Gulf Investment Fund plc Consolidated Annual Report Year ... · Qatar-focused investment strategy to a broader Gulf Cooperation Council ("GCC") investment strategy. Previously, the

Gulf Investment Fund plc

Consolidated Annual Report

Year ended 30 June 2018

GULF INVESTMENT FUND PLC Annual Report 30 June 2018

CONTENTS

Page

Management and Administration 1 - 2

Chairman’s Statement 3 - 4

Business Review 5 - 6

Report of the Investment Manager and the Investment Adviser 7 – 14

Investment Policy 15 – 16

Report of the Directors 17 – 18

Corporate Governance Report 19 – 25

Board of Directors 26

Statement of Directors’ Responsibilities 27

Audit Committee Report 28

Management Engagement Committee Report 29

Directors’ Remuneration Report 30 – 31

Report of the Independent Auditors 32 – 35

Consolidated Financial Statements:

- Consolidated Income Statement 36

- Consolidated Statement of Comprehensive Income 37

- Company Income Statement 38

- Company Statement of Comprehensive Income 39

- Consolidated Balance Sheet 40

- Company Balance Sheet 41

- Consolidated Statement of Changes in Equity 42 – 43

- Company Statement of Changes in Equity 44

- Consolidated Statement of Cash Flows 45

- Company Statement of Cash Flows 46

- Notes to the Consolidated Financial Statements 47 – 59


1

Management and Administration

Directors N Wilson (Non-executive Chairman) *

P Macdonald (Non-executive Director)*

N Benedict (Non-executive Director) *

D Humbles (Non-executive Director)*

all of the registered office below

* independent

Registered Office Millennium House

46 Athol Street

Douglas

Isle of Man

IM1 1JB

Investment Manager Epicure Managers Qatar Limited

Trinity Chambers

Road Town

Tortola

British Virgin Islands

Investment Adviser Qatar Insurance Company S.A.Q.

PO Box 666

Tamin Street

West Bay

Doha

Qatar

Brokers Panmure Gordon (UK) Limited

One New Change

London

EC4M 9AF

Custodian HSBC Bank Middle East Limited

Qatar Branch

HSBC Security Services

PO Box No. 57

Doha

Qatar


2

Management and Administration continued

Administrator Galileo Fund Services Limited

Millennium House

46 Athol Street

Douglas

Isle of Man

IM1 1JB

Auditors KPMG Audit LLC

Heritage Court

41 Athol Street

Douglas

Isle of Man

IM99 1HN

Registrar Capita Registrars (Isle of Man) Limited

Third Floor

Exchange House

54-62 Athol Street

Douglas

Isle of Man

IM1 1JD


3

Chairman’s Statement

On behalf of the Board, I am pleased to present your Company’s eleventh Annual Report and Financial Statements for the

year to 30 June 2018.

During the 12 months, your Company’s Net Asset Value per Share (“NAV”) rose by 7.8% to US$1.1982 which compares with

a gain of 8.6% in the S&P GCC composite index and 5.8% in the MSCI Emerging Markets Index. Following a narrowing of

the discount at which the shares trade to NAV, the shares rose by from US$0.8990 to US$1.0150 for a gain of 13.0%.

Shareholders received a dividend of 3.0 cents per share which was paid on 9 February 2018 to ordinary shareholders on the

register as at 5 January 2018.

Results

Results for the period under review showed a profit US$9.68m generated from fair value adjustments, realised losses and

dividend income. This is equivalent to a basic profit per share of 9.95 cents.

Following the actions taken on 5 June 2017 against Qatar by Saudi Arabia, UAE, Bahrain and Egypt, Qatar acted swiftly to

implement alternative international trading arrangements. Although there was an initial negative impact on the Qatar

economy and the stock market, by December it became apparent that the economy was recovering aided by a stronger oil

price. Accordingly, since the change in Investment Policy referred to below, the Company remained overweight Qatar

relative to the informal benchmark, the S&P GCC composite index.

At the end of the period, we had a total of 43 holdings: 24 in Saudi Arabia, 9 in Qatar, 5 in the UAE and 5 in Kuwait. The

geographical split based on valuation, was Saudi Arabia 39.2%, Qatar 36.7%, Kuwait 10%, and UAE 9.6%. We also had

4.5% in cash.

The Company’s Ongoing Charges (formerly Total Expense Ratio) rose to 1.95% from 1.70% in the previous year. The

charges were calculated in accordance with the methodology recommended by the Association of Investment Companies.

Proposed dividend

The Board is pleased to recommend to shareholders a dividend of 3 cents a share. Subject to shareholder approval at the

forthcoming Annual General Meeting, the dividend will be paid on 21 December 2018 with a record date of 16 November

and an associated ex-date of 15 November 2018, the last day for currency elections will be 30 November 2018.

Change in investment policy

On 16 October 2017, the Board announced its intention to change the investment policy of the Company from a largely

Qatar-focused investment strategy to a broader Gulf Cooperation Council ("GCC") investment strategy.

Previously, the investment policy enabled the Company to invest up to 15% of the Company in GCC countries (namely

Saudi Arabia, Kuwait, UAE, Oman and Bahrain) other than Qatar.

The proposed change in investment policy removed the 15% limit and enabled the Company to increase its investment

allocation to other GCC countries and provide the Investment Adviser with a wider investment universe and more flexibility to

identify attractive opportunities in the GCC region.

Alongside the Amended Investment Policy the Board resolved to put forward a number of proposals including:

(i) making a tender offer for up to 10% of the issued Share Capital of the Company

(ii) cancelling the discontinuation vote currently scheduled for the 2018 annual general meeting and replacing it with a

continuation vote for the 2021 annual general meeting and every three years thereafter;

(iii) making a tender offer to shareholders for up to 100% of the Company's share capital in 2020 subject to

Shareholder approval to be sought in 2020; and

(iv) proposing to change the name of the Company to Gulf Investment Fund PLC.


4

Chairman’s Statement continued

All of these changes were approved by shareholders at an Extraordinary General Meeting (EGM) on 7 December 2017,

other than the tender offer in 2020 which will be subject to shareholder approval in 2020.

Tender offer

Following the passing of the resolutions at the EGM on 7 December 2017 to give effect to the 10% Tender Offer,

10,273,471 Shares were tendered under the Tender Offer at the tender offer price of USD0.9933 per share. These shares

were cancelled leaving the Company with 92,461,242 Shares in issue (excluding treasury shares).

Related Party Transactions

Details of any related party transactions are contained in note 10 of this report.

Post balance sheet events

Details of these can be found in note 14 following the accompanying financial statements.

Outlook, risks and uncertainties

Fluctuations in oil and gas prices will continue to impact GCC economies, as countries deal with budget challenges. The

geopolitics of the region and, in particular, the dispute between Qatar and other members of the GCC brings continuing

economic uncertainty.

The Board believes that the principal risks and uncertainties faced by the Company continue to fall in the following

categories; geopolitical events, market risks, investment and strategy risks, accounting, legal and regulatory risks,

operational risks and financial risks. Information on each of these is given in the Business Review section of our Annual

Report each year.

The Board continues to view the future of the Company with confidence expecting healthy if slower 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.

Annual General Meeting

I look forward to welcoming shareholders to out eleventh Annual General Meeting on 7 November 2018, which will be held at

11.00 am at the Company’s registered office at Millennium House, 46 Athol Street, Douglas, Isle of Man.

Nicholas Wilson

Chairman

21 September 2018


5

Business Review

The following review is designed to provide information primarily about the Company’s business and results for the year

ended 30 June 2018. It should be read in conjunction with the Report of the Investment Manager and the Investment Adviser

on pages 7 to 14 which gives a detailed review of the investment activities for the year and an outlook for the future.

Investment Objective and Strategy

The Company’s investment objective is to capture the opportunities for growth offered by the expanding GCC economies by

investing in listed companies on one of the GCC exchanges or companies soon to be listed on one of the GCC exchanges.

The Company may also invest in listed companies, or pre-IPO companies, in other GCC countries.

The Company applies a top-down screening process to identify those sectors which should most benefit from sector growth

trends. Fundamental industry and company analysis, rather than benchmarking, forms the basis for both stock selection and

portfolio construction.

The Company’s investment policy is on pages 15 to 16.

Performance Measurement and Key Performance Indicators

In order to measure the success of the Company in meeting its objectives and to evaluate the performance of the Investment

Manager, the Directors take into account the following key performance indicators:

Returns and Net Asset Value

At each quarterly Board meeting the Board reviews the performance of the portfolio versus the Qatar Exchange (QE) Index

(local benchmark) as well as the net asset value, income, share price and expense ratio for the Company.

Discount/Premium to Net Asset Value

On a weekly basis, the Board monitors the discount/premium to net asset value. The Directors renew their authority at the

annual general meeting in order to be able to make purchases through the market where they believe they can assist in

narrowing the discount to net asset value and where it is accretive to net asset value per share.

On 22 February 2017, the Company announced the details of its annual share buy-back programme. Pursuant to, and

during the term of this share buy-back programme, the Company may purchase ordinary shares provided that:

1) the maximum price payable for an ordinary share on the London Stock Exchange is an amount equal to the higher of:

a. 105 per cent. of the average market value of the Company's ordinary shares as derived from the London Stock

Exchange Daily Official List for the five business days immediately preceding the day on which such share is contracted to

be purchased; and

b. In order to benefit from the exemption laid down in Article 5(1) of Regulation (EU) No 596/2014, the Company will not

purchase shares at a price higher than the higher of the price of the last independent trade and the highest current

independent purchase bid on the trading venue where the purchase is carried out; and

2) the aggregate number of ordinary shares which may be acquired on behalf of the Company in connection with this share

buy-back programme shall not exceed 17,548,355 ordinary shares.

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.


6

Business Review continued

A Board member is responsible for close monitoring of our share price, and working with our broker to buy back shares when

we believe appropriate so as to manage any discount to net asset value.

Yield

The Board monitors the dividend income of the portfolio and the amount available for distribution and considers the impact

on the Company’s annual dividend policy of future progressive dividend payments, subject to the absence of exceptional

market events.

Principal Risks and Uncertainties

The Board confirms that there is an on-going process for identifying, evaluating and managing or monitoring the key risks to

the Company. These key risks have been collated in a risk matrix document which is reviewed and updated on a quarterly

basis by the Directors. The risks are identified and graded in this process, together with the policies and procedures for the

mitigation of the risks.

The key risks which have been identified and the steps taken by the Board to mitigate these are as follows:

Market

The Company’s investments consist of listed companies. There are no investments in companies soon to be listed. Market

risk arises from uncertainty about the future prices of the investments. This is commented on in Note 1(a) and 2 on pages 47

to 51.

Investment and Strategy

The achievement of the Company’s investment objective relative to the market involves risk. An inappropriate asset

allocation may result in underperformance against the local index. Monitoring of these risks is carried out by the Board

which, at each quarterly Board meeting, considers the asset allocation of the portfolio, the ratio of the larger investments

within the portfolio and the management information provided by the Investment Manager and Investment Adviser, who are

responsible for actively managing the portfolio in accordance with the Company’s investment policy. The net asset value of

the Company is published weekly.

Accounting, legal and regulatory

The Company must comply with the provisions of the Isle of Man Companies Acts 1931 to 2004 and since its shares are

listed on the London Stock Exchange, the UK Listing Authority’s Listing Rules and Disclosure Guidance and Transparency

Rules (“UKLA Rules”)’ A breach of company law could result in the Company and/or the Directors being fined or the subject

of criminal proceedings. A breach of the UKLA Rules could result in the suspension of the Company’s shares. The Board

relies on its Company Secretary and advisers to ensure adherence to company law and UKLA Rules. The Board takes legal,

accounting or compliance advice, as appropriate, to monitor changes in the regulatory environment affecting the Company.

From 3 July 2016 the Company must also comply with the Market Abuse Regulation (MAR) which contains prohibitions for

insider dealing and market manipulation, and provisions to prevent and detect these.

Operational

Disruption to, or the failure of, the Investment Manager, the Investment Adviser, the Custodian or Administrator’s accounting,

payment systems or custody records could prevent the accurate reporting or monitoring of the Company’s financial position.

Details of how the Board monitors the services provided by the Investment Manager and its other suppliers, and the key

elements designed to provide effective internal control, are explained further in the internal control section of the Corporate

Governance Report on pages 19 to 25.

