TIDMGIF
RNS Number : 1957A
Gulf Investment Fund PLC
28 September 2020
Gulf Investment Fund PLC
28 September 2020
Legal Entity Identifier: 2138009DIENFWKC3PW84
Gulf Investment Fund plc
Annual Report for the year ended 30 June 2020
-- Net asset value down 8.7% vs benchmark fall of 17.2%.
-- Share price down 5.4% (2019: +18.7%).
-- Board recommends a dividend for the year of 3c a share (2019: 3c).
-- As of 30 June, the Fund's share price was trading at a
discount to NAV of 7.5% vs a three-year average discount of
13.0%.
-- The fund remains overweight Qatar
Nicholas Wilson, Chairman of Gulf Investment Fund plc,
commented:
"It has been a tumultuous year for GCC markets, but the Board of
Directors are confident the region's economies are positioned to
recover lost ground following the double impacts of the oil price
crash and the continuing Covid-19 outbreak.
"The Fund's long-term strategy continues to deliver a solid
performance relative to the benchmark. Since the Fund's mandate
widened to incorporate the wider Gulf region in December 2018, NAV
has increased 31% (dividend included) compared to 13.1% from the
S&P GCC total return index.
"The Board and managers are cautiously optimistic for the
region's outlook and consider that the prospects for international
trade are improving"
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
thirteenth annual report and financial statements for the year to
30 June 2020.
During the 12 months, the Gulf Investment Fund's Net Asset Value
(NAV) per share fell 8.7% to US$123.23 which compares with the
S&P GCC composite index which fell 17.2% and the wider MSCI
Emerging Markets Index which was down 5.7%. Although the discount
at which the fund's shares trade to NAV narrowed, the share price
dropped 5.4% from US$1.205 to US$1.140. This was in a year when the
price of Brent Crude fell 38%.
At the Annual General Meeting on 8 November 2019, shareholders
approved a dividend of 3.0c per share which was paid on 10
January.
In second half of our financial year, Gulf Cooperation Council
markets and economies were hit first by a collapse in crude oil
prices soon followed by the Covid-19 pandemic.
Results
Results for the year to 30 June 2020 showed a loss of US$8.141m
generated from fair value adjustments and realised losses partially
offset by dividend income. This is equivalent to a basic loss per
share of US$8.80c (2019: profit of US$18.22c per share).
As described in the investment manager's report, the
geographical split of the portfolio has changed significantly
during the year. That said, Qatar is still overweight at 32.1% of
the fund's NAV followed by Saudi Arabia at 31.5%, UAE 14.0%, Kuwait
16.8% and 5.5% of NAV is in cash.
As at 30 June 2020, we had 31 holdings: 13 in Saudi Arabia, 8 in
Qatar, 7 in Kuwait and 3 in the UAE. Once again, the biggest sector
exposure is financials at 36.1% of the fund.
Kuwait was to be upgraded to emerging market status in May by
MSCI but the pandemic saw this delayed until November 2020.
The Company's ongoing charges (formerly total expense ratio)
reduced to 1.86% from 1.88% in the previous year.
Change in the presentation of the financial statements
In the current year the Board, in conjunction with the Auditors,
has given further consideration to IFRS 10 and, in particular,
whether the Company meets the definition of an Investment Entity
under that standard. Accordingly, the Company has now applied the
requirements of the IFRS 10 Investment Entity Consolidation
Exception for the statutory audited financial statements. In
accordance with IFRS 10, and consistent with the prior year, the
Company financial statements include the investment in subsidiary
at fair value through profit or loss. In order to provide
continuity for shareholders and other users of the financial
statements, consolidated financial information has been presented
in the Appendix to this report. The profit/loss and net assets are
the same in this consolidated information as in the Company's
financial statements - consistent with the prior year. Therefore,
this change is presentational only - with no change to the key
reported numbers in the prior year.
Proposed dividend
The Board is pleased to recommend to shareholders a dividend of
3c per share (2019 3c per share), subject to shareholder approval
at the forthcoming Annual General Meeting. If approved the dividend
will be paid in January 2021. 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 governments 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 problems
in the straits of Hormuz.
Looking to the future, the impact of Covid-19 is highly
uncertain and cannot be predicted and there is no assurance that
the outbreak will not have a material adverse effect on the
Company's investments. The extent of the impact, if any, will
depend on future developments, including actions taken to contain
the coronavirus. A widespread health crisis could adversely affect
the global economy, resulting in an extensive economic downturn
that could impact the profitability of many of the companies in
which we are invested.
The Board believes that the principal risks and uncertainties
faced by the Company continue to be; 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 the Annual Report.
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 balance their economies.
Tender offer and future of the Company
In 2017, the Directors committed to making a tender offer for up
to 100% of the share capital in 2020 ("Tender Offer"). This Tender
Offer is subject to shareholder approval and a circular setting out
details of the Tender Offer and notice of general meeting, will be
sent to shareholders in the coming months. The Directors do not
believe it is in the best interests of shareholders to be invested
in a sub-scale, illiquid fund and are therefore proposing that,
should the level of tender acceptances result in the Company having
net assets of less than $60m, the Company be put into managed wind
down in lieu of proceeding with the Tender Offer.
The Board are aware that discount management and liquidity are a
key concern for investors and therefore intend to consult with
shareholders on appropriate future discount and liquidity
mechanisms and dividend policy, should there be sufficient
shareholder support for the Company following the implementation of
the upcoming tender offer.
Annual General Meeting
I look forward to welcoming shareholders to our thirteenth
Annual General Meeting on 13 November 2020, which will be held at
11.00 am at the Company's registered office at Millennium House,
46, Athol Street, Douglas, Isle of Man. Shareholders are advised
that, given current restrictions imposed by the Isle of Man
Government in response to the global COVID-19 pandemic, it may not
be possible to attend the Annual General Meeting in person.
Shareholders are therefore strongly encouraged to appoint the
chairman of the meeting as their proxy.
Nicholas Wilson
Chairman
25 September 2020
Business Review
The following review provides information primarily about the
Company's business and results for the year ended 30 June 2020. It
should be read in conjunction with the Report of the Investment
Manager and the Investment Adviser on pages 7 to 16 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, through its wholly owned subsidiary, in listed or soon
to be listed companies 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 investment policy is on pages 17 to 18.
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 AGM 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. 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.
The Board is responsible for close monitoring of the Company's
share price and working with its broker to buy back shares when the
Company believes 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. Apart from the key risks outlined below, the possibility of
a tender offer up to 100% of the share capital of the Company and
the Company's continuation is identified as an ongoing risk.
In addition to the tender offer noted on page 4 the key risks
which have been identified and the steps taken by the Board to
mitigate these are as follows:
Market
The Company's underlying 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 Notes 1 and 2 on pages 47 to
53.
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 ("FCA 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 22 to 30.
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(c), 2,
6 and 8.
Report of the Investment Manager and Investment Adviser
Regional market overview:
Country / Region Index 30-Jun-19 31-Dec-19 2H2019 30-Jun-20 1H2020 LTM
Qatar DSM Index 10,456 10,426 -0.3% 8,999 -13.7% -13.9%
Saudi Arabia SASEIDX Index 8,822 8,389 -4.9% 7,224 -13.9% -18.1%
Dubai DFMGI Index 2,659 2,765 4.0% 2,065 -25.3% -22.3%
Abu Dhabi ADSMI Index 4,980 5,076 1.9% 4,286 -15.6% -13.9%
Kuwait KWSEAS Index 5,832 6,282 7.7% 5,131 -18.3% -12.0%
Oman MSM30 Index 3,885 3,981 2.5% 3,516 -11.7% -9.5%
Bahrain BHSEASI Index 1,471 1,610 9.5% 1,278 -20.7% -13.1%
S&P GCC SEMGGCPD Index 118 116 -1.4% 97 -16.1% -17.2%
Brent CO1 Comdty 67 66 -0.8% 41 -37.7% -38.2%
MSCI EM MXEF Index 1,055 1,115 5.7% 995 -10.7% -5.7%
MSCI World MXWO Index 2,178 2,358 8.3% 2,202 -6.6% 1.1%
------------------ ---------------- ---------- ---------- ------- ---------- ------- -------
Source: Bloomberg; LTM: Last Twelve Months
Global markets recovered strongly during the 2Q2020, supported
by government stimulus measures, gradual economic reopening and
hopes for a coronavirus vaccine.
Gulf Cooperation Council (GCC) markets also followed the global
market trend and recovered in 2Q2020, reducing 1H2020 losses to
16.1%. Dubai was the worst performing in the region, down 25.3%
from January to June 2020. Qatar is the second best performing
market after Oman (down 11.7%) with a fall of 13.7%.
The price of oil (Brent) recovered 81% in 2Q2020 after falling
66% in 1Q2020, reaching US$41 per barrel helped by an improving
supply demand picture, following the OPEC+ supply agreement.
However, markets experienced a spike in volatility in June 2020
as investors continued to exercise caution amid fears of a second
wave of virus spread as new cases started rising once again.
After gaining 9.8% in 1H2019, GCC indices showed mixed
performance in 2H2019 with the S&P GCC Index declining 1.4%.
Negative performance was led by 4.9% decline by Saudi Arabia
market. Kuwait and Bahrain gained the most with 7.7% and 9.5%
returns. Dubai, Abu Dhabi and Oman rose 4.0%, 1.9% and 2.5%,
respectively. Qatar market remained broadly flat in 2H2019 (down
0.3%).
GCC: Policy response, gradual reopening and economic outlook
2020 saw GCC countries implement widespread policy measures in a
bid to limit the spread of coronavirus infection and also support
their economies. These measures include large public events
cancellations, air travel bans, and schools and government office
shutdowns. Large economic stimulus packages have been announced,
with a major focus on health spending, social assistance, and
private sector (SME) support. Central banks have cut rates in line
with emergency cuts by the US Fed. With proactive management of the
epidemic, the GCC countries have begun reopening the economy in a
phased manner.
GCC: Curve of Covid-19 Cases started to decline
Embedded image removed - please refer to the Company's website
www.gulfinvestmentfundplc.com for charts depicting Covid-19 cases
in decline.
Over US$200 billion stimulus (over 14.0% of their combined
GDP)
Embedded image removed - please refer to the Company's website
www.gulfinvestmentfundplc.com for charts depicting stimulus in GCC
area.
