibre. No Director is permitted
to participate in any discussion of decisions concerning their own
remuneration. The Remuneration Committee reviews at least once a
year its own performance, constitutions and terms of reference to
ensure it is operating at maximum effectiveness and recommend any
changes it considers necessary to the Board for approval.
The terms of reference for the Remuneration Committee are
available on the Company's website
www.gulfinvestmentfundplc.com
Nomination Committee
The Company has established a Nomination Committee which shall
be made up of at least two members and which shall comprise all
independent non-executive Directors. The Nomination Committee
comprises Nicholas Wilson (Chairman), Neil Benedict, Paul Macdonald
and David Humbles. The Nomination Committee meets at least once a
year prior to the first quarterly Board meeting and at such other
times as the Chairman of the committee shall require. The
Nomination Committee is responsible for ensuring that the Board
members have the range of skills and qualities to meet its
principal responsibilities in a way which ensures that the
interests of Shareholders are protected and promoted and regularly
review the structure, size and composition of the Board. The
Nomination Committee shall, at least once a year, review its own
performance, constitution and terms of reference to ensure that it
is operating at maximum effectiveness and recommend any changes it
considers necessary to the Board for approval.
The Nomination Committee will assess potential candidates on
merit against a range of criteria including experience, knowledge,
professional skills and personal qualities as well as independence,
if this is required for the role.
Candidates' ability to commit sufficient time to the business of
the Company is also key, particularly in respect of the appointment
of the Chairman. The Chairman of the Nomination Committee is
primarily responsible for interviewing suitable candidates and a
recommendation will be made to the Board for final approval.
Management Engagement Committee
The Company has established a Management Engagement Committee
which is made up of at least two members who are independent
non-executive Directors. The Management Engagement Committee
members are Neil Benedict (Chairman), Paul Macdonald, Nicholas
Wilson and David Humbles. The Management Engagement Committee will
meet at least quarterly and is responsible for reviewing the
performance of the Investment Manager and other service providers,
to ensure that the Company's management contract is competitive and
reasonable for the Shareholders and to review and make
recommendations to the Board on any proposed amendment to or
material breach of the management contract and contracts with other
service providers.
Board Attendance
The number of formal meetings during the year of the Board, and
its Committees, and the attendance of the individual Directors at
those meetings, is shown in the following table:
Board Audit Committee Remuneration Nomination Management
Committee Committee Engagement
Committee
Total number
of meetings
in year 8(8) 6(6) 1(1) 2(2) 4(4)
------ ---------------- ------------------------- ----------- ------------
Meetings Attended (entitled to attend)
------------------------------------------------------------------------------
Nicholas Wilson
(Chairman and
Chairman of
Nomination Committee) 8 (8) 6 (6) 1 (1) 2 (2) 4 (4)
------ ---------------- ------------------------- ----------- ------------
Neil Benedict
(Chairman of
Remuneration
Committee and
Chairman of
Management Engagement
Committee) 8 (8) 6 (6) 1 (1) 2 (2) 4 (4)
------ ---------------- ------------------------- ----------- ------------
David Humbles 8 (8) 6 (6) 1 (1) 2 (2) 4 (4)
------ ---------------- ------------------------- ----------- ------------
Paul Macdonald
(Chairman of
Audit Committee) 8 (8) 6 (6) 1 (1) 2 (2) 4 (4)
------ ---------------- ------------------------- ----------- ------------
The Annual General Meeting was held on 7 November 2018.
Internal Control
The Board is responsible for the Company's system of internal
control and for reviewing its effectiveness. Its review takes place
at least once a year. Such a system is designed to manage rather
than eliminate the risk of failure to achieve business objectives
and can only provide reasonable and not absolute assurance against
material mis-statement or loss. The Board also determines the
nature and extent of any risks it is willing to take in order to
achieve its strategic objectives.
The Board has contractually delegated to external agencies,
including the Investment Manager and the Investment Adviser, the
management of the investment portfolio, the custodial services
(which include the safeguarding of the assets), the registration
services and the day-to-day accounting and Company Secretarial
requirements. Each of these contracts was entered into after full
and proper consideration by the Board of the quality and cost of
services offered including the control systems in operation in so
far as they relate to the affairs of the Company.
The Board, assisted by the Investment Manager and Investment
Adviser, has undertaken regular risk and controls assessments. The
business risks have been analysed and recorded in a risk and
internal controls report which is regularly reviewed. The Board has
reviewed the need for an internal audit function. The Board has
decided that the systems and procedures employed by the Investment
Manager and Investment Adviser, including its internal audit
function provide sufficient assurance that a sound system of
internal control, which safeguards Shareholders' investments and
the Company's assets, is maintained. An internal audit function,
specific to the Company, is therefore considered unnecessary.
The Board confirms that there is an on-going process for
identifying, evaluating and managing the Company's principal
business and operational risks that have been in place for the year
ended 30 June 2019 and up to the date of approval of the annual
report and financial statements.
Accountability and Relationship with the Investment Manager, the
Custodian and the Administrator
The Statement of Directors' Responsibilities is set out on page
27.
The Board has delegated contractually to external third parties,
including the Investment Manager, the Investment Adviser, the
Custodian and the Administrator, the management of the investment
portfolio, the custodial services (which include the safeguarding
of the assets), the day to day accounting, company secretarial and
administration requirements. Each of these contracts was entered
into after full and proper consideration by the Board of the
quality and cost of the services provided, including the control
systems in operation in so far as they relate to the affairs of the
Company.
The Investment Manager, the Investment Adviser and the
Administrator ensure that all Directors receive, in a timely
manner, all relevant management, regulatory and financial
information. Representatives of the Investment Manager and the
Administrator attend each Board meeting enabling the Directors to
probe further on matters of concern.
Continued Appointment of the Investment Manager
The Board considers the arrangements for the provision of
investment management and other services to the Company on an
on-going basis. The Board reviews investment performance at each
Board meeting and a formal review of the Investment Manager (and
Investment Adviser) is conducted annually. As a result of their
annual review, NAV performance has been found to be satisfactory
and it is the opinion of the Directors that the continued
appointment of the current Investment Manager (and Investment
Adviser) on the terms agreed is in the interests of the Company's
Shareholders as a whole.
Relations with Shareholders
The Chairman is responsible for ensuring that all Directors are
made aware of Shareholders' concerns. The Shareholder profile of
the Company is regularly monitored and the Board liaises with the
Investment Manager to canvass Shareholder opinion and communicate
views to Shareholders. The Company is concerned to provide the
maximum opportunity for dialogue between the Company and
Shareholders. It is believed that Shareholders have proper access
to the Investment Manager at any time and to the Board if they so
wish. All Shareholders are encouraged to attend annual general
meetings. Together with the Investment Manager and Investment
Adviser, regular investor presentations are held to promote a wider
following for the Company.
Viability statement
The Board makes an assessment of the longer term prospects of
the Company beyond the timeframe envisaged under the going concern
basis of accounting having regard to the Company's current position
and the principal risks it faces. The Board does this by performing
robust risk assessments using a detailed risk matrix at each of its
scheduled audit committee meetings.
The Company is a long term investment vehicle and the Directors,
therefore, believe that it is appropriate to assess its viability
over a long term horizon. The Board considers that assessing the
Company's prospects over a period of five years is appropriate
given the nature of the Company and the inherent uncertainties of
looking out over a longer time period. The Directors believe that a
five year period appropriately reflects the long term strategy of
the Company and over which, in the absence of any adverse change to
the regulatory environment, they do not expect there to be any
significant change to the current principal risks and to the
adequacy of the mitigating controls in place.
Notwithstanding the above the Company's Shareholders will have
the opportunity to vote for the cessation of the Company at the
annual general meeting in 2021 which will be proposed as an
ordinary resolution. In the event that the continuation vote is not
passed the Directors will be required to put forward proposals to
Shareholders to the effect that the Company be wound up,
liquidated, reorganised or unitised. If the continuation vote is
passed, a further continuation vote will be proposed at every third
annual general meeting thereafter. In addition, the Directors are
committed to making a tender offer to shareholders for up to 100%
of the share capital in 2020 subject to shareholder approval.
On behalf of the Board
Nicholas Wilson
Chairman
17 September 2019
Board of Directors
Nicholas Wilson (Non-Executive Chairman)
Nicholas Wilson has over 40 years of experience in hedge funds,
derivatives and global asset management. He has run offshore branch
operations for Mees Pierson Derivatives Limited, ADM Investor
Services International Limited and several other London based
financial services companies. He is a director of EPE Special
Opportunities Limited. He is a resident of the Isle of Man.
Paul Macdonald (Non-Executive Director)
Paul Macdonald qualified as a chartered accountant in 1979. He
worked for Pilkington plc for sixteen years, the last seven of
these in Germany. In Germany he was Managing Director for
Pilkington Deutschland GmbH (holding company) and Managing Director
of both Flachglas AG (glass manufacturer) and Dahlbusch AG
(property and holding company). For the last fourteen years Paul
has been active in the private equity market and has been
successful in developing a number of companies covering a number of
industries including Sirona Beteiligungs GmbH (Germany), a
leveraged buy-out from Siemens. He is currently the Geschäftsführer
for Optas GbmH. Paul is a Non-Executive Director of PME African
Infrastructure Opportunities plc.
Neil Benedict (Non-Executive Director)
Neil Benedict is based in the USA with over thirty years'
experience of financial markets. He was formerly a Managing
Director at Salomon Brothers, where he was Head of International
Capital Markets, and, prior to that, the founder and head of the
worldwide Currency Swaps group. Neil was also a Managing Director
at Dillon Read and helped establish their Tokyo office. He is
currently a Senior Managing Director at Sonenshine Partners a New
York private investment bank. Neil is a fellow member of the
Institute of Chartered Accountants in England and Wales.
David Humbles (Non-Executive Director)
David Humbles was born in 1960 and is British. He worked in the
downstream oil industry for 25 years and relocated to the Isle of
Man in 1998 as Director of Total. In 2003, David purchased Abbey
Properties Ltd which owns and manages a property complex in the
north of the island. David owns Westminster Properties Ltd which
manages a large portfolio of residential and commercial properties
on the island. David has been Managing Director of Oakmayne since
2006. This company is a residential developer in London. He has
served on the board of two AIM listed companies.