Financial

The financial risks faced by the Company include market price risk, foreign exchange risk, credit risk, liquidity risk and

interest rate risk. Further details are disclosed in Notes 1(a), 2, 6 and 8.


7

Report of the Investment Manager and Investment Adviser

Regional Market Overview

In FY 2018, GCC Markets outperformed its global peers, led by increase in oil prices and index upgradation to EM

status by FTSE and MSCI. Diverging global growth and looming trade war concerns have shaken investor confidence,

triggering flow to safe heavens, with china suffering the most, as a result, global markets remained almost flat in 1H18.

29-Jun-17 31-Dec-17 2H17 29-Jun-18 1H18 LTM

Qatar (QE) 9,030.4 8,523.4 -5.6% 9,024.0 5.9% -0.1% Saudi Arabia (TASI) 7,425.7 7,226.3 -2.7% 8,314.2 15.1% 12.0% Dubai (DFMGI) 3,392.0 3,370.1 -0.6% 2,821.0 -16.3% -16.8% Abu Dhabi (ADI) 4,425.4 4,398.4 -0.6% 4,560.0 3.7% 3.0% Kuwait (KWSE) NA NA NA 4,890.4 NA NA Oman (MSI) 5,118.3 5,099.3 -0.4% 4,571.8 -10.3% -10.7% Bahrain (BAX) 1,310.0 1,331.7 1.7% 1,311.0 -1.6% 0.1% S&P GCC Composite 100.1 99.0 -1.1% 108.7 9.8% 8.6% MSCI World 1,916.4 2,103.5 9.8% 2,089.3 -0.7% 9.0% MSCI EM 1,008.8 1,158.5 14.8% 1,069.5 -7.7% 6.0% Brent 47.4 66.9 41.1% 77.9 16.4% 64.3% Source: Bloomberg

During 2H17, most GCC markets underperformed their global peers, affected by regional tensions, with the S&P GCC

Composite index declining by 1.1 per cent. Performance of individual markets within the GCC was mixed. Crude prices

closed 14.8 per cent higher supported by the OPEC’s production cut agreement and its extension till December 2018.

Saudi Arabia was the major contributor to the regional performance during the period (YTD 2018), largely because

investors looked ahead to its inclusion in EM indices. Dubai lagged the region, amid concerns about its Real Estate &

Construction sector. The S&P GCC has gained 9.8 per cent while emerging markets generally have fallen (MSCI EM

index is down 7.7 per cent).

GCC diversification and recovering oil prices

GCC nations are encouraging private sector participation and improving the efficiency and transparency of the public

sector.

Investor friendly regulations are being adopted, such as allowing 100 per cent foreign ownership of businesses, and 10-

year residency visas in the UAE.

Social reforms such as Saudi women being permitted to drive and set up their own businesses will stimulate female

participation in the economy. This should boost job creation and consumer spending, potentially benefitting sectors such

as Services, Automobile and Insurance.

Stronger oil prices this year have bolstered the reserves of GCC nations, facilitating fiscal reforms and helping their

spending programs. The IMF reduced its estimate for this year’s GCC fiscal deficit to 3.6 per cent of GDP (October

2017: 5.0 per cent of GDP), and expects a 2019 deficit of 2.2 per cent.

Economic growth in the region is expected to accelerate in 2018-19, largely reflecting the continued recovery in oil

prices and slowing pace of fiscal consolidation. The IMF has estimated aggregate growth for the region at 1.9 per cent

and 2.6 per cent for 2018 and 2019, respectively. In June, major global oil producers agreed to increase crude output

from July, this should support GDP growth.

Saudi Arabia’s production increase should boost growth in its oil sector, adding nearly 2 per cent to GDP growth. Non-

oil growth is expected to pick up as reforms take a back seat and focus shifts towards implementation of megaprojects.

Current mega projects include the Grand Mosque redevelopment (US$26.6 billion), development of the Riyadh and

Jeddah Metro transit system (US$34.5 billion) and Expansion of King Abdulaziz Int’l Airport (US$7.2 billion). Upcoming

mega projects include the US$500 billion NEOM Mega City, King Abdullah Economic City (US$100 billion) and

commissioning of the world’s largest solar project (US$200 billion).


8

Report of the Investment Manager and Investment Adviser continued

Chart: GCC Fiscal Balances to Improve in 2018 & 2019 With Rising Oil Prices

Source: IMF REO May 2018; Fiscal Balance: Central Govt. Net Lending/Borrowing

In June 2018, Fitch Ratings revised Qatar’s Outlook to “Stable” from “Negative” stating that Qatar has successfully

managed the effect from last year’s blockade by reconfiguring supply chains and injecting public sector liquidity. The

IMF expects Qatar’s real GDP growth to quicken to 2.6 per cent in 2018 from 2.1 per cent in 2017, with the economy

benefitting from continued infrastructure investment, a slower pace of fiscal consolidation and the scaling up of LNG

production.

Kuwait delayed implementation of VAT until 2021 and the Investment Adviser expects it has little immediate need for

fresh revenues at the current oil price. Kuwait is expected to report a fiscal surplus for 2018 and 2019 at 7.0 per cent

and 6.1 per cent of GDP, respectively.

The UAE government eased visa and investment rules to attract new businesses. Experts in medical, scientific,

research and technical fields as well as top students will be able to get a residency of up to 10 years.

Dubai unveiled various plans to stimulate foreign investment. These plans include the reduction and cancellation of

some government fees to support investors’ ability to do business. Dubai Municipality fees and those related to

investment in the aviation sector will be lowered.

To benefit from the higher oil price environment and encourage economic growth, the Abu Dhabi government approved

a 3-year AED50 billion (US$13.6 billion) economic stimulus program. The authorities intend to make it easier to do

business, spur employment growth and increase tourism.

In April, the Central Bank of Oman eased capital and credit exposure rules in an effort to boost economic growth. The

most prominent measure was the reduction in the capital adequacy ratio. This should free up close to OMR2.6 billion to

stimulate credit growth.

MSCI EM Inclusion

Saudi Arabia’s inclusion in the MSCI EM index from May 2019 brings its US$500 billion stock market to a wider group of

international investors. It could trigger US$40 - US$45 billion of inflows.

MSCI also added Kuwait to its 2019 watch list for a potential upgrade to EM, with the decision to be announced next

June, further bringing GCC nations under the investment radar of global investors.


9


Chart: Future Potential of GCC on the MSCI EM Index

Source: Bloomberg; Franklin Templeton Investments Note: GCC current weight taken from ISHARES MSCI Emerging Markets ETF

These developments would also have a positive impact on the broader region. In addition to increased foreign inflows,

the intangible benefits of attracting newer set of sophisticated investors should result in improved standards of financial

disclosure and corporate governance.

Other Recent Developments

Saudi Arabia to be included in FTSE Secondary Emerging Market Index

The Kingdom is likely to have a weight of 2.7 per cent in the index, which could rise to about 4.6 per cent on listing of

the proposed 5 per cent IPO of state oil giant Saudi Aramco. Saudi Arabia could see a total of US$30-US$45 billion of

inflows in the next two years if it reaches the foreign ownership levels of peer GCC markets like UAE and Qatar.

Rising interest rates to benefit GCC banks

Most GCC central banks, including the UAE, Qatar, Kuwait and Bahrain, hiked their benchmark interest rates in line with

the US Federal Reserve’s move. Moody’s expects that rising interest rate would benefit GCC banks through higher

NIM’s, as banks are expected to gradually reprice their loan books. Consensus sees further 3 to 4, 25 bps rate hikes by

the US Fed.

Kuwait segmented its market to attract investors and increase listings

Boursa Kuwait transformed its market in to a three-tiered, segmented market along with entirely new listing

requirements and introduction of new market-capitalised indices and circuit breakers to curb volatility. The market is

segmented to create three new markets, a Premier, a Main and an Auction market. The amendments are expected to

build a liquid, reliable and sound capital market, providing issuers with efficient access to capital, and investors with

diverse return opportunities.

FTSE to upgrade Kuwait to emerging market in two tranches

Kuwait’s stock market will be included in FTSE Russell’s emerging market index in two equal tranches in September

and December this year. FTSE projects that Kuwait would have a final weighting of 0.4 per cent in the index. The

consensus expects around US$800 million of passive inflows to the Kuwaiti market from global index-linked funds.

Saudi Arabia launched privatization programme

Saudi Arabia aims to generate SAR35 to 40 billion (US$10 billion) in non-oil revenues from its privatisation programme

by 2020 and create up to 12,000 jobs. National Centre for Privatization & PPP (NCP’s) privatization programme aims to

help increase the percentage of private sector contribution to GDP from 40 per cent to 65 per cent.


10


Bahrain makes largest oil discovery in its history

Bahrain announced its biggest hydrocarbons discovery since 1932 and is expected to increase its existing reserves.

Bahrain ranks 57th on the US Energy Information Administration’s world list. Currently, Bahrain’s operational oil field

pumps out around 50,000 barrels a day. It also shares the Abu Safah oil field with Saudi Arabia, which produces around

150,000 barrels a day. The kingdom raises around 80 per cent of its revenues from oil.

UAE economy to grow at 3.9 per cent in 2018

The UAE economy is expected to grow at 3.9 per cent in 2018 as per UAE Central Bank, spurred by inflow of foreign

direct investment (FDI) as well as growth in tourism and travel sectors. The country is expecting a growth of around 2 to

3 per cent in FDI in 2018. Recent rollout of VAT in UAE and growth of its construction sector, supported by demand

related to the upcoming Expo 2020, are expected to drive in more government revenues for UAE.

British Petroleum (BP) to develop second phase of Oman’s giant Khazzan gas field

BP is set to develop second phase of Oman’s giant Khazzan gas field along with Oman Oil Company Exploration &

Production. The Ghazeer project is expected to come onstream in 2021 and deliver an additional 0.5 bcf/d and over

15,000 bpd condensate production. The first phase is producing at design capacity of around 1 bcf/d and around 35,000

bpd of condensate.

Kuwait set to spend US$113 billion in 5 years

Kuwait plans to invest a massive KWD34 billion (US$113 billion) over the next five years mainly to boost oil exploration

and production activity both inside and outside the country. This includes raising production of non-associated gas to

nearly 500 million standard cu ft per day by the end of 2018.

Kuwait added to MSCI EM watchlist

MSCI included Kuwait in MSCI EM watchlist for a potential upgrade to EM status in June 2019, with implementation in

May 2020. According to Boursa Kuwait, Kuwait would have a potential weight of 0.3 per cent in the MSCI EM index.

UAE 7

th most competitive in the world

The UAE has jumped three places to become the 7th most competitive economy in the world, according to the IMD

World Competitiveness Centre’s 2018 data. The UAE surpassed Norway (8), Sweden (9), Canada (10), Germany (15),

Australia (19), UK (20), Japan (25), France (28) and Italy (42) in the rankings. Also, Qatar (14) was ranked the 2nd most

competitive economy in the GCC, followed by Saudi Arabia (39).

Moody’s changed Qatar’s Outlook from Negative to Stable

Moody’s changed the Outlook on the Qatar to “Stable” from “Negative” and affirmed ratings at Aa3. Moody’s believes

that Qatar has the ability to withstand the economic, financial and diplomatic blockade by the neighbors in its current

form for an extended period of time without a material deterioration of the sovereign’s credit profile.

Saudi Arabia economy expanded by 1.2 per cent in 1Q18

Saudi Arabia reported 1.2 per cent YoY economic growth in 1Q18 following four quarter long negative real growth. The

headline rate accelerated on the back of a pick-up in oil GDP, supported by higher oil production (but within the OPEC

agreement quota) and improved non-oil activity. The non-oil sector grew 1.6 per cent YoY, helped by expansion in both

the private (1.1 per cent YoY) and the government (2.7 per cent YoY) sectors.

Qatar reported 1.4 per cent GDP growth in 1Q18 led by non-hydrocarbon

Qatar’s economic recovery seems to be continuing at a healthy pace, with 1Q18 real GDP output expanding by 1.4 per

cent YoY. The non-hydrocarbon sector reported growth of 4.9 per cent YoY, driven by gains in the construction,

financial services, manufacturing and transport and storage sectors among others. Oil and gas output, however,

declined by 2.3 per cent YoY, which partly reflects the country’s compliance with its OPEC production cut target.