GCC Reopening plans:
Saudi Arabia executed a 3-phase reopening plan starting in late
May 2020, of which the third and last phase started on June 2021,
where all curfew restrictions were lifted and the situation was
allowed to return to normal. Domestic travel started to return to
normal, while bans on international travel and religious
pilgrimages were maintained. On 23 July 2020, the authorities
announced the opening of land borders with Kuwait, Bahrain and the
UAE.
The UAE began gradual reopening of shopping centres and other
businesses from the end of April. Several airlines have resumed a
limited number of regular passenger flights. Public sector
employees returned to work with full capacity from mid-May 2020.
Dubai reopened to international tourists from 7 July 2020.
Restaurants, coffee shops, cafes and other licensed food outlets in
Abu Dhabi are now allowed to operate at 80% capacity.
Qatar charted a plan to reopen the economy in mid-June, where
some mosques, stores in malls and selected parks were allowed to
open. Further restrictions were lifted in July 2020. Phase 3 of
reopening was started on 1 August 2020, permitting flights from
low-risk countries as well as the full-reopening of shopping malls.
Economic activity is expected to back to normal in phase 4 starting
on 1 September 2020.
Kuwait started reopening on 31 May 2020 with a reduction in the
curfew to 12 hours. In later phases, it plans to allow gradual
opening of public and private sector offices, and then opening of
hotels and resorts.
Oman ended the lockdown in Muscat in May 2020 with activity
resuming from the start of June 2020. Private sector employees are
allowed to return to their offices and government agencies begun
their regular operations. In June, the government further opened up
commercial and industrial activities.
Bahrain authorities have permitted reopening of retail stores
with some strict operational conditions.
OPEC+ and rebalancing the oil market
In April, the OPEC+ countries agreed to a new and much more
extensive round of cuts, in an effort to rebalance the market. This
has resulted in a supply cut of 9.7 million bpd in May and June
2020. Given these cuts aren't enough to compensate for the
short-term demand shock from lockdowns, Saudi Arabia has
voluntarily reduced its production by a further 1 million bpd for
June. Next phase of OPEC+ deal is expected to see cuts in
production narrowing to 7.7 million bpd starting August 1, from the
current level of 9.7 million bpd agreed in April. Consensus now
expects oil prices to average above US$40 for 2H2020 and average
around US$50 for 2021.
Growth is expected from 2021
Against the backdrop of an uncertain global environment, we
believe that the regional economies will begin to recover, with
focus on fiscal and monetary measures. Stabilization of the oil
market post the OPEC+ deal should provide some support, and large
capital reserves will help in maintaining key public spending. The
IMF expects the region to grow at 2.1% in the year 2021 after
contracting by 7.1% in the year 2020.
Real GDP Growth % 2017 2018 2019 2020e 2021e
GCC -0.4 2.0 0.5 -7.1 2.1
World 3.9 3.6 2.9 -4.9 5.4
Advanced economies 2.5 2.2 1.7 -8.0 4.8
EM&DE 4.8 4.5 3.7 -3.0 5.9
Source: IMF June 2020 update; GCC Data revised in July 13,
Regional Economic Update
GCC countries to curb spending and seek additional revenue
Saudi Arabia announced US$26 billion spending cuts on major
projects while announcing new fiscal measures to raise more non-oil
revenues and rationalize spending. These will mean cuts and delays
in capital spending, removal of cost-of-living allowances for
public sector workers and VAT hikes from 5% to 15%.
Qatar plans to postpone US$8.2 billion worth of yet to be
awarded contracts on capital expenditure projects. Kuwait
government also agreed to cut the government budget for 2020-2021
by at least 20%.
Dubai has been hit hard by the outbreak as economic activity in
vital sectors such as tourism and transport came to a standstill.
Government has asked all agencies to postpone all un-awarded
construction projects until further notice and not to allow any
cost increases for ongoing construction projects.
Oman announced reduced spending in the 2020 budget by 10%.
Bahrain announced that it would cut current spending excluding
wages and transfers by around 30%.
Announced measures could help offset losses arising from reduced
oil exports but the aggregate GCC deficit is still expected to
deteriorate from 2.1 % of GDP in 2019 to 10.5% of GDP in 2020.
Table: Government fiscal balance
% of GDP 2017 2018 2019 2020e 2021e
Bahrain -8.6 -6.9 -9.3 -20.0 -15.0
Kuwait 6.3 9.0 4.8 -11.3 -14.1
Oman -14.0 -7.9 -7.0 -16.9 -14.8
Qatar -2.9 5.2 4.1 5.2 1.4
Saudi Arabia 9.2 -5.9 -4.5 -11.4 -5.6
UAE -2.0 2.0 -0.8 -11.1 -7.1
GCC -5.7 -1.6 -2.1 -10.5 -8.0
Source: Data as per IMF Regional Economic Update April 2020;
Saudi Arabia data updated in June 2020; GCC Data revised in July
13, Regional Economic Update
GCC countries financial reserves
GCC countries have built up financial reserves in past decades
and now collectively have assets worth over US$3.0 trillion, which
is over 200% of their combined GDP. This gives further financial
flexibility, if needed.
Countries with fiscal buffers (Kuwait, Qatar, Saudi Arabia, UAE)
are better placed to accommodate rising deficits than those with
limited space (Bahrain and Oman).
Chart: US$3 trillion in SWF and FX Reserves
Embedded image removed - please refer to the Company's website
www.gulfinvestmentfundplc.com for charts depicting reserve
data.
Regional governments are working hard to soften the blow through
fiscal measures and central bank liquidity support. These efforts
will be further supported by low debt to GDP ratio and high credit
ratings.
This can be witness by successful return of Qatar, Saudi Arabia
and the UAE to global capital markets in April, issuing a combined
US$24 billion, and recent gains in most GCC equity indices.
The GCC banking system remains solid, with strong liquidity and
capitalization, and relatively low non-performing loans. Support
measures introduced by GCC authorities to back banking system
amount to 10.7% of GDP, or US$147 billion.
Industry Consolidation and Diversification
The pandemic has had the effect of hastening consolidation in
some sectors with companies seeking to form stronger entities in
order to gain market share and improve operational efficiency.
Going forward, we believe consolidation is going to accelerate in
multiple sectors in order to increase profitability.
We believe that although there are challenges, the worst phase
of the crisis is now over and this should present GCC economies an
opportunity to accelerate the process of diversification away from
oil. Rapid, inclusive and well sequenced policies will help GCC
economies emerge stronger and more prosperous.
Risk of second wave and new lockdowns
Fear of a second wave of infection is rising in some countries
which are executing reopening plans, such as in some parts of
China, India, Europe and the US. Rising infections may trigger new
lockdowns and pose a risk to the path of recovery.
Other developments
GCC IPO market
The GCC is expected to see a modest recovery in initial public
offerings (IPOs) in the second half of 2020. There were just two in
H1. Saudi Arabia and the UAE are expected to lead IPO activity with
eight IPOs to be launched by these countries in 2020 or early
2021.
GCC Banking consolidation
The NCB-Samba merger may herald a new wave of bank consolidation
as banks seek to improve competitiveness, reduce operating costs
and boost capital amid slowing economic growth. The merger will
create a national champion with assets of US$147 billion that will
be better able to fund Saudi Arabia's massive infrastructure
projects. In Qatar Masraf Al Rayan bank and Al Khaleej bank agreed
to initiate talks on a possible merger. If agreed, the merger will
create the third largest bank in Qatar with an asset base of US$45
billion.
Debt ratings
Moody's has cut Saudi's outlook to "negative" from "stable"
while affirming the sovereign credit rating at "A1". Higher fiscal
risks due to lower oil prices, and uncertainty about the
government's ability to offset the oil revenue losses and stabilize
its debt in the medium term has led to the negative outlook.
Fitch has downgraded Bahrain's credit rating to "B+" from "BB-"
with a "Stable" outlook. The downgrade reflects the combined impact
of coronavirus pandemic and lower oil prices on the economy, which
is expected to cause noticeable rises in the budget deficit and
government debt and will pressure already low FX reserves,
triggering sharp GDP contraction.
S&P Global has downgraded Kuwait's long-term sovereign
credit ratings to "AA-" from "AA" with a "stable" outlook as low
oil prices are expected to have negative economic and fiscal
implications given its high reliance on hydrocarbons. Moreover,
Kuwait is also lagging in reform momentum when compared to its
regional peers. Moody's credit rating for Kuwait maintained at
"Aa2" with "under review" outlook. Additionally, Fitch's credit
rating for Kuwait was maintained at "AA" with "stable" outlook.
Moody's downgraded Oman's credit rating second time this year to
Ba3 and changed its outlook to "negative" citing its low fiscal
strength will likely place pressure on its finances. Moody's rating
for Oman is now on par with S&P Global Ratings of "BB-" and one
level below that of Fitch Ratings of "BB". Both S&P Global
Ratings and Fitch Ratings have also downgraded countries rating
with "negative" outlook.
UAE to develop new gas field
ADNOC and the Dubai Supply Authority signed an agreement to
develop a newly discovered 80 trillion cubic feet gas reservoir in
the Jebel Ali area. As UAE is dependent on imported natural gas,
successful development could make the Emirates self-sufficient.
Portfolio structure
Country allocation
GIF's weightings in GCC markets are based on the Investment
Adviser's assessment of outlook and valuation. Compared to the
benchmark, GIF remained significantly overweight Qatar (32.1% of
NAV vs. a S&P GCC weighting of 15.0% for Qatar) and overweight
UAE (14.0% vs S&P GCC of 11.8%) and Kuwait (16.8% vs S&P
GCC of 11.8%). GIF is underweight Saudi Arabia (31.5% vs S&P
GCC weighting of 58.2%).
During the 1H2020, the Fund's exposure to Saudi Arabia increased
by 5.3%, while exposure to the UAE was reduced by 8.6%. The fund's
cash position is now 5.5% as of 30 June 2020 (31 December 2019:
2.3%).
At of 30 June 2020, GIF had 31 holdings: 13 in Saudi Arabia, 8
in Qatar, 7 in Kuwait and 3 in the UAE (vs. 45 holdings in 4Q19: 20
in Saudi Arabia, 10 in Qatar, 9 in Kuwait, 5 in the UAE and 1 in
Oman).