Statement of Directors' responsibilities in respect of the
Annual Report and the Financial Statements
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare Group and Company
financial statements for each financial year. Under the law they
have elected to prepare the Group and Parent Company financial
statements in accordance with International Financial Reporting
Standards (IFRSs).
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 Group and Company and of their
profit or loss for that period. In preparing each of the Group and
Company financial statements, the Directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and estimates that are reasonable, relevant and reliable;
-- state whether they have been prepared in accordance with IFRSs;
-- assess the Group and Company's ability to continue as a going
concern, disclosing, as applicable, matters related to going
concern; and
-- use the going concern basis of accounting unless they either
intend to liquidate the Group or the Company or to cease
operations, or have no realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
its financial statements comply with the Companies Acts 1931 to
2004. They are responsible for such internal control as they
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error, and have general responsibility for taking such
steps as are reasonably open to them to safeguard the assets of the
Group and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Directors' Report and Corporate
Governance Statement that complies with that law and those
regulations.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation governing the preparation and
dissemination of financial statements may differ from one
jurisdiction to another.
Disclosure Guidance and Transparency Rules responsibility
statement
We confirm that to the best of our knowledge:
-- the financial statements, prepared in accordance with
International Financial Reporting Standards, give a true and fair
view of the assets, liabilities, financial position and profit or
loss of the Company and the undertakings included in the
consolidation taken as a whole;
-- that in the opinion of the Directors, the Annual Report and
Accounts taken as a whole, is fair, balanced and understandable and
it provides the information necessary to assess the Company's
position, performance, business model and strategy; and
-- the Business Review, Report of the Investment Manager and
Investment Adviser and the Report of the Directors include a fair
review of the development and performance of the business and the
position of the Company and the undertakings included in the
consolidation taken as a whole, together with a description of the
principal risks and uncertainties that they face.
On behalf of the Board
Nicholas Wilson
Chairman
17 September 2019
Audit Committee Report
An Audit Committee has been established in compliance with the
FCA's Disclosure Guidance and Transparency Rule 7.1 and the UK
Corporate Governance Code consisting of independent Directors. Its
authority and duties are clearly defined within its written terms
of reference. Paul Macdonald is Chairman of the Audit Committee,
which also comprises Mr Nicholas Wilson, Mr Neil Benedict and Mr
David Humbles.
The Committee meets at least two times a year.
The Committee's responsibilities, which were discharged during
the year, include:
-- monitoring and reviewing the integrity of the interim and
annual financial statements and the internal financial
controls;
-- reviewing the appropriateness of the Company's accounting policies;
-- making recommendations to the Board in relation to the
appointment of the external auditors and approving their
remuneration and terms of their engagement;
-- reviewing the external Auditor's plan for the audit of the Company's financial statements;
-- developing and implementing policy on the engagement of the
external auditors to supply non-audit services;
-- reviewing and monitoring the independence, objectivity and
effectiveness of the external auditors;
-- reviewing the arrangements in place within the Administrator
and Investment Manager/Adviser whereby their staff may, in
confidence, raise concerns about possible improprieties in matters
of financial reporting or other matters insofar as they may affect
the Company;
-- performing the annual review of the effectiveness of the
internal control systems of the Company;
-- reviewing the terms of the Investment Management Agreement;
-- considering annually whether there is a need for the Company
to have its own internal audit function; and
-- review the relationship with and the performance of the
Custodian, the Administrator and the Registrar.
The Audit Committee does not award any non-audit work. The full
Board has to approve any non-audit work and this includes
confirmation that in all such work auditor objectivity and
independence is safeguarded.
Owing to the nature of the fund's business, with all major
functions being outsourced and the absence of employees, the Audit
Committee do not feel it is necessary for the Company to have its
own internal audit function. This situation is re-evaluated
annually.
KPMG Audit LLC was re-appointed as auditor at the last AGM on 7
November 2018. The Audit Committee considered the experience and
tenure of the audit partner and staff and the nature and level of
services provided. The Audit Committee receives confirmation from
the auditor that they have complied with the relevant UK
professional and regulatory requirements on independence. The
Company's Audit Committee meets representatives of the
Administrator, who report as to the proper conduct of the business
in accordance with the regulatory environment in which the Company,
the Administrator, and the Investment Manager/Adviser operate. The
Company's external auditor also attends this Audit Committee
meeting at its request and reports if the Company has not kept
proper accounting records, or if it has not received all the
information and explanations required for its audit.
The Audit Committee also monitors the risks to which the Company
is exposed and makes recommendations as to the mitigation of these
risks. This task is facilitated by using an extensive risk matrix
that enables the Committee to make a quantitative analysis of the
individual risks and to highlight those areas where risk is high or
increasing.
This report was reviewed and approved by the Board on 17
September 2019.
Paul Macdonald
Chairman of the Audit Committee
17 September 2019
Management Engagement Committee Report
A Management Engagement Committee has been established in
accordance with good corporate governance. Neil Benedict is
chairman of the Committee, which also comprises Paul Macdonald,
Nicholas Wilson and David Humbles.
The function of the Management Engagement Committee is to
monitor the performance of all the Company's service providers and
in the particular the performance of the Investment
Manager/Investment Adviser.
The performance of the Investment Manager/Investment Adviser is
formally reviewed annually at the end of the Company's financial
year. The Management Engagement Committee meets quarterly prior to
the quarterly Board meetings and the chairman of the Management
Engagement Committee monitors the performance periodically during
the intervening periods.
As regards the Investment Manager/Investment Adviser, the
Committee:
-- monitors and evaluates the investment performance both in
absolute terms and also by reference to peer group analysis
prepared by the Investment Manager/Adviser and by the Company's
broker;
-- reviews the performance fee structure to ensure that it does
not encourage excessive risk and that it rewards demonstrable
superior performance;
-- investigates any breaches of agreed investment limits and any
deviation from the agreed investment policy and strategy;
-- reviews the standard of any other services provided by the Investment Manager;
-- evaluates the level and effectiveness of any marketing
support provided by the Investment Manager, including but not
limited to, their input into quarterly reports, handling investor
relations and website monitoring and development;
-- assesses the level of fees charged by the Investment Manager
and how these fees compare with those charged to peer group
companies;
-- compares the notice period on the Investment Management Agreement with industry norms;
-- considers any other issues on the appointment of the Investment Manager.
As regards the other service providers to the Company, the
Committee:
-- monitors the terms on which they are retained and compares them to market rates;
-- examines the effectiveness of the services provided;
-- makes recommendations to the Board where changes are warranted.
At its most recent meeting, the Management Engagement Committee
concluded that the performance of the Investment Manager/Investment
Adviser had been satisfactory. The Investment Manager had adhered
to the investment policy and policy limits.
The Committee was satisfied with the current performance of the
Company's other service providers.
Neil Benedict
Chairman of the Management Engagement Committee
17 September 2019
Directors' Remuneration Report
This report meets the relevant rules of the Listing Rules of the
Financial Services Authority and describes how the Board has
applied the principles relating to Directors' remuneration. An
ordinary resolution to receive and approve this report will be put
to the Shareholders at the forthcoming Annual General Meeting.
Role of the Remuneration Committee
The role and make-up of the Remuneration Committee is more fully
discussed on page 22.
The committee held one formal meeting during the year, during
which it addressed all the matters under its remit.
Consideration by the Directors of Matters relating to the
Directors' remuneration
As the Board is comprised entirely of non-executive Directors
the Board as a whole consider the Directors' remuneration but it
has appointed its Remuneration Committee to consider matters
relating thereto.
Remuneration policy
The Company's Articles of Association limit the basic fees
payable to the Directors to GBP200,000 per annum in aggregate.
Subject to this overall limit it is the Company's policy that the
fees payable to the Directors should reflect the time spent by the
Board on the Company's affairs and the responsibilities borne by
the Directors and should be sufficient to enable candidates of high
calibre to be recruited. The Directors are also entitled to receive
reimbursement of any expenses incurred in relation to their
appointment.
The policy is for the Chairman of the Board and Chairman of the
Audit Committee to be paid a higher fee than the other Directors in
recognition of their more onerous roles and more time spent.
In the year under review the Directors' fees were paid at the
following annual rates: the Chairman GBP52,500 plus GBP10,000 with
respect to the work involved in the share buy-back programme, the
Chairman of the Audit Committee GBP37,500, the other Directors
GBP35,000.
Directors' and officers' liability insurance cover is in place
in respect of the Directors.
Reappointment
It is the Board's policy that non-independent Directors stand
for re-election every year and independent Directors stand for
re-election every three years.
Directors' fees
The fees expensed (including additional payments) by the Company
in respect of each of the Directors who served during the year, and
in the previous year, were as follows:
30 June 2019 30 June 2018
GBP GBP
---------------------------------------------------------------------------------------- ------------- -------------
Nicholas Wilson (Chairman) 62,500 58,750
Paul Macdonald (Chairman of Audit Committee) 37,500 33,750
Neil Benedict (Chairman of Remuneration Committee and Management Engagement Committee) 35,000 31,250
David Humbles 35,000 31,250
170,000 155,000
---------------------------------------------------------------------------------------- ------------- -------------
US$ charge reflected in the financial statements 215,736 204,645
---------------------------------------------------------------------------------------- ------------- -------------
Expenses totalling US$89,720 (2018: US$103,684) were incurred by
the Directors and reimbursed during the year.
No other remuneration or compensation was paid or payable by the
Company during the period to any of the Directors.
Director independence
Mr Nicholas Wilson and Mr Paul Macdonald have each served as
independent Non-executive Directors of the Company for more than
nine years, and Mr Wilson has served as non-executive Chairman
since 13 November 2012. Notwithstanding the length of their
service, Mr Wilson and Mr Macdonald continue to demonstrate their
commitment to fulfilling their role as non-executive Chairman and
Non-executive Director respectively and satisfy the independence
factors set out in Code Provision B.1.1 of the Code except for the
length of their service.
They are not involved in the daily management of the Company nor
in any relationships or circumstances which might possibly
interfere with their exercise of independent judgment. In addition,
they continue to demonstrate the attributes of independent
Non-executive Directors and there is no evidence that their tenure
has had any adverse impact on their independence.