11


Portfolio Structure

Country Allocation and Portfolio Rebalancing

Under the new GCC-wide investment policy the Investment Adviser is monitoring a broader universe of investment

opportunities across the Gulf Cooperation Council region comprising Saudi Arabia, Kuwait, UAE, Oman, Qatar and

Bahrain. Following the adoption of this new in investment policy, the Investment Adviser changed the proportion of the

Company invested outside Qatar from 10 per cent (31st December 2017) to 59 per cent (30th June 2018); adding

holdings in Saudi Arabia, the UAE and Kuwait.

GIF is actively managed, so weightings in different GCC markets will depend on the Investment Adviser’s views on the

investment outlook and valuations of the GCC economies. GIF remains overweight Qatar (36.7 per cent of NAV), as

Qatar trades at attractive valuations compared to other GCC markets. Holdings in Saudi, Kuwaiti and the Emirati

companies were 39.2 per cent, 10 per cent and 9.6 per cent of the fund, respectively. Reflecting the portfolio

rebalancing, 4.5 per cent of the Company was in cash as at 30th June 2018(1Q18: 10.3 per cent) awaiting

reinvestment.

Chart: Country Allocation

Source: QIC; as of 30

th June 2018

As of 30th June 2018, GIF has 43 holdings: 24 in Saudi Arabia, 9 in Qatar, 5 in the UAE and 5 in Kuwait.

Sector Allocation

Source: QIC; as of 30

th June 2018


12


Financials is GIF’s largest sector at 46.4 per cent of NAV. GCC banks have strong balance sheets and government

backing and should benefit from resurgent infrastructure spending. Recent interest rate rises should allow them to

gradually reprice their loan books.

Other major sectors include: Energy (14.0 per cent), Materials (8.7 per cent) and Real Estate (8.2 per cent). Recovery in

oil prices should spur growth of the Energy and Materials industry while tighter demand should help pricing. Rising

population, investment in infrastructure and regulatory reforms should stimulate growth in the Real Estate sector.

Top 5 Holdings

Company Name Country Sector % share of NAV

Commercial Bank of Qatar Qatar Financials 9.7%

Qatar Gas Transport Qatar Energy 8.4%

Qatar Electricity & Water Co Qatar Utilities 7.8%

Al Rajhi Bank Saudi Arabia Financials 5.1%

National Bank of Kuwait Kuwait Financials 4.1%

Source: QIC; as of 30th June 2018

The stake in Qatar Gas Transport Company was increased (8.4 per cent of NAV vs. 3.3 per cent in 1Q18) as valuations

look attractive. Holdings in Qatar National Bank and Qatar Islamic bank were sold tactically in 2Q18 to take advantage

of sharp share price increases as their respective weights in EM indices were increased.

The Investment Adviser took new positions primarily in the Materials sector including National Petrochemical (1.4 per

cent of NAV) and Yanbu National Petrochemical (1.4 per cent). Other new holdings include Kuwait International Bank

(2.0 per cent).

Profile of Top Five Holdings

Commercial Bank of Qatar (9.7% of NAV)

Commercial Bank of Qatar (CBQ) is the second largest commercial bank in Qatar established in 1975 offering banking

solutions worldwide, with primary focus on corporate and retail banking. The Bank’s nationwide network includes 31 full

service branches and 174 ATMs. Under its diversification strategy, CBQ has expanded its GCC footprint through

strategic partnerships with associated banks - the National Bank of Oman (NBO) in Oman, United Arab Bank (UAB) in

the UAE and subsidiary Alternatifbank in Turkey. Under the 5-year turnaround strategy, the Bank is strengthening its

balance sheet by prudently managing the risks. Bottom line is expected to improve substantially once the high provision

cycle comes to an end, moreover, ongoing cost optimisation will also add to the bottom-line. For 1H18, CBQ reported

net profit of US$235 million (vs. US$49 million in 1H17) reflecting effective execution of the strategy. As of 30th June

2018, the Bank has total assets of US$38.4 billion.

Qatar Gas Transport (8.4% of NAV)

Qatar Gas Transport Company (Nakilat), established in 2004, is a key midstream player in the hydrocarbon sector in the

state of Qatar. Nakilat owns 69 LNG and LPG vessels, making it one of the largest LNG ship owners in the world. Out of

the 65 LNG vessels, 25 are wholly owned and 40 are under joint ventures (JV). It also has four jointly owned LPG

vessels. 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, Ras Gas and their joint venture partners for the State of

Qatar. For 1H18, Nakilat reported a net profit of US$122 million compared to US$112 million during the same period in

FY17, an increase of 9%. Going forward, Qatar’s North Field expansion plan paves the way for increased transportation

of gas, which may benefit the Company in the longer run.


13


Qatar Electricity & Water Co. (7.8% of NAV)

Qatar Electricity & Water Co. (QEWS) was established in 1990 as the first private sector company engaged in electricity

production and water desalination businesses. The Company is the second largest utility company in the North Africa

and Middle East region. In Qatar, the Company enjoys ~60% market share in the electricity business, while in the water

desalination business, it commands ~80% market share. Over the past decade, the Company has been the key

beneficiary of rapid development in Qatar, coupled with the growth in population, resulting in increased demand for

electricity and water. Additionally, the Company is setting up presence overseas, with the establishment of Nebras

Power Company (60% owned by QEWS), which invests globally in new and existing power generation and water

desalination projects. QEWS has long term purchase agreements with government-owned Kahramaa; hence, the

Company has a low-risk business model, with secure and visible earnings and cash flows. For 1H18, the Company

reported net profit of US$223 million.

Al Rajhi Bank (5.1% of NAV)

Established in 1957, Al Rajhi Bank is one of the largest Islamic banks in the world with ~17 per cent market share in

Saudi Arabia’s financing and deposits. The Bank operates through 550 branches, 4,854 ATM’s, 76,453 POS terminals

installed with merchants and 234 remittance centers across the Kingdom. The Bank has an asset base of US$92.9

billion and enjoys strong capital adequacy, lower cost of borrowing, low NPAs and high provisioning coverage. With a

strong retail focus, the Bank is set to benefit from consumption growth and increasing interest rates. For 1H18, the Bank

reported net profit of US$1.3 billion, an increase of 12.4 per cent. The improvement in the Saudi economy could see

better consumption growth, benefitting the Bank going forward.

National Bank of Kuwait (4.1% of NAV)

Founded in 1952, National Bank of Kuwait (NBK) is Kuwait’s largest banking group with a dominant market position in

loans and deposits. It operates through international network with more than 140 branches covering the world’s financial

centers in 15 countries. The Bank is set to benefit from demand for credit from Kuwait’s development plans and from

economic recovery in Egypt. As of 30th June 2018, NBK has total assets of US$89 billion. For 1H18, the Bank reported

net profit of US$614 million (vs. US$545 million in 1H17).

GIF Performance

YTD 2018, GIF’s NAV is up 12.3 per cent whilst the S&P GCC index rose 9.8 per cent. Since the change in investment

policy in December, GIF’s NAV is 21.7 per cent higher and the S&P GCC index is 13.0 per cent higher.

Source: QIC, Bloomberg as of 30

th June 2018, reference index: DSM/SEMGGC Index


14


GCC Outlook

The GCC nations are adapting to changing global economic conditions, but challenges remain, including relatively high

local unemployment in certain states, a heavy reliance on expatriate workers, and the ongoing dependency on the

government sector to drive growth.

Diversification and reducing the budget deficits are positive developments. If GCC companies can weather the near-

term impacts of the many government reforms that are underway, they could outperform global peers in the near to

medium term.

Valuations

Market

Market Cap. PE (x) PB (x) Dividend Yield (%)

US$ billion 2018E 2019E 2018E 2019E 2018E 2019E

Qatar 110.1 13.20 11.46 1.49 1.41 4.49 4.72

Saudi Arabia 532.4 15.67 13.99 1.82 1.73 3.33 3.57

Dubai 79.0 7.89 7.09 1.01 0.94 5.51 5.74

Abu Dhabi 129.1 11.44 10.39 1.56 1.48 5.36 5.73

Kuwait 97.6 12.57 10.77 1.51 1.42 NA NA

S&P GCC 885.6 13.89 12.37 1.61 1.52 3.85 4.14

MSCI EM 13,519.6 12.04 10.79 1.57 1.44 2.83 3.18

MSCI World 59,907.8 15.61 14.23 2.20 2.05 2.49 2.69

Source: Bloomberg, as of 12th July 2018

Epicure Managers Qatar Limited Qatar Insurance Company S.A.Q.

21 September 2018 21 September 2018


15

Investment Policy

Investment Objective

The Company’s investment objective is to capture the opportunities for growth offered by the expanding GCC

economies by investing in listed companies on one of the GCC exchanges or companies soon to be listed on one of the

GCC exchanges. The Company may also invest in listed companies, or pre-IPO companies, in other GCC countries.

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).


16

Investment Policy continued

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.


17

Report of the Directors

The Directors hereby submit their annual report together with the audited consolidated and Company financial

statements of Gulf Investment Fund plc (the “Company”) for the year ended 30 June 2018.

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 countries. The Company’s investment policy is detailed on pages 15 to 16.

Results and Dividends

The results of the Company for the year and its financial position at the year- end are set out on pages 36 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.

For the year ended 30 June 2017, 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 February 2018. The Directors recommend a dividend of 3 cents

per share in respect of the year ended 30 June 2018.

Directors

Details of Board members at the date of this report, together with their biographical details, are set out on page 26.

Director independence and Directors’ and other interests have been detailed in the Directors’ Remuneration Report on

pages 30 and 31.

Creditor Payment Policy

It is the Company’s policy to adhere to the payment terms agreed with individual suppliers and to pay in accordance

with its contractual and other legal obligations.

Gearing Policy

Borrowings will be limited, as at the date on which the borrowings are incurred, to 5% of NAV (or such other limit as may

be approved by the Shareholders in general meeting). The Company will not make use of any hedging mechanisms.

There were no borrowings during the year (2017: US$ nil).

Donations

The Company has not made any political or charitable donations during the year (2017: 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.


18

Report of the Directors continued

Statement of Going Concern

The Directors are satisfied that the Company and the Group have adequate resources to continue to operate as a going

concern for the foreseeable future and have prepared the financial statements on that basis, however Shareholders will

be given the opportunity to vote for a 100% tender in 2020 and to vote for the continued existence of the Company at

the annual general meeting (AGM) in 2021 and every third AGM thereafter.

Independent Auditors

KPMG Audit LLC has expressed its willingness to continue in office in accordance with Section 12 (2) of the Companies

Act 1982.

Annual General Meeting

The Annual General Meeting of the Company will be held on 7 November 2018 at the Company’s registered office.

A copy of the notice of Annual General Meeting is contained within this Annual Report. As well as the business normally

conducted at such a meeting, Shareholders will be asked to renew the authority to allow the Company to continue with

share buy-backs.

The notice of the Annual General Meeting and the Annual Report are also available at www.gulfinvestmentfundplc.com.

Corporate Governance

Full details are given in the Corporate Governance Report on pages 19 to 25, which forms part of the Report of the

Directors.

Substantial Shareholdings

As at the date of publication of this annual report, the Company had been notified, or the Company is aware of the

following significant holdings in its Share Capital.

Ordinary Shares

Name %

City of London Investment Management Company 28.80

Qatar Insurance Company S.A.Q. 18.73

1607 Capital Partners LLC 15.12

Qatar Investment Authority 11.66

Lazard Asset Management 6.10

BCV Asset Management 3.01

The above percentages are calculated by applying the Shareholdings as notified to the Company or the Company’s

awareness to the issued Ordinary Share Capital as at 31 August 2018.

On behalf of the Board

Nicholas Wilson

Chairman

21 September 2018

Millennium House

46 Athol Street

Douglas

Isle of Man

IM1 1JB


19

Corporate Governance Report

Compliance with Companies Acts

As an Isle of Man incorporated company, the Company’s primary obligation is to comply with the Isle of Man Companies

Acts 1931 to 2004. The Board confirms that the Company is in compliance with the relevant provisions of the

Companies Acts.

Compliance with the Association of Investment Companies (AIC) Code of Corporate Governance

The Company is committed to high standards of corporate governance. The Board is accountable to the Company’s

shareholders for good governance and this statement describes how the Company applies the principles identified in

the UK Corporate Governance Code which is available on the Financial Reporting Council’s website: www.frc.org.uk.

The Board confirms that the Company has complied throughout the accounting period with the relevant provisions

contained within the UK Code.

