KENANGA GROWTH FUND ANNUAL REPORT

Transcription

1 KENANGA GROWTH FUND ANNUAL REPORT For the Financial Year Ended 31 May 2016

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3 KENANGA GROWTH FUND Contents Page Corporate Directory ii Directory of Manager s Offices iii Fund Information 1 Manager s Report 2-5 Fund Performance 6-8 Trustee s Report 9 Independent Auditor s Report Statement by the Manager 12 Financial Statement 13-42

4 CORPORATE DIRECTORY MANAGER: KENANGA INVESTORS BERHAD (Company No P) REGISTERED OFFICE BUSINESS OFFICE Kenanga Investors Berhad (KIB) Suite 12.02, 12 th Floor, Kenanga International, 8 th Floor, Kenanga International, Jalan Sultan Ismail, Jalan Sultan Ismail, Kuala Lumpur, Malaysia Kuala Lumpur, Malaysia. Tel: Tel: Fax: Fax: InvestorServices@kenanga.com.my Website: BOARD OF DIRECTORS Datuk Syed Ahmad Alwee Alsree (Chairman) Syed Zafi len Syed Alwee (Independent Director) Peter John Rayner (Independent Director) Imran Devindran bin Abdullah (Independent Director) Dato Bruce Kho Yaw Huat Ismitz Matthew De Alwis INVESTMENT COMMITTEE Dato Bruce Kho Yaw Huat (Chairman) Syed Zafi len Syed Alwee (Independent Member) Peter John Rayner (Independent Member) Imran Devindran bin Abdullah (Independent Member) Ismitz Matthew De Alwis COMPANY SECRETARY: NORLIZA ABD SAMAD (MAICSA ) 9 th Floor, Kenanga International, Jalan Sultan Ismail, Kuala Lumpur, Malaysia. Tel: Fax: TRUSTEE: CIMB COMMERCE TRUSTEE BERHAD (Company No A) REGISTERED OFFICE BUSINESS OFFICE Level 13, Menara CIMB Level 21, Menara CIMB Jalan Stesen Sentral 2 Jalan Stesen Sentral 2 Kuala Lumpur Sentral Kuala Lumpur Sentral Kuala Lumpur Kuala Lumpur. Tel: Tel: Fax: Fax: Website: AUDITOR: ERNST & YOUNG (AF: 0039) Level 23A, Menara Milenium, Jalan Damanlela, Pusat Bandar Damansara, Kuala Lumpur. Tel: Fax: TAX ADVISER: ERNST & YOUNG TAX CONSULTANTS SDN BHD (Company No K) Level 23A, Menara Milenium, Jalan Damanlela, Pusat Bandar Damansara, Kuala Lumpur. Tel: Fax: MEMBERSHIP: FEDERATION OF INVESTMENT MANAGERS MALAYSIA (FIMM) , 6 th Floor, Wisma Tune, 19, Lorong Dungun, Damansara Heights, Kuala Lumpur, Malaysia. Tel: Fax: Website: ii Kenanga Growth Fund Annual Report

5 DIRECTORY OF MANAGER S OFFICES REGIONAL BRANCH OFFICES: Kuala Lumpur Suite 12.02, 12 th Floor Kenanga International Jalan Sultan Ismail Kuala Lumpur, Malaysia Tel : Fax : Melaka No. 25-1, Jalan Kota Laksamana 2/17 Taman Kota Laksamana, Seksyen Melaka Tel : Fax : Klang No. 12, Jalan Batai Laut 3, Taman Intan Klang, Selangor Darul Ehsan Tel : / Fax : Penang 5.04, 5 th Floor, Menara Boustead Penang 39, Jalan Sultan Ahmad Shah Penang. Tel : / Fax : Seremban 2 nd Floor, No. 1D-2, Jalan Tuanku Munawir Seremban, Negeri Sembilan Tel : Fax : Johor Bahru Lot 11.03, 11 th Floor Menara MSC Cyberport No. 5, Jalan Bukit Meldrum Johor Bahru, Johor Tel : / 4798 Fax : Kuching 1st Floor, No 71, Lot 7 Lot 10900, Jalan Tun Jugah Kuching, Sarawak Tel : Fax : Kota Kinabalu A-03-11, 3 rd Floor Block A, Warisan Square Jalan Tun Fuad Stephens Kota Kinabalu, Sabah Tel : / Fax : Ipoh Suite 1, 2 nd Floor 63, Persiaran Greenhill Ipoh, Perak, Malaysia Tel : / 7570 Fax : Miri 2 nd Floor, Lot 1264, Centre Point Commercial Centre Jalan Melayu Miri, Sarawak Tel : Fax : Kenanga Growth Fund Annual Report iii

6 1. FUND INFORMATION 1.1 Fund Name Kenanga Growth Fund (KGF or the Fund) 1.2 Fund Category / Type Equity / Growth 1.3 Investment Objective The Fund aims to provide unitholders with long-term capital growth. 1.4 Investment Strategy The Fund s assets are actively invested in a diversifi ed portfolio of Malaysian equity and equity-related securities of companies with sustainable business model that is trading at discount to its intrinsic value. 1.5 Duration The Fund was launched on 17 January 2000 and shall exist as long as it appears to the Manager and the Trustee that it is in the interests of the unitholders for it to continue. 1.6 Performance Benchmark FTSE-Bursa Malaysia Kuala Lumpur Composite Index (FBM-KLCI). 1.7 Distribution Policy Income distribution is incidental, if any. 1.8 Breakdown of unit holdings of KGF as at 31 May 2016 Size of holdings No. of unitholders No. of units held 5,000 and below 5,457 11,576,934 5,001-10,000 2,661 19,288,854 10,001-50,000 5, ,941,531 50, ,000 1, ,898, ,001 and above ,786,124 Total 14, ,492,296 1 Kenanga Growth Fund Annual Report