The Board considers each of the Directors to be independent of,
and free of any material relationship with, the Investment Manager
and Investment Adviser.
Directors' and Other Interests
None of the Directors had any interest during the year in any
material contract for the provision of services which was
significant to the business of the Company.
Director holdings in Company:
30 June 2019 30 June 2018
Director Shares Shares
------------- -------------
Nicholas Wilson 39,600 39,600
------------- -------------
For and on behalf of the Board
Neil Benedict
Chairman of the Remuneration Committee
17 September 2019
Report of the Independent Auditors, KPMG Audit LLC, to the
members of Gulf Investment Fund plc
1. Our opinion is unmodified
We have audited the financial statements of Gulf Investment Fund
plc ("the Company") and its subsidiary (together "the Group") for
the year ended 30 June 2019 which comprise the Consolidated and
Company Income Statements, Statements of Comprehensive Income,
Balance Sheets, Statements of Changes in Equity, Statements of Cash
Flows and the related notes and accounting policies.
In our opinion the financial statements:
-- give a true and fair view of the state of the Group's and
Company's affairs as at 30 June 2019 and of the Group's and
Company's profit for the year then ended;
-- have been properly prepared in accordance with International
Financial Reporting Standards; and
-- have been properly prepared in accordance with the provisions
of the Companies Acts 1931 to 2004.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) ("ISAs (UK)") and applicable law. Our
responsibilities are described below. We have fulfilled our ethical
responsibilities under, and we remain independent of the Company
and Group in accordance with, UK ethical requirements including the
FRC Ethical Standard as applied to listed public interest entities.
We believe that the audit evidence we have obtained is a sufficient
and appropriate basis for our opinion.
2. Key audit matters: our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional
judgment, were of most significance in the audit of the financial
statements and include the most significant assessed risks of
material misstatement (whether or not due to fraud) identified by
us, including those which had the greatest effect on: the overall
audit strategy; the allocation of resources in the audit; and
directing the efforts of the engagement team. These matters were
addressed in the context of our audit of the financial statements
as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters. In arriving at our
audit opinion above, the key audit matters, in decreasing order of
audit significance, were as follows:
The risk Our response
Valuation and Incorrect valuation Our procedures included:
existence of and existence * Control design: Documenting and assessing the
investments (US$116.0m; The Group's portfolio processes in place to record investment transactions
2018: US$104.6m) of investments and to value the portfolio;
makes up 85.8%
Refer to page (2018: 92.8%) of
22 (Significant the Group's total * Tests of detail: Agreeing the valuation of 100 per
Issues identified assets (by value) cent of investments in the portfolio to externally
by the Audit and is considered quoted prices (in the case of P-Notes this represents
Committee), notes to be the key driver the quoted price of the underlying equity);
1(a), 2 and 8 of results. Of
(accounting policy this amount, US$51.1m
for financial (2018: US$43.9m) * Tests of detail - P-Notes: Assessing the credit
assets at fair was held via P-Notes; worthiness of the P-Note issuers by examining their
value through held to obtain credit ratings or financial statements in the absence
profit or loss exposure to Saudi of a credit rating and inspecting the P-Note legal
and financial Arabia where direct instruments to assess whether they provide the full
risk disclosures investment in equities return of the underlying share;
relating to financial is not possible
instruments). for foreign investors.
* Assessing transparency - P-Notes: Consideration of
Incorrect asset the appropriateness, in accordance with relevant
pricing or a failure accounting standards, of the disclosures in respect
to maintain proper of the P-Notes including their level in the fair
title of assets value hierarchy; and
by the Group could
have a significant
impact on the * Enquiry of custodians: Agreeing 100 per cent of
investment investment holdings in the portfolio to independently
portfolio valuation received third party confirmations from investment
and the return custodians.
generated for
shareholders.
Additional risks
arise with regard
to the P-Notes
as follows:
- they are issued
by counterparty
financial institutions
and therefore are
subject to counterparty
risk; and
- they are classified
as level 2 in the
fair value hierarchy
as there is no
quoted price in
an active market
for the P-Note
instrument itself
- instead they
are priced based
on the quoted price
of the underlying
equity to which
they relate.
------------------------ -----------------------------------------------------------------
Carrying value Low risk, high Our procedures included:
of the Company's value * Tests of detail: Assessing the loan to and investment
loan to and investment The carrying value in subsidiary to identify, with reference to the
in subsidiary of the Company's subsidiary's accounts, whether it has sufficient net
(US$63.5m and loan to and investment asset value to cover the debt owed and the carrying
US$60.0m respectively, in subsidiary value of the investment in subsidiary; and
2018: US$64.3m represents
and US$45.4m 98.8% (2018: 98.9%)
respectively) of the Company's * Assessing subsidiary audits: The audit of the Group
total assets. The was performed as if it was a single aggregated set of
Refer to page assessment of carrying financial information.
22 (Significant value is not at
Issues identified a high risk of
by the Audit significant
Committee) and misstatement
note 1(b) (note or subject to
relating to loan significant
to and investment judgement as the
in subsidiary). carrying value
is equal to the
net asset value
of the subsidiary.
However, due to
its materiality
in the context
of the Company
financial statements,
this is considered
to be the area
that had the greatest
effect on our overall
Company audit.
------------------------ -----------------------------------------------------------------
3. Our application of materiality and an overview of the scope of our audit
Materiality for the Group financial statements as a whole was
set at US$1,250,000 (2018: US$1,130,000), determined with reference
to a benchmark of Group total assets, of which it represents 1%
(2018: 1%). For this purpose total assets for 2019 has been
adjusted to deduct unsettled trades of US$9,945,000 (2018:
nil).
Materiality for the Company financial statements as a whole was
set at US$1,250,000 (2018: US$1,110,000), determined with reference
to a benchmark of Company total assets, of which it represents 1%
(2018: 1%).
We agreed to report to the Audit Committee any corrected or
uncorrected identified misstatements exceeding US$62,500 (2018:
US$56,500) for the Group financial statements and US$62,500 (2018:
US$55,500) for the Company financial statements, in addition to
other identified misstatements that warranted reporting on
qualitative grounds.
The Group team performed the audit of the Group as if it was a
single aggregated set of financial information. The audit was
performed using the materiality level set out above and covered
100% of the total Group income, total Group profit before tax and
total Group assets and liabilities.
4. We have nothing to report on going concern
The Directors have prepared the financial statements on the
going concern basis as they do not intend to liquidate the Company
or the Group or to cease their operations, and as they have
concluded that the Company's and Group's financial position means
that this is realistic. They have also concluded that there are no
material uncertainties that could have cast significant doubt over
their ability to continue as a going concern for at least a year
from the date of approval of the financial statements ("the going
concern period").
Our responsibility is to conclude on the appropriateness of the
Directors' conclusions and, had there been a material uncertainty
related to going concern, to make reference to that in this audit
report. However, as we cannot predict all future events or
conditions and as subsequent events may result in outcomes that are
inconsistent with judgements that were reasonable at the time they
were made, the absence of reference to a material uncertainty in
this auditor's report is not a guarantee that the Company and Group
will continue in operation.
In our evaluation of the Directors' conclusions, we considered
the inherent risks to the Company's and Group's business model and
analysed how those risks might affect the Company's and Group's
financial resources or ability to continue operations over the
going concern period. We evaluated those risks and concluded that
they were not significant enough to require us to perform
additional audit procedures.
Based on this work, we are required to report to you if we have
anything material to add or draw attention to in relation to the
Directors' statement in Note 13.1 to the financial statements on
the use of the going concern basis of accounting with no material
uncertainties that may cast significant doubt over the Company's
and Group's use of that basis for a period of at least twelve
months from the date of approval of the financial statements. We
have nothing to report in this respect and we did not identify
going concern as a key audit matter.
5. We have nothing to report on the other information in the Annual Report
The Directors are responsible for the other information
presented in the Annual Report together with the financial
statements. Our opinion on the financial statements does not cover
the other information and, accordingly, we do not express an audit
opinion or any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in
doing so, consider whether, based on our financial statements audit
work, the information therein is materially misstated or
inconsistent with the financial statements or our audit knowledge.
Based solely on that work we have not identified material
misstatements in the other information.
Disclosures of principal risks and longer-term viability
Based on the knowledge we acquired during our financial
statements audit, we have nothing material to add or draw attention
to in relation to:
-- the Directors' confirmation within the viability statement on
page 24 that they have carried out a robust assessment of the
principal risks facing the Group and Company, including those that
would threaten its business model, future performance, solvency and
liquidity;
-- the principal risks disclosures describing these risks and
explaining how they are being managed and mitigated; and
-- the Directors' explanation in the viability statement of how
they have assessed the prospects of the Group and Company, over
what period they have done so and why they considered that period
to be appropriate, and their statement as to whether they have a
reasonable expectation that the Group and Company will be able to
continue in operation and meet its liabilities as they fall due
over the period of their assessment, including any related
disclosures drawing attention to any necessary qualifications or
assumptions.
Our work is limited to assessing these matters in the context of
only the knowledge acquired during our financial statements audit.
As we cannot predict all future events or conditions and as
subsequent events may result in outcomes that are inconsistent with
judgments that were reasonable at the time they were made, the
absence of anything to report on these statements is not a
guarantee as to the Group's and Company's longer-term
viability.
Corporate governance disclosures
We are required to report to you if:
-- we have identified material inconsistencies between the
knowledge we acquired during our financial statements audit and the
directors' statement that they consider that the annual report and
financial statements taken as a whole is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the Group's and Company's position and
performance, business model and strategy; or
-- the section of the annual report describing the work of the
Audit Committee does not appropriately address matters communicated
by us to the Audit Committee.
We are required to report to you if the Corporate Governance
Statement does not properly disclose a departure from the eleven
provisions of the UK Corporate Governance Code specified by the
Listing Rules for our review.
We have nothing to report in these respects.
6. We have nothing to report on the other matters on which we
are required to report by exception
Under the Companies Acts 1931 to 2004, we are required to report
to you if, in our opinion:
-- proper books of account have not been kept by the Company and
proper returns adequate for our audit have not been received from
branches not visited by us; or
-- the Company's financial statements are not in agreement with
the books of account and returns; or
-- certain disclosures of directors' remuneration specified by law are not made; or
-- we have not received all the information and explanations we require for our audit.