The Board of the Company has considered the principles and recommendations of the AIC 2014 Code of Corporate

Governance (AIC Code) by reference to the AIC Corporate Governance Guide for investment Companies (AIC Guide).

The AIC Code, as explained by the AIC Guide, addresses all the principles set out in the UK Corporate Governance

Code, as well as setting out additional principles and recommendations on issues that are of specific relevance to QIF

plc.

The Board considers that reporting against the principles and recommendations of the AIC Code, and by reference to

the AIC Guide (which incorporates the UK Corporate Governance Code), will provide better information to shareholders.

The Company has complied with the recommendations of the AIC Code and the relevant provisions of the UK

Corporate Governance Code, except as set out below.

The UK Corporate Governance Code includes provisions relating to:

• the role of the chief executive

• executive directors’ remuneration

• the need for an internal audit function

For the reasons set out in the AIC Guide, and as explained in the UK Corporate Governance Code, the Board considers

these provisions are not relevant to the position of the Company, being an externally managed investment company. In

particular, all of the Company’s day-to-day management and administrative functions, with the exception of portfolio

management, risk management and service provider performance management, are outsourced to third parties. As a

result, the Company has no executive directors, employees or internal operations. The Company has therefore not

reported further in respect of these provisions.

Directors

The Directors are responsible for the determination of the Company’s investment policy and strategy and have overall

responsibility for the Company’s activities including the review of the investment activity and performance.

All of the Directors are non-executive. The Board considers each of the Directors to be independent of, and free of any

material relationship with, the Investment Manager and Investment Adviser.

The Board of Directors delegates to the Investment Manager through the Investment Management Agreement the

responsibility for the management of the Company’s assets in GCC securities in accordance with the Company’s

investment policy and for retaining the services of the Investment Adviser. The Company has no executives or

employees.

The Articles of Association require that all Directors submit themselves for election by Shareholders at the first

opportunity following their appointment and shall not remain in office longer than three years since their last election or

re-election without submitting themselves for re-election.

The Board meets formally at least 4 times a year and between these meetings there is regular contact with the

Investment Manager. Other meetings are arranged as necessary. The Board considers that it meets


20

Corporate Governance Report continued

Directors continued

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 accord 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.


21


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.

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.


22


Significant Issues

During its review of the Company’s financial statements for the year ended 30 June 2018, the Audit Committee

considered the following significant issues, in particular those communicated by the auditor during their reporting:

Carrying value of quoted equity investments

The valuation of investments is undertaken in accordance with the accounting policies, disclosed in note 1(a) to the

financial statements. The audit includes independent confirmation of the existence of all investments from the

Company’s custodian. All investments are considered liquid and quoted in active markets and have been categorised as

Level 1 within the IFRS 13 fair value hierarchy and can be verified against daily market prices. The portfolio is reviewed

and verified by the Manager on a regular basis and management accounts including a full portfolio listing are prepared

each month and circulated to the Board. The Company uses the services of an independent Custodian HSBC Bank

Middle East Limited to hold the assets of the Company. The investment portfolio is reconciled regularly by the Manager

and a reconciliation is also reviewed by the Auditor.

Carrying value of Parent Company’s loan to and investment in subsidiary

The carrying value of the Parent Company’s loan to and investment in subsidiary represents 98.9% (2017: 99.1%) of

the Parent Company’s total assets. The assessment of carrying value is not at a high risk of significant misstatement or

subject to significant judgement as the carrying value is equal to the audited net asset value of the subsidiary. However,

due to its materiality in the context of the Parent Company financial statements, this is considered to be the area that

had the greatest effect on the Parent Company balance sheet.

Remuneration Committee

The Company has established a Remuneration Committee. The Remuneration Committee is made up of at least two

non-executive Directors who are identified by the Board as being independent. Its members are Neil Benedict

(Chairman), Nicholas Wilson, Paul Macdonald and David Humbles. The Remuneration Committee normally meets at

least once a year and at such other times as the chairman of the Remuneration Committee shall require. The

Remuneration Committee reviews the performance of the Directors and sets the scale and structure of their

remuneration and the basis of their letters of appointment with due regard to the interests of Shareholders. In

determining the remuneration of Directors, the Remuneration Committee seeks to enable the Company to attract and

retain Directors of the highest calibre. No Director is permitted to participate in any discussion of decisions concerning

their own remuneration. The Remuneration Committee reviews at least once a year its own performance, constitutions

and terms of reference to ensure it is operating at maximum effectiveness and recommend any changes it considers

necessary to the Board for approval.

The terms of reference for the Remuneration Committee are available on the Company’s website

www.gulfinvestmentfundplc.com Nomination Committee

The Company has established a Nomination Committee which shall be made up of at least two members and which

shall comprise all independent non-executive Directors. The Nomination Committee comprises Nicholas Wilson

(Chairman), Neil Benedict, Paul Macdonald and David Humbles. The Nomination Committee meets at least once a year

prior to the first quarterly Board meeting and at such other times as the Chairman of the committee shall require. The

Nomination Committee is responsible for ensuring that the Board members have the range of skills and qualities to

meet its principal responsibilities in a way which ensures that the interests of Shareholders are protected and promoted

and regularly review the structure, size and composition of the Board. The Nomination Committee shall, at least once a

year, review its own performance, constitution and terms of reference to ensure that it is operating at maximum

effectiveness and recommend any changes it considers necessary to the Board for approval.

The Nomination Committee will assess potential candidates on merit against a range of criteria including experience,

knowledge, professional skills and personal qualities as well as independence, if this is required for the role.

Candidates’ ability to commit sufficient time to the business of the Company is also key, particularly in respect of the

appointment of the Chairman. The Chairman of the Nomination Committee is primarily responsible for interviewing

suitable candidates and a recommendation will be made to the Board for final approval.


23


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 Committee

Nomination Committee

Management Engagement Committee

Total number of meetings in year

8(8) 6(6) 1(1) 2(2) 4(4)

Meetings Attended (entitled to attend)

Nicholas Wilson (Chairman and Chairman of Nomination Committee)

7 (8) 6 (6) 1 (1) 2 (2) 4 (4)

Neil Benedict (Chairman of Remuneration Committee and Chairman of Management Engagement Committee)

8 (8) 6 (6) 1 (1) 2 (2) 4 (4)

David Humbles 8 (8) 6 (6) 1 (1) 2 (2) 4 (4)

Paul Macdonald (Chairman of Audit Committee)

8 (8) 6 (6) 1 (1) 2 (2) 4 (4)

The Annual General Meeting was held on 16 November 2017.

Internal Control

The Board is responsible for the Company’s system of internal control and for reviewing its effectiveness. Its review

takes place at least once a year. Such a system is designed to manage rather than eliminate the risk of failure to

achieve business objectives and can only provide reasonable and not absolute assurance against material mis-

statement or loss. The Board also determines the nature and extent of any risks it is willing to take in order to achieve its

strategic objectives.

The Board has contractually delegated to external agencies, including the Investment Manager and the Investment

Adviser, the management of the investment portfolio, the custodial services (which include the safeguarding of the

assets), the registration services and the day-to-day accounting and Company Secretarial requirements. Each of these

contracts was entered into after full and proper consideration by the Board of the quality and cost of services offered

including the control systems in operation in so far as they relate to the affairs of the Company.


24


Internal Control continued

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 2018 and up to the date of approval

of the annual report and financial statements.

Accountability and Relationship with the Investment Manager, the Custodian and the Administrator

The Statement of Directors’ Responsibilities is set out on page 27.

The Board has delegated contractually to external third parties, including the Investment Manager, the Investment

Adviser, the Custodian and the Administrator, the management of the investment portfolio, the custodial services (which

include the safeguarding of the assets), the day to day accounting, company secretarial and administration

requirements. Each of these contracts was entered into after full and proper consideration by the Board of the quality

and cost of the services provided, including the control systems in operation in so far as they relate to the affairs of the

Company.

The Investment Manager, the Investment Adviser and the Administrator ensure that all Directors receive, in a timely

manner, all relevant management, regulatory and financial information. Representatives of the Investment Manager and

the Administrator attend each Board meeting enabling the Directors to probe further on matters of concern.

Continued Appointment of the Investment Manager

The Board considers the arrangements for the provision of investment management and other services to the Company

on an on-going basis. The Board reviews investment performance at each Board meeting and a formal review of the

Investment Manager (and Investment Adviser) is conducted annually. As a result of their annual review, NAV

performance has been found to be satisfactory and it is the opinion of the Directors that the continued appointment of

the current Investment Manager (and Investment Adviser) on the terms agreed is in the interests of the Company’s

Shareholders as a whole.

Relations with Shareholders

The Chairman is responsible for ensuring that all Directors are made aware of Shareholders’ concerns. The

Shareholder profile of the Company is regularly monitored and the Board liaises with the Investment Manager to

canvass Shareholder opinion and communicate views to Shareholders. The Company is concerned to provide the

maximum opportunity for dialogue between the Company and Shareholders. It is believed that Shareholders have

proper access to the Investment Manager at any time and to the Board if they so wish. All Shareholders are encouraged

to attend annual general meetings. Together with the Investment Manager and Investment Adviser, regular investor

presentations are held to promote a wider following for the Company.

Viability statement

The Board makes an assessment of the longer term prospects of the Company beyond the timeframe envisaged under

the going concern basis of accounting having regard to the Company’s current position and the principal risks it faces.

The 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


25


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.


Nicholas Wilson

Chairman

21 September 2018


26

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 PLC and until

recently was chairman of Alternative Investment Strategies 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 has 3 children and two grandchildren and has recently been

widowed. 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 and St Paul's Property Services Ltd. These companies own &

manage a property complex in the north of the island incorporating residential apartments, retail units & office

accommodation. Also in 2003 David formed Westminster Properties Ltd to manage 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 the London market. See www.oakmayneproperties.com. David was Chairman of Epicure Berlin

Property Company until February 2017, a large private property fund which owns residential property in Berlin. He has

served on the board of two AIM listed companies.


27

Statement of Directors’ responsibilities in respect of the Annual Report and the Financial Statements

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with

applicable law and regulations.

Company law requires the Directors to prepare Group and Parent Company financial statements for each financial year.

Under the law they have elected to prepare the Group and Parent Company financial statements in accordance with

International Financial Reporting Standards (IFRSs).

Under company law the directors must not approve the financial statements unless they are satisfied that they give a

true and fair view of the state of affairs of the Group and parent Company and of their profit or loss for that period. In

preparing each of the Group and parent Company financial statements, the directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and estimates that are reasonable, relevant and reliable;

• state whether they have been prepared in accordance with IFRSs;

• assess the Group and parent Company’s ability to continue as a going concern, disclosing, as applicable, matters

related to going concern; and

• use the going concern basis of accounting unless they either intend to liquidate the Group or the parent 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

parent Company’s transactions and disclose with reasonable accuracy at any time the financial position of the parent

Company and enable them to ensure that its financial statements comply with the Companies Acts 1931 to 2004. They

are responsible for such internal control as they determine is necessary to enable the preparation of financial

statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for

taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud

and other irregularities.

Under applicable law and regulations, the directors are also responsible for preparing a Directors’ Report and Corporate

Governance Statement that complies with that law and those regulations.

The directors are responsible for the maintenance and integrity of the corporate and financial information included on

the company’s website. Legislation governing the preparation and dissemination of financial statements may differ from

one jurisdiction to another.

Disclosure Guidance and Transparency Rules responsibility statement

We confirm that to the best of our knowledge:

• the financial statements, prepared in accordance with International Financial Reporting Standards, give a true and

fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included

in the consolidation taken as a whole;

• that in the opinion of the Directors, the Annual Report and Accounts taken as a whole, is fair, balanced and

understandable and it provides the information necessary to assess the Company’s position, performance,

business model and strategy; and

• the Business Review, Report of the Investment Manager and Investment Adviser and the Report of the Directors

include a fair review of the development and performance of the business and the position of the Company and the

undertakings included in the consolidation taken as a whole, together with a description of the principal risks and

uncertainties that they face.


Nicholas Wilson

Chairman

21 September 2018


28

Audit Committee Report

An Audit Committee has been established in compliance with the FCA’s Disclosure Guidance and Transparency Rule

7.1 and the UK Corporate Governance Code consisting of independent Directors. Its authority and duties are clearly

defined within its written terms of reference. Paul Macdonald is Chairman of the Audit Committee, which also comprises

Mr Nicholas Wilson, Mr Neil Benedict and Mr David Humbles.