7 2. MANAGER S REPORT 2.1 Explanation on whether the Fund has achieved its investment objective. For the periods 1-year, 3-years and since inception, the Fund outperformed its benchmark. Since inception, the Fund has appreciated by 217.6% in Net Asset Value terms (whilst its benchmark rose 19.9%), thus achieving the Fund s stated objective to provide long-term capital growth. 2.2 Comparison between the Fund s performance and performance of the benchmark. Performance Chart Since Launch (17/01/ /05/2016) Kenanga Growth Fund vs FTSE-Bursa Malaysia Kuala Lumpur Source: Lipper 2.3 Investment strategies and policies employed during the financial year under review. For the fi nancial year under review, the Fund continued with its strategy of investing in companies with sustainable business models and competent management, whilst trading at a discount to their intrinsic / fair value. The Fund focused on companies whose top line / revenue should prove to be relatively more resilient to a global economic slowdown and have the ability to maintain their profi t margins. Sectors that we favour include: (1) consumer, (2) construction, (3) infrastructure and selective on oil and plantation stocks. Kenanga Growth Fund Annual Report 2

8 2.4 The Fund s asset allocation as at 31 May 2016 and comparison with the previous financial year. Asset 31 May May 2015 Quoted investment securities 71.9% 74.9% Short term deposits and cash 28.1% 25.1% Reason for the differences in asset allocation As at 31 May 2016, the asset allocation of the Fund stood at 71.9% in equities and the balance of 28.1% in liquidity. The decrease in equities exposure during the fi nancial year under review is mainly due to further investments in short term deposits and cash. 2.5 Fund performance analysis based on NAV per unit (adjusted for income distribution) since last review period. Period under review Kenanga Growth Fund 3.30% FTSE-Bursa Malaysia Kuala Lumpur Composite Index (FBM-KLCI) -6.95% Source: Lipper For the financial year under review, the Fund appreciated by 3.30%, outperforming the 6.95% decrease in the FBM-KLCI. The outperformance was mainly due to stock selection. 2.6 Review of the market Market Review On 30 June, Fitch announced that it had affirmed Malaysia s long-term foreign currency sovereign credit rating at A-, with the outlook upgraded to Stable from Negative. The country s improving fiscal position, financing flexibility and favourable GDP growth were reasons for the upgrade. However, The FBM KLCI buckled under strong selling pressure when China announced a surprise devaluation of the CNY in mid-august, which sent markets reeling across the globe. On 14 September, the FBM KLCI traded higher as Prime Minister Dato Sri Najib Razak unveiled a slew of stimulus measures which included the pumping of MYR20bn into ValueCap to invest in undervalued Malaysian stocks. The 2016 Budget announced on 23 October had limited impact on the local benchmark and the MYR. The index further declined in the wake of the Fed s October meeting, where the central bank stood pat on rates but explicitly signalled that a December rate hike could be firmly in play. The FBM KLCI rebounded momentarily in early November as Brent crude breached the USD50 per barrel. However, the market later reversed into a decline as optimistic US jobs data for October strengthened the case for a rate hike by the Fed in December, which turned out to be a volatile month for regional markets as the first two weeks saw equity markets in Asia correct on the back of weak economic data from China, and poor investor sentiment as a result of sharply lower oil prices. 3 Kenanga Growth Fund Annual Report

9 2.6 Review of the market (Contd.) Market Review (Contd.) Volatility from January carried into the first two weeks of February as global markets reacted to the day to day changes of statements from big OPEC and non-opec producers on whether they will cut or freeze production, and the level of oil inventory there is in the US. February was a month of two-halves, whereby the global market entered a sell-off in the first half of February as concern of low growth and worries on bond markets lingered on. However, market staged a strong rally towards the later part of February, after the Lunar New Year holidays. Global equities continued to post strong gains in March, driven mainly by major annoucements from central banks and slight rebound in oil prices. It was a strong start to the month following the positive feedback from G20 meeting in Shanghai and further RRR cut from PBOC at the end of February. In April however, the market started positive benefiting from a weak USD, perceived stability in China and stronger commodity prices before disappointing towards the end of the month due to the 1 Malaysia Development Berhad (1MDB) default on bond interest payment as well as the lack of new central bank policy actions. Finance chiefs from the world s biggest developed economies (G7) meeting in Japan in May underscored concerns about flagging global growth and reaffirmed a pledge not to deliberately weaken their currencies even as Japan again warned on the Yen s surge. Meanwhile, Federal Reserve Chairwoman Janet Yellen signalled that the US central bank will likely raise its interest rates on a gradual basis in the next meetings if the US economy continues to gain strength. Market Outlook On Thursday 23 June 2016, the people of United Kingdom (UK) voted in favour of UK exiting the European Union (EU) with a majority of 52% vs 48%, sending shockwaves throughout the global markets. British PM Cameron has said he will honour the voice of the people and will invoke Article 50 of the Lisbon Treaty which will kick start the negotiation process for the terms of UK s exit from the EU. The first opportunity to do so is at the upcoming EC Summit on June 28-29, where the agenda already include discussing the UK referendum. This will kick off a 2-year discussion period where both parties have to ultimately and unanimously agree on the exit terms. Nevertheless, UK s position in the EU is unchanged until exit procedures are completed. We expect PM Cameron to resign although there will be calls for him to stay on and preside over the transition. This unexpected result opens the door to political and economic uncertainty not only in the UK but also across the EU, with unknown spillover effects to the rest of the world. At least in the short-run, this unexpected outcome could keep volatility in financial markets elevated. Investors will also watch carefully for potential channels of contagion, for instance from a widening in peripheral European bond spreads to the banking system. Short-term economic impact is largely centred along recession in the UK which will in turn dampen global growth. Central banks around the world will likely respond decisively to restore calm, and financial markets are unlikely to settle down until such policy measures are announced and understood. Kenanga Growth Fund Annual Report 4