We have nothing to report in these respects.
7. Respective responsibilities
Directors' responsibilities
As explained more fully in their statement set out on page 27,
the Directors are responsible for: the preparation of the financial
statements including being satisfied that they give a true and fair
view; such internal control as they determine is necessary to
enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error; assessing the
Group and Company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern; and
using the going concern basis of accounting unless they either
intend to liquidate the Group or the Company or to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud, or error, and to issue our
opinion in an auditor's report. Reasonable assurance is a high
level of assurance but does not guarantee that an audit conducted
in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in aggregate,
they could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial
statements.
A fuller description of our responsibilities is provided on the
FRC's website at www.frc.org.uk/auditorsresponsibilities.
8. The purpose of our audit work and to whom we owe our responsibilities
This report is made solely to the Company's members, as a body,
in accordance with Section 15 of the Companies Act 1982. Our audit
work has been undertaken so that we might state to the Company's
members those matters we are required to state to them in an
auditor's report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone other than the Company and the Company's members, as a body,
for our audit work, for this report, or for the opinions we have
formed.
Nicholas Quayle
Responsible Individual
For and on behalf of KPMG Audit LLC
Chartered Accountants and Recognised Auditors
17 September 2019
Heritage Court
41 Athol Street
Douglas
Isle of Man
IM99 1HN
Consolidated Income Statement
Note Year ended 30 Year ended 30 June
June 2019 2018
US$'000 US$'000
---------------------------------- ----- -------------- -------------------
Income
Dividend income on quoted
equity
investments 4,387 4,095
Realised loss on sale
of financial assets at
fair value through profit
or loss (1,998) (7,186)
Net changes in fair value
on financial assets at
fair value through profit
or loss 16,695 14,619
Interest income 57 20
Net foreign exchange (loss)/gain (46) 290
Total net income 19,095 11,838
---------------------------------- ----- -------------- -------------------
Expenses
Investment manager's
fees 7 1,023 995
Other expenses 7 1,141 1,129
Total operating expenses 2,164 2,124
---------------------------------- ----- -------------- -------------------
Profit before tax 16,931 9,714
Income tax expense 9 82 34
---------------------------------- ----- -------------- -------------------
Profit for the year 16,849 9,680
---------------------------------- ----- -------------- -------------------
Basic profit per share
(cents) 4 18.22 9.95
---------------------------------- ----- -------------- -------------------
Diluted profit per share
(cents) 4 18.22 9.95
---------------------------------- ----- -------------- -------------------
The Directors consider that all results derive from continuing
activities.
Consolidated Statement of Comprehensive Income
Year ended 30 June 2019 Year ended 30 June 2018
US$'000 US$'000
--------------------------------------------------------------- ------------------------ ------------------------
Profit for the year 16,849 9,680
Other comprehensive income
Items that are or may be reclassified subsequently to profit
or loss:
Currency translation differences - (5)
---------------------------------------------------------------- ------------------------ ------------------------
Total items that are or may be reclassified subsequently to
profit or loss - (5)
---------------------------------------------------------------- ------------------------ ------------------------
Other comprehensive expense for the year (net of tax) - (5)
---------------------------------------------------------------- ------------------------ ------------------------
Total comprehensive income for the year 16,849 9,675
---------------------------------------------------------------- ------------------------ ------------------------
Company Income Statement
Note Year ended 30 Year ended 30 June
June 2019 2018
US$'000 US$'000
----------------------------- ----- -------------- -------------------
Income
Net change in investment
in subsidiary 14,593 7,702
Intercompany loan interest
income 3,211 2,979
Total net income 17,804 10,681
----------------------------- ----- -------------- -------------------
Expenses
Expenses 7 955 1,006
Total operating expenses 955 1,006
----------------------------- ----- -------------- -------------------
Profit before tax 16,849 9,675
Income tax expense - -
----------------------------- ----- -------------- -------------------
Profit for the year 16,849 9,675
----------------------------- ----- -------------- -------------------
Company Statement of Comprehensive Income
Year ended 30 June 2019 Year ended 30 June 2018
US$'000 US$'000
----------------------------------------- ------------------------ ------------------------
Profit for the year 16,849 9,675
Other comprehensive income - -
Total comprehensive income for the year 16,849 9,675
------------------------------------------ ------------------------ ------------------------
Consolidated Balance Sheet
Note At 30 June 2019 At 30 June 2018
US$'000 US$'000
------------------------------ ----- ---------------- ----------------
Assets
Financial assets at fair
value through profit or
loss 1(a) 116,016 104,619
Other receivables and
prepayments 183 2,683
Cash and cash equivalents 19,007 5,380
------------------------------ ----- ---------------- ----------------
Total assets 135,206 112,682
============================== ===== ================ ================
Equity
Issued share capital 5 925 925
Retained earnings 46,406 32,331
Distributable reserves 76,198 76,198
Other reserves 1,329 1,329
---------------- ----------------
Total equity 124,858 110,783
------------------------------ ----- ---------------- ----------------
Current liabilities
Other payables and accrued
expenses 6 10,348 1,899
------------------------------ ----- ---------------- ----------------
Total current liabilities 10,348 1,899
------------------------------ ----- ---------------- ----------------
Total equity and liabilities 135,206 112,682
============================== ===== ================ ================
The financial statements were approved by the Directors on 17
September 2019 and signed on their behalf by:
Nick Wilson David Humbles
Chairman Director
Company Balance Sheet
Note At 30 June 2019 At 30 June 2018
US$'000 US$'000
------------------------------ ----- ---------------- ----------------
Assets
Investment in subsidiary 1(b) 60,035 45,442
Due from subsidiary 1(b) 63,462 64,322
Other receivables and
prepayments 1,194 812
Cash and cash equivalents 272 382
------------------------------ ----- ---------------- ----------------
Total assets 124,963 110,958
============================== ===== ================ ================
Equity
Issued share capital 5 925 925
Reserves 123,933 109,858
---------------- ----------------
Total equity 124,858 110,783
------------------------------ ----- ---------------- ----------------
Current liabilities
Other payables and accrued
expenses 6 105 175
------------------------------ ----- ---------------- ----------------
Total current liabilities 105 175
------------------------------ ----- ---------------- ----------------
Total equity and liabilities 124,963 110,958
============================== ===== ================ ================
The financial statements were approved by the Directors on 17
September 2019 and signed on their behalf by:
Nick Wilson David Humbles
Chairman Director
Consolidated Statement of Changes in Equity
Share capital Distributable Retained Foreign Currency Capital Total
(note 5) reserves earnings translation redemption
reserve reserve
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
------------------ -------------- -------------- ----------------- ----------------- ----------------- ---------
Balance at 1 July
2017 1,032 86,486 25,425 (216) 1,443 114,170
Total
comprehensive
income for the
year
Profit for the
year - - 9,680 - - 9,680
Other
comprehensive
income
Foreign exchange
translation
differences - - - (5) - (5)
------------------ -------------- -------------- ----------------- ----------------- ----------------- ---------
Total other
comprehensive
expense - - - (5) - (5)
------------------ -------------- -------------- ----------------- ----------------- ----------------- ---------
Total
comprehensive
income for the
year - - 9,680 (5) - 9,675
------------------ -------------- -------------- ----------------- ----------------- ----------------- ---------
Contributions by
and distributions
to owners
Dividends paid - - (2,774) - - (2,774)
Shares subject to
tender offer (102) (10,205) - - 102 (10,205)
Tender offer
expenses - (83) - - - (83)
Shares in
treasury
cancelled (5) - - - 5 -
------------------ -------------- -------------- ----------------- ----------------- ----------------- ---------
Total
contributions by
and
distributions to
owners (107) (10,288) (2,774) - 107 (13,062)
------------------ -------------- -------------- ----------------- ----------------- ----------------- ---------
Balance at 30
June 2018 925 76,198 32,331 (221) 1,550 110,783
------------------ -------------- -------------- ----------------- ----------------- ----------------- ---------
The capital redemption reserve is created on the cancellation of
shares equal to par value of shares cancelled. This reserve is not
distributable.
Share capital Distributable Retained earnings Foreign currency Capital Total
(note 5) reserves translation redemption
reserve reserve
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
------------------ -------------- -------------- ------------------ ----------------- ----------------- --------
Balance at 1 July
2018 925 76,198 32,331 (221) 1,550 110,783
Total
comprehensive
income for the
year
Profit for the
year - - 16,849 - - 16,849
Other
comprehensive
income
Foreign exchange - - - - - -
translation
differences
------------------ -------------- -------------- ------------------ ----------------- ----------------- --------
Total other - - - - - -
comprehensive
expense
------------------ -------------- -------------- ------------------ ----------------- ----------------- --------
Total
comprehensive
income for the
year - - 16,849 - - 16,849
------------------ -------------- -------------- ------------------ ----------------- ----------------- --------
Contributions by
and distributions
to owners
Dividends paid - - (2,774) - - (2,774)
Shares subject to - - - - - -
tender offer
Tender offer - - - - - -
expenses*
Shares in - - - - - -
treasury
cancelled
------------------ -------------- -------------- ------------------ ----------------- ----------------- --------
Total
contributions by
and
distributions to
owners - - (2,774) - - (2,774)
------------------ -------------- -------------- ------------------ ----------------- ----------------- --------
Balance at 30
June 2019 925 76,198 46,406 (221) 1,550 124,858
------------------ -------------- -------------- ------------------ ----------------- ----------------- --------
The capital redemption reserve is created on the cancellation of
shares equal to par value of shares cancelled. This reserve is not
distributable.
