RNS Number:5629M
Govett Asian Income & Growth Fnd Ld
20 June 2003
Govett Asian Income & Growth Fund Limited
Year ending 31 March 2003
Chairman's Statement
It is with considerable disappointment that I have to report again that the
Company has experienced another difficult year. The combination of poor global
equity markets and the structural gearing of the Company contributed to a
substantial decline in the assets over the year ended 31st March 2003. In the
face of such market conditions the Company reduced structural gearing by
repaying #16.4m of its bank loan (together with associated interest rate swap
cancellation costs of #0.7m), cutting the level of debt from #25.9m to #9.5m
during the year. As a result the Total Assets of the Company at the year-end
were approximately #17.5m compared to #51.0m at the start of the year,
representing a reduction of approximately 66% during the year, inclusive of the
loan repayments (a fall of 60% for first six months). The net assets per
Ordinary share fell 70.9% over the period, from 62.55p to 18.20p. This has
resulted in an increase in the hurdle rate to 23.2% per annum to return to
investors the original #1 subscription price.
During the period under review three dividends of 0.5p per share were declared
and paid totalling #582,000, with a fourth dividend of 0.5p per share declared
and paid after the period end amounting to #194,000.
Over the financial year, the Asian equity portfolio returned a negative 22.02%;
the fixed income portfolio contributed a positive return of 7.5%, and the
investment funds returned a negative 76.6%.
There are no easy answers to the current difficulties facing the Company.
Diversity and flexibility remain important investment strategies. There will
continue to be a balance in the asset allocation aiming to maintain the mix
between growth and income. At launch the asset allocation was 50% growth and 50%
income. Growth continues to be provided by investment in Asian equities which
accounts for 42% of the total assets and the income provided by investments in
investment companies (9% of total assets) and investments in fixed interest
corporate bonds (29% of total assets). The current allocation to cash or near
cash (20%) is largely due to cash providing a safe haven in which to invest,
whilst providing investment flexibility in the current market conditions as well
as providing protection to the Company from breaching the covenants attached to
its bank loan. The weakness and volatility of equity markets has prompted this
adjustment to the asset allocation.
Within the income portfolio, bond returns have exceeded expectations and
continue to provide a regular base load of income, however the difficulties of
the investment companies sector has adversely affected the income stream and
required the Company to reduce dividend payments.
As at the close of business on 18th June 2003, the estimated Total Assets of the
Company were #17.92m, and net assets attributable to the Ordinary shareholders
were #8.42m (based on mid market prices and excluding current period revenue),
which, inter alia, has led to a very high expenses ratio for the Company. The
Board continues to review the expenses of the Company in a further effort to
reduce costs. As I reported at the interim stage the Company had renegotiated
loan covenants and negotiated a revision of the management fee.
Not withstanding the fall in assets, your Directors are pleased to report that
as at 18th June 2003 the loan covenant ratio was 190.41% with the specified
ratio of 156.45%. The percentage fall to breach was 15.97% for permitted
investments and 26.49% for specified investments.
With conflict in Iraq now over it was hoped that investors would begin to focus
on economic fundamentals with global markets regaining some confidence. However,
there are a number of concerns in markets surrounding the aftermath of the
conflict in the Gulf and the growing SARS problems in Asia and elsewhere. The US
economy has drawn some comfort from the declarations from Alan Greenspan
regarding injections of liquidity into the economy, however there remain some
fears of a build up of deflationary pressures. In spite of the underlying
concerns in markets there are signs of the long awaited upturn. We remain
confident that the Company is in a good position to benefit from a global
upturn, when it comes, and I look forward to an improved performance in the
coming year.
The Board is once again seeking a renewal of the authority to purchase shares
for cancellation. However, the ability of the Company to buy back shares depends
on there being sufficient reserves to finance such a repurchase. Although this
authority was not used during the year it remains a useful tool in current
markets.
Under the Companies (Purchase of Own Shares) Ordinance, 1998 (the "Ordinance"),
a company may, with the appropriate authority from its shareholders, purchase
its own shares. Whilst the Ordinance permits a company in certain circumstances
to purchase shares out of capital, the more normal method of financing such
purchases and the more practicable is to fund such purchases out of
distributable profits. To provide further flexibility to make purchases of the
Company's own shares, the Board proposes to cancel the share premium account,
subject to Shareholders' authority and Court approval, and to create a new
special reserve of the Company which may, subject as set out below, be used to
augment the distributable reserves of the Company from which it may purchase its
own shares. Any balance remaining following the purchase of shares will be used
for general corporate purposes and not for the purposes of making any
distribution by way of dividend or other capital repayment.
Once Shareholders' approval has been received, Court approval confirming the
cancellation of the share premium account will be sought. The Court will need to
be satisfied that the interests of the Company's creditors will not be
prejudiced as a result of the reduction and the Company will take such steps in
that regard as it deems appropriate. The power to buy back shares utilising the
distributable reserves from the cancellation of the share premium account is
expected to become effective on or around 15th August 2003.