10 2.6 Review of the market (Contd.) Market Outlook (Contd.) An IMF study showed that Brexit will result in a fall in GDP of UK by 1.4 percentage points (up to 5.6 percentage points) by While export from EU to the UK is only 3% of the rest of EU s GDP, the rest of EU s exposure towards UK in terms of fi nancial and investment linkages are huge (for example, more than half of the UK banking sector s cross-border lending is directed to the EU). Economists estimated that EU-exUK could potentially shed 0.5 percentage points of growth as a consequence of Brexit. While UK share of global GDP is less than 4%, the rest of EU s share is 18%. Should this happen, we expect global growth to slow down by at least 0.1% - 0.2%. In Asia, we expect export dependent countries like Hong Kong, Singapore and Malaysia to take bigger hits, potentially shedding 0.4 percentage points to 1 percentage point of growth in 2016 while GDP growth in countries like China and Indonesia are expected to decline by 0.2 percentage points. Strategy Short term volatility warrants a defensive strategy. We have turned defensive both in terms of cash holdings and stock selections ahead of this unexpected event. In the longer-term, we expect markets to stabilise as central banks like BoJ, BOE, ECB are likely to embark on more easing, whilst Fed tightening looks likely to be off the table not just for July and September but probably for the rest of the year. This implies markets would come back once the initial dust settles. We advocate buying on dips as our earlier cash raising has enabled us to bottom fi sh on weakness. Stock picking remains the key with focus on sectors with earnings visibility and dividend support. 5 Kenanga Growth Fund Annual Report

11 2.7 Distribution For the financial year under review, the Fund has declared the following distribution: Gross/Net Cum-NAV Ex-NAV distribution per unit per unit per unit Distribution Date (sen) (RM) (RM) 16 May Details of any unit split exercise The Fund did not carry out any unit split exercise during the financial year under review. 2.9 Significant changes in the state of affair of the Fund during the financial year There were no significant changes in the state of affair of the Fund during the financial year and up until the date of the manager s report, not otherwise disclosed in the financial statements Circumstances that materially affect any interests of the unitholders During the financial year under review, there were no circumstances that materially affected any interests of the unitholders Rebates & Soft commissions Any rebates received are channeled back to the Fund. On the other hand, soft commissions received from the stockbrokers for goods and services such as technical analysis software, fundamental database, financial wire services, stock quotation system and portfolio management software incidental to investment management of the Fund shall be retained by the Manager. For the financial year under review, the Manager has received soft commissions from stockbrokers. Kenanga Growth Fund Annual Report 6

12 3. FUND PERFORMANCE 3.1 Details of portfolio composition of Kenanga Growth Fund ( the Fund ) for the last three financial years/period as at 31 May are as follows: a. Distribution among industry sectors and category of investments: As at As at As at % % % Trading/Services Constructions Industrial products Finance Properties Consumer products Infrastructure Plantations Special Purpose Acquisition Company Technology Real Estate Investment Trusts Warrants Short term deposits and cash Note: The above mentioned percentages are based on total investment market value plus cash. b. Distribution among markets The Fund invested in local quoted investment securities and cash instruments only. 7 Kenanga Growth Fund Annual Report

13 3.2 Performance details of the Fund for the last three financial years/period ended 31 May are as follows: Period from FY FY to Net asset value ( NAV ) (RM Million) * Units in circulation (Million) NAV per unit (RM) * Highest NAV per unit (RM) Lowest NAV per unit (RM) Total return (%) Capital growth (%) Income growth (%) Gross distribution per unit (sen) # Net distribution per unit (sen) # Management expense ratio ( MER ) (%) Portfolio turnover ratio ( PTR ) (times) Note: Total return is the actual return of the Fund for the respective fi nancial years/period, computed based on NAV per unit and net of all fees. MER is computed based on the total fees and expenses incurred by the Fund divided by the average fund size calculated on a daily basis. PTR is computed based on the average of the total acquisitions and total disposals of investment securities of the Fund divided by the average fund size calculated on a daily basis. 1 MER is higher against previous fi nancial year mainly due to Goods & Services Tax imposed in Malaysia since 1 April PTR is lower against previous fi nancial year mainly due to lower trading activities. * Based on bid price fair valuation method on all investments held by the Fund as at 31 May 2016, the NAV and NAV per unit would be RM million and RM respectively. (As disclosed under Note 13 of the fi nancial statements) # Date of distribution is shown in Part Distribution Kenanga Growth Fund Annual Report 8

14 3.3 Average total return of the Fund 1 Year 3 Years 5 Years 31 May May May May May May 16 Kenanga Growth Fund 3.30% 13.16% 19.42% FTSE-Bursa Malaysia Kuala Lumpur Composite Index (FBM-KLCI) -6.95% -2.70% 1.45% Source: Lipper 3.4 Annual total return of the Fund Period Period under review 1 Year from 1 Year 1 Year 31 May May Dec Dec Dec May May May Dec Dec 12 Kenanga Growth Fund 3.30% 13.20% 38.23% 26.35% 14.06% FTSE-Bursa Malaysia Kuala Lumpur Composite Index (FBM-KLCI) -6.95% -6.72% 10.92% 10.54% 10.34% Source: Lipper Investors are reminded that past performance is not necessarily indicative of future performance. Unit prices and investment returns may fluctuate. 9 Kenanga Growth Fund Annual Report