The Committee meets at least two times a year.

.

The Committee’s responsibilities, which were discharged during the year, include:

• monitoring and reviewing the integrity of the interim and annual financial statements and the internal financial

controls;

• reviewing the appropriateness of the Company's accounting policies;

• making recommendations to the Board in relation to the appointment of the external auditors and approving

their remuneration and terms of their engagement;

• reviewing the external Auditor's plan for the audit of the Company's financial statements;

• developing and implementing policy on the engagement of the external auditors to supply non-audit services;

• reviewing and monitoring the independence, objectivity and effectiveness of the external auditors;

• reviewing the arrangements in place within the Administrator and Investment Manager/Adviser whereby their

staff may, in confidence, raise concerns about possible improprieties in matters of financial reporting or other

matters insofar as they may affect the Company;

• performing the annual review of the effectiveness of the internal control systems of the Company;

• reviewing the terms of the Investment Management Agreement;

• considering annually whether there is a need for the Company to have its own internal audit function; and

• review the relationship with and the performance of the Custodian, the Administrator and the Registrar.

The Audit Committee does not award any non-audit work. The full Board has to approve any non-audit work and this

includes confirmation that in all such work auditor objectivity and independence is safeguarded.

Owing to the nature of the fund’s business, with all major functions being outsourced and the absence of employees,

the Audit Committee do not feel it is necessary for the Company to have its own internal audit function. This situation is

re-evaluated annually.

KPMG Audit LLC was re-appointed as auditor at the last AGM on 16 November 2017. The Audit Committee considered

the experience and tenure of the audit partner and staff and the nature and level of services provided. The Audit

Committee receives confirmation from the auditor that they have complied with the relevant UK professional and

regulatory requirements on independence. The Company’s Audit Committee meets representatives of the Administrator,

who report as to the proper conduct of the business in accordance with the regulatory environment in which the

Company, the Administrator, and the Investment Manager/Adviser operate. The Company’s external auditor also

attends this Audit Committee meeting at its request and reports if the Company has not kept proper accounting records,

or if it has not received all the information and explanations required for its audit.

The Audit Committee also monitors the risks to which the Company is exposed and makes recommendations as to the

mitigation of these risks. This task is facilitated by using an extensive risk matrix that enables the Committee to make a

quantitative analysis of the individual risks and to highlight those areas where risk is high or increasing.

This report was reviewed and approved by the Board on x September 2018.

Paul Macdonald

Chairman of the Audit Committee 21 September 2018


29

Management Engagement Committee Report

A Management Engagement Committee has been established in accordance with good corporate governance. Neil

Benedict is chairman of the Committee, which also comprises Paul Macdonald, Nicholas Wilson and David Humbles.

The function of the Management Engagement Committee is to monitor the performance of all the Company’s service

providers and in the particular the performance of the Investment Manager/Investment Adviser.

The performance of the Investment Manager/Investment Adviser is formally reviewed annually at the end of the

Company’s financial year. The Management Engagement Committee meets quarterly prior to the quarterly Board

meetings and the chairman of the Management Engagement Committee monitors the performance periodically during

the intervening periods.

As regards the Investment Manager/Investment Adviser, the Committee:

• monitors and evaluates the investment performance both in absolute terms and also by reference to peer

group analysis prepared by the Investment Manager/Adviser and by the Company’s broker;

• reviews the performance fee structure to ensure that it does not encourage excessive risk and that it rewards

demonstrable superior performance;

• investigates any breaches of agreed investment limits and any deviation from the agreed investment policy

and strategy;

• reviews the standard of any other services provided by the Investment Manager;

• evaluates the level and effectiveness of any marketing support provided by the Investment Manager, including

but not limited to, their input into quarterly reports, handling investor relations and website monitoring and

development;

• assesses the level of fees charged by the Investment Manager and how these fees compare with those

charged to peer group companies;

• compares the notice period on the Investment Management Agreement with industry norms;

• considers any other issues on the appointment of the Investment Manager.

As regards the other service providers to the Company, the Committee:

• monitors the terms on which they are retained and compares them to market rates;

• examines the effectiveness of the services provided;

• makes recommendations to the Board where changes are warranted.

At its most recent meeting, the Management Engagement Committee concluded that the performance of the Investment

Manager/Investment Adviser had been satisfactory. The Investment Manager had adhered to the investment policy and

policy limits.

The Committee was satisfied with the current performance of the Company’s other service providers.

Neil Benedict

Chairman of the Management Engagement Committee

21 September 2018


30

Directors’ Remuneration Report

This report meets the relevant rules of the Listing Rules of the Financial Services Authority and describes how the

Board has applied the principles relating to Directors’ remuneration. An ordinary resolution to receive and approve this

report will be put to the Shareholders at the forthcoming Annual General Meeting.

Role of the Remuneration Committee

The role and make-up of the Remuneration Committee is more fully discussed on page 22.

The committee held two formal meetings 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 £200,000 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 £52,500 plus £10,000

with respect to the work involved in the share buy-back programme, the Chairman of the Audit Committee £37,500, the

other Directors £35,000.

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 2018 30 June 2017 £ £

Nicholas Wilson (Chairman) 58,750 57,500

Paul Macdonald (Chairman of Audit Committee) 33,750 32,500

Neil Benedict (Chairman of Remuneration Committee and Management Engagement Committee)

31,250 30,000

David Humbles 31,250 3,874

Len O’Brien - 30,000

155,000 153,874

US$ charge reflected in the financial statements 204,645 201,621

Expenses totalling US$103,684 (2017: US$95,424) were incurred by the Directors and reimbursed during the year.


31

Directors’ Remuneration Report continued

No other remuneration or compensation was paid or payable by the Company during the period to any of the Directors.

Director independence

Mr Nicholas Wilson and Mr Paul Macdonald have each served as independent Non-executive Directors of the Company

for more than nine years, and Mr Wilson has served as non-executive Chairman since 13 November 2012.

Notwithstanding the length of their service, Mr Wilson and Mr Macdonald continue to demonstrate their commitment to

fulfilling their role as non-executive Chairman and Non-executive Director respectively, and satisfy the independence

factors set out in Code Provision B.1.1 of the Code except for the length of their service.

They are not involved in the daily management of the Company nor in any relationships or circumstances which might

possibly interfere with their exercise of independent judgment. In addition, they continue to demonstrate the attributes of

independent Non-executive Directors and there is no evidence that their tenure has had any adverse impact on their

independence.

The Board considers each of the Directors to be independent of, and free of any material relationship with, the

Investment Manager and Investment Adviser.

Directors’ and Other Interests

None of the Directors had any interest during the year in any material contract for the provision of services which was

significant to the business of the Company.

Director holdings in Company:

30 June 2018 30 June 2017

Director Shares Shares

Nicholas Wilson 39,600 44,000

For and on behalf of the Board

Neil Benedict

Chairman of the Remuneration Committee

21 September 2018


32

Report of the Independent Auditors, KPMG Audit LLC, to the members of Gulf Investment Fund plc

Opinions and conclusions arising from our audit

1. Our opinion is unmodified

We have audited the financial statements of Gulf Investment Fund plc (“the Company”) and its subsidiary (together “the

Group”) for the year ended 30 June 2018 which comprise the Consolidated and Parent Company Income Statements,

Statements of Comprehensive Income, Balance Sheets, Statements of Changes in Equity and Statements of Cash

Flows, and the related notes and accounting policies.

In our opinion the financial statements:

• give a true and fair view of the state of the Group’s and Parent Company’s affairs as at 30 June 2018 and of the

Group’s and Parent Company’s profit for the year then ended;

• have been properly prepared in accordance with International Financial Reporting Standards; and

• have been properly prepared in accordance with the provisions of the Companies Acts 1931 to 2004.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law.

Our responsibilities are described below. We have fulfilled our ethical responsibilities under, and we remain

independent of the Company and Group in accordance with, UK ethical requirements including the FRC Ethical

Standard as applied to listed public interest entities. We believe that the audit evidence we have obtained is a sufficient

and appropriate basis for our opinion.

2. Key audit matters: our assessment of risks of material misstatement

Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the

financial statements and include the most significant assessed risks of material misstatement (whether or not due to

fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of

resources in the audit; and directing the efforts of the engagement team. We summarise below the key audit matters ,

in decreasing order of audit significance, in arriving at our audit opinion above, together with our key audit procedures to

address those matters. These matters were addressed, and our results are based on procedures undertaken, in the

context of, and solely for the purpose of, our audit of the financial statements as a whole, and in forming our opinion

thereon, and consequently are incidental to that opinion, and we do not provide a separate opinion on these matters.


33

Report of the Independent Auditors, KPMG Audit LLC, to the members of Gulf Investment Fund plc continued

2. Key audit matters: our assessment of risks of material misstatement continued The risk Our response

Carrying amount of quoted equity investments

(US$104.6m; 2017: US$102.1m) Refer to page 24 (Significant Issues identified by the Audit Committee), notes 1(a), 2 and 8 (accounting policy for financial assets at fair value through profit or loss and financial risk disclosures relating to financial instruments).

High value

The Group’s portfolio of quoted investments makes up 92.8% of the Group’s total assets (by value) and is considered to be the key driver of results. We do not consider these investments to be at a high risk of significant misstatement, or to be subject to a significant level of judgement because they comprise liquid, quoted investments as at 30 June 2018. However, due to their materiality in the context of the financial statements as a whole, they are considered to be the area which had the greatest effect on our overall audit strategy and allocation of resources in planning and completing our audit.

Our procedures included: — Control design: Documenting

and assessing the processes in place to record investment transactions and to value the portfolio;

— Tests of detail: Agreeing the

valuation of 100 per cent of investments in the portfolio to externally quoted prices; and

— Enquiry of custodians:

Agreeing 100 per cent of investment holdings in the portfolio to independently received third party confirmations from investment custodians.

Carrying value of Parent Company’s loan to and investment in subsidiary (New this year)

(US$64.3m and US$45.4m respectively, 2017: US$75.5m and US$37.7m respectively) Refer to note 1(b) (note relating to loan to and investment in subsidiary).

High value

The carrying value of the Parent Company’s loan to and investment in subsidiary represents 98.9% (2017: 99.1%) of the Parent Company’s total assets. The assessment of carrying value is not at a high risk of significant misstatement or subject to significant judgement as the carrying value is equal to the audited net asset value of the subsidiary. However, due to its materiality in the context of the Parent Company financial statements, this is considered to be the area that had the greatest effect on our overall Parent Company audit.

Our procedures included:

— Tests of detail: Assessing the loan to and investment in subsidiary to identify, with reference to the subsidiary’s accounts, whether it has sufficient net asset value to cover the debt owed; and

— Assessing subsidiary audits: The audit of the Group was performed as if it was a single aggregated set of financial information.

3. Our application of materiality and an overview of the scope of our audit

Materiality for the Group financial statements as a whole was set at US$1,130,000 (2017: US$1,150,000), determined

with reference to a benchmark of group total assets, of which it represents 1% (2017: 1%).

Materiality for the Parent Company financial statements as a whole was set at US$1,110,000 (2017: US$1,140,000),

determined with reference to a benchmark of Company total assets, of which it represents 1% (2017: 1%).

We agreed to report to the Audit Committee any corrected or uncorrected identified misstatements exceeding

US$56,500 (2017: US$57,500) for the Group financial statements and US$55,500 (2017: US$57,000) for the Parent

Company financial statements, in addition to other identified misstatements that warranted reporting on qualitative

grounds.


34


The Group team performed the audit of the Group, as if it was a single aggregated set of financial information. The audit

was performed using the materiality level set out above and covered 100% of the total Group income, total Group profit

before tax and total Group assets and liabilities.

4. We have nothing to report on going concern

We are required to report to you if we have anything material to add or draw attention to in relation to the Directors’

statement in note 13.1 to the financial statements on the use of the going concern basis of accounting with no material

uncertainties that may cast significant doubt over the Group and Company’s use of that basis for a period of at least

twelve months from the date of approval of the financial statements. We have nothing to report in this respect.

5. We have nothing to report on the other information in the Annual Report

The Directors are responsible for the other information presented in the Annual Report together with the financial

statements. Our opinion on the financial statements does not cover the other information and, accordingly, we do not

express an audit opinion or any form of assurance conclusion thereon.

Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements

audit work, the information therein is materially misstated or inconsistent with the financial statements or our audit

knowledge. Based solely on that work we have not identified material misstatements in the other information.

Disclosures of principal risks and longer-term viability

Based on the knowledge we acquired during our financial statements audit, we have nothing material to add or draw

attention to in relation to:

• the Directors’ confirmation within the viability statement on page 24 that they have carried out a robust assessment

of the principal risks facing the Group and Company, including those that would threaten its business model, future

performance, solvency and liquidity;

• the principal risks disclosures describing these risks and explaining how they are being managed and mitigated;

and

• the Directors’ explanation in the viability statement of how they have assessed the prospects of the Group and

Company, over what period they have done so and why they considered that period to be appropriate, and their

statement as to whether they have a reasonable expectation that the Group and Company will be able to continue

in operation and meet its liabilities as they fall due over the period of their assessment, including any related

disclosures drawing attention to any necessary qualifications or assumptions.

Corporate governance disclosures

We are required to report to you if:

• we have identified material inconsistencies between the knowledge we acquired during our financial statements

audit and the directors’ statement that they consider that the annual report and financial statements taken as a

whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the

Group’s and Company’s position and performance, business model and strategy; or

• the section of the annual report describing the work of the Audit Committee does not appropriately address matters

communicated by us to the Audit Committee.

We are required to report to you if the Corporate Governance Statement does not properly disclose a departure from the

eleven provisions of the 2016 UK Corporate Governance Code specified by the Listing Rules for our review.

We have nothing to report in these respects.


35


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 Parent Company and proper returns adequate for our audit

have not been received from branches not visited by us; or

• the Parent Company’s financial statements are not in agreement with the books of account and returns; or

• certain disclosures of directors’ remuneration specified by law are not made; or

• we have not received all the information and explanations we require for our audit. We have nothing to report in these respects.

7. Respective responsibilities

Directors’ responsibilities

As explained more fully in their statement set out on page 27, the Directors are responsible for: the preparation of the

financial statements including being satisfied that they give a true and fair view; such internal control as they determine

is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to

fraud or error; assessing the Group and Parent Company’s ability to continue as a going concern, disclosing, as

applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend

to liquidate the Group or the Parent 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, Isle of Man

24 September 2018

Heritage Court

41 Athol Street

Douglas

Isle of Man

IM99 1HN


36

Consolidated Income Statement

Note Year ended 30 June 2018 Year ended 30 June 2017

US$’000 US$'000

Income

Dividend income on quoted equity

investments

4,095 4,707

Realised loss on sale of financial assets at fair value through profit or loss

(7,186) (3,922)

Net changes in fair value on financial assets at fair value through profit or loss

14,619 (4,912)

Interest income 20 -

Commission rebate income on quoted equity investments

- 15

Net foreign exchange gain/(loss) 256 (181)

Total net income/(expense) 11,804 (4,293)

Expenses

Investment Manager's fees 7 995 1,281

Other expenses 7 1,129 1,061

Total operating expenses 2,124 2,342

Profit/(loss) before tax 9,680 (6,635)

Income tax expense 9 - -

Profit/(loss) for the year 9,680 (6,635)

Basic profit/(loss) per share (cents) 4 9.95 (6.06)

Diluted profit/(loss)loss per share (cents)

4 9.95 (6.06)

The Directors consider that all results derive from continuing activities.

The accompanying notes form an integral part of these consolidated financial statements


37

Consolidated Statement of Comprehensive Income



US$'000 US$'000


Other comprehensive income

Items that are or may be reclassified subsequently to profit or loss:

Currency translation differences (5) (3)

Total items that are or may be reclassified subsequently to profit or loss

(5) (3)

Other comprehensive expense for the year (net of tax)

(5) (3)

Total comprehensive profit/(loss) for the year 9,675 (6,638)



38

Company Income Statement


US$’000 US$'000

Income

Net change in investment in and amounts due from subsidiary

7,702 (8,848)

Intercompany loan interest income 2,979 2,969

Total net income/(expense) 10,681 (5,879)

Expenses

Expenses 7 1,006 759

Total operating expenses 1,006 759

Profit/(loss) before tax 9,675 (6,638)

Income tax expense - -




39

Company Statement of Comprehensive Income



US$'000 US$'000



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 income for the year (net of tax) - -

Total comprehensive profit/(loss) for the year 9,675 (6,638)



40

Consolidated Balance Sheet

Note At 30 June 2018 At 30 June 2017

US$’000 US$'000

Current Assets

Financial assets at fair value through profit or loss

1(a) 104,619 102,124

Other receivables and prepayments 2,683 2,468

Cash and cash equivalents 5,380 10,670

Total current assets 112,682 115,262

Equity

Issued share capital 5 925 1,032

Retained earnings 32,331 25,425

Distributable reserves 76,198 86,486

Other reserves 1,329 1,227

Total equity 110,783 114,170

Current liabilities

Other payables and accrued expenses 6 1,899 1,092

Total current liabilities 1,899 1,092

Total equity and liabilities 112,682 115,262

The financial statements were approved by the Directors on 21 September 2018 and signed on their behalf by:

Nick Wilson David Humbles

Chairman Director



41

Company Balance Sheet

Note At 30 June 2018 At 30 June 2017

US$’000 US$'000

Investment in subsidiary 1(b) 45,442 37,739

Due from subsidiary 1(b) 64,322 75,537

Other receivables and prepayments 812 848

Cash and cash equivalents 382 199

Total assets 110,958 114,323

Equity

Issued share capital 5 925 1,032

Reserves 109,858 113,138

Total equity 110,783 114,170

Current liabilities

Other payables and accrued expenses 6 175 153

Total current liabilities 175 153

Total equity and liabilities 110,958 114,323

The financial statements were approved by the Directors on 21 September 2018 and signed on their behalf by:

Nick Wilson David Humbles

Chairman Director



42

Consolidated Statement of Changes in Equity

Share Capital (note 5)

Distributable Reserves

Retained Earnings

Foreign Currency

Translation Reserve

Capital Redemption

Reserve

Total

US$'000 US$'000 US$'000 US$'000 US$’000 US$'000

Balance at 1 July 2016 1,194 103,904 36,177 (213) 1,281 142,343

Total comprehensive income for the year

Loss for the year - - (6,635) - - (6,635)


Foreign exchange translation differences

- - - (3) - (3)

Total other comprehensive expense

- - - (3) - (3)

Total comprehensive expense for the year

- - (6,635) (3) - (6,638)

Contributions by and distributions to owners

Dividends paid - - (4,117) - - (4,117)

Shares repurchased to be held in treasury

- (543) - - - (543)

Shares subject to tender offer

(140) (16,817) - - 140 (16,817)

Tender offer expenses - (58) - - - (58)

Shares in treasury cancelled (22) - - - 22 -

Total contributions by and distributions to owners

(162) (17,418) (4,117) - 162 (21,535)

Balance at 30 June 2017 1,032 86,486 25,425 (216) 1,443 114,170



43

Consolidated Statement of Changes in Equity continued

The capital redemption reserve is created on the cancellation of shares equal to par value of shares cancelled. This

reserve is not distributable.


Share Capital (note 5)

Distributable Reserves

Retained Earnings

Foreign Currency

Translation Reserve

Capital Redemption

Reserve

Total

US$'000 US$'000 US$'000 US$'000 US$’000 US$'000

Balance at 1 July 2017 1,032 86,486 25,425 (216) 1,443 114,170


Profit for the year - - 9,680 - - 9,680


Foreign exchange translation differences

- - - (5) - (5)

Total other comprehensive expense

- - - (5) - (5)


- - 9,680 (5) - 9,675


Dividends paid - - (2,774) - - (2,774)

Shares subject to tender offer

(102) (10,205) - - 102 (10,205)

Tender offer expenses* - (83) - - - (83)

Shares in treasury cancelled (5) - - - 5 -


(107) (10,288) (2,774) - 107 (13,062)

Balance at 30 June 2018 925 76,198 32,331 (221) 1,550 110,783


44

Company Statement of Changes in Equity

Share Capital Reserves

Total

US$'000 US$'000 US$'000

Balance at 1 July 2016 1,194 141,149 142,343


Loss for the year - (6,638) (6,638)

Total comprehensive expense for the year

- (6,638) (6,638)


Dividends paid - (4,117) (4,117)

Shares repurchased to be held in treasury

- (543) (543)

Shares subject to tender offer (140) (16,677) (16,817)

Tender offer expenses - (58) (58)

Shares in treasury cancelled (22) 22 -


(162) (21,373) (21,535)

Balance at 30 June 2017 1,032 113,138 114,170

Share Capital Reserves

Total

US$'000 US$'000 US$'000

Balance at 1 July 2017 1,032 113,138 114,170


Profit for the year - 9,675 9,675

Total comprehensive profit for the year

- 9,675 9,675


Dividends paid - (2,774) (2,774)

Shares subject to tender offer (102) (10,103) (10,205)

Tender offer expenses - (83) (83)

Shares in treasury cancelled (5) 5 -


(107) (12,955) (13,062)

Balance at 30 June 2018 925 109,858 110,783



45

Consolidated Statement of Cash Flows

Year ended 30 June 2018 Year ended 30 June 2017

US$’000 US$'000

Cash flows from operating activities

Purchase of investments (143,781) (62,272)

Proceeds from sale of investments 149,319 90,788

Dividends received 4,000 4,707

Operating expenses paid (2,108) (2,357)

Interest received 20 -

Commission rebate - 15

Net cash generated from operating activities

7,450 30,881

Financing activities

Dividends paid (2,774) (4,117)

Cash used in tender offer (10,205) (16,817)

Tender offer expenses (83) (58)

Cash used in share repurchases - (543)

Net cash used in financing activities (13,062) (21,535)

Net increase/(decrease) in cash and cash equivalents

(5,612) 9,346

Effects of exchange rate changes on cash and cash equivalents

322 (123)

Cash and cash equivalents at beginning of the year

10,670 1,447

Cash and cash equivalents at end of the year

5,380 10,670



46

Company Statement of Cash Flows


US$’000 US$'000

Cash flows from operating activities

Investment in and amount due from subsidiary

14,214 22,162

Operating expenses paid (964) (824)

Net cash generated from operating activities

13,250 21,338

Financing activities

Dividends paid (2,774) (4,117)

Cash used in tender offer (10,205) (16,817)

Tender offer expenses (83) (58)

Cash used in share repurchases - (543)

Net cash used in financing activities (13,062) (21,535)

Net increase/(decrease) in cash and cash equivalents

188 (197)

Effects of exchange rate changes on cash and cash equivalents

(5) (2)

Cash and cash equivalents at beginning of the year

199 398

Cash and cash equivalents at end of the year

382 199



47

Notes to the Consolidated Financial Statements

1(a) Financial assets at fair value through profit or loss

Investments are designated at fair value through profit or loss on initial recognition. The Group invests in quoted equities

and quoted convertible bonds for which fair value is based on quoted market prices. The quoted market price used for

financial assets held by the Group is the current bid price ruling at the year-end without regard to selling prices.

Purchases and sales of investments are recognised on trade date – the date on which the Group commits to purchase

or sell the asset. Investments are initially recorded at fair value, and transaction costs for all financial assets and

financial liabilities carried at fair value through profit and loss are expensed as incurred.

Gains and losses (realised and unrealised) arising from changes in the fair value of the financial assets are included in

the income statement in the year in which they arise.