Embedded image removed - please refer to the Company's website
www.gulfinvestmentfundplc.com for charts depicting Country
allocation.
Top 5 Holdings
Company Country Sector % share of GIF NAV
Qatar Gas Transport Qatar Energy 9.4%
Emirates National Bank of Dubai UAE Financials 6.8%
Saudi Ceramic Company Saudi Arabia Industrials 5.7%
Aramex UAE Industrials 5.1%
Gulf International Services Qatar Energy 4.6%
--------------------------------- -------------- ------------- -------------------
Source: QIC; as on 30 June 2020
The Investment Adviser follows a detailed bottom-up stock
picking strategy, which has led the Fund's outperformance in
different economic cycles. In the current scenario, the Investment
Adviser believes that markets will remain volatile, and plan to
focus on companies with solid balance sheet and stable cash flows,
at attractive valuations.
Qatar Gas Transport Co. and Emirates NBD continued to remain
GIF's top holdings owing to their strong fundamentals. The
investment Adviser increased holdings in Aramex and Gulf
International Services Co. and made new investments in Saudi
Ceramic Co. as valuations became attractive.
Sector Allocation
Embedded image removed - please refer to the Company's website
www.gulfinvestmentfundplc.com for charts depicting sector
allocation.
The Financial sector remained the largest sector allocation for
GIF at 36.1% of NAV. However, during the period, the Investment
Adviser reduced exposure to the sector from 47.3% at the end of
4Q2019. The Investment Adviser believes that most GCC banks have
strong capital and liquidity buffers to safeguard them from
systematic risk in the current scenario. However, lower interest
rates along with an expected increase in non-performing loans could
impact profitability in the near term.
Industrials is the second largest exposure in the Fund at 19.8%
(up from 7.8% in 4Q2019) as valuations became attractive. Exposure
to the Materials sector was reduced to 2.1% of NAV down from 12.1%
in 4Q2019.
Top holdings:
Qatar Gas Transport (9.4% of NAV)
Established in 2004, Qatar Gas Transport Company (Nakilat) is a
key midstream player in the hydrocarbon sector in Qatar. Nakilat'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, 29 are wholly owned and 40 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 1H2020, Nakilat reported a net profit
of US$151 million compared to US$131 million during the same period
in FY19, an increase of 15.5%. Going forward, Qatar's North Field
expansion plan paves the way for increased transportation of gas,
which is expected to benefit the company in the longer run.
Emirates NBD (6.8% of NAV)
Emirates NBD is a leading UAE bank with c.20% market share of
the UAE's loans and deposits, as well as strong capital buffers to
weather economic challenges and developing regulatory requirements.
Being backed by the UAE government, it is one of the largest
financial institution in the MENA region. Emirates NBD has
delivered strong returns to its shareholders with net profit growth
of CAGR 23.1% (period: 2014-2019) with high return on equity (2019:
c.22%). Its recent acquisition of Deniz Bank has expanded its
geographic reach to 13 countries. Emirates NBD is well placed to
fund
Emirates NBD (6.8% of NAV) continued
organic growth and its international expansion strategy through
its capital-generative core business. For 1H2020 the bank reported
net profit of US$1.1 billion vs. US$2.0 billion for the same period
in FY19. 1H2019 had a US$563 million one-off gain from sale of
stake in associate "Network International".
Saudi Ceramics (5.7% of NAV):
Saudi ceramics is the second largest ceramic producer in the
entire GCC region and largest in Saudi Arabia. It is a leading
provider of quality building solutions that include various types
of ceramic products (ceramic tiles, porcelain tiles, sanitary wares
and accessories), electric water heaters, bathrooms fittings etc.
Saudi Arabia imposed anti-dumping duty on tiles from India and
China starting from 6 June 2020 which will help the local and GCC
manufacturers boost business. For 1H2020, Saudi Ceramics reported a
net profit of US$4.6 million compared to a loss of US$11.0 million
during the same period in FY19.
Aramex (5.1% of NAV):
Aramex is a global provider of Logistics & Transportation
Solutions. The company has diverse business verticals with presence
across 65+ countries - International & Domestic Express,
Freight Forwarding, Logistics & Supply Chain Management etc.
Over the long term, the management intends to have an asset-light
model and continue focusing on e-commerce, the growth driver. They
have identified three key focus areas for the future - Expand
Footprint, Leverage Infrastructure & Organic Growth. The
company has been agile in identifying new segments & closing
down non-performing markets. For 1H2020, Aramex reported a net
profit of US$44.1 million compared to US$63.0 million during the
same period in FY19.
Gulf International Services Co. (4.6% of NAV)
Gulf International Services (GIS) 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
currently executing a major drilling contract for Qatar Petroleum
relating to North Field Expansion which is expected to boost its
earnings in the medium-term. For 1H2020, the Company reported net
profit of US$14.8 million vs. US$8.1 million in 1H2019.
Gulf Investment Fund Performance:
YTD NAV was down 11.7% vs. 16.1% decline in S&P GCC. Since
the investment mandate widened from Qatari-focused to Gulf-wide in
December 2017, NAV has risen 31.0% (dividend included), as against
the 13.1% from the S&P GCC total return index. On 30 June 2020,
the GIF share price was trading at a 7.5% discount to NAV vs.
one-year average discount of 9.6%.
Embedded image removed - please refer to the Company's website
www.gulfinvestmentfundplc.com for charts depicting Gulf Investment
Fund performance.
GCC Outlook:
As Covid-19 cases are declining in GCC, we believe that economic
recovery is now gaining a foothold and will extend into the second
half of 2020. Proactive measures taken by the GCC governments to
address the pandemic and its economic impact seems to be bearing
fruit and all the Gulf states have begun reopening their economy in
a phased manner.
We expect GCC economies will begin to recover despite an
uncertain global environment, with focus on fiscal and monetary
measures. Stabilization of the oil market post the OPEC+ deal
should provide some support, and large capital reserves will help
in maintaining key public spending. The IMF expects the region to
grow by 2.1% in 2021 after contracting by 7.1% in 2020.
The dual shocks of pandemic and lower oil prices have
underscored the need for the GCC to accelerate efforts to develop
industries that are resilient to energy prices, have high growth
potential, foster innovation and therefore guarantee economic
diversification. Additionally, the pandemic has thrown open
opportunities for many sectors looking for consolidation to form
stronger entities in order to gain market share and improve
operational efficiency. Going forward, we believe consolidation is
going to accelerate in multiple sectors in order to increase
profitability.
We continue to remain positive on growth in the region over the
long term, led by the planned infrastructure projects and the
momentum of reforms across nations. All the GCC nations are
executing multiyear infrastructure plans under their respective
National Vision programs.
Given the history and strength of GCC states to weather economic
storms, current valuation levels offer a good entry point for
investors looking for long term exposure to the regional markets.
GCC markets are currently trading at attractive valuations compared
to their historical average and offer healthy dividend yields.
Valuation:
Market Market Cap. PE (x) PB (x) Dividend Yield (%)
US$ billion 2020E 2021E 2020E 2021E 2020E 2021E
Qatar 136 17.49 14.71 1.42 1.36 3.25 3.91
Saudi
Arabia 2,241 22.58 18.60 1.84 1.78 3.08 3.36
Dubai 61 9.19 7.49 0.73 0.68 3.24 4.75
Abu
Dhabi 178 16.87 14.27 1.27 1.23 3.84 4.17
Kuwait 94 19.76 16.10 1.55 1.47 2.60 2.97
S&P GCC 2,569 18.76 15.72 1.51 1.45 3.18 3.60
MSCI EM 18,903 17.71 13.45 1.61 1.50 2.31 2.68
MSCI
World 50,481 24.03 18.68 2.46 2.32 2.09 2.26
Source: Bloomberg, as of 11 August 2020; Market Cap. as of 10
August 2020
Environmental, Social and Governance ("ESG") Engagement
While the management of the Company's investments is not
undertaken with any specific instructions to exclude certain asset
types or classes, the Investment Adviser embeds ESG into its
research process. ESG investment is about active engagement, with
the goal of improving the performance of assets held in the GCC
region.
The primary goal is to generate the best long-term outcomes for
the Company in order to fulfil fiduciary responsibilities to the
Company. The Investment Adviser sees ESG factors as being
financially material and impacting corporate performance. ESG
factors put the 'long-term' in long-term investing. So the
Investment Adviser focuses on understanding the ESG risks and
opportunities of investments alongside other financial metrics to
enable it to make better investment decisions. In so doing it for
better risk adjusted returns by undertaking informed and
constructive engagement with company managements.
Through engagement and exercising voting rights, the Investment
Adviser, on behalf of the Company, actively works with companies to
improve corporate standards, transparency and accountability. By
this means it looks to deliver improved financial performance in
the longer term as well as actively contributing to a fairer, more
sustainable world.
Epicure Managers Qatar Limited Qatar Insurance Company
S.A.Q.
25 September 2020 25 September 2020
Investment Policy
Investment objective
The Company's investment objective is to capture the
opportunities for growth offered by the expanding GCC economies by
investing, through its wholly owned subsidiary, 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 financial statements of Gulf Investment Fund plc (the
"Company") for the year ended 30 June 2020.
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 17 to 18.
Results and Dividends
The results of the Company for the year and its financial
position at the year- end are set out on pages 42 to 46 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.
The Directors recommend a dividend of 3 cents per share in
respect of the year ended 30 June 2020. For the year ended 30 June
2019, the Directors declared a dividend of US$2,773,837 (3.0c per
share) which was approved by shareholders and paid by the Company
in January 2020.
Directors
Details of Board members at the date of this report, together
with their biographical details, are set out on page 31.
Director independence and Directors' and other interests have
been detailed in the Directors' Remuneration Report on pages 35 and
36.
Creditor payment policy
It is the Company's policy to adhere to the payment terms agreed
with individual suppliers and to pay in accordance with its
contractual and other legal obligations.
Gearing policy
Borrowings will be limited, as at the date on which the
borrowings are incurred, to 5% of NAV (or such other limit as may
be approved by the shareholders in general meeting). The Company
will not make use of any hedging mechanisms.
There were no borrowings during the year (2019: US$ nil).