Company Statement of Changes in Equity
Share capital Reserves Total
US$'000 US$'000 US$'000
---------------------------------------------------- -------------- --------- ---------
Balance at 1 July 2017 1,032 113,138 114,170
Total comprehensive income for the year
Profit for the year - 9,675 9,675
Total comprehensive income for the year - 9,675 9,675
---------------------------------------------------- -------------- --------- ---------
Contributions by and distributions to owners
Dividends paid - (2,774) (2,774)
Shares subject to tender offer (102) (10,103) (10,205)
Tender offer expenses - (83) (83)
Shares in treasury cancelled (5) 5 -
---------------------------------------------------- -------------- --------- ---------
Total contributions by and distributions to owners (107) (12,955) (13,062)
---------------------------------------------------- -------------- --------- ---------
Balance at 30 June 2018 925 109,858 110,783
---------------------------------------------------- -------------- --------- ---------
Share capital Reserves Total
US$'000 US$'000 US$'000
---------------------------------------------------- -------------- --------- ---------
Balance at 1 July 2018 925 109,858 110,783
Total comprehensive income for the year
Profit for the year - 16,849 16,849
Total comprehensive profit for the year - 16,849 16,849
---------------------------------------------------- -------------- --------- ---------
Contributions by and distributions to owners
Dividends paid - (2,774) (2,774)
Shares subject to tender offer - - -
Tender offer expenses - - -
Shares in treasury cancelled - - -
---------------------------------------------------- -------------- --------- ---------
Total contributions by and distributions to owners - (2,774) (2,774)
---------------------------------------------------- -------------- --------- ---------
Balance at 30 June 2019 925 123,933 124,858
---------------------------------------------------- -------------- --------- ---------
Consolidated Statement of Cash Flows
Year ended 30 Year ended 30 June
June 2019 2018
US$'000 US$'000
------------------------------- -------------- -------------------
Cash flows from operating
activities
Purchase of investments (167,457) (143,781)
Proceeds from sale of
investments 181,844 149,319
Dividends received 4,376 4,000
Operating expenses paid (2,280) (2,142)
Interest received 57 20
Net cash generated from
operating activities 16,540 7,416
-------------------------------- -------------- -------------------
Financing activities
Dividends paid (2,774) (2,774)
Cash used in tender offer - (10,205)
Tender offer expenses - (83)
Net cash used in financing
activities (2,774) (13,062)
-------------------------------- -------------- -------------------
Net increase/(decrease)
in cash and cash equivalents 13,766 (5,646)
Effects of exchange rate
changes on cash and cash
equivalents (139) 356
Cash and cash equivalents
at beginning of the year 5,380 10,670
-------------------------------- -------------- -------------------
Cash and cash equivalents
at end of the year 19,007 5,380
-------------------------------- -------------- -------------------
Company Statement of Cash Flows
Note Year ended 30 Year ended 30 June
June 2019 2018
US$'000 US$'000
------------------------------- ------ -------------- -------------------
Cash flows from operating
activities
Investment in and amount
due from subsidiary 3,684 14,214
Operating expenses paid (1,018) (964)
Net cash generated from
operating activities 2,666 13,250
--------------------------------------- -------------- -------------------
Financing activities
Dividends paid (2,774) (2,774)
Cash used in tender offer - (10,205)
Tender offer expenses - (83)
Net cash used in financing
activities (2,774) (13,062)
--------------------------------------- -------------- -------------------
Net (decrease)/increase
in cash and cash equivalents (108) 188
Effects of exchange rate
changes on cash and cash
equivalents (2) (5)
Cash and cash equivalents
at beginning of the year 382 199
--------------------------------------- -------------- -------------------
Cash and cash equivalents
at end of the year 272 382
--------------------------------------- -------------- -------------------
Notes to the Consolidated Financial Statements
1(a) Financial assets at fair value through profit or loss
Investments are classified as fair value through profit or loss.
The Group invests in quoted equities for which fair value is based
on quoted market prices and in P-Notes. The quoted market price
used for quoted equities held by the Group is the current bid price
ruling at the year-end without regard to selling prices. The fair
value of P-Notes is based on the quoted year end bid price of the
underlying equity to which they relate. P-Notes are promissory
notes issued by certain counterparty banks that are designed to
offer the holder a return linked to the performance of a particular
underlying equity security or market and used where direct
investment in the relevant underlying equity security or market is
not possible for regulatory or other reasons. To the extent
dividends are received on the securities to which the P-Notes are
linked, these are taken to investment income.
At 30 June 2019 the Group held 29 P-Notes (2018: 25) with a
value of US$53,652,517 (2018: US$46,083,216), held to obtain
exposure to Saudi Arabia where direct investment in equities is not
possible for foreign investors.
Purchases and sales of investments are recognised on trade date
- the date on which the Group commits to purchase or sell the
asset. Investments are initially recorded at fair value, and
transaction costs for all financial assets and financial
liabilities carried at fair value through profit and loss are
expensed as incurred.
Gains and losses (realised and unrealised) arising from changes
in the fair value of the financial assets are included in the
income statement in the year in which they arise.
Group
30 June 2019: Financial assets at fair value through profit or
loss; all quoted equity securities or P-Notes:
Security name Number US$'000
------------------------------------------------------- ------------ --------
Qatar Gas Transport (QGTS) 1,773,637 11,202
Emirates NBD USD Stock (ENBD)* 3,434,957 10,613
Commercial Bank of Qatar (CBQK) 4,933,760 6,245
Gulf International Services (GISS) 10,082,450 5,343
Qatar International Islamic Bank (QIIK) 2,607,340 5,334
Arab National Bank - Shamal (1080)* 691,231 4,758
Qatar National Bank (QNBK) 880,010 4,625
Qatar Navigation (QNNS) 247,644 4,365
Mouwasat Medical Services Co SHAMAL 13.02.19 (4002)* 141,525 3,388
DP World Limited (DPW)* 198,244 3,172
Alafco Aviation Lease and Finance (ALAFCO) 3,739,402 3,086
Mezzan Holding Co (Mezzan) 1,400,545 2,855
Kuwait International Bank (KIB) 3,144,930 2,822
National Bank of Kuwait (NBK) 843,910 2,713
Emirates National Bank of Dubai (ENBD) 823,029 2,543
United Electronics Company (4003)* 140,000 2,509
Dubai Islamic Bank (DIB) 1,750,000 2,434
Fawaz Abdulaziz Al (4240)* 390,962 2,382
Mobile Telecommunications Company K.S.C. (ZAIN) 1,250,000 2,170
Arabian Centres Limited (4321)* 310,000 2,126
Almarai Co. Ltd (2280)* 143,391 2,039
Qatar Electricity & Water Co (QEWS) 446,480 2,011
Saudi British Bank B12LSY7 (1060)* 167,579 1,816
Gulf Bank of Kuwait (GBK) 1,775,000 1,762
Bank AlJazira (1020)* 410,000 1,666
Al Khaleej Bank (KCBK) 4,682,760 1,517
Jarir Marketing Co (4190)* 30,479 1,349
Mobile Telecommunications Company SAR (7030)* 401,403 1,334
Saudi Telecom (7010)* 45,000 1,242
Ahli United Bank (Almutahed) (AUB) 1,191,963 1,234
Bupa Arabia Co (8210)* 45,000 1,166
Al Tayyar Travel Group (1810)* 242,655 1,155
Herfy Food Services Co (6002)* 73,857 1,103
Saudi Co for Hardware (4008)* 60,000 1,087
Emaar Properties Company (EMAAR) 875,000 1,060
National Central Cooling Company (TABREED) 2,200,000 1,036
Leejam Sports Co (1830)* 50,818 1,015
Savola Group (2050)* 114,839 992
Saudia Dairy (2270)* 32,259 983
Samba Financial Group - SHAMAL (03.01.2022) (1090)* 102,988 974
Banque Saudi Fransi - SHAMAL 05.06.19 (1050)* 85,453 946
National Commercial Bank (1180)* 56,613 837
National Medical Care Company (4005)* 46,750 722
Abdullah Al Othaim Markets Co (4001)* 31,349 647
Saudi Cement Company (3030)* 31,352 585
Burgan Bank (BURG) 480,000 551
Yamama Cement (3020)* 50,000 231
Yanbu Cement (3060)* 27,000 221
Qassim Cement Co (3040)* 4,003 50
116,016
---- ----------------------------------------------------- --------------------------
*P-Notes.
Group
30 June 2018: Financial assets at fair value through profit or
loss; all quoted equity securities or P-Notes:
Security name Number US$'000
------------------------------------------------------ ----------- --------
Commercial Bank of Qatar (CBQK) 1,019,959 10,396
Qatar Gas Transport (QGTS) 2,117,667 9,187
Qatar Electricity & Water Co (QEWS) 166,478 8,326
Al Rajhi SHAMAL 09.02.2020 (1120)* 244,544 5,620
National Bank of Kuwait (NBK) 1,846,250 4,542
Gulf International Services (GISS) 866,679 4,052
Barwa Real Estate (BRES) 406,396 3,808
Samba Financial Group - SHAMAL (03.01.2022) (1090)* 418,036 3,596
Company for Co-op Insurance (8010)* 186,966 3,530
Bank AlJazira (1020)* 830,000 3,258
Emaar Properties Company (EMAAR) 2,430,283 3,255
Saudii Kayan Petrochemical Co (2350)* 695,000 2,913
Dubai Islamic Bank (DIB) 2,085,000 2,764
Kuwait International Bank (KIB) 3,043,683 2,252
Emirates National Bank of Dubai (ENBD) 825,000 2,179
National Medical Care Company (4005)* 132,000 2,084
National Commercial Bank (1180)* 155,613 2,014
Mobile Telecommunications Company K.S.C. (ZAIN) 1,390,000 1,989
Dar Al Arkan Real (4300)* 700,000 1,961
Kuwait Finance House (KFIN) 1,079,000 1,913
Saudi British Bank B12LSY7* 225,000 1,887
Banque Saudi Fransi - SHAMAL 05.06.19 (1050)* 185,000 1,660
Qatar Insurance (QATI) 166,722 1,625
------------------------------------------------------ ---------- --------
. 30 June 2018: Financial assets at fair value through profit or
loss; all quoted equity securities or P-Notes
Security name Number US$'000
----------------------------------------------- ----------- ----------------
National Petrochemical Company (2002)* 198,000 1,561
Yanbu Nat Petroche (YANSAB)* 77,000 1,519
Fawaz Abdulaziz Al (4240)* 210,000 1,443
Saudi Basic Industries (2010)* 41,000 1,376
Rabigh Refining and Petrochemical Co (2380)* 180,000 1,359
Middle East Healthcare (4009)* 80,000 1,244
Saudi Industrial Investment Group (2250)* 130,000 1,006
Abdullah Al Othaim Markets Co (4001)* 50,000 1,000
Widam Food Company (WDAM) 56,279 960
Bupa Arabia Co (8210)* 38,536 922
National Central Cooling Company (TABREED) 2,039,713 922
ABU DHABI Commercial Bank (ADCB) 475,000 913
Al Tayyar Travel Group* 125,000 894
Qatar Fuel (QFLS QD) 20,000 802
Arab National Bank - Shamal* 88,054 747
Saudi Cement Company* 50,000 659
Emirates NBD USD Stock* 225,000 594
Southern Province Cement Co* 50,000 546
Alinma Bank* 90,000 513
Ooredoo (ORDS) 25,000 499
Agility Public Warehousing AGLTY 127,075 329
104,619
----------------------------------------------- ----------- ----------------
*P-Notes
1(b) Investment in and amount due from subsidiary
30 June 2019 30 June 2018
US$'000 US$'000
---------------------------- ------------- -------------
Investment in subsidiary 60,035 45,442
Amount due from subsidiary 63,462 64,322
---------------------------- ------------- -------------
Investment in subsidiary is stated at fair value. The amount due
from the subsidiary is stated at amortised cost and subject to
interest on the aggregate principal amount drawn down from 1
January 2011, at the US prime rate per annum. All loan repayments
made by the subsidiary will first be deducted from the outstanding
loan interest before being applied to the principal balance. The
loan is secured by fixed and floating charges over the assets of
the subsidiary and is repayable on demand.