Group

30 June 2018: Financial assets at fair value through profit or loss; all quoted equity securities:

Security name Number US$'000

Commercial Bank of Qatar (CBQK QD) 1,019,959 10,396 Qatar Gas Transport (QGTS QD) 2,117,667 9,187 Qatar Electricity & Water Co (QEWS QD) 166,478 8,326 Al Rajhi SHAMAL 09.02.2020 244,544 5,620 National Bank of Kuwait (NBK KK) 1,846,250 4,542 Gulf International Services (GISS QD) 866,679 4,052 Barwa Real Estate (BRES QD) 406,396 3,808 Samba Financial Group - SHAMAL (03.01.2022) 418,036 3,596 Company for Co-op Insurance 186,966 3,530 Bank AlJazira 830,000 3,258 Emaar Properties Company (EMAAR UH) 2,430,283 3,255 Saudii Kayan Petrochemical Co 695,000 2,913 Dubai Islamic Bank (DIB) 2,085,000 2,764 Kuwait International Bank 3,043,683 2,252 Emirates National Bank of Dubai (ENBD UH) 825,000 2,179 National Medical Care Company 132,000 2,084 National Commercial Bank 155,613 2,014 Mobile Telecommunications Company K.S.C. (ZAIN KK) 1,390,000 1,989 Dar Al Arkan Real 700,000 1,961 Kuwait Finance House KFIN 1,079,000 1,913 Saudi British Bank B12LSY7 225,000 1,887 Banque Saudi Fransi - SHAMAL 05.06.19 185,000 1,660 Qatar Insurance (QATI QD) 166,722 1,625 National Petrochemical Company 198,000 1,561 Yanbu Nat Petroche (YANSAB) 77,000 1,519 Fawaz Abdulaziz Al 210,000 1,443 Saudi Basic Industries 41,000 1,376 Rabigh Refining and Petrochemical Co 180,000 1,359 Middle East Healthcare 80,000 1,244 Saudi Industrial Investment Group 130,000 1,006 Abdullah Al Othaim Markets Co 50,000 1,000 Widam Food Company (WDAM) 56,279 960 Bupa Arabia Co 38,536 922 National Central Cooling Company (TABREED) 2,039,713 922 ABU DHABI Commercial Bank (ADCB UH) 475,000 913 Al Tayyar Travel Group 125,000 894 Qatar Fuel (QFLS QD) 20,000 802 Arab National Bank - Shamal 88,054 747 Saudi Cement Company 50,000 659


48

Notes to the Consolidated Financial Statements continued

1(a) Financial assets at fair value through profit or loss (continued)

Group

30 June 2018: Financial assets at fair value through profit or loss; all quoted equity securities (continued):

Group

30 June 2017: Financial assets at fair value through profit or loss; all quoted equity securities:

1(b) Investment in and amount due from subsidiary

30 June 2018 30 June 2017

US$’000 US$'000

Investment in subsidiary 45,442 37,739

Amount due from subsidiary 64,322 75,537

Investment in subsidiary is stated at fair value. The amount due from the subsidiary 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.

Security name Number US$’000

Emirates NBD USD Stock 225,000 594 Southern Province Cement Co 50,000 546 Alinma Bank 90,000 513 Ooredoo (ORDS) 25,000 499 Agility Public Warehousing AGLTY 127,075 329

104,619

Security name Number US$’000

Qatar National Bank (QNBK QD) 475,653 16,088 Masraf Al Rayan (MARK QD) 1,307,544 13,798 Industries Qatar (IQCD QD) 496,285 12,595 Ooredoo (ORDS QD) 313,557 7,598 Qatar Electricity & Water Co (QEWS QD) 130,960 7,153 Barwa Real Estate (BRES QD) 754,724 6,482 Qatar Gas Transport (QGTS QD) 1,170,619 5,329 Commercial Bank of Qatar (CBQK QD) 626,605 5,022 Gulf International Services (GISS QD) 714,227 3,912 Qatar National Cement Co (QNCD QD) 218,303 3,837 Emaar Properties Company (EMAAR UH) 1,288,408 2,718 Qatar Insurance (QATI QD) 185,453 2,585 Qatar United Development Company (UDCD QD) 541,612 2,473 Al Meera Consumer Goods Co (MERS QD) 58,402 2,123 ABU DHABI Commercial Bank (ADCB UH) 1,098,579 2,096 Dubai Islamic Bank (DIB UH) 1,060,000 1,642 Gulf Warehousing (GWCS QD) 121,250 1,540 Qatar Islamic Bank (QIBK QD) 120,645 1,251 Vodaphone Qatar (VFQS QD) 552,351 1,247 Emirates National Bank of Dubai (ENBD UH) 300,000 653 First Abu Dhabi Bank (FAB UH) 180,000 510 DXB ENTERTAINMENTS (DXB UH)Doha Bank (DHBK QD) 2,395,627 493 Doha Bank (DHBK QD) 51,303 415 National Leasing (NLCS QD) 65,678 248 Union National Bank (UNB UH) 150,000 190 Al Khaleej Bank (KCBK QD) 34,968 126 102,124


49


1(c) Risks relating to financial instruments

Risks relating to financial instruments comprise market price risk, credit risk, interest rate risk, liquidity risk and foreign

currency risk. These are detailed below and in notes 2, 6 and 8.

Credit risk

Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it

has entered into with the Group.

The carrying amounts of financial assets best represent the maximum credit risk exposure at the balance sheet date.

This relates also to financial assets carried at amortised cost.

Credit risk continued

At the reporting date, the Group’s financial assets exposed to credit risk comprised the following:

30 June 2018 30 June 2017

US$’000 US$’000

Financial assets at fair value through profit or loss 104,619 102,124

Cash and cash equivalents 5,380 10,670

Other receivables 2,683 2,468

112,682 115,262

The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance

sheet. Management does not expect any counterparty to fail to meet its obligations and there are no debts past their

due dates as at the year-end. All amounts are due within one month of the year end.

Investments are held by the Custodian, HSBC Bank (Middle East) Ltd.

The Group uses the banking services of HSBC (Middle East) Ltd and Barclays (Isle of Man) PLC. HSBC has a credit

rating of A2 assigned by Moody and Barclays has a credit rating of A- from Standard and Poors.

Other receivables principally comprise unsettled trades.

Interest rate risk

The majority of the Group’s financial assets are non-interest bearing. Cash held by the Group is invested at short-term

market interest rates. As a result, the Group is not subject to fair value interest rate risk due to fluctuations in the

prevailing levels of market interest rates. However it is subject to cash flow risk arising from changes in market interest

rates.

The table below summarises the Group’s exposure to interest rate risks. It includes the Group’s financial assets and

liabilities at the earlier of contractual re-pricing or maturity date, measured by the carrying value of assets and liabilities:


50


1(c) Risks relating to financial instruments continued

Interest rate risk continued

30 June 2018 Less than

1month

1-3 months 3 months

to 1 year

1-5 years Over 5

years

Non-

interest

bearing

Total

US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000

Financial Assets

Financial assets at fair

value through profit or

loss

- - - - - 104,619 104,619

Other receivables and

prepayments

- - - - - 2,683 2,683

Cash 5,380 - - - - - 5,380

Total financial assets 5,380 - - - - 107,302 112,682

Financial Liabilities

Other creditors and

accrued expenses

- - - - - 1,899 1,899

Total financial

liabilities

- - - - - 1,899 1,899

Total interest rate

sensitivity gap

5,380 - - - -

30 June 2017 Less than

1month

1-3 months 3 months

to 1 year

1-5 years Over 5

years

Non-

interest

bearing

Total

US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000

Financial Assets

Financial assets at fair

value through profit or

loss

- - - - - 102,124 102,124

Other receivables and

prepayments

- - - - - 2,468 2,468

Cash 10,670 - - - - - 10,670

Total financial assets 10,670 - - - - 104,592 115,262

Financial Liabilities

Other creditors and

accrued expenses

- - - - - (1,092) (1,092)

Total financial

liabilities

- - - - - (1,092) (1,092)

Total interest rate

sensitivity gap

10,670 - - - -

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.


51


2 Fair Value Hierarchy

IFRS 13 requires the Company to classify fair value measurements using a fair value hierarchy that reflects the

significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:

• Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).

• Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that

is, as prices) or indirectly (that is, derived from prices) (level 2).

• Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).

All the Group’s investments are classed as level 1 investments.

The fair value of other financial instruments, including cash and short-term receivables and payables is a reasonable

approximation of fair value.

Market price risk

The Group’s strategy for the management of investment risk is driven by the Group’s investment objective. The main

objective of the Group is to capture the opportunities for growth offered by the Gulf Cooperation Council region (“GCC”)

by investing in GCC countries.

All investments present a risk of loss of capital through movements in market prices. The Investment Manager and

Investment Adviser moderate this risk through a careful selection of securities within specified limits. The Investment

Manager and the Investment Adviser review the position on a day to day basis and the Directors review the position at

Board meetings.

The Group’s market price risk is managed through the diversification of the investment portfolio. Approximately 89% of

the net assets attributable to holders of Ordinary Shares is invested in equity securities.

At 30 June 2018, if the market value of the investment portfolio had increased/decreased by 2.50% (as per the

movement in the SEMGGCPD Index post year-end) with all other variables held constant, this would have

increased/decreased net assets attributable to Shareholders by approximately US$2.61 million (30 June 2017 : 0.87% :

US$0.88 million).

3 Consolidated Net Asset Value per Share

The consolidated net asset value per share as at 30 June 2018 is US$1.1982 per share (30 June 2017: US$1.1113)

based on 92,461,242 (30 June 2017: 102,734,713) Ordinary Shares in issue as at that date.

4 Earnings per Share

Basic and diluted earnings per share are calculated by dividing the profit attributable to equity holders of the Company

by the weighted average number of Ordinary Shares in issue during the year.

30 June 2018 30 June 2017

Profit/(loss) attributable to equity holders of the Company (US$’000)

9,680 (6,635)

Weighted average number of Ordinary Shares in issue (thousands)

97,302 109,498

Basic and diluted earnings/(loss) per share (cents per share) 9.95 (6.06)


52


5 Share Capital

30 June 2018 30 June 2017

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 (2017: 102,734,713) Ordinary Shares of US$0.01 each in

issue, with full voting rights 925 1,027

Nil (2017: 493,445) Ordinary Shares of US$0.01 each held in

Treasury - 5

Issued share capital 925 1,032

During the year to 30 June 2018 the Company repurchased nil (2017: 493,445) Ordinary Shares, to be held in treasury,

at a cost of US$ nil (2017: US$542,871) and cancelled 493,445 (2017: 2,102,373) Ordinary Shares in treasury which

had been held for more than one year. The Ordinary Shares held in treasury have no voting rights and are not entitled

to dividends.

On 27 December 2017 the Company completed a tender offer at a price of US$0.9933 per share (12 December 2016:

US$1.1973 per share). Under the tender offer 10,273,471 shares (12 December 2016: 14,045,544) were repurchased

and cancelled.

During the year US$83,457 (2017: US$58,373) tender expenses were deducted from equity.

Capital management

The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to

sustain future development of the Group. The Board manages the Group’s affairs to achieve Shareholder returns

through capital growth rather than income, and monitors the achievement of this through growth in net asset value per

share.

Group capital comprises Share Capital and Reserves. Neither the Company nor its subsidiary is subject to externally

imposed capital requirements. The Company also has an active share buyback program.

6 Other payables and accrued expenses

Group 30 June 2018 30 June 2017 US$’000 US$'000

Due to broker* 1,456 649

Management fee payable 267 278

Administration fee payable 57 56

Accruals and sundry creditors 119 109

1,899 1,092

*includes unsettled positions trading balances.

Company 30 June 2018 30 June 2017 US$’000 US$'000

Administration fee payable 51 50

Accruals and sundry creditors 124 103

175 153

Liquidity risk

The Group manages its liquidity risk by maintaining sufficient cash for operations and the ability to realise market

positions. The Group’s liquidity position is monitored by the Investment Manager and the Board of Directors.


53


6 Other payables and accrued expenses continued

Liquidity risk continued

The residual undiscounted contractual maturities of financial liabilities are in the table below:

30 June 2018

Less than

1 month

1-3

months

3 months to

1 year

1-5 years Over 5

years

No stated

maturity

US$’000 US$’000 US$’000 US$’000 US$’000 US$’000

Financial liabilities

Other creditors and accrued

expenses

1,899 - - - - -

1,899 - - - - -

30 June 2017

Less than

1 month

1-3

months

3 months to

1 year

1-5 years Over 5

years

No stated

maturity

US$’000 US$’000 US$’000 US$’000 US$’000 US$’000

Financial liabilities

Other creditors and accrued

expenses

1,092 - - - - -

1,092 - - - - -

7 Charges and Fees Group

30 June 2018

Company 30 June 2018

Group 30 June 2017

Company 30 June 2017

US$’000 US$'000 US$'000 US$'000

Investment Manager’s fees (see below)

995 - 1,281 -

Administrator and Registrar’s fees (see below)

226 200 225 199

Audit fees 34 34 28 28

Custodian fees (see below) 109 4 119 4

Directors’ fees and expenses 308 308 297 297

Directors’ insurance cover 30 30 31 31

Broker fees 53 53 51 51

Other 369 377 310 149

Other expenses 1,129 1,006 1,061 759


54


7 Charges and Fees continued

Investment Manager’s fees

Annual fees

The Investment Manager was entitled to an annual management fee of 1.25% of the Net Asset Value of the Group,

calculated monthly and payable quarterly in arrears. The Investment Management Agreement was subject to

termination on 31 October 2013 with a revised agreement coming into effect from 1 November 2013. Under the revised

agreement the annual fee reduced to 1.05% of the net asset value of the Company and further reduced to an annual fee

of 0.90% of the net asset value of the Company from 1 November 2016 subject to termination on 31 October 2019.