Donations
The Company has not made any political or charitable donations
during the year (2019: 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 has 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 13
November 2020 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 22 to 30, 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 27.96
----------------
Qatar Insurance Company S.A.Q. 18.73
----------------
1607 Capital Partners LLC 16.00
----------------
Qatar Investment Authority 11.66
----------------
Lazard Asset Management 6.07
----------------
Aberdeen Standard Investments 3.50
----------------
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 30 June 2020.
On behalf of the Board
Nicholas Wilson
Chairman
25 September 2020
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 - via examining compliance
against the AIC Code of Corporate Governance.
The Board of the Company has considered the principles and
provisions AIC Code of Corporate Governance as published in
February 2019 (the AIC Code). The AIC Code addresses the principles
and provisions 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 AIC Code is
available on the AIC's website: www.theaic.co.uk.
The Board considers that reporting against the principles and
recommendations of the AIC Code, which has been endorsed by the
FRC, 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
-- Interaction with the workforce
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 a
n 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 2020, the Audit Committee considered the
following significant issue as communicated by the auditor during
their reporting:
Valuation and existence of investment in subsidiary
The valuation of the investment in subsidiary, including
valuation and existence of the portfolio of investments held by the
subsidiary, is undertaken in accordance with the accounting
policies, disclosed in Notes 1(a) and 1(b) to the financial
statements. All underlying investments are considered liquid and
priced based on quoted prices in active markets and have been
categorised as Level 1 or level 2 within the IFRS 13 fair value
hierarchy. The underlying 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. An independent custodian, HSBC Bank Middle East Limited, are
used to hold the assets of the underlying investment portfolio. The
underlying investment portfolio is reconciled regularly by the
Manager and a reconciliation is also reviewed by the Auditor.
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 6(6) 6(6) 1(1) 2(2) 4(4)
------ ---------------- ------------------------- ----------- ------------
Meetings Attended (entitled to attend)
------------------------------------------------------------------------------
Nicholas Wilson
(Chairman and
Chairman of
Nomination Committee) 6 (6) 6 (6) 1 (1) 2 (2) 4 (4)
------ ---------------- ------------------------- ----------- ------------
Neil Benedict
(Chairman of
Remuneration
Committee and
Chairman of
Management Engagement
Committee) 6 (6) 6 (6) 1 (1) 2 (2) 4 (4)
------ ---------------- ------------------------- ----------- ------------
David Humbles 6 (6) 6 (6) 1 (1) 2 (2) 4 (4)
------ ---------------- ------------------------- ----------- ------------
Paul Macdonald
(Chairman of
Audit Committee) 6 (6) 6 (6) 1 (1) 2 (2) 4 (4)
------ ---------------- ------------------------- ----------- ------------
The Annual General Meeting was held on 8 November 2019.
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 misstatement 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 2020 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
32.
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. The
directors have a reasonable expectation that the company will
continue after the 100% tender offer. However, until the
shareholders both vote and tender, the outcome of the tender is
impossible to predict.
Promoting the Company's Success
In accordance with corporate governance best practice, the Board
is now required to describe to the Company's shareholders how the
Directors have discharged their duties and responsibilities over
the course of the financial year following the guidelines set out
in the UK under section 172 (1) of the Companies Act 2006 (the
"s172 Statement"). This Statement, from 'Promoting the Success of
the Company' to "Long Term Investment" on page 30 provides an
explanation of how the Directors have promoted the success of the
Company for the benefit of its members as a whole, taking into
account the likely long term consequences of decisions, the need to
foster relationships with all stakeholders and the impact of the
Company's operations on the environment.
The purpose of the Company is to act as a vehicle to provide,
over time, financial returns (both income and capital) to its
shareholders.
The Company's Investment Objective is disclosed on page 5. The
activities of the Company are overseen by the Board of Directors of
the Company. The Board's philosophy is that the Company should
operate in a transparent culture where all parties are treated with
respect and provided with the opportunity to offer practical
challenge and participate in positive debate which is focused on
the aim of achieving the expectations of shareholders and other
stakeholders alike. The Board reviews the culture and manner in
which the Investment Adviser operates at its regular meetings and
receives regular reporting and feedback from the other key service
providers.
The Company is a long-term investment vehicle, with a
recommended holding period of five or more years. It is externally
managed, has no employees, and is overseen by an independent
non-executive board of directors. Your Company's Board of Directors
sets the investment mandate, monitors the performance of all
service providers (including the Investment Adviser) and is
responsible for reviewing strategy on a regular basis. All this is
done with the aim of preserving and, indeed, enhancing shareholder
value over the longer term.
Shareholder Engagement
The following table describes some of the ways we engage with
our shareholders:
AGM The AGM provides an opportunity
for the Directors to engage
with shareholders, answer their
questions and meet them informally.
The next AGM will take place
on 13 November 2020 in the Isle
of Man. We encourage shareholders
to lodge their vote by proxy
on all the resolutions put forward.
Annual report We publish a full annual report
each year that contains a strategic
report, governance section,
financial statements and additional
information. The report is available
online and in paper format.
---------------------------------------
Company announcement We issue announcements for all
substantive news relating to
the Company. You can find these
announcements on the website.
---------------------------------------
Results announcement We release a full set of financial
results at the half year and
full year stage. Updated net
asset value figures are announced
on a weekly basis.
---------------------------------------
Website Our website contains a range
of information on the Company
and includes a full monthly
portfolio listing of our investments
as well as podcasts by the Investment
Manager. Details of financial
results, the investment process
and Investment Manager together
with Company announcements and
contact details can be found
here: www.gulfinvestmentfundplc.com
---------------------------------------
Investor relations The Management Engagement Committee
evaluates the level and effectiveness
of the handling of investor
relations.
---------------------------------------
Quarterly reports The investment manager produces
in depth quarterly investment
reports to the market - these
can also be found on the Company's
website.
---------------------------------------
Other Service Providers
The other key stakeholder group is that of the Company's third
party service providers. The Board is responsible for selecting the
most appropriate outsourced service providers and monitoring the
relationships with these suppliers regularly in order to ensure a
constructive working relationship. Our service providers look to
the Company to provide them with a clear understanding of the
Company's needs in order that those requirements can be delivered
efficiently and fairly. The Board, via the Management Engagement
Committee, ensures that the arrangements with service providers are
reviewed at least annually in detail. The aim is to ensure that
contractual arrangements remain in line with best practice,
services being offered meet the requirements and needs of the
Company and performance is in line with the expectations of the
Board, Manager, Investment Manager and other relevant stakeholders.
Reviews include those of the Company's custodian, share registrar,
broker and auditor.
Principal Decisions
Pursuant to the Board's aim of promoting the long term success
of the Company, the following principal decisions have been taken
during the year:
Portfolio The report of the Investment Manager and Investment
Adviser on pages 7 to 16 details the key investment decisions taken
during the year and subsequently. The Investment Manager has
continued to monitor the investment portfolio throughout the year
under the supervision of the Board.
ESG As highlighted on page 16, the Board is responsible for
overseeing the work of the Investment Manager and this is not
limited solely to the investment performance of the portfolio
companies. The Board also has regard for environmental, social and
governance matters that subsist within the portfolio companies.
Audit KPMG Audit LLC was re-appointed as auditor at the last AGM
on 8 November 2019.
Long Term Investment
The Investment Manager's investment process seeks to outperform
over the longer term. The Board has in place the necessary
procedures and processes to continue to promote the long term
success of the Company. The Board will continue to monitor,
evaluate and seek to improve these processes as the Company
continues to grow over time, to ensure that the investment
proposition is delivered to shareholders and other stakeholders in
line with their expectations.
Communities and the environment
The Board expects the Manager, supported by its governance
function, to engage with investee companies at the appropriate time
on ESG matters in line with good stewardship practices.
The Board is also conscious of the importance of providing an
investment product which meets the needs of its investors,
including retail investors and pensioners.
The Board is conscious of the need to take appropriate account
of broader ESG concerns and to act as a good corporate citizen.
On behalf of the Board
Nicholas Wilson
Chairman
25 September 2020
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 company financial
statements for each financial year. Under the law they have elected
to prepare the 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 Company and of the profit or
loss for that period. In preparing each of the Company's 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 company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern;
and
-- use the going concern basis of accounting unless they either
intend to liquidate the Company or to cease operations or have no
realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
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
Company 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;
-- 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, together with a description of the
principal risks and uncertainties that they face.
On behalf of the Board
Nicholas Wilson
Chairman
25 September 2020
Audit Committee Report
An Audit Committee has been established in compliance with the
FCA's Disclosure Guidance and Transparency Rule 7.1, the UK
Corporate Governance Code and the AIC Code of Corporate Governance
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 8
November 2019. 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 approves a policy regarding non-audit services
provided by the auditor.
The Audit Committee also monitors the risks to which the Company
is exposed, provide policy re: non-audit services from the auditor
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 25
September 2020.
Paul Macdonald
Chairman of the Audit Committee
25 September 2020
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 M anagement 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
25 September 2020
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 25.
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 2020 30 June 2019
GBP GBP
---------------------------------------------------------------------------------------- ------------- -------------
Nicholas Wilson (Chairman) 62,500 62,500
Paul Macdonald (Chairman of Audit Committee) 37,500 37,500
Neil Benedict (Chairman of Remuneration Committee and Management Engagement Committee) 35,000 35,000
David Humbles 35,000 35,000
170,000 170,000
---------------------------------------------------------------------------------------- ------------- -------------
US$ charge reflected in the financial statements 209,543 215,736
---------------------------------------------------------------------------------------- ------------- -------------
Expenses totalling US$68,045 (2019: US$89,720) 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
ten 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 the AIC Code of Corporate Governance 16.2.13 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 the Company:
30 June 2020 30 June 2019
Director Shares Shares
------------- -------------
Nicholas Wilson 39,600 39,600
------------- -------------
For and on behalf of the Board
Neil Benedict
Chairman of the Remuneration Committee
25 September 2020
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 for the year ended 30 June 2020 which comprise the Income
Statement, Statement of Comprehensive Income, Statement of
Financial Position, Statement of Changes in Equity, Statement 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 Company's
affairs as at 30 June 2020 and of its loss for the year then
ended;
-- have been 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 in
accordance with, UK ethical requirements including the FRC Ethical
Standard as applied to listed entities. We believe that the audit
evidence we have obtained is a sufficient and appropriate basis for
our opinion.
2. Material uncertainty related to going concern
We draw attention to note 13.1 to the financial statements which
indicates that the Company is subject to a tender offer in 2020.