1(c) Risks relating to financial instruments
Risks relating to financial instruments comprise market price
risk, credit risk, interest rate risk, liquidity risk and foreign
currency risk. These are detailed below and in notes 2, 6 and
8.
Credit risk
Credit risk is the risk that a counterparty to a financial
instrument will fail to discharge an obligation or commitment that
it has entered into with the Group.
The carrying amounts of financial assets best represent the
maximum credit risk exposure at the balance sheet date. This
relates also to financial assets carried at amortised cost.
At the reporting date, the Group's financial assets exposed to
credit risk comprised the following:
30 June 2019 30 June 2018
US$'000 US$'000
-------------------------------- ------------- -------------
Financial assets at fair value
through profit or loss 116,016 104,619
Cash and cash equivalents 19,007 5,380
Other receivables 183 2,683
-------------------------------- ------------- -------------
135,206 112,682
-------------------------------- ------------- -------------
The maximum exposure to credit risk is represented by the
carrying amount of each financial asset in the balance sheet.
Management does not expect any counterparty to fail to meet its
obligations and there are no debts past their due dates as at the
year-end. All amounts are due within one month of the year end.
Investments are held by the Custodian, HSBC Bank (Middle East)
Ltd.
P-Notes are issued by counterparty financial institutions and
therefore the Group is exposed to credit risk in relation to these
financial institutions. The value of P-Notes held at the year is
disclosed in note 1(a). The counterparties are Merrill Lynch
International & Co C.V. (guaranteed by Bank of America
Corporation) and EFG-Hermes MENA Securities Limited (guaranteed by
EFG-Hermes Holding S.A.E.).
The credit ratings of the financial institutions are as
follows:
Merrill Lynch international A+
Bank of America Corporation A-
These ratings are from Standard and Poors.
EFG Hermes MENA Securities Limited and
EFG Hermes Holding S.A.E. do not have a credit rating. However,
the Board and Investment Advisor have reviewed their credit
worthiness and consider it to be acceptable.
The Group uses the banking services of HSBC (Middle East) Ltd
and Barclays (Isle of Man) PLC. HSBC has a credit rating of A2
assigned by Moody and Barclays has a credit rating of A- from
Standard and Poors.
Other receivables principally comprise unsettled trades.
Interest rate risk
The majority of the Group's financial assets are non-interest
bearing. Cash held by the Group is invested at short-term market
interest rates. As a result, the Group is not subject to fair value
interest rate risk due to fluctuations in the prevailing levels of
market interest rates. However it is subject to cash flow risk
arising from changes in market interest rates.
The table below summarises the Group's exposure to interest rate
risks. It includes the Group's financial assets and liabilities at
the earlier of contractual re-pricing or maturity date, measured by
the carrying value of assets and liabilities:
30 June 2019 Less 1-3 months 3 months 1-5 years Over Non-interest Total
than to 1 5 bearing
1month year years
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
----------------------- -------- ----------- --------- ---------- -------- ------------- --------
Financial assets
Financial assets
at fair value
through profit
or loss - - - - - 116,016 116,016
Other receivables
and prepayments - - - - - 183 183
Cash 19,007 - - - - - 19,007
----------------------- -------- ----------- --------- ---------- -------- ------------- --------
Total financial
assets 19,007 - - - - 116,199 135,206
----------------------- -------- ----------- --------- ---------- -------- ------------- --------
Financial liabilities
Other payables
and accrued
expenses - - - - - 10,348 10,348
----------------------- -------- ----------- --------- ---------- -------- ------------- --------
Total financial
liabilities - - - - - 10,348 10,348
----------------------- -------- ----------- --------- ---------- -------- ------------- --------
Total interest 19,007 - - - -
rate sensitivity
gap
----------------------- -------- ----------- --------- ---------- --------
30 June 2018 Less 1-3 months 3 months 1-5 years Over Non-interest Total
than to 1 5 bearing
1month year years
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
----------------------- -------- ----------- --------- ---------- -------- ------------- --------
Financial assets
Financial assets
at fair value
through profit
or loss - - - - - 104,619 104,619
Other receivables
and prepayments - - - - - 2,683 2,683
Cash 5,380 - - - - - 5,380
----------------------- -------- ----------- --------- ---------- -------- ------------- --------
Total financial
assets 5,380 - - - - 107,302 112,682
----------------------- -------- ----------- --------- ---------- -------- ------------- --------
Financial liabilities
Other payables
and accrued
expenses - - - - - 1,899 1,899
----------------------- -------- ----------- --------- ---------- -------- ------------- --------
Total financial
liabilities - - - - - 1,899 1,899
----------------------- -------- ----------- --------- ---------- -------- ------------- --------
All interest received on cash balances are at variable rates. A
sensitivity analysis for changes in interest rates on cash balances
has not been provided as it is not deemed significant.
2 Fair value hierarchy
IFRS 13 requires the Company to classify fair value measurements
using a fair value hierarchy that reflects the significance of the
inputs used in making the measurements. The fair value hierarchy
has the following levels:
-- Quoted prices (unadjusted) in active markets for identical
assets or liabilities (level 1).
-- Inputs other than quoted prices included within level 1 that
are observable for the asset or liability, either directly (that
is, as prices) or indirectly (that is, derived from prices) (level
2).
-- Inputs for the asset or liability that are not based on
observable market data (that is, unobservable inputs) (level
3).
All the Group's listed equity investments are classed as level 1
investments. The P-Notes are classed as level 2. In last year's
financial statements the P-Notes were classed as level 1. The
comparative figures have been revised to accord with the current
year classification. The analysis between level 1 and level 2 is as
follows:
Financial assets/(liabilities Level Level 2 Level Total
at fair value through profit 1 US$'000 3 US$'000
or loss at 30 June 2019 US$'000 US$'000
Assets:
--------- --------- --------- ---------
Equity Investments 64,907 - - 64,907
--------- --------- --------- ---------
P-Notes - 51,109 - 51,109
--------- --------- --------- ---------
64,907 51,109 - 116,016
--------- --------- --------- ---------
Financial assets/(liabilities Level Level 2 Level Total
at fair value through profit 1 US$'000 3 US$'000
or loss at 30 June 2018 US$'000 US$'000
Assets:
--------- --------- --------- ---------
Equity Investments 60,714 - - 60,714
--------- --------- --------- ---------
P-Notes - 43,905 - 43,905
--------- --------- --------- ---------
60,714 43,905 - 104,619
--------- --------- --------- ---------
The fair value of other financial instruments, including cash
and short-term receivables and payables is a reasonable
approximation of fair value.
Market price risk
The Group's strategy for the management of investment risk is
driven by the Group's investment objective. The main objective of
the Group is to capture the opportunities for growth offered by the
Gulf Cooperation Council region ("GCC") by investing in GCC
countries.
All investments present a risk of loss of capital through
movements in market prices. The Investment Manager and Investment
Adviser moderate this risk through a careful selection of
securities within specified limits. The Investment Manager and the
Investment Adviser review the position on a day to day basis and
the Directors review the position at Board meetings.
The Group's market price risk is managed through the
diversification of the investment portfolio. Approximately 93%
(2018: 89%) of the net assets attributable to holders of Ordinary
Shares is invested in equity securities.
At 30 June 2019, if the market value of the investment portfolio
had increased/decreased by 1.90% (as per the movement in the
SEMGGCPD Index post year-end measured at 25 July 2019) with all
other variables held constant, this would have increased/decreased
net assets attributable to Shareholders by approximately US$2.20
million (30 June 2018 : 2.50% : US$2.61 million).
3 Consolidated net asset value per share
The consolidated net asset value per share as at 30 June 2019 is
US$1.3504 per share (30 June 2018: US$1.1982) based on 92,461,242
(30 June 2018: 92,461,242) Ordinary Shares in issue as at that
date.
4 Earnings per share
Basic and diluted earnings per share are calculated by dividing
the profit attributable to equity holders of the Company by the
weighted average number of Ordinary Shares in issue during the
year.
30 June 2019 30 June 2018
----------------------------------------------------------------- ------------- -------------
Profit attributable to equity holders of the Company (US$'000) 16,849 9,680
Weighted average number of Ordinary shares in issue (thousands) 92,461 97,302
----------------------------------------------------------------- ------------- -------------
Basic and diluted earnings per share (cents per share) 18.22 9.95
----------------------------------------------------------------- ------------- -------------
5 Share capital
30 June 2019 30 June 2018
US$'000 US$'000
---------------------------------------- ------------- -------------
Authorised 500,000,000 Ordinary shares
of US$0.01 each 5,000,000 5,000,000
---------------------------------------- ------------- -------------
Issued, Called-up and Fully-Paid:
92,461,242 (2018: 92,461,242) Ordinary
shares of US$0.01 each in issue, with
full voting rights 925 925
Issued share capital 925 925
---------------------------------------- ------------- -------------
In the year ended 30 June 2019 the Company had no tender offer
(27 December 2017: US$0.9933 per share) with nil shares (27
December 2017: 10,273,471) being repurchased and cancelled.