15 4 TRUSTEE S REPORT TO THE UNITHOLDERS OF KENANGA GROWTH FUND We, CIMB COMMERCE TRUSTEE BERHAD ( the Trustee ), being the Trustee of KENANGA GROWTH FUND ( the Fund ) are of the opinion that KENANGA INVESTORS BERHAD ( the Manager ), acting in the capacity of Manager of the Fund, has fulfi lled its duties in the following manner for the fi nancial year ended 31 May a) The Fund has been managed in accordance with the limitations imposed on the investment powers of the Manager and the Trustee under the Deed, the Securities Commission Malaysia s Guidelines on Unit Trust Funds, the Capital Markets and Services Act 2007 (as amended from time to time) and other applicable laws; b) Valuation/pricing of units of the Fund has been carried out in accordance with the Deeds and relevant regulatory requirements; c) Creation and cancellation of units have been carried out in accordance with the Deeds and relevant regulatory requirements; and d) The distribution of returns by the Fund is relevant to and refl ects the investment objective of the Fund. For and on behalf of CIMB COMMERCE TRUSTEE BERHAD LEE KOOI YOKE Chief Operating Offi cer Kuala Lumpur, Malaysia 27 July 2016 Kenanga Growth Fund Annual Report 10

16 5 INDEPENDENT AUDITORS REPORT TO THE UNITHOLDERS OF KENANGA GROWTH FUND Report on the financial statements We have audited the fi nancial statements of Kenanga Growth Fund ( the Fund ), which comprise the statement of fi nancial position as at 31 May 2016 and the statement of comprehensive income, statement of changes in net asset value and statement of cash fl ows for the fi nancial year then ended, and a summary of signifi cant accounting policies and other explanatory information, as set out on pages 13 to 41. Manager s and Trustee s responsibility for the fi nancial statements and fair presentation The Manager of the Fund is responsible for the preparation of fi nancial statements so as to give a true and fair view in accordance with Malaysian Financial Reporting Standards and International Financial Reporting Standards. The Manager is also responsible for such internal control as the Manager determines is necessary to enable the preparation of fi nancial statements that are free from material misstatement, whether due to fraud or error. The Trustee is responsible for ensuring that the Manager maintains proper accounting and other records as are necessary to enable true and fair presentation of these fi nancial statements. Auditors responsibility Our responsibility is to express an opinion on these fi nancial statements based on our audit. We conducted our audit in accordance with approved standards on auditing in Malaysia. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the fi nancial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the fi nancial statements. The procedures selected depend on our judgment, including the assessment of risks of material misstatement of the fi nancial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Fund s preparation of fi nancial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund s internal control. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made by the Manager, as well as evaluating the overall presentation of the fi nancial statements. We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our audit opinion. 11 Kenanga Growth Fund Annual Report

17 5 INDEPENDENT AUDITORS REPORT TO THE UNITHOLDERS OF KENANGA GROWTH FUND (CONTD.) Opinion In our opinion, the fi nancial statements give a true and fair view of the fi nancial position of the Fund as at 31 May 2016 and of its fi nancial performance, changes in net asset value and cash fl ows for the fi nancial year then ended in accordance with Malaysian Financial Reporting Standards and International Financial Reporting Standards. Other matters This report is made solely to the unitholders of the Fund, as a body, and for no other purpose. We do not assume responsibility to any other person for the content of this report. Ernst & Young AF: 0039 Chartered Accountants Chan Hooi Lam No. 2844/02/18(J) Chartered Accountant Kuala Lumpur, Malaysia 27 July 2016 Kenanga Growth Fund Annual Report 12

18 6. STATEMENT BY THE MANAGER I, Ismitz Matthew De Alwis, being a director of Kenanga Investors Berhad, do hereby state that, in the opinion of the Manager, the accompanying statement of fi nancial position as at 31 May 2016 and the related statement of comprehensive income, statement of changes in net asset value and statement of cash fl ows for the fi nancial year ended 31 May 2016 together with notes thereto, are drawn up in accordance with Malaysian Financial Reporting Standards and International Financial Reporting Standards so as to give a true and fair view of the fi nancial position of Kenanga Growth Fund as at 31 May 2016 and of its fi nancial performance and cash fl ows for the fi nancial year then ended and comply with the requirements of the Deed. For and on behalf of the Manager Kenanga Investors Berhad Ismitz Matthew De Alwis Executive Director/Chief Executive Offi cer Kuala Lumpur, Malaysia 27 July Kenanga Growth Fund Annual Report

19 7. FINANCIAL STATEMENT 7.1 STATEMENT OF COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 31 MAY 2016 INVESTMENT INCOME Note RM RM Interest income 5,259,113 2,989,883 Dividend income 14,540,776 6,657,035 Net gain from investments: - Financial assets at fair value through profi t or loss ( FVTPL ) 4 8,678,421 40,308,100 28,478,310 49,955,018 EXPENSES Manager s fee 5 8,619,166 5,790,030 Trustee s fee 6 287, ,001 Auditors remuneration 12,000 4,000 Tax agent s fee 15,500 4,800 Administration expenses 779, ,401 Brokerage fee 3,295,958 2,221,944 13,009,193 8,377,176 NET INCOME BEFORE TAX 15,469,117 41,577,842 Income tax 7 - (29,932) NET INCOME AFTER TAX, REPRESENTING TOTAL COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR 15,469,117 41,547,910 Net income after tax is made up as follows: Realised gain 38,305,450 25,450,462 Unrealised (loss)/gain 4 (22,836,333) 16,097,448 15,469,117 41,547,910 Distribution for the fi nancial year: Net distribution (RM) 8 59,893,258 39,586,894 Gross/Net distribution (sen) The accompanying notes form an integral part of the financial statements. Kenanga Growth Fund Annual Report 14