Annual management fees for the year ended 30 June 2018 amounted to US$994,814 (30 June 2017: US$1,281,315)

and the amount accrued but not paid at the year-end was US$267,445 (30 June 2017: US$277,684).

Administrator and Registrar fees

The Administrator is entitled to receive a fee of 12.5 basis points per annum of the net asset value of the Company

between US$0 and US$100 million, 10 basis points of the net asset value of the Company above US$100 million.

This is subject to a minimum monthly fee of US$15,000, payable quarterly in arrears.

The Administrator assists in the preparation of the financial statements of the Group and provides general secretarial

services.

The Administrator may utilise the services of a CREST accredited registrar for the purposes of settling share

transactions through CREST. The cost of this service will be borne by the Company. It is anticipated that the cost will

be in the region of £12,000 per annum subject to the number of CREST settled transactions undertaken.

Administration fees paid for the year ending 30 June 2018 amounted to US$225,774 and US$32,087 for additional

services (30 June 2017: US$225,086 and US$32,838 respectively). Outstanding Administration fees at the year end

amounted to US$57,385 (30 June 2017: US$56,747).

Custodian fees

The Custodian is entitled to receive fees of US$7,200 per annum and US$25 per processed transaction from the

Company.

In addition the Custodian is entitled to receive fees of 8 basis points per annum in respect of Qatari securities held by

the Group and 10 basis points per annum in respect of non-Qatari, GCC securities held by the Group and $45 per

settled transaction (Qatar)/$50 per settled transaction (GCC excluding Qatar). From 1 March 2013 the custodian agreed

to a 25% reduction in custodian fees relating to the Qatari market.

Custodian and sub-custodian fees for the year ending 30 June 2018 amounted to US$109,172 (30 June 2017:

US$118,780) and the amount accrued but not paid at the year-end was US$8,756 (30 June 2017: US$4,034).


55


8 Foreign currency translation

The US Dollar is the currency of the primary economic environment in which the entity operates (“the functional

currency”). The US Dollar is the currency in which the financial statements are presented (“the presentational currency”)

as reporting to shareholders is in US Dollars and the shares are quoted in US Dollars.

Monetary assets and liabilities denominated in foreign currencies as at the date of these financial statements are

translated to US Dollar at exchange rates prevailing on that date. Income and expenses are translated into US Dollar

based on exchange rates on the date of the transaction. All resulting exchange differences are recognised in the income

statement at the exchange rate prevailing on the balance sheet date. Items of income and expense are translated at

exchange rates on the date of the relevant transactions or an average rate. Components of equity are translated at the

date of the relevant transaction and not retranslated. All resulting exchange differences are recognised in other

comprehensive income.

Foreign exchange risk

The Group’s operations are conducted in jurisdictions which generate revenue, expenses, assets and liabilities in

currencies other than US Dollar. As a result, the Group is subject to the effects of exchange rate fluctuations with

respect to these currencies. The Group’s policy is not to enter into any currency hedging transactions

At the reporting date the Group had the following exposure:

Currency 30 June 2018 30 June 2017

% %

British Pound (0.04) (0.03)

Omani Rial 0.00 0.00

US Dollar 41.86 0.41

Qatari Riyal 36.25 88.19

Kuwaiti Dinar 10.51 0.00

Saudi Arabia Riyal 0.09 0.00

UAE Dirham 11.32 11.43

The following table sets out the Group’s total exposure to foreign currency risk and the net exposure to foreign

currencies of the monetary assets and liabilities:

30 June 2018 Monetary Assets Monetary Liabilities Net Exposure

US$’000 US$’000 US$’000

British Pound 18 (61) (43)

US Dollar 46,759 (382) 46,377

Qatari Riyal 40,161 - 40,161

UAE Dirham 12,545 - 12,545

Kuwait Dinar 11,647 - 11,647

Saudi Arabia Riyal 96 - 96

111,226 (443) 110,783

30 June 2017 Monetary Assets Monetary Liabilities Net Exposure

US$’000 US$’000 US$’000

British Pound 20 (59) (39)

US Dollar 852 (384) 468

Qatari Riyal 100,689 - 100,689

UAE Dirham 13,052 - 13,052

114,613 (443) 114,170


56


8 Foreign currency translation continued

Foreign currency sensitivity risk – presentational currency

At 30 June 2018 had the US Dollar weakened/strengthened by 1% (2017 : 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 2018 US$’000

British Pound -

Kuwaiti Dinar 116

UAE Dirham 125

Saudi Arabia Riyal 1

Effect on net assets 242

30 June 2017 US$’000 British Pound - Kuwaiti Dinar - UAE Dirham 130

Effect on net assets 130

Foreign currency sensitivity risk – functional currency

As 42% of net assets are denominated in USD and USD is the functional currency there is no significant functional

currency risk. The Qatari Riyal is pegged to the USD within a tight band and therefore it is not included in the sensitivity

analysis.

As USD is the functional currency of the Group and USD is the presentational currency any effect of changes in the

foreign exchange rates between USD and the other currencies is assumed to relate to the investments and is included

in the unrealised gain/loss of the investments on consolidation.

9 Taxation

Isle of Man taxation

The Company is resident for taxation purposes in the Isle of Man by virtue of being incorporated in the Isle of Man and

is technically subject to taxation on its income but the rate of tax will be zero. The Company is required to pay an annual

corporate charge of £250 per annum.

The Company became registered for VAT from 1 February 2011.

Qatar/United Arab Emirates(U.A.E)./Saudi Arabia taxation

The Company invests in equities in the GCC region. As at 30 June 2018 the Company held investment in Qatar, United

Arab Emirates (U.A.E.), Saudi Arabia and Kuwait.

It is the intention of the Directors to conduct the affairs of the Company so that it is not considered to be either resident

or doing business in any of these countries.

With the exception of Saudi Arabia, none of these countries impose withholding tax on dividend distributions to non-

residents. Saudi Arabia imposes a 5% withholding tax on dividend distributions to non-residents.

Capital gains made by the Company on disposal of shares in Qatar, U.A.E., Saudi Arabia and Kuwait are not subject to

tax in those countries.

There is no stamp duty or equivalent tax on the transfer of shares in Qatar/U.A.E./Saudi Arabia companies.


57


10 Related Party Transactions

Parties are considered to be related if one party has the ability to control the other party or to exercise significant

influence over the other party in making financial or operational decisions.

The Investment Adviser is Qatar Insurance Company S.A.Q. The Group holds shares in Qatar Insurance Company

S.A.Q. (see note 1(a)). The Investment Adviser’s fees are paid by the Investment Manager.

The Investment Manager, Epicure Managers Qatar Limited, is a related party by virtue of its ability to make operational

decisions for the Company and through common Directors. Fees paid and payable to the Investment Manager are

disclosed in notes 6 and 7.

Epicure Managers Qatar Limited is a wholly owned subsidiary of the Investment Adviser, Qatar Insurance Company

S.A.Q.

11 The Company

Gulf Investment Fund plc (formerly Qatar 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.

In the year ended 30 June 2018, the Company purchased nil (2017: 493,445) of its Ordinary Shares for a total value of

US$ nil (2017:US$542,871) to be held in treasury. 493,445 shares had been repurchased in the year ended 30 June

2017 for treasury but had been held for over a year and were therefore cancelled in the current financial year. The buy-

backs are effected through retained reserves.

On 27 December 2017 the Company completed a tender offer at a price of US$0.9933 per share (previous offer

US$1.1973 per share). Under the offer 10,273,471 shares were cancelled (previous offer 14,045,544 shares) with

US$10,204,639 being paid to participating shareholders (previous offer US$16,816,730).

The shareholders approved a dividend of 3.0 cents per share on 16 November 2017 (previous dividend 4.0 cents per

share); this was paid to shareholders on 9 February 2018.


58


11 The Company continued

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 and there is the

possibility of a 100% tender in 2020.

12 The Subsidiary

The Company has the following subsidiary company:

Country of incorporation Percentage of shares held

Epicure Qatar Opportunities Holdings Limited British Virgin Islands 100%

Epicure Qatar Opportunities Holdings Limited is a wholly owned subsidiary of the Company, and was incorporated in

the British Virgin Islands on 4 July 2007 under the provisions of the BVI Companies Act 2001, as a limited liability

company with registration number 1415393. The principal activity of the subsidiary is holding investments on behalf of

the Company.

13 Significant Accounting Policies

The consolidated financial statements of the Company for the year ended 30 June 2018 comprise the Company and its

subsidiary, Note 1(b), (together referred to as the “Group”).

Accounting policies for certain items have been included in the relevant note.

13.1 Basis of presentation

These consolidated financial statements have been prepared in accordance with International Financial Reporting

Standards (“IFRS”) and Isle of Man Companies Act 1931 to 2004. The financial statements have been prepared under

the historic cost convention, as modified by the revaluation of financial assets held at fair value through profit or loss and

investments in and amounts due from subsidiary which are stated at fair value.

The accounting policies applied in these financial statements are the same as those applied in the Group’s consolidated

financial statements as at the year ended 30 June 2017. Certain comparatives have been reclassified in accordance

with the presentation adopted in these financial statements. In particular, in the Company Balance Sheet the balances

with subsidiary have in the current year been presented as two components: Investment in Subsidiary and Amount due

from Subsidiary. In the prior year financial statements these balances were shown as one aggregated amount: Amount

Due from Subsidiary. This reclassification had no effect on total assets, net assets or profit or loss and was made in

order to better present the nature of the underlying balances.

These consolidated financial statements have been prepared on the going concern basis, as the Board of Directors has

a reasonable expectation that the Group and Company have the resources to continue in business for the foreseeable

future. In making this assessment, the Directors have considered a wide range of information relating to present and

future conditions, including the date of the next continuation vote for the Company (as described in the Investment

Policy), future projections of profitability, cash flows and capital resources.

The Group’s principal activities, investment objective and strategy and principal risks and uncertainties are described in

the Chairman’s Statement, Business Review, Investment Policy and Corporate Governance Report.

The Group’s approach to capital management is described in note 5. The Group’s objectives, policies and processes for

managing credit, foreign exchange, liquidity and market risk along with the are described in Notes 1(a), 2, 6 and 8 of the

financial statements.


59


13 Significant Accounting Policies continued

13.1 Basis of presentation continued

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It

also requires the Board of Directors to exercise its judgement in the process of applying the Group’s accounting policies. The

financial statements do not contain any critical accounting estimates.

13.2 Basis of consolidation

Subsidiaries

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the

Company (its subsidiaries and subsidiary undertakings). Control is achieved where the Company has power over an

investee, exposure or rights to variable returns and the ability to exert power to affect those returns.

Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealised gains or losses arising from intra-group transactions, are

eliminated in full in the consolidated financial statements.

13.3 Segment reporting

The Group has one segment focusing on maximising total returns through investing in quoted securities in the GCC region.

No additional disclosure is included in relation to segment reporting, as the Group’s activities are limited to one business and

geographic segment.

13.4 Investment in subsidiary

Investment in subsidiary in the Company balance sheet is stated at fair value.

13.5 Treasury shares

In accordance with shareholder authority shares continue to be bought back to be held in treasury in order to manage the

discount between share price and NAV. Buy-backs are recorded in equity.

13.6 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.

13.7 Future changes in accounting policies

A number of new standards, amendments to standards and interpretation are not yet effective for year ended 30 June 2018,

and have not been applied in preparing these financial statements. None of these are expected to have a significant effect

on the measurement of the amounts recognised on the Company’s financial statements; however, IFRS 9, Financial

Instruments (“IFRS9”) may change the classification of financial assets. This is first effective for accounting periods

beginning on or after 1 January 2018.

There are no other standards, interpretations or amendments to existing standards that are not yet effective that would be

expected to have a significant impact on the Company.

14 Post balance sheet events

There are no post balance sheet events.

Documents

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