During the year US$nil (2018: US$83,457) tender expenses were
deducted from equity.
Capital management
The Board's policy is to maintain a strong capital base so as to
maintain investor, creditor and market confidence and to sustain
future development of the Group. The Board manages the Group's
affairs to achieve Shareholder returns through capital growth
rather than income and monitors the achievement of this through
growth in net asset value per share.
Group capital comprises Share Capital and Reserves. Neither the
Company nor its subsidiary is subject to externally imposed capital
requirements. The Company also has an active share buyback
program.
6 Other payables and accrued expenses
Group
30 June 2019 30 June 2018
US$'000 US$'000
------------------------------- ------------- -------------
Due to broker* 9,945 1,456
Management fee payable 287 267
Administration fee payable 58 57
Accruals and sundry creditors 58 119
------------------------------- ------------- -------------
10,348 1,899
------------------------------- ------------- -------------
*includes unsettled positions' trading balances.
Company
30 June 2019 30 June 2018
US$'000 US$'000
------------------------------- ------------- -------------
Administration fee payable 51 51
Accruals and sundry creditors 54 124
------------------------------- ------------- -------------
105 175
------------------------------- ------------- -------------
Liquidity risk
The Group manages its liquidity risk by maintaining sufficient
cash for operations and the ability to realise market positions.
The Group's liquidity position is monitored by the Investment
Manager and the Board of Directors.
The residual undiscounted contractual maturities of financial
liabilities are in the table below:
30 June 2019 Less than 1-3 3 months 1-5 years Over 5 No stated
1 month months to 1 year years maturity
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
---------------------- ---------- -------- ----------- ---------- -------- ----------
Financial liabilities
Other creditors 10,348 - - - - -
and accrued expenses
---------------------- ---------- -------- ----------- ---------- -------- ----------
10,348 - - - - -
---------------------- ---------- -------- ----------- ---------- -------- ----------
30 June 2018 Less than 1-3 3 months 1-5 years Over 5 No stated
1 month months to 1 year years maturity
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
---------------------- ---------- -------- ----------- ---------- -------- ----------
Financial liabilities
Other creditors 1,899 - - - - -
and accrued expenses
---------------------- ---------- -------- ----------- ---------- -------- ----------
1,899 - - - - -
---------------------- ---------- -------- ----------- ---------- -------- ----------
7 Charges and fees
Group 30 June 2019 Company Group Company 30 June 2018
30 June 2019 30 June 2018
US$'000 US$'000 US$'000 US$'000
------------------------------------------ ------------------- -------------- -------------- ---------------------
Investment manager's fees (see below) 1,023 - 995 -
------------------------------------------ ------------------- -------------- -------------- ---------------------
Administrator and Registrar's fees (see
below) 225 199 226 200
Audit fees 24 24 34 34
Custodian fees (see below) 138 3 109 4
Directors' fees and expenses 305 305 308 308
Directors' insurance cover 31 31 30 30
Broker fees 53 53 53 53
Other 365 340 369 377
------------------------------------------ ------------------- -------------- -------------- ---------------------
Other expenses 1,141 955 1,129 1,006
------------------------------------------ ------------------- -------------- -------------- ---------------------
Investment manager's fees
Annual fees
The Investment Manager was entitled to an annual management fee
of 1.25% of the Net Asset Value of the Group, calculated monthly
and payable quarterly in arrears. The Investment Management
Agreement was subject to termination on 31 October 2013 with a
revised agreement coming into effect from 1 November 2013. Under
the revised agreement the annual fee reduced to 1.05% of the net
asset value of the Company and further reduced to an annual fee of
0.90% of the net asset value of the Company from 1 November 2016
subject to termination on 31 October 2019.
Annual management fees for the year ended 30 June 2019 amounted
to US$1,022,783 (30 June 2018: US$994,814) and the amount accrued
but not paid at the year-end was US$287,489 (30 June 2018:
US$267,445).
Administrator and Registrar fees
The Administrator is entitled to receive a fee of 12.5 basis
points per annum of the net asset value of the Company between US$0
and US$100 million, 10 basis points of the net asset value of the
Company above US$100 million.
This is subject to a minimum monthly fee of US$15,000, payable
quarterly in arrears.
The Administrator assists in the preparation of the financial
statements of the Group and provides general secretarial
services.
The Administrator may utilise the services of a CREST accredited
registrar for the purposes of settling share transactions through
CREST. The cost of this service will be borne by the Company. It is
anticipated that the cost will be in the region of GBP12,000 per
annum subject to the number of CREST settled transactions
undertaken.
Administration fees paid for the year ended 30 June 2019
amounted to US$225,192 and US$32,087 for additional services (30
June 2018: US$225,774 and US$32,087 respectively). Outstanding
Administration fees at the year end amounted to US$57,385 (30 June
2018: US$57,767).
Custodian fees
The Custodian is entitled to receive fees of US$7,200 per annum
and US$25 per processed transaction from the Company.
In addition the Custodian is entitled to receive fees of 8 basis
points per annum in respect of Qatari securities held by the Group
and 10 basis points per annum in respect of non-Qatari, GCC
securities held by the Group and $45 per settled transaction
(Qatar)/$50 per settled transaction (GCC excluding Qatar). From 1
March 2013 the custodian agreed to a 25% reduction in custodian
fees relating to the Qatari market.
Custodian and sub-custodian fees for the year ended 30 June 2019
amounted to US$138,467 (30 June 2018: US$109,172) and the amount
accrued but not paid at the year-end was US$9,579 (30 June 2018:
US$8,756).
8 Foreign currency translation
The US Dollar is the currency of the primary economic
environment in which the entity operates ("the functional
currency"). The US Dollar is the currency in which the financial
statements are presented ("the presentational currency") as
reporting to shareholders is in US Dollars and the shares are
quoted in US Dollars.
Monetary assets and liabilities denominated in foreign
currencies as at the date of these financial statements are
translated to US Dollar at exchange rates prevailing on that date.
Income and expenses are translated into US Dollar based on exchange
rates on the date of the transaction. All resulting exchange
differences are recognised in the income statement at the exchange
rate prevailing on the balance sheet date. Items of income and
expense are translated at exchange rates on the date of the
relevant transactions or an average rate. Components of equity are
translated at the date of the relevant transaction and not
retranslated. All resulting exchange differences are recognised in
other comprehensive income.
Foreign exchange risk
The Group's operations are conducted in jurisdictions which
generate revenue, expenses, assets and liabilities in currencies
other than US Dollar. As a result, the Group is subject to the
effects of exchange rate fluctuations with respect to these
currencies. The Group's policy is not to enter into any currency
hedging transactions.
At the reporting date the Group had the following exposure:
Currency 30 June 2019 30 June 2018
% %
--------------- ------------- -------------
US Dollar 43.01 41.86
Qatari Riyal 34.28 36.25
Kuwaiti Dinar 14.63 10.51
UAE Dirham 8.01 11.32
Saudi Arabia
Riyal 0.05 0.09
British Pound 0.02 (0.04)
Omani Rial 0.00 0.00
The following table sets out the Group's total exposure to
foreign currency risk and the net exposure to foreign currencies of
the monetary assets and liabilities:
30 June 2019 Monetary Monetary Net exposure
assets liabilities
US$'000 US$'000 US$'000
-------------------- --------- ------------- -------------
US Dollar 61,805 (8,109) 53,696
Qatari Riyal 42,805 - 42,805
Kuwait Dinar 19,745 (1,475) 18,270
UAE Dirham 10,756 (759) 9,997
Saudi Arabia Riyal 68 - 68
British Pound 27 (5) 22
-------------------- --------- ------------- -------------
135,206 (10,348) 124,858
-------------------- --------- ------------- -------------
30 June 2018 Monetary Monetary Net exposure
assets liabilities
US$'000 US$'000 US$'000
US Dollar 47,332 (955) 46,377
Qatari Riyal 40,161 - 40,161
UAE Dirham 12,545 - 12,545
Kuwait Dinar 12,530 (883) 11,647
Saudi Arabia Riyal 96 - 96
British Pound 18 (61) (43)
-------------------- --------- ------------- -------------
112,682 (1,899) 110,783
-------------------- --------- ------------- -------------
Foreign currency sensitivity risk - presentational currency
At 30 June 2019 had the US Dollar weakened/strengthened by 1%
(2018 : weakened/strengthened 1%) in relation to all currencies,
with all other variables held constant, net assets attributable to
equity holders of the Company would have increased/decreased by the
amounts shown below:
30 June 2019 US$'000
--------------- --------
British Pound -
Kuwaiti Dinar 183
UAE Dirham 100
Saudi Arabia
Riyal 1
--------------- --------
Effect on
net assets 284
--------------- --------
30 June 2018 US$'000
--------------- --------
British Pound -
Kuwaiti Dinar 116
UAE Dirham 125
Saudi Arabia
Riyal 1
--------------- --------
Effect on
net assets 242
--------------- --------
Foreign currency sensitivity risk - functional currency
As 43% of net assets are denominated in USD and USD is the
functional currency there is no significant functional currency
risk. The Qatari Riyal is pegged to the USD within a tight band and
therefore it is not included in the sensitivity analysis.
As USD is the functional currency of the Group and USD is the
presentational currency any effect of changes in the foreign
exchange rates between USD and the other currencies is assumed to
relate to the investments and is included in the unrealised
gain/loss of the investments on consolidation.
9 Taxation
Isle of Man taxation
The Company is resident for taxation purposes in the Isle of Man
by virtue of being incorporated in the Isle of Man and is
technically subject to taxation on its income but the rate of tax
will be zero. The Company is required to pay an annual corporate
charge of GBP250 per annum.
The Company became registered for VAT from 1 February 2011.