20 7.2 STATEMENT OF FINANCIAL POSITION AS AT 31 MAY 2016 Note RM RM INVESTMENTS Financial assets at FVTPL 4 475,491, ,653,431 Deposits with licensed fi nancial institutions 9 184,386, ,755, ,878, ,409,393 OTHER ASSETS Amount due from Manager 963,658 6,620,424 Other receivables 10 2,998,083 4,174,448 Tax recoverable 72,900 72,900 Cash at bank 1,686,920 2,941,135 5,721,561 13,808,907 TOTAL ASSETS 665,599, ,218,300 LIABILITIES Amount due to Trustee 28,383 18,831 Other payables 11 6,511,121 5,735,732 TOTAL LIABILITIES 6,539,504 5,754,563 EQUITY Unitholders contribution 633,382, ,651,035 Retained earnings 25,677,283 63,812,702 NET ASSET VALUE ( NAV ) ATTRIBUTABLE TO UNITHOLDERS ,060, ,463,737 TOTAL EQUITY AND LIABILITIES 665,599, ,218,300 NUMBER OF UNITS IN CIRCULATION 12(a) 686,492, ,996,384 NET ASSET VALUE PER UNIT (RM) The accompanying notes form an integral part of the financial statements. 15 Kenanga Growth Fund Annual Report

21 7.3 STATEMENT OF CHANGES IN NET ASSET VALUE FOR THE FINANCIAL YEAR ENDED 30 MAY 2016 Unitholders Retained Total Note contribution earnings NAV RM RM RM 2016 At beginning of the fi nancial year 418,651,035 63,812, ,463,737 Total comprehensive income - 15,469,117 15,469,117 Creation of units 12(a) 222,991, ,991,863 Cancellation of units 12(a) (67,997,673) - (67,997,673) Distribution equalisation 12(a) 6,288,722-6,288,722 Distribution 8 (6,288,722) (53,604,536) (59,893,258) Reinvestment of income distributed 12(a) 59,737,658-59,737,658 At end of the fi nancial year 633,382,883 25,677, ,060, At beginning of the fi nancial year 176,273,387 56,834, ,108,240 Total comprehensive income - 41,547,910 41,547,910 Creation of units 12(a) 286,798, ,798,889 Cancellation of units 12(a) (83,861,717) - (83,861,717) Distribution equalisation 12(a) 5,016,833-5,016,833 Distribution 8 (5,016,833) (34,570,061) (39,586,894) Reinvestment of income distributed 12(a) 39,440,476-39,440,476 At end of the fi nancial year 418,651,035 63,812, ,463,737 The accompanying notes form an integral part of the financial statements. Kenanga Growth Fund Annual Report 16

22 7.4 STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 MAY 2016 CASH FLOWS FROM OPERATING AND INVESTING ACTIVITIES Note RM RM Proceeds from sale of fi nancial assets at FVTPL 386,337, ,131,419 Dividends received 14,330,932 6,432,939 Proceeds from the maturity of deposit placements 10,000,000 - Interest received 4,957,412 2,930,474 Tax agent s fee paid (8,900) (3,400) Auditors remuneration paid (12,000) (12,000) Trustee s fee paid (277,754) (192,200) Payment for other fees and expenses (615,357) (97,624) Manager s fee paid (8,358,963) (5,502,891) Deposit placements (35,046,232) - Purchase of fi nancial assets at FVTPL (496,499,971) (404,167,831) Net cash used in operating and investing activities (125,193,789) (135,481,114) CASH FLOWS FROM FINANCING ACTIVITIES Cash received from units created 237,670, ,158,307 Cash paid on units cancelled (70,990,735) (85,766,966) Distribution paid (155,600) (187,736) Net cash generated from fi nancing activities 166,523, ,203,605 NET INCREASE IN CASH AND CASH EQUIVALENTS 41,330,086 66,722,491 CASH AND CASH EQUIVALENTS AT BEGINNING OF THE FINANCIAL YEAR 119,697,097 52,974,606 CASH AND CASH EQUIVALENTS AT END OF THE FINANCIAL YEAR 161,027, ,697,097 Cash and cash equivalents comprise: Cash at bank 1,686,920 2,941,135 Short term deposits 9 159,340, ,755, ,027, ,697,097 The accompanying notes form an integral part of the financial statements. 17 Kenanga Growth Fund Annual Report

23 7.5 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 MAY THE FUND, THE MANAGER AND THEIR PRINCIPAL ACTIVITIES Kenanga Growth Fund ( the Fund ) was constituted pursuant to the executed Deed dated 30 December 1999 (collectively, together with deeds supplemental thereto, referred to as the Deed ) between the Manager, Kenanga Investors Berhad and HSBC (Malaysia) Trustee Berhad ( the Trustee prior to 3 December 2013). The Fund changed its trustee to CIMB Commerce Trustee Berhad ( the Trustee with effect from 3 December 2013). The aforesaid change was effected on 3 December 2013 via a Second Master Supplemental Deed dated 19 November The Fund commenced operations on 17 January 2000 and will continue to be in operation until terminated as provided under Clause 12 of the Deed. Kenanga Investors Berhad is a wholly-owned subsidiary of Kenanga Investment Bank Berhad, which in turn is a wholly-owned subsidiary of K & N Kenanga Holdings Berhad that is listed on the Main Market of Bursa Malaysia Securities Berhad. All of these companies are incorporated in Malaysia. The principal place of business of the Manager is Suite 12.02, 12th Floor, Kenanga International, Jalan Sultan Ismail, Kuala Lumpur. The Fund seeks to provide unitholders with long term capital growth. The fi nancial statements were authorised for issue by the Chief Executive Offi cer of the Manager on 27 July FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Fund is exposed to a variety of risks including market risk (which includes interest rate risk and price risk), credit risk and liquidity risk. Whilst these are the most important types of fi nancial risks inherent in each type of fi nancial instruments, the Manager and the Trustee would like to highlight that this list does not purport to constitute an exhaustive list of all the risks inherent in an investment in the Fund. The Fund has an approved set of investment guidelines and policies as well as internal controls which sets out its overall business strategies to manage these risks to optimise returns and preserve capital for the unitholders, consistent with the long term objectives of the Fund. Kenanga Growth Fund Annual Report 18