This event and condition constitutes a material uncertainty that
may cast significant doubt on the Company's ability to continue as
a going concern.
Our opinion is not modified in respect of this matter.
3. Other 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. Going concern is a
significant key audit matter and is described in section 2 of our
report. We summarise below the other key audit matter in arriving
at out audit opinion.
The risk Our response
Valuation and Incorrect valuation Our procedures included:
existence of and existence Control design:
the investment The investment in * Documenting and assessing the processes in place to
at fair value subsidiary is stated record investment transactions and to value the
through profit at fair value of portfolio;
or loss (comprising US$112.4m (2019:
investment in US$123.5m), based
subsidiary) on its net asset Tests of detail :
(US$112.4m, 2019: value, representing * Auditing the accounts of the subsidiary as part of
US$123.5m) 98.5% (2019: 98.8%) the audit of the Company;
of total assets.
Refer to page
25 (Significant The underlying * Assessing the accounting policies adopted by the
Issues identified portfolio subsidiary to ensure these are consistent with the
by the Audit of investments held Company's accounting policies and in accordance with
Committee) and by the subsidiary IFRS. In particular, ensuring that the portfolio of
notes 1(a) (note is stated at fair investments held by the subsidiary is stated at fair
relating to value of US$106.7m value and ensuring net asset value of the subsidiary
investment (2019: US$116.0m), represents fair value under IFRS 13;
in subsidiary) representing 93.5%
and note 1(b) (2019: 92.8%) of
(note relating the Company's total * Agreeing the valuation of 100 per cent of investments
to investments assets on a in the portfolio to externally quoted prices (in the
held by the look-through case of P-Notes this represents the quoted price of
subsidiary basis (by value) the underlying equity);
and is considered
to be the key driver
of the results of * Assessing the credit worthiness of the P-Note issuers
the Company. by examining their credit ratings or financial
statements in the absence of a credit rating and
Regarding the inspecting the P-Note legal instruments to assess
underlying whether they provide the full return of the
portfolio of underlying share;
investments
held by the
subsidiary,
incorrect asset
pricing
or a failure to
maintain
proper title of
assets
could have a
significant
impact on the
investment
portfolio valuation
and the return
generated
for shareholders
of the Company.
Of the investments
held by the
subsidiary,
a total of US$37.0m
(2019: US$51.1m)
was held via
P-Notes;
held to obtain
exposure
to Saudi Arabia,
where direct
investment
in equities is not
possible for foreign
investors.
--------------------- -----------------------------------------------------------------------
The risk Our response
--------------------- -----------------------------------------------------------------------
Assessing transparency
Additional risks * Consideration of the appropriateness, in accordance
arise regarding the with relevant accounting standards, of the
P-Notes as follows: disclosures in respect of the P-Notes, including
- they are issued their level in the fair value hierarchy; and
by counterparty
financial
institutions and Enquiry of custodians:
therefore are * Agreeing 100 per cent of investment holdings in the
subject portfolio to independently received third party
to counterparty confirmations from investment custodians.
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.
--------------------- -----------------------------------------------------------------------
We reported two other key audit matters last year, being the
valuation and existence of investments and the carrying value of
the Company's loan to and investment in subsidiary. As consolidated
financial statements are not presented this year, one other key
audit matter has been reported, which amalgamates these two key
audit matters into one.
4. Our application of materiality and an overview of the scope of our audit
Materiality for the financial statements as a whole was set at
US$1,140,000 (2019: US$1,250,000), determined with reference to a
benchmark of Company total assets, of which it represents 1% (2019:
1%).
We agreed to report to the Audit Committee any corrected or
uncorrected identified misstatements exceeding US$57,000 (2019:
US$62,500), in addition to other identified misstatements that
warranted reporting on qualitative grounds.
Our audit of the Company and its subsidiary was undertaken to
the materiality level specified above and was performed at the
Administrator's office in the Isle of Man.
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 emerging and principal risks and longer-term
viability
Based on the knowledge we acquired during our financial
statements audit, other than the material uncertainty related to
going concern referred to above , we have nothing further material
to add or draw attention to in relation to:
-- the Directors' confirmation within the Viability Statement on
page 27 that they have carried out a robust assessment of the
emerging and principal risks facing the 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 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 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.
Under the Listing Rules we are required to review the Viability
Statement. We have nothing to report in this respect.
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 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 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
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; or
-- the Company's financial statements are not in agreement with the books of account; 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 32,
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
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 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
25 September 2020
Heritage Court
41 Athol Street
Douglas
Isle of Man
IM1 1LA
Income Statement
Note Year ended 30 Year ended 30 June
June 2020 2019
US$'000 US$'000
--------------------------- ------ -------------- ---------------------------
Income
Net change in investment
at fair value through
profit or loss (10,801) 14,593
Interest income on loan 3,511 3,211
Total net (loss)/income (7,290) 17,804
--------------------------- ------ -------------- ---------------------------
Expenses
Expenses 7 851 955
Total operating expenses 851 955
--------------------------- ------ -------------- ---------------------------
(Loss)/profit before tax (8,141) 16,849
Income tax expense - -
--------------------------- ------ -------------- ---------------------------
(Loss)/profit for the
year (8,141) 16,849
--------------------------- ------ -------------- ---------------------------
Basic (loss)/profit per
share (cents) 4 (8.80) 18.22
--------------------------- ------ ----------------------------------- ------
Diluted (loss)/profit
per share (cents) 4 (8.80) 18.22
--------------------------- ------ ----------------------------------- ------
The Directors consider that all results derive from continuing
activities.
Statement of Comprehensive Income
Year ended 30 June 2020 Year ended 30 June 2019
US$'000 US$'000
------------------------------------------------ ------------------------ ------------------------
(Loss)/profit for the year (8,141) 16,849
Other comprehensive income - -
Total comprehensive (loss)/income for the year (8,141) 16,849
------------------------------------------------- ------------------------ ------------------------
Statement of Financial Position
Note At 30 June 2020 At 30 June 2019
US$'000 US$'000 US$'000 US$'000
------------------------------------------------- ----- ---------------- ----------------
Assets
Investment at fair value
through profit or loss
- comprising: 1(a)
* equity interest in subsidiary 49,233 60,035
* loan to subsidiary 63,154 63,462
112,387 123,497
Other receivables and
prepayments 1,452 1,194
Cash and cash equivalents 217 272
------------------------------------------------- ----- ---------------- ----------------
Total assets 114,056 124,963
================================================= ===== ================ ================
Equity
Issued share capital 5 925 925
Reserves 113,018 123,933
---------------- ----------------
Total equity 113,943 124,858
------------------------------------------------- ----- ---------------- ----------------
Current liabilities
Other payables and accrued
expenses 6 113 105
------------------------------------------------- ----- ---------------- ----------------
Total current liabilities 113 105
------------------------------------------------- ----- ---------------- ----------------
Total equity and liabilities 114,056 124,963
================================================= ===== ================ ================
The financial statements were approved by the Directors on 25
September 2020 and signed on their behalf by:
Nick Wilson David Humbles
Chairman Director
Statement of Changes in Equity
Share capital Reserves Total
US$'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 income for the year - 16,849 16,849
---------------------------------------------------- -------------- --------- --------
Contributions by and distributions to owners
Dividends paid - (2,774) (2,774)
Total contributions by and distributions to owners - (2,774) (2,774)
---------------------------------------------------- -------------- --------- --------
Balance at 30 June 2019 925 123,933 124,858
---------------------------------------------------- -------------- --------- --------
Share capital Reserves Total
US$'000 US$'000 US$'000
---------------------------------------------------- -------------- --------- --------
Balance at 1 July 2019 925 123,933 124,858
Total comprehensive income for the year
Loss for the year - (8,141) (8,141)
Total comprehensive loss for the year - (8,141) (8,141)
---------------------------------------------------- -------------- --------- --------
Contributions by and distributions to owners
Dividends paid - (2,774) (2,774)
Total contributions by and distributions to owners - (2,774) (2,774)
---------------------------------------------------- -------------- --------- --------
Balance at 30 June 2020 925 113,018 113,943
---------------------------------------------------- -------------- --------- --------
Statement of Cash Flows
Year ended 30 Year ended 30 June
June 2020 2019
US$'000 US$'000
---------------------------- -------------- -------------------
Cash flows from operating
activities
Received from investment
at fair value through
profit or loss 3,565 3,684
Operating expenses paid (846) (1,018)
Net cash generated from
operating activities 2,719 2,666
----------------------------- -------------- -------------------
Financing activities
Dividends paid (2,774) (2,774)
Net cash used in financing
activities (2,774) (2,774)
----------------------------- -------------- -------------------
Net decrease in cash
and cash equivalents (55) (108)
Effects of exchange rate
changes on cash and cash
equivalents - (2)
Cash and cash equivalents
at beginning of the year 272 382
----------------------------- -------------- -------------------
Cash and cash equivalents
at end of the year 217 272
----------------------------- -------------- -------------------
Notes to the Financial Statements
1(a) Investment at fair value through profit or loss
30 June 2020 30 June 2019
US$'000 US$'000
-------------------------------- ------------- -------------
Equity interest in subsidiary 49,233 60,035
Loan to subsidiary 63,154 63,462
-------------------------------- ------------- -------------
Total investment in subsidiary 112,387 123,497
-------------------------------- ------------- -------------
The Company has one subsidiary, Epicure Qatar Opportunities
Holdings Limited ("the Subsidiary"), which holds the portfolio of
investments and has the investment management and custodian
agreements. The investment in subsidiary is stated at fair value
through profit or loss in accordance with the IFRS 10 Investment
Entity Consolidation Exception. The fair value of the investment in
Subsidiary is based on the year-end net asset value of the
Subsidiary as reported by the Administrator. The loan to
Subsidiary, with an aggregate principal amount of US$63,154,393
(2019: US$63,461,951), is included within this balance. The loan is
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. Additions and
disposals regarding the investment in subsidiary are recognised on
trade date.
1(b) Financial assets at fair value through profit or loss held by the Subsidiary
The Subsidiary holds a portfolio of quoted equities and P-Notes
which are classified as fair value through profit or loss. The fair
value for quoted equities is based on 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 2020 the Subsidiary held 14 P-Notes (2019: 29) with a
value of US$37,048,232 (2019: US$51,109,545), held to obtain
exposure to Saudi Arabia where direct investment in equities is not
possible for foreign investors.