Qatar/United Arab Emirates(U.A.E)./Saudi Arabia/Kuwait
taxation
The Company invests in equities in the GCC region. As at 30 June
2019 the Company held investment in Qatar, United Arab Emirates
(U.A.E.), Saudi Arabia and Kuwait.
It is the intention of the Directors to conduct the affairs of
the Company so that it is not considered to be either resident or
doing business in any of these countries.
With the exception of Saudi Arabia, none of these countries
impose withholding tax on dividend distributions to non-residents.
Saudi Arabia imposes a 5% withholding tax on dividend distributions
to non-residents. The tax charge in the Consolidated Income
Statement relates to this: 2019: US$81,495 (2018: US$33,839).
Capital gains made by the Company on disposal of shares in
Qatar, U.A.E., Saudi Arabia and Kuwait are not subject to tax in
those countries.
There is no stamp duty or equivalent tax on the transfer of
shares in Qatar/U.A.E./Saudi Arabia/Kuwait companies.
10 Related party transactions
Parties are considered to be related if one party has the
ability to control the other party or to exercise significant
influence over the other party in making financial or operational
decisions.
The Investment Adviser is Qatar Insurance Company S.A.Q. The
Group holds shares in Qatar Insurance Company S.A.Q. (see note
1(a)). The Investment Adviser's fees are paid by the Investment
Manager.
The Investment Manager, Epicure Managers Qatar Limited, is a
related party by virtue of its ability to make operational
decisions for the Company and through common Directors. Fees paid
and payable to the Investment Manager are disclosed in notes 6 and
7.
Epicure Managers Qatar Limited is a wholly owned subsidiary of
the Investment Adviser, Qatar Insurance Company S.A.Q.
11 The Company
Gulf Investment Fund plc (the "Company") was incorporated and
registered in the Isle of Man under the Isle of Man Companies Acts
1931 to 2004 on 26 June 2007 as a public company with registered
number 120108C.
Pursuant to an Admission Document dated 25 July 2007 there was
an original placing of up to 171,355,000 Ordinary Shares, with
Warrants attached on the basis of 1 Warrant to every 5 Ordinary
Shares. Following the placing on 31 July 2007, 171,355,000 Ordinary
Shares and 34,271,000 Warrants were issued. The warrants expired on
16 November 2012.
The shares of the Company were admitted to trading on the AIM
market of the London Stock Exchange ("AIM") on 31 July 2007, when
dealings also commenced.
As a result of a further fund raising in December 2007, a
further 76,172,523 Ordinary Shares were issued, which were admitted
for trading on AIM on 13 December 2007.
On 4 December 2008, the Share premium arising from the placing
of shares was cancelled and the amount of the Share Premium account
transferred to Retained earnings.
The shares of the Company were admitted to trading on the Main
Market of the London Stock Exchange on 13 May 2011.
For the year ended 30 June 2019 there was no tender offer (2018:
US$0.9933 per share). Therefore nil shares were cancelled (2018:
10,273,471 shares) with US$ nil being paid to participating
shareholders (2018: US$10,204,639).
The shareholders approved a dividend of 3.0 cents per share on 7
November 2018 (previous year 3.0 cents per share); this was paid to
shareholders on 21 December 2018.
The Company's agents and the Investment manager perform all
significant functions. Accordingly, the Company itself has no
employees.
Duration
The Company currently does not have a fixed life but the Board
considers it desirable that Shareholders should have the
opportunity to review the future of the Company at appropriate
intervals. Accordingly, at the annual general meeting of the
Company in 2021 a resolution will be proposed that the Company
ceases to continue in existence. In addition, the Directors are
committed to making a tender offer to shareholders for up to 100%
of the share capital in 2020 subject to shareholder approval.
12 The Subsidiary
The Company has the following subsidiary company:
Country of incorporation Percentage of
shares held
----------------------------- -------------------------- --------------
Epicure Qatar Opportunities British Virgin
Holdings Limited Islands 100%
----------------------------- -------------------------- --------------
Epicure Qatar Opportunities Holdings Limited is a wholly owned
subsidiary of the Company and was incorporated in the British
Virgin Islands on 4 July 2007 under the provisions of the BVI
Companies Act 2001, as a limited liability company with
registration number 1415393. The principal activity of the
subsidiary is holding investments on behalf of the Company.
13 Significant accounting policies
The consolidated financial statements of the Company for the
year ended 30 June 2019 comprise the Company and its subsidiary,
Note 1(b), (together referred to as the "Group").
Accounting policies for certain items have been included in the
relevant note.
13.1 Basis of preparation
Principal activities
The Group's principal activities, investment objective and
strategy and principal risks and uncertainties and the planned
tender offer in 2020 are described in the Chairman's Statement,
Business Review, Investment Policy and Corporate Governance
Report.
Statement of compliance
These consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards
("IFRS") and Isle of Man Companies Act 1931 to 2004.
Basis of measurement
The financial statements have been prepared under the historic
cost convention, as modified by the revaluation of financial assets
held at fair value through profit or loss and investments in
subsidiary, which are stated at fair value.
Going concern
These consolidated financial statements have been prepared on
the going concern basis, as the Board of Directors has a reasonable
expectation that the Group and Company have the resources to
continue in business for the foreseeable future. In making this
assessment, the Directors have considered a wide range of
information relating to present and future conditions, including
the 100% tender offer in 2020 (subject to shareholder approval),
the date of the next continuation vote for the Company scheduled
for 2021, future projections of profitability, cash flows and
capital resources.
Functional and presentation currency
These consolidated financial statements are presented in USD
Dollar, which is the Group's functional currency. All financial
information presented in USD Dollar has been rounded to the nearest
dollar.
Disclosure on changes in significant accounting policies
The accounting policies applied in these financial statements
are the same as those applied in the Group's consolidated financial
statements as at the year ended 30 June 2018 with the exception of
IFRS 9, as described below.
IFRS 9 Financial Instruments
The Group adopted IFRS 9 Financial Instruments on its effective
date of 1 July 2018. IFRS 9 replaces IAS 39 Financial Instruments:
Recognition and Measurement and introduces new requirements for
classification and measurement, impairment and hedge
accounting.
IFRS 9 contains three principal classification categories for
financial assets: measured at amortised cost, fair value through
other comprehensive income and fair value through profit or loss.
The classification of financial assets under IFRS 9 is generally
based on the business model in which a financial asset is managed
and its contractual cash flow characteristics. IFRS 9 eliminates
the previous IAS 39 categories of held to maturity, loans and
receivables and available for sale. Under IFRS 9, derivatives
embedded in contracts where the host is a financial asset in the
scope of the standard are never separated. Instead, the hybrid
financial instrument as a whole is assessed for classification.
Changes in accounting policies resulting from the adoption of
IFRS 9 were applied retrospectively, with the exception that, the
Company has taken advantage of the exemption allowing it not to
restate comparative information for prior periods with respect to
classification and measurement (including impairment) changes.
Differences in the carrying amounts of financial assets and
financial liabilities resulting from the adoption of IFRS 9 would
be recognised in retained earnings and reserves as at 1 July 2018.
There were no changes in the carrying amounts as a result of the
adoption of IFRS 9.
As a result of the adoption of IFRS 9, the Company adopted
consequential amendments to IAS 1 Presentation of Financial
Statements which requires impairment of financial assets to be
presented in a separate line item in the statement of comprehensive
income. Additionally, the Company adopted consequential amendments
to IFRS 7 Financial Instruments: Disclosures, but not applied to
comparative information.
IFRS 9 replaces the 'incurred loss' model in IAS 39 with an
'expected credit loss' (ECL) model. The new impairment model
applies to financial assets measured at amortised cost, but not to
investments in equity instruments. IFRS 9 requires the Company to
record ECLs on all of its trade receivables, either on a 12-month
or lifetime basis. Given the limited exposure of Company to credit
risk, this amendment has not had a material impact on the financial
statements. The Company only holds receivables with no financing
component and which have maturities of less than 12 months at
amortised cost and therefore has adopted an approach similar to the
simplified approach to calculation of ECLs.
The Group's approach to capital management is described in note
5. The Group's objectives, policies and processes for managing
credit, foreign exchange, liquidity and market risk along with the
are described in Notes 1(a), 2, 6 and 8 of the financial
statements.
The preparation of financial statements in conformity with IFRS
requires the use of certain critical accounting estimates. It also
requires the Board of Directors to exercise its judgement in the
process of applying the Group's accounting policies. The financial
statements do not contain any critical accounting estimates.
Certain comparative figures have been revised to accord with the
presentation adopted in the current year, in particular the fair
value hierarchy level for the P-Notes (note 2) and the separate
disclosure of withholding tax (Consolidated Income Statement).
13.2 Basis of consolidation
Subsidiaries
The consolidated financial statements incorporate the financial
statements of the Company and entities controlled by the Company
(its subsidiaries and subsidiary undertakings). Control is achieved
where the Company has power over an investee, exposure or rights to
variable returns and the ability to exert power to affect those
returns.
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised gains
or losses arising from intra-group transactions, are eliminated in
full in the consolidated financial statements.
13.3 Segment reporting
The Group has one segment focusing on maximising total returns
through investing in quoted securities in the GCC region. No
additional disclosure is included in relation to segment reporting,
as the Group's activities are limited to one business and
geographic segment.
13.4 Investment in and loan to subsidiary
Investment in subsidiary in the Company balance sheet is stated
at fair value. Loan to subsidiary is stated at amortised cost.
13.5 Cash and cash equivalents
Cash comprises cash on hand and demand deposits. Cash
equivalents are short-term highly liquid investments that are
readily convertible to known amounts of cash and that are subject
to an insignificant risk of changes in value.
13.6 Future changes in accounting policies
The International Accounting Standards Board ("IASB") and the
International Financial Reporting Interpretations Committee
("IFRIC") have issued the following standards and interpretations
with an effective date after the date of these financial
statements:
IFRS Standards and Interpretations Effective date (accounting
(IAS/IFRS) periods commencing on or after)
IFRS 16 - Leases (issued on 13 January 1 January 2019
2016)
--------------------------------
IFRIC 23- Uncertainty over Income 1 January 2019
Tax Treatments
(issued on 07 June 2017)
--------------------------------
14 Post balance sheet events
There are no material post balance sheet events.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR LLFVRALIDLIA
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