24 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) a. Market Risk Market risk is the risk that the fair value or future cash fl ows of a fi nancial instrument will fl uctuate because of changes in market prices. Market risk includes interest rate risk and price risk. Market risk arises when the value of the investments fl uctuates in response to the activities of individual companies, general market or economic conditions. It stems from the fact that there are economy-wide perils, which threaten all businesses. Hence, investors are exposed to market uncertainties. Fluctuation in the investment s price caused by uncertainties in the economic, political and social environment will affect the NAV of the Fund. The Manager manages the risk of unfavourable changes in prices by cautious review of the investments and continuous monitoring of their performance and risk profi les. i. Interest rate risk Interest rate risk refers to how the changes in the interest rate environment would affect the valuation of the Fund s investments. Rates offered by the fi nancial institutions will fl uctuate according to the Overnight Policy Rate determined by Bank Negara Malaysia and this has direct correlation with the Fund s investments in deposits. The Fund is not exposed to signifi cant interest rate risk as its deposits are short term in nature and have fi xed interest rates. Interest rate risk exposure The following table analyses the Fund s interest rate risk exposure. The Fund s assets and liabilities are disclosed at fair value and categorised by the earlier of contractual re-pricing or maturity dates. 19 Kenanga Growth Fund Annual Report

25 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) a. Market Risk (Contd.) i. Interest rate risk (Contd.) Interest rate risk exposure (Contd.) Weighted Non- average exposure to effective Up to interest rate interest 1 year movement Total rate* RM RM RM % 2016 Assets Financial assets at FVTPL - 475,491, ,491,614 Short term deposits 184,386, ,386, Other assets - 5,648,661 5,648, ,386, ,140, ,526,770 Liabilities Other liabilities - 6,418,792 6,418,792 Total interest rate sensitivity gap 184,386, ,721, ,107, Assets Financial assets at FVTPL - 357,653, ,653,431 Short term deposits 116,755, ,755, Other assets - 13,736,007 13,736, ,755, ,389, ,145,400 Liabilities Other liabilities - 5,681,288 5,681,288 Total interest rate sensitivity gap 116,755, ,708, ,464,112 * Computed based on assets with exposure to interest rate movement only Kenanga Growth Fund Annual Report 20

26 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) a. Market Risk (Contd.) ii. Price risk Price risk is the risk of unfavorable changes in the fair values of quoted equity securities, quoted collective investment schemes and quoted warrants. The Fund invests in quoted equity securities, quoted collective investment schemes and quoted warrants which are exposed to price fl uctuations. This may then affect the NAV per unit of the Fund. Price risk sensitivity The Manager s best estimate of the effect on the profi t for the fi nancial year due to a reasonably possible change in investments in quoted equity securities, quoted collective investment schemes and quoted warrants with all other variables held constant is indicated in the table below. Changes in price Increase/(decrease) Basis points Effects on profit for the financial year Increase/(decrease) RM 2016 Financial assets at FVTPL 5/(5) 237,746/(237,746) 2015 Financial assets at FVTPL 5/(5) 178,827/(178,827) In practice, the actual trading results may differ from the sensitivity analysis above and the difference could be material. Price risk concentration The following table sets out the Fund s exposure and concentration to price risk based on its portfolio of fi nancial instruments as at the reporting date. Fair value Percentage of NAV RM RM % % Financial assets at FVTPL 475,491, ,653, Kenanga Growth Fund Annual Report

27 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) a. Market Risk (Contd.) ii. Price risk (Contd.) Price risk concentration (Contd.) The Fund s concentration of price risk from the Fund s quoted equity securities, quoted collective investment schemes and quoted warrants analysed by sector is as follows: Fair value Percentage of NAV RM RM % % Trading/Services 119,872, ,302, Constructions 106,365,414 47,343, Industrial products 89,563,426 58,907, Finance 55,477,982 22,165, Properties 36,346,494 26,069, Consumer products 29,653,325 25,374, Infrastructure 16,448,836 19,355, Plantations 11,466,640 4,434, Special Purpose Acquisition Company 3,868, Technology 3,173,399 50,175, Real Estate Investment Trusts 3,000, Warrants 254, , ,491, ,653, b. Credit Risk Credit risk is the risk that the counterparty to a fi nancial instrument will cause a fi nancial loss to the Fund by failing to discharge an obligation. The Manager manages the credit risk by undertaking credit evaluation to minimise such risk. i. Credit risk exposure As at the reporting date, the Fund s maximum exposure to credit risk is represented by the carrying amount of each class of fi nancial asset recognised in the statement of fi nancial position. ii. Financial assets that are either past due or impaired As at the reporting date, there are no fi nancial assets that are either past due or impaired. Kenanga Growth Fund Annual Report 22