Purchases and sales of investments are recognised on trade date
- the date on which the Company commits to purchase or sell the
asset. Investments are initially recorded at fair value, and
transaction costs for all financial assets and financial
liabilities carried at fair value through profit and loss are
expensed as incurred.
Gains and losses (realised and unrealised) arising from changes
in the fair value of the financial assets are included in the
income statement in the year in which they arise.
Investments held by the Subsidiary
30 June 2020: Financial assets at fair value through profit or
loss; all quoted equity securities or P-Notes:
Security name Number US$'000
------------------------------------------------- --------------- -----------
Qatar Gas Transport (QGTS QD) 14,814,365 10,621
Saudi Ceramic Company (2040)* 727,290 6,434
Emirates National Bank of Dubai (ENBD UH) 2,588,680 6,215
Aramex (ARMX) 6,170,000 5,777
Gulf International Services (GISS QD) 12,675,817 5,172
Commercial Bank of Qatar (CBQK QD) 4,901,552 5,114
Arabian Centres Limited (4321)* 800,000 4,719
National Bank of Kuwait (NBK KK) 1,514,250 4,026
Saudi Industrial Services Co (2190)* 725,035 4,011
Al Khaleej Bank (KCBK QD) 10,468,624 3,927
Mobile Telecommunications Company (ZAIN KK) 2,150,000 3,869
Masraf Al Rayan (MARK QD) 3,507,728 3,679
Mabanee Company (MABANEE) 1,667,483 3,649
United International Transportation Co (4260)* 370,000 2,997
Fawaz Abdulaziz Al (4240)* 548,000 2,760
Qatar United Development Company (UDCD QD) 8,572,569 2,690
Qatar National Bank (QNBK QD) 562,451 2,686
Leejam Sports Co (1830)* 171,577 2,670
Gulf Bank of Kuwait (GBK KK) 3,877,842 2,653
Saudi Ground Services (4031)* 325,000 2,433
First Abu Dhabi Bank (FAB) 790,012 2,378
Qatar Insurance (QATI QD) 4,508,922 2,358
Saudi Industrial Investment Group (2250)* 435,000 2,341
Saudi British Bank (1060)* 360,000 2,181
Mezzan Holding Co (Mezzan KK) 1,124,944 2,159
Herfy Food Services Co (6002)* 180,000 2,151
Ahli United Bank (AUB) 3,400,000 1,940
Emirates NBD USD Stock (ENBD)* 580,723 1,394
Company for Co-op Insurance (8010)* 65,417 1,239
National Commercial Bank (1180)* 92,750 921
United Electronics Company (4003)* 54,500 797
Agility Public Warehousing (AGLTY) 300,000 714
106,675
------------------------------------------------ -------------------------
*P-notes
Investments held by Subsidiary
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.
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 Company.
Credit risk continued
The carrying amounts of financial assets best represent the
maximum credit risk exposure at the statement of financial position
date. This relates also to financial assets carried at amortised
cost.
At the reporting date, the financial assets exposed to credit
risk comprised the following:
30 June 2020 30 June 2019
US$'000 US$'000
--------------------------- ------------- -------------
Loan to subsidiary 63,154 63,462
Cash and cash equivalents 217 272
Other receivables 1,452 1,194
--------------------------- ------------- -------------
64,823 64,928
--------------------------- ------------- -------------
The maximum exposure to credit risk is represented by the
carrying amount of each financial asset in the statement of
financial position. 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 held by the subsidiary are held by the Custodian,
HSBC Bank (Middle East) Ltd.
P-Notes are issued by counterparty financial institutions and
therefore the Company is exposed to credit risk in relation to
these financial institutions. The value of P-Notes held at the
year-end 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 investments in P-Notes, which are over-the-counter equity
linked instruments, expose the Company to the risk that the
counterparties to the instruments might default on their
obligations to the Company. The Directors consider the risk to be
insignificant.
The Subsidiary uses the banking services of HSBC Bank (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 relate to loan interest receivable
from the Subsidiary.
Interest rate risk
The Company's loan to subsidiary bears interest and is stated at
fair value, which is considered to be equivalent to cost as the
loan is repayable on demand, bears interest at floating rate and
there is negligible credit risk. The underlying portfolio held by
the Subsidiary comprises equities or equity linked securities. Cash
held is invested at short-term market interest rates. As a result,
the Company 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 with respect to cash balances held by the
Company and the Subsidiary.
The table below summarises the Company's exposure to interest
rate risks. It includes the Company'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 2020 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
Equity interest
in subsidiary - - - - - 49,233 49,233
Loan to subsidiary 63,154 - - - - - 63,154
Other receivables
and prepayments - - - - - 1,452 1,452
Cash 217 - - - - - 217
----------------------- -------- ----------- --------- ---------- -------- ------------- --------
Total financial
assets 63,371 - - - - 50,685 114,056
----------------------- -------- ----------- --------- ---------- -------- ------------- --------
Financial liabilities
Other payables
and accrued
expenses - - - - - 113 113
----------------------- -------- ----------- --------- ---------- -------- ------------- --------
Total financial
liabilities - - - - - 113 113
----------------------- -------- ----------- --------- ---------- -------- ------------- --------
Total interest 63,371 - - - -
rate sensitivity
gap
----------------------- -------- ----------- --------- ---------- --------
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
Equity interest
in subsidiary - - - - - 60,035 60,035
Loan to subsidiary 63,462 - - - - - 63,462
Other receivables
and prepayments - - - - - 1,194 1,194
Cash 272 - - - - - 272
----------------------- -------- ----------- --------- ---------- -------- ------------- --------
Total financial
assets 63,734 - - - - 61,229 124,963
----------------------- -------- ----------- --------- ---------- -------- ------------- --------
Financial liabilities
Other payables
and accrued
expenses - - - - - 105 105
----------------------- -------- ----------- --------- ---------- -------- ------------- --------
Total financial
liabilities - - - - - 105 105
----------------------- -------- ----------- --------- ---------- -------- ------------- --------
Total interest 63,734 - - - -
rate sensitivity
gap
----------------------- -------- ----------- --------- ---------- --------
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).
The investment in subsidiary held by the Company is classified
as level 2 in the fair value hierarchy - being based on the net
asset value of the Subsidiary.
All the underlying listed equity investments held by the
Subsidiary are classed as level 1 investments. The P-Notes held by
the Subsidiary are classed as level 2. The analysis of investments
held by the Subsidiary between level 1 and level 2 is as
follows:
Financial assets at fair value Level Level 2 Level Total
through profit or loss at 30 1 US$'000 3 US$'000
June 2020 US$'000 US$'000
Assets:
--------- --------- --------- ---------
Equity investments 69,627 - - 69,627
--------- --------- --------- ---------
P-Notes - 37,048 - 37,048
--------- --------- --------- ---------
69,627 37,048 - 106,675
--------- --------- --------- ---------
Financial assets at fair value Level Level 2 Level Total
through profit or loss at 30 1 US$'000 3 US$'000
June 2019 US$'000 US$'000
Assets:
--------- --------- --------- ---------
Equity investments 64,907 - - 64,907
--------- --------- --------- ---------
P-Notes - 51,109 - 51,109
--------- --------- --------- ---------
64,907 51,109 - 116,016
--------- --------- --------- ---------
The fair value of other financial instruments both held by the
Company and the Subsidiary, including cash and short-term
receivables and payables is a reasonable approximation of fair
value.
Market price risk
The Company's strategy for the management of investment risk is
driven by the Company's investment objective. The main objective of
the Company 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 Company's market price risk is managed through the
diversification of the underlying investment portfolio held by the
Subsidiary. Approximately 94% (2019: 93%) of the net assets
attributable to holders of Ordinary Shares is invested in equity
securities and P-Notes held by the Subsidiary, on a look through
basis.
At 30 June 2020, if the market value of the investment portfolio
held by the Subsidiary had increased/decreased by 1.80% (as per the
movement in the SEMGGCPD Index post year-end measured at 9 July
2020) with all other variables held constant, this would have
increased/decreased net assets attributable to shareholders by
approximately US$1.90 million (30 June 2019 : 1.90% : US$2.20
million). Market price volatility is expected to increase due to
Covid-19 pandemic.
3 Net asset value per share
The net asset value per share as at 30 June 2020 is US$1.2323
per share (30 June 2019: US$1.3504) based on 92,461,242 (30 June
2019: 92,461,242) Ordinary shares in issue as at that date.
4 (Loss)/earnings per share
Basic and diluted (loss)/earnings per share are calculated by
dividing the (loss)/profit attributable to equity holders of the
Company by the weighted average number of Ordinary shares in issue
during the year.
30 June 2020 30 June 2019
----------------------------------------------------------------------- ------------- -------------
(Loss)/profit attributable to equity holders of the Company (US$'000) (8,141) 16,849
Weighted average number of Ordinary shares in issue (thousands) 92,461 92,461
----------------------------------------------------------------------- ------------- -------------
Basic and diluted (loss)/earnings per share (cents per share) (8.80) 18.22
----------------------------------------------------------------------- ------------- -------------
5 Share capital
30 June 2020 30 June 2019
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 (2019: 92,461,242) Ordinary
shares of US$0.01 each in issue, with
full voting rights 925 925
Issued share capital 925 925
---------------------------------------- ------------- -------------
Capital management
The Board's policy is to maintain a strong capital base so as to
maintain investor, creditor and market confidence and to sustain
future development of the Company. The Board manages the Company's
affairs to achieve Shareholder through capital growth rather than
income and monitors the achievement of this through growth in net
asset value per share.
Capital comprises share capital and reserves. Neither the
Company nor the Subsidiary is subject to externally imposed capital
requirements.
6 Other payables and accrued expenses
30 June 2020 30 June 2019
US$'000 US$'000
------------------------------- ------------- -------------
Administration fee payable 52 51
Accruals and sundry creditors 61 54
------------------------------- ------------- -------------
113 105
------------------------------- ------------- -------------
Liquidity risk
The Company manages its liquidity risk by maintaining sufficient
cash for operations and the ability to realise market positions.
The Company's liquidity position is monitored by the Investment
Manager and the Board of Directors.