In view of the current level of assets, the Board of the Company, with its
Advisers and the Manager, Govett Investment Management Limited ("Govett"), are
considering all the strategic options for the future of the Company. In order to
retain flexibility in respect of the Company, the Board served protective notice
on 13th June 2003 on Govett in respect of their Investment Management Agreement
with the Company. The terms of the Investment Management Agreement require
twelve months' notice to be given to the Manager.
Garth Milne
Chairman
19th June 2003
Govett Asian Income & Growth Fund Limited
Statement of Operations
for the year ended 31st March 2003
2003 2002*
#000's #000's
Income
Dividends 919 2,667
Bond interest 354 467
Bank interest 106 206
Total income 1,379 3,340
Expenses
Management fee (227) (533)
Administration fee (102) (79)
Custodian fee (60) (65)
Audit fee (26) (12)
Directors' fees (55) (64)
Brokers'fees (25) -
Directors'and Officers' insurance (20) (12)
Interest payable (1,111) (1,645)
Swap breakage costs (698) -
Loan breakage costs (7) -
Other expenses (139) (76)
Total expenses (2,470) (2,486)
Net (loss)/profit before investment result (1,091) 854
Realised loss on sale of investments (3,130) (610)
Realised loss on foreign currency (367) (289)
Movement in unrealised loss on revaluation of investments (10,686) (10,648)
Net investment result (14,183) (11,547)
Net loss for the year (15,274) (10,693)
Basic and diluted loss per share (pence) (39.32) (27.53)
*The Company was incorporated on 2nd February 2001, commencing business on 6th
April 2001. The comparatives are, therefore, for the period 6th April 2001 to
31st March 2002.
Statement of Changes in Equity
for the year ended 31st March 2003
2003 2002*
#000's #000's
Net assets at the beginning of the year 24,295 -
Net loss for the year (15,274) (10,693)
Issue of Ordinary share capital, net of formation expenses - 37,437
Dividends paid (1,359) (2,331)
Realised loss on interest rate swap removed from equity and reported in net 698 -
loss for the year
(1,291) (118)
Movement in net unrealised loss on revaluation of cash flow hedges
Net assets at 31st March 2003 7,069 24,295
*The Company was incorporated on 2nd February 2001, commencing business on 6th
April 2001. The comparatives are, therefore, for the period 6th April 2001 to
31st March 2002.
Balance Sheet
as at 31st March 2003
2003 2002
#000's #000's
Non-current assets
Available-for-sale investments 14,058 42,485
Current assets
Cash and cash equivalents 3,230 7,819
Debtors 277 699
3,507 8,518
Total Assets 17,565 51,003
Current liabilities
Creditors (285) (700)
Non-current liabilities
Bank Loan (9,500) (25,890)
Interest rate swap liability (711) (118)
(10,211) (26,008)
Total liabilities (10,496) (26,708)
Net assets 7,069 24,295
Represented by:
Share capital 9,710 9,710
Share premium 27,727 27,727
Reserves (30,368) (13,142)
Issued capital and reserves 7,069 24,295
Net asset value per Ordinary share (pence) 18.20 62.55
Statement of Cash Flow
for the year ended 31st March 2003
2003 2002
#000's #000's
Operating activities
Dividends received 1,331 2,217
Bond interest received 370 260
Bank interest received 106 206
Expenses paid (440) (235)
Management fee (314) (407)
Swap breakage costs (698) -
Loan breakage costs (7) -
Loan interest paid (1,012) (1,172)
Payment under interest rate swap agreement (286) (114)
Net cash (outflow)/inflow from operating activities (950) 755
Investing activities
Purchase of investments (34,861) (106,389)
Sale of investments 49,338 52,797
Net cash inflow/(outflow) from investing activities 14,477 (53,592)
Financing activities
Proceeds on issue of Ordinary shares - 38,842
Formation expenses paid - (1,404)
(Repayment)/draw down of bank loan (16,390) 25,890
Bank loan arrangement fee - (52)
Dividend paid (1,359) (2,331)
Net cash (outflow)/inflow from financing activities (17,749) 60,945
(Decrease)/Increase in cash (4,222) 8,108
Cash and cash equivalents at start of year 7,819 -
Realised loss on foreign currency (367) (289)
Cash and cash equivalents at 31st March 3,230 7,819
Notes to the Financial Statements
for the year to 31st March 2003
1.Operations
Govett Asian Income & Growth Fund Limited was incorporated in Guernsey on 2nd
February 2001. It is a closed-ended investment company, managed by Govett
Investment Management Limited, and was formed primarily for investment in Asian
and Pacific equities, high yielding equity securities and bonds. The investment
objective of the Company is to provide a high level of income on the Ordinary
shares as well as the potential for capital growth. The Company commenced
operations on 6th April 2001.
2.Statement of accounting policies
(a) Basis of preparation
The financial statements have been prepared in conformity with International
Accounting Standards and applicable requirements of Guernsey Law.
The financial statements have been prepared on a going concern basis under the
historical cost convention except for the measurement at fair value of
"available-for-sale" investments and derivative financial instruments.
(b) Segmental reporting
The Directors are of the opinion that the Company is engaged in a single segment
of business, being investment business. The Company invests in bonds and
investment funds listed in the UK and equities in Asia.