28 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) b. Credit Risk (Contd.) iii. Credit quality of financial assets The Fund invests in deposits with fi nancial institutions licensed under the Financial Services Act 2013 and Islamic Financial Services Act The following table analyses the licensed fi nancial institutions by rating category: Short term deposits Percentage of total short term deposits Percentage of NAV RM RM % % Rating P c. Liquidity Risk Liquidity risk is defined as the risk that the Fund will encounter difficulty in meeting obligations associated with financial liabilities that are to be settled by delivering cash or another financial asset. Exposure to liquidity risk arises because of the possibility that the Fund could be required to pay its liabilities or cancel its units earlier than expected. The Fund is exposed to cancellation of its units on a regular basis. Units sold to unitholders by the Manager are cancellable at the unitholders option based on the Fund s NAV per unit at the time of cancellation calculated in accordance with the Deed. The liquid assets comprise cash, deposits with licensed fi nancial institutions and other instruments, which are capable of being converted into cash within 7 days. The following table analyses the maturity profi le of the Fund s fi nancial assets and fi nancial liabilities in order to provide a complete view of the Fund s contractual commitments and liquidity. Up to 1 year Note RM RM Assets Financial assets at FVTPL 475,491, ,653,431 Short term deposits 184,386, ,755,962 Other assets 5,648,661 13,736,007 (i) 665,526, ,145,400 Liabilities Other liabilities (ii) 6,418,792 5,681,288 Equity (iii) 659,060, ,463, Liquidity gap 47, Kenanga Growth Fund Annual Report

29 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) c. Liquidity Risk (Contd.) i) Financial assets Analysis of fi nancial assets at FVTPL into maturity groupings is based on the expected date on which these assets will be realised. The Fund s investments in quoted equity securities, quoted collective investments schemes and quoted warrants have been included in the up to 1 year category on the assumption that these are highly liquid investments which can be realised should all of the Fund s unitholders equity be required to be redeemed. For other assets, the analysis into maturity groupings is based on the remaining period from the end of the reporting period to the contractual maturity date or if earlier, the expected date on which the assets will be realised. ii) Financial liabilities The maturity grouping is based on the remaining period from the end of the reporting period to the contractual maturity date or if earlier, the date on which liabilities will be settled. When the counterparty has a choice of when the amount is paid, the liability is allocated to the earliest period in which the Fund can be required to pay. iii) Equity As the unitholders can request for redemption of their units, they have been categorised as having a maturity of up to 1 year. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Basis of Accounting The fi nancial statements of the Fund have been prepared in accordance with Malaysian Financial Reporting Standards ( MFRS ) as issued by the Malaysian Accounting Standards Board ( MASB ) and International Financial Reporting Standards ( IFRS ) issued by the International Accounting Standards Board ( IASB ). The accounting policies adopted are consistent with those of the previous fi nancial year except for the adoption of the new and amended MFRS which became effective for the Fund on 1 June The adoption of the new and amended MFRS did not have any signifi cant impact on the fi nancial position or performance of the Fund. The fi nancial statements have been prepared on the historical cost basis except as disclosed in the accounting policies below. Kenanga Growth Fund Annual Report 24

30 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) b. Standards and Amendments Issued But Not Yet Effective As at the reporting date, the following Standards and Amendments that have been issued by MASB will be effective for the Fund in future fi nancial periods. The Fund intends to adopt the relevant standards when they become effective. Description Effective for financial period beginning on or after Amendments to MFRS contained in the documents entitled Annual Improvements to MFRSs Cycle 1 January 2016 MFRS 14: Regulatory Deferral Accounts 1 January 2016 Amendments to MFRS 10, MFRS 12 and MFRS 128: Investment Entities: Applying the Consolidation Exception 1 January 2016 Amendments to MFRS 11: Accounting for Acquisitions of Interests in Joint Operations 1 January 2016 Amendments to MFRS 101: Disclosure Initiative 1 January 2016 Amendments to MFRS 116 and MFRS 138: Clarifi cation of Acceptable Methods of Depreciation and Amortisation 1 January 2016 Amendments to MFRS 116 and MFRS 141: Agriculture: Bearer Plants 1 January 2016 Amendments to MFRS 127: Equity Method in Separate Financial Statements 1 January 2016 Amendments to MFRS 107: Disclosure Initiative 1 January 2017 Amendments to MFRS 112: Recognition of Deferred Tax Assets for Unrealised Losses 1 January 2017 MFRS 9: Financial Instruments 1 January 2018 MFRS 15: Revenue from Contracts with Customers 1 January 2018 MFRS 16: Leases 1 January 2019 Amendments to MFRS 10 and MFRS 128: Sale or Contribution of Assets between an Investor To be announced and its Associate or Joint Venture by MASB The Fund will adopt the above pronouncements when they become effective in the respective fi nancial periods. These pronouncements are not expected to have any signifi cant impact to the fi nancial statements of the Fund upon their initial application, other than MFRS 9. MFRS 9 replaces MFRS 139 on the following requirements: classifi cation and measurement of fi nancial assets and fi nancial liabilities as defi ned in MFRS 139, impairment methodology and hedge accounting. The Fund is in the process of making an assessment of the impact of this Standard. 25 Kenanga Growth Fund Annual Report