The residual undiscounted contractual maturities of financial
liabilities are in the table below:
30 June 2020 Less 1-3 3 months 1-5 years Over 5 No stated
than months to 1 year years maturity
1 month
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
---------------------- --------- -------- ----------- ---------- -------- ----------
Financial liabilities
Other creditors 113 - - - - -
and accrued expenses
---------------------- --------- -------- ----------- ---------- -------- ----------
113 - - - - -
---------------------- --------- -------- ----------- ---------- -------- ----------
30 June 2019 Less 1-3 3 months 1-5 years Over 5 No stated
than months to 1 year years maturity
1 month
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
---------------------- --------- -------- ----------- ---------- -------- ----------
Financial liabilities
Other creditors 105 - - - - -
and accrued expenses
---------------------- --------- -------- ----------- ---------- -------- ----------
105 - - - - -
---------------------- --------- -------- ----------- ---------- -------- ----------
7 Charges and fees
30 June 2020 30 June 2019
US$'000 US$'000
------------------------------------------------ ------------- -------------
Administrator and Registrar's fees (see below) 199 199
Audit fees 34 24
Custodian fees (see below) 3 3
Directors' fees and expenses 278 305
Directors' insurance cover 29 31
Broker fees 52 53
Other 256 340
------------------------------------------------ ------------- -------------
Other expenses 851 955
------------------------------------------------ ------------- -------------
Investment management fees and custodian fees borne by the
Subsidiary were US$1,081,354 and US$212,237 respectively (2019:
US$1,022,783 and US$135,042 respectively).
Investment m anager's fees
Annual fees
The Investment Manager was entitled to an annual management fee
of 1.25% of the Net Asset Value of the Company, 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.
This was due for termination on 31 October 2019 but was rescinded
and the fee continues.
Annual management fees for the year ended 30 June 2020 amounted
to US$1,081,354 (30 June 2019: US$1,022,783) and the amount accrued
but not paid at the year-end was US$262,938 (30 June 2019:
US$287,489). This fee is borne by the Subsidiary.
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 Company 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 2020
amounted to US$199,151 and US$19,607 for additional services (30
June 2019: US$199,121 and US$19,554 respectively). Outstanding
Administration fees at the year end amounted to US$51,910 (30 June
2019: US$51,052).
Custodian fees
The Custodian is entitled to receive fees of US$7,200 per annum
and US$25 per processed transaction.
In addition the Custodian is entitled to receive fees of 8 basis
points per annum in respect of Qatari securities held by the
Subsidiary and 10 basis points per annum in respect of non-Qatari,
GCC securities held by the Subsidiary 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 2020
amounted to US$214,887 (30 June 2019: US$138,467) and the amount
accrued but not paid at the year-end was US$20,742 (30 June 2019:
US$9,579). This fee is borne by the Subsidiary.
8 Foreign currency translation
The US Dollar is the currency in which the financial statements
are presented ("the presentational currency") as reporting to
shareholders is in US Dollars and the shares are quoted in US
Dollars. The US Dollar is also the functional currency.
Monetary assets and liabilities denominated in foreign
currencies as at the date of these financial statements are
translated to US Dollar at exchange rates prevailing on that date.
Income and expenses are translated into US Dollar based on exchange
rates on the date of the transaction. All resulting exchange
differences are recognised in the income statement at the exchange
rate prevailing on the statement of financial position date. Items
of income and expense are translated at exchange rates on the date
of the relevant transactions or an average rate.
Foreign exchange risk
The Company's operations, via the Subsidiary, are conducted in
jurisdictions which generate revenue, expenses, assets and
liabilities in currencies other than US Dollar. As a result, the
Company is subject to the effects of exchange rate fluctuations
with respect to these currencies. The Company's policy is not to
enter into any currency hedging transactions.
At the reporting date the Company had the following exposure,
including assets and liabilities held by the Subsidiary:
Currency 30 June 2020 30 June 2019
% %
--------------- ------------- -------------
Qatari Riyal 34.10 34.28
US Dollar 33.82 43.01
Kuwaiti Dinar 18.94 14.63
UAE Dirham 13.00 8.01
Saudi Arabia
Riyal 0.12 0.05
British Pound 0.02 0.02
Omani Rial 0.00 0.00
The following table sets out the Company's total exposure to
foreign currency risk and the net exposure to foreign currencies of
the monetary assets and liabilities, including those held by the
Subsidiary:
30 June 2020 Assets Liabilities Net exposure
US$'000 US$'000 US$'000
-------------------- -------- ------------ -------------
Qatari Riyal 38,854 - 38,854
US Dollar 39,486 (938) 38,548
Kuwait Dinar 21,576 - 21,576
UAE Dirham 14,812 - 14,812
Saudi Arabia Riyal 132 - 132
British Pound 25 (4) 21
-------------------- -------- ------------ -------------
114,885 (942) 113,943
-------------------- -------- ------------ -------------
30 June 2019 Assets Liabilities Net exposure
US$'000 US$'000 US$'000
US Dollar 61,805 (8,109) 53,696
Qatari Riyal 42,805 - 42,805
UAE Dirham 10,756 (759) 9,997
Kuwait Dinar 19,745 (1,475) 18,270
Saudi Arabia Riyal 68 - 68
British Pound 27 (5) 22
-------------------- -------- ------------ -------------
135,206 (10,348) 124,858
-------------------- -------- ------------ -------------
Foreign currency sensitivity risk (Company)
At 30 June 2020 had the US Dollar weakened/strengthened by 1%
(2019 : weakened/strengthened 1%) in relation to all currencies,
with all other variables held constant, net assets attributable to
equity holders of the Company would have increased/decreased by the
amounts shown below:
30 June 2020 US$'000
-------------- --------
British Pound -
-------------- --------
30 June 2019 US$'000
-------------- --------
British Pound -
-------------- --------
Foreign currency sensitivity risk on a look through basis,
including the Subsidiary.
30 June 2020 US$'000
--------------- --------
British Pound -
Kuwaiti Dinar 216
UAE Dirham 148
Saudi Arabia
Riyal 1
--------------- --------
Effect on
net assets 365
--------------- --------
30 June 2019 US$'000
--------------- --------
British Pound -
Kuwaiti Dinar 183
UAE Dirham 100
Saudi Arabia
Riyal 1
--------------- --------
Effect on
net assets 284
--------------- --------
The Qatari Riyal is pegged to the US Dollar.
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 subject
to taxation at the rate of 0% in the Isle of Man.
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
Subsidiary holds shares in Qatar Insurance Company S.A.Q. (see note
1(b)). 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 (via the Subsidiary) 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.
The current year proposed dividend is 3.0 cents per share
(previous year 3.0 cents per share).
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
Accounting policies for certain items have been included in the
relevant note.
Change in presentation from prior year
In the current year the Company has applied the requirements of
the IFRS 10 Investment Entity Consolidation Exception regarding the
presentation of the financial statements. This has resulted in
consolidated financial statements not being presented - with the
investment in Subsidiary in the Company's financial statements
stated at fair value through profit or loss. In the prior year, the
Company financial statements also accounted for the investment in
Subsidiary at fair value through profit or loss and the profit and
net asset value reported in last year's Company and Consolidated
financial statements was the same. Therefore, this change is only a
presentational change, with no change to reported numbers.
13.1 Basis of preparation
Principal activities
The Company'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 financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS") and Isle of
Man Companies Act 1931 to 2004.
In accordance with IFRS 10, 'Consolidated financial statements',
the Directors have concluded that the Company falls under the
definition of an investment entity because the Company has the
following characteristics:
-- the Company has obtained funds for the purpose of providing
investors with investment management services;
-- the Company's investing policy, which was communicated
directly to investors, is investment solely for returns from
capital appreciation and investment income; and
-- the performance of investments is measured and evaluated on a fair value basis.
As a result, the Company does not consolidate its subsidiaries,
instead it is required to account for these subsidiaries at fair
value through profit or loss in accordance with IFRS 9, 'Financial
instruments' and prepares separate company financial statements
only.
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, which are stated at fair
value.
Going concern
These financial statements have been prepared on the going
concern basis, as the Board of Directors has a reasonable
expectation that the Company has 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.
In 2017, the Directors committed to making a tender offer for up
to 100% of the share capital in 2020 ("Tender Offer"). This Tender
Offer is subject to shareholder approval and a circular setting out
details of the Tender Offer and notice of general meeting, will be
sent to shareholders in the coming months. The Directors do not
believe it is in the best interests of shareholders to be invested
in a sub-scale, illiquid fund and are therefore proposing that,
should the level of tender acceptances result in the Company having
net assets of less than $60m, the Company be put into managed wind
down in lieu of proceeding with the Tender Offer.
Subject to the result of the Tender Offer, the Company may not
be able to continue in operation. This represents a material
uncertainty that may cast significant doubt upon the Company's
ability to continue as a going concern and, therefore, to continue
realising its assets and discharging its liabilities in the normal
course of business. The financial statements do not include any
adjustments that would result from the basis of preparation being
inappropriate.
It is also noted that there is a planned continuation vote at
the annual general meeting in 2021 and every third year thereafter.
However, this planned vote is more than 12 months from approval of
these financial statements and therefore does not impact the going
concern assessment for that period.
Functional and presentation currency
These financial statements are presented in USD Dollar, which is
the Company's presentational and functional currency. All financial
information presented in USD Dollar has been rounded to the nearest
thousand dollar.
Disclosure on changes in significant accounting policies
The accounting policies applied in the Company financial
statements are the same as those applied in the Company financial
statements for the year ended 30 June 2019.
IFRS 16, Leases, is first effective for the year ended 30 June
2020. However, this has no effect on the Company.
IFRIC 23, Uncertainty over Income Tax Treatments, is first
effective for the year ended 30 June 2020. This had no significant
effect on the Company.
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 Company's accounting policies. The
financial statements do not contain any critical accounting
estimates.
13.2 Consolidated financial statements
As detailed above, consolidated financial statements have not
been presented in order to comply with the requirements of the IFRS
10 Investment Entity Consolidation Exception. The Directors have
also applied the exemption from the preparation of consolidated
accounts available under the Isle of Man Companies Act 1982,
section 4(2)(i), on the grounds that they would be of no real value
to members of the Company, in view of the insignificant amounts
involved. This is on the basis that the profit and net asset value
reported in the consolidated accounts would be the same as they are
reported in the Company accounts.