(c) Income recognition
Income derived from equity shares is taken into account on the ex-dividend date
and is shown net of withholding tax. Bond interest and short term deposit
interest is accounted for under the effective interest rate method.
(d) Expenses
All expenses are accounted for on an accruals basis.
(e) Formation expenses
The preliminary expenses incurred in the period ending 31st March 2002 amounted
to #1,403,652. These expenses were written off in full against share premium.
This treatment is consistent with the terms of the Prospectus.
(f) Taxation
The Company has been granted exemption under the Income Tax (Exempt Bodies)
(Guernsey) Ordinance 1989 from Guernsey Income Tax for the current year of
charge, and is charged an annual exemption fee of #600. The Directors intend to
conduct the Company's affairs such that it continues to remain eligible for
exemption.
Foreign withholding tax will be payable on income arising from certain
investments in the Asia Pacific equity portfolio.
(g) Cash and cash equivalents
Cash in hand and in banks and short term deposits which are held to maturity are
carried at cost. Cash and cash equivalents are defined as cash in hand, demand
deposits and short term, highly liquid investments readily convertible to known
amounts of cash and subject to insignificant risk of changes in value.
For the purposes of the Statement of cash flow, cash and cash equivalents
consist of cash in hand and deposits in banks.
(h) Investments
All investments are classified as "available-for-sale". Investments are
initially recognised at cost, being the fair value of the consideration given,
including transaction costs associated with the investment.
After initial recognition, investments are measured at fair value, with
unrealised gains and losses on investments and impairment of investments
recognised in the Statement of Operations. Realised gains and losses on
investments sold are calculated as the difference between sales proceeds and
cost, or if previously revalued the valuation as at the last balance sheet date.
For investments actively traded in organised financial markets, fair value is
generally determined by reference to Stock Exchange quoted market bid prices at
the close of business on the balance sheet date, without adjustment for
transaction costs necessary to realise the asset.
(i) Trade date accounting
All "regular way" purchases and sales of financial assets are recognised on the
"trade date", ie, the day that the entity commits to purchase or sell the asset.
Regular way purchases or sales are purchases or sales of financial assets that
require delivery of the asset within the time frame generally established by
regulation or convention in the market place.
(j) Foreign currency translation
Transactions denominated in foreign currencies are translated into Sterling at
the rate of exchange ruling on the date of the transaction. Foreign currency
monetary assets and liabilities are translated into Sterling at the rate ruling
on the balance sheet date. Gains and losses arising on revaluation of foreign
currency assets and liabilities are recorded in the Statement of Operations.
(k) Non-current liabilities
All loans and borrowings are initially recognised at cost, being the fair value
of the consideration received, less issue costs where applicable. After initial
recognition, all interest-bearing loans and borrowings are subsequently measured
at amortised cost. Amortised cost is calculated by taking into account any
discount or premium on settlement. The costs of arranging any interest bearing
loans are capitalised and amortised over the life of the loan.
(l) Derivative financial instruments
The Company uses an interest rate swap to hedge its risks associated with
interest rate fluctuations. It is the Company's policy not to trade in
derivative financial instruments. For the purposes of hedge accounting the
Company only has a cash flow hedge, which hedges exposure to variability in cash
flows that is either attributable to a particular risk associated with a
recognised asset or liability or a forecasted transaction.
In relation to cash flow hedges, which meet the conditions for special hedge
accounting, the portion of the gain or loss on the hedging instrument that is
determined to be an effective hedge is recognised directly in equity through the
Statement of Changes in Equity and any ineffective portion is recognised in the
Statement of Operations. The gains or losses that are recognised in equity are
transferred to the Statement of Operations in the same period in which the
hedged interest payments affect the net profit and loss.
Hedge accounting is discontinued when the hedging instrument expires or is sold,
terminated or exercised, or no longer qualifies for special hedge accounting. At
that point in time, any cumulative gain or loss on the hedging instrument
recognised in equity is kept in equity until the forecasted transaction occurs.
Where the hedged transaction is no longer expected to occur, the net cumulative
gain or loss recognised in equity is transferred to the Statement of Operations
for the year.
(m) Fair value of derivatives
The fair value of the interest rate swap contract is estimated as the present
value of the expected future net interest cash flows , based on current and
expected future interest rates at the year end.
The Annual General Meeting of the Company will be held on 1st August 2003 at the
offices of Collins Stewart Fund Management Limited, 2nd Floor, TSB House, Le
Truchot, St. Peter Port, Guernsey GY1 4AE. We look forward to meeting
shareholders at the AGM.
The financial information set out in this announcement does not constitute the
Group's statutory accounts for the period ended 31 March 2003. The accounts for
the period ended 31 March 2003 are unaudited and will be finalised on the basis
of the financial information presented by the Directors in this preliminary
announcement and will be delivered to the UK Listing Authority and The Channel
Islands Stock Exchange following approval.
By order of the Board
Collins Stewart Fund Management Limited,
2nd Floor, TSB House,
Le Truchot,
St. Peter Port,
Guernsey GY1 4AE
Registered in Guernsey no: 37924
This information is provided by RNS
The company news service from the London Stock Exchange
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