31 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) c. Financial Assets Financial assets are recognised in the statement of fi nancial position when, and only when, the Fund becomes a party to the contractual provisions of the fi nancial instruments. When fi nancial assets are recognised initially, they are measured at fair value, plus, in the case of fi nancial assets not at FVTPL, directly attributable transaction costs. The Fund determines the classifi cation of its fi nancial assets at initial recognition. i. Financial assets at FVTPL Financial assets are classifi ed as fi nancial assets at FVTPL if they are held for trading or are designated as such upon initial recognition. Financial assets held for trading include quoted equity securities, quoted collective investment schemes and quoted warrants acquired principally for the purpose of selling in the near term. Subsequent to initial recognition, fi nancial assets at FVTPL are measured at fair value. Changes in the fair value of those fi nancial instruments are recorded in profi t or loss. Interest earned and dividend revenue elements of such instruments are recorded separately in interest income and dividend income, respectively. ii. Receivables Financial assets with fi xed or determinable payments that are not quoted in an active market are classifi ed as receivables. Subsequent to initial recognition, receivables are measured at amortised cost using the effective interest method. Gain or loss is recognised in profi t or loss when the receivable is derecognised or impaired, and through the amortisation process. A fi nancial asset is derecognised when the contractual right to receive cash fl ows from the asset has expired. On derecognition of a fi nancial asset, the difference between the carrying amount and the sum of the consideration received is recognised in profit or loss. Kenanga Growth Fund Annual Report 26

32 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) d. Impairment of Financial Assets The Fund assesses at each reporting date whether there is any objective evidence that a fi nancial asset is impaired. To determine whether there is objective evidence that an impairment loss on fi nancial assets has been incurred, the Fund considers factors such as the probability of insolvency or signifi cant fi nancial diffi culties of the debtor and default or signifi cant delay in payments. If any such evidence exists, the amount of impairment loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash fl ows discounted at the fi nancial asset s original effective interest rate. The impairment loss is recognised in profi t or loss. The carrying amount of the fi nancial asset is reduced by the impairment loss directly for all fi nancial assets, with the exception of receivables, where the carrying amount is reduced through the use of an allowance account. When a receivable becomes uncollectible, it is written off against the allowance account. If, in a subsequent year, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed to the extent that the carrying amount of the assets does not exceed its amortised cost at the reversal date. The amount of reversal is recognised in profi t or loss. e. Income Income is recognised to the extent that it is probable that the economic benefi ts will fl ow to the Fund and the income can be reliably measured. Income is measured at the fair value of consideration received or receivable. Interest income is recognised using the effective interest method. Dividend income is recognised on declared basis, when the right to receive the dividend is established. The realised gain or loss on sale of investments is measured as the difference between the net disposal proceeds and the carrying amount of the investment. f. Cash and Cash Equivalents For the purposes of the statement of cash fl ows, cash and cash equivalents include cash at bank and short term deposits with licensed fi nancial institutions with insignifi cant risk of change in value. 27 Kenanga Growth Fund Annual Report

33 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) g. Income Tax Income tax on the profi t or loss for the fi nancial year comprises current tax. Current tax is the expected amount of income taxes payable in respect of the taxable profit for the fi nancial year. As no temporary differences have been identifi ed, no deferred tax has been recognised. h. Unrealised Reserves Unrealised reserves represent the net gain or loss arising from carrying investments at their fair values at reporting date. This reserve is not distributable. i. Financial Liabilities Financial liabilities are classifi ed according to the substance of the contractual arrangements entered into and the defi nitions of a fi nancial liability. Financial liabilities are recognised in the statement of fi nancial position when, and only when, the Fund becomes a party to the contractual provisions of the fi nancial instrument. The Fund s fi nancial liabilities are classifi ed as other fi nancial liabilities. The Fund s fi nancial liabilities are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. A fi nancial liability is derecognised when the obligation under the liability is extinguished. Gains and losses are recognised in profi t or loss when the liabilities are derecognised, and through the amortisation process. j. Unitholders Contribution NAV Attributable to Unitholders The unitholders contribution to the Fund is classifi ed as equity instruments. Distribution equalisation represents the average amount of undistributed net income included in the creation or cancellation price of units. This amount is either refunded to unitholders by way of distribution and/or adjusted accordingly when units are released back to the Trustee. k. Functional and Presentation Currency The fi nancial statements of the Fund are measured using the currency of the primary economic environment in which the Fund operates ( the functional currency ). The fi nancial statements are presented in Ringgit Malaysia ( RM ), which is also the Fund s functional currency. l. Distributions Distributions are at the discretion of the Manager. A distribution to the Fund s unitholders is accounted for as a deduction from retained earnings. Kenanga Growth Fund Annual Report 28

34 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) m. Significant Accounting Judgments and Estimates The preparation of fi nancial statements requires the use of certain accounting estimates and exercise of judgment. Estimates and judgments are continually evaluated and are based on past experience, reasonable expectations of future events and other factors. i. Critical judgments made in applying accounting policies There are no major judgments made by the Manager in applying the Fund s accounting policies. ii. Key sources of estimation uncertainty There are no key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a signifi cant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next fi nancial year. 4. FINANCIAL ASSETS AT FVTPL RM RM Financial assets held for trading, at FVTPL: Quoted equity securities 472,236, ,127,994 Quoted collective investment schemes 3,000,578 - Quoted warrants 254, , ,491, ,653,431 Net gain on fi nancial assets at FVTPL comprised: Realised gain on disposals 31,514,754 24,210,652 Unrealised changes in fair values (22,836,333) 16,097,448 8,678,421 40,308,100 Details of financial assets at FVTPL as at 31 May 2016: Quoted equity securities Aggregate Percentage Quantity cost Fair value of NAV RM RM % Trading/Services Berjaya Auto Berhad 3,902,500 8,868,570 9,326, Brahim s Holdings Berhad 1,127,100 1,092,485 1,093, Bumi Armada Berhad 5,244,000 5,333,344 3,408, Chin Hin Group Berhad 5,125,700 3,758,613 4,151, Cypark Resources Berhad 1,160,700 2,185,647 2,228, Datasonic Group Berhad 5,523,500 7,733,116 7,346, Gas Malaysia Berhad 292, , , Kenanga Growth Fund Annual Report