13.3 Segment reporting
The Company is organised into one operating segment, comprising
the investment in a portfolio of equity securities in the GCC
region via the wholly owned subsidiary. The financial performance
of this portfolio is presented to and monitored by the Board of
Directors, being the chief operating decision makers as defined
under IFRS 8. All of the Company's activities are interrelated, and
each activity is dependent on the others. Accordingly, all
significant operating decisions are based upon analysis of the
Company as one segment. The financial results from this segment are
equivalent to the financial statements of the Company as a
whole.
13.4 Investment in and loan to subsidiary
Investment in subsidiary is stated at fair value through profit
and loss based on the net asset value of the Subsidiary as reported
by the Administrator. The loan to subsidiary is included within
this valuation. Interest income on the loan to subsidiary is
recognised in the Income Statement using the effective interest
method.
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
There are no new accounting standards or interpretations with an
effective date after the date of these financial statements that
will have a material impact on the financial statements when
implemented.
14 Post balance sheet events
There are no material post balance sheet events.
Appendix
Unaudited consolidated financial information
Consolidated Income Statement
Year ended 30 Year ended 30 June
June 2020 2019
US$'000 US$'000
---------------------------- -------------- -------------------
Income
Dividend income on quoted
equity
investments 4,312 4,387
Realised loss on sale
of financial assets at
fair value through profit
or loss (4,318) (1,998)
Net changes in fair value
on financial assets at
fair value through profit
or loss (5,825) 16,695
Interest income 18 57
Net foreign exchange loss (95) (46)
Total net (loss)/income (5,908) 19,095
----------------------------- -------------- -------------------
Expenses
Investment manager's
fees 1,081 1,023
Other expenses 1,121 1,141
Total operating expenses 2,202 2,164
----------------------------- -------------- -------------------
(Loss)/profit before tax (8,110) 16,931
Income tax expense 31 82
----------------------------- -------------- -------------------
(Loss)/profit for the
year (8,141) 16,849
----------------------------- -------------- -------------------
Basic (loss)/profit per
share (cents) (8.80) 18.22
----------------------------- -------------- -------------------
Diluted (loss)/profit
per share (cents) (8.80) 18.22
----------------------------- -------------- -------------------
Notes:
1) Consolidated information has been presented to assist the
user in interpreting the results of the Company and to be
consistent with previous years. This information consolidates the
results of the Subsidiary with the Company. It is based on IFRS
requirements that would apply if the IFRS 10 consolidation
exception for investment entities did not apply to the Company.
2) Where relevant to understanding the risks of financial
instruments held by the Company certain disclosures relating to the
subsidiary's assets and liabilities have been given in the notes to
the Financial Statements and would be relevant to understanding the
consolidated position presented in this appendix.
Appendix
Unaudited consolidated financial information
Consolidated Statement of Comprehensive Income
Year ended 30 June 2020 Year ended 30 June 2019
US$'000 US$'000
--------------------------------------------------------------- ------------------------ ------------------------
(Loss)/profit for the year (8,141) 16,849
Other comprehensive income
Items that are or may be reclassified subsequently to profit
or loss:
Currency translation differences - -
--------------------------------------------------------------- ------------------------ ------------------------
Total items that are or may be reclassified subsequently to - -
profit or loss
--------------------------------------------------------------- ------------------------ ------------------------
Other comprehensive expense for the year (net of tax) - -
--------------------------------------------------------------- ------------------------ ------------------------
Total comprehensive (loss)/income for the year (8,141) 16,849
---------------------------------------------------------------- ------------------------ ------------------------
Appendix
Unaudited consolidated financial information
Consolidated Statement of Financial Position
At 30 June 2020 At 30 June 2019
US$'000 US$'000
------------------------------ ---------------- ----------------
Assets
Financial assets at fair
value through profit or
loss 106,675 116,016
Other receivables and
prepayments 1,778 183
Cash and cash equivalents 6,433 19,007
------------------------------- ---------------- ----------------
Total assets 114,886 135,206
=============================== ================ ================
Equity
Issued share capital 925 925
Reserves 113,018 123,933
Total equity 113,943 124,858
------------------------------- ---------------- ----------------
Current liabilities
Other payables and accrued
expenses 943 10,348
------------------------------- ---------------- ----------------
Total current liabilities 943 10,348
------------------------------- ---------------- ----------------
Total equity and liabilities 114,886 135,206
=============================== ================ ================
Consolidated Statement of Changes in Equity
Share capital Distributable Retained earnings Foreign currency Capital Total
reserves translation redemption
reserve reserve
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
------------------ -------------- -------------- ------------------ ----------------- ----------------- --------
Balance at 1 July
2019 925 76,198 46,406 (221) 1,550 124,858
Total
comprehensive
income for the
year
Loss for the year - - (8,141) - - (8,141)
Other
comprehensive
income
Foreign exchange - - - - - -
translation
differences
------------------ -------------- -------------- ------------------ ----------------- ----------------- --------
Total other - - - - - -
comprehensive
expense
------------------ -------------- -------------- ------------------ ----------------- ----------------- --------
Total
comprehensive
income for the
year - - (8,141) - - (8,141)
------------------ -------------- -------------- ------------------ ----------------- ----------------- --------
Contributions by
and distributions
to owners
Dividends paid - - (2,774) - - (2,774)
Total
contributions by
and
distributions to
owners - - (2,774) - - (2,774)
------------------ -------------- -------------- ------------------ ----------------- ----------------- --------
Balance at 30
June 2020 925 76,198 35,491 (221) 1,550 113,943
------------------ -------------- -------------- ------------------ ----------------- ----------------- --------
Appendix
Unaudited consolidated financial information
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)
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
---------------------------------------------------- ---- ------- -------- ------ ------ --------
Appendix
Unaudited consolidated financial information
Consolidated Statement of Cash Flows
Year ended 30 Year ended 30 June
June 2020 2019
US$'000 US$'000
------------------------------- -------------- -------------------
Cash flows from operating
activities
Purchase of investments (338,834) (167,457)
Proceeds from sale of
investments 327,079 181,844
Dividends received 4,214 4,376
Operating expenses paid (2,247) (2,280)
Interest received 18 57
Net cash (used in)/generated
from operating activities (9,770) 16,540
-------------------------------- -------------- -------------------
Financing activities
Dividends paid (2,774) (2,774)
Net cash used in financing
activities (2,774) (2,774)
-------------------------------- -------------- -------------------
Net (decrease)/increase
in cash and cash equivalents (12,544) 13,766
Effects of exchange rate
changes on cash and cash
equivalents (30) (139)
Cash and cash equivalents
at beginning of the year 19,007 5,380
-------------------------------- -------------- -------------------
Cash and cash equivalents
at end of the year 6,433 19,007
-------------------------------- -------------- -------------------
Glossary
Alternative performance measures (APM)
An APM is a measure of performance or financial position that is
not defined in applicable accounting standards and cannot be
directly derived from the financial statements. The Company's APMs
are set out below and are cross-referenced where relevant to the
financial inputs used to derive them as contained in other sections
of the Annual Financial report.
Ongoing charges ratio
Ongoing charges (%) = Annualised ongoing charges divided by
Average undiluted net asset value in the period
Ongoing charges are those expenses of a type which are likely to
recur in the foreseeable future, whether charged to capital or
revenue, and which relate to the operation of the investment
company as a collective fund. Ongoing charges are based on costs
incurred in the year as being the best estimate of future costs and
include the annual management charge. As recommended by the AIC in
its guidance, ongoing charges are calculated using the Company's
annualised revenue and capital expenses (excluding finance costs,
direct transaction costs, custody transaction charges,
non-recurring charges and taxation) expressed as a percentage of
the average daily net assets of the Company during the year. The
inputs that have been used to calculate the ongoing charges
percentage are set out in the following table:
Ongoing charges calculation* 30 June 2020 30 June 2019
US$'000 US$'000
Management fee (page 62) 1,081 1,023
------------- -------------
Other operating expenses (page
62) 1,151 1,141
------------- -------------
Total management fee and other
operating expenses 2,232 2,164 a
------------- -------------
Average net assets in the year 119,886 114,831 b
------------- -------------
Ongoing charges (c=a/b) 1.86% 1.88% c
------------- -------------
*Including expenses of the Subsidiary.
Discount and premium
Shares can frequently trade at a discount to net asset value
(NAV). This occurs when the share price (based on the mid-market
share price) is less than the NAV and investors may therefore buy
shares at less than the value attributable to them by reference to
the underlying assets. The discount is the difference between the
share price and the NAV, expressed as a percentage of the NAV. As
at 30 June 2020, the share price was 1.14c and the audited NAV per
share was 1.2323c, giving a discount of 7.5%. A premium occurs when
the share price (based on the mid-market share price) is more than
the NAV and investors would therefore be paying more than the value
attributable to the shares by reference to the underlying
assets.
Year to date net asset value
This is the fall or rise, calculated as a percentage, in value
of the Company's assets attributable to one ordinary share since 31
December 2019. The net asset value per share is calculated by
dividing 'equity shareholders' funds' by the total number of
ordinary shares in issue (excluding treasury shares). The fall in
year to date NAV is set out in the table below:
Date Equity Number of Net asset
ordinary shares value per
in issue share
31 December 2019 129,078,264 92,461,242 1.3960 a
------------ ----------------- ----------- -------
30 June 2020 113,943,376 92,461,242 1.2323 b
------------ ----------------- ----------- -------
YTD Change in NAV 11.70% c
(c=(a-b)/a)
------------ ----------------- ----------- -------
Increase in net asset value since change in investment
policy
In December 2017 there was a change in investment policy whereby
the Company's underlying subsidiary was able to invest in the
broader GCC region rather than being specifically focussed in
Qatar. The rise in NAV (dividend included) from 7 December 2019 to
30 June 2020 was 31%. The following table shows the movement in NAV
(including dividends) in this time:
Date GIF NAV net of GIF NAV adjusted to
dividend include dividend
7 December 2019 1.0145 1.2320 a
--------------- --------------------
30 June 2020 1.2323 1.6135 b
--------------- --------------------
Percentage movement 31.0% c
in NAV adjusted to
include dividend
c=(b-a)/a
--------------- --------------------
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END
FR FLFLEAVIEFII
(END) Dow Jones Newswires
September 28, 2020 02:00 ET (06:00 GMT)
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