Gulf Investment Fund

Gulf Investment Fund PLC

26 February 2021

Legal Entity Identifier: 2138009DIENFWKC3PW84

Gulf Investment Fund plc

Interim report for the six months ended 31 December 2020

-      Net asset value increased by 22 per cent vs. benchmark increase of 17 per cent.

-      Share price up by 17.5 per cent.

-      Final dividend of 3c a share to be paid on 5 March 2021.

-      GIF share price trading at 10.9 per cent discount to NAV vs. the five-year average discount of 13.1 per cent.

Nicholas Wilson, Chairman of Gulf Investment Fund plc, commented:

"This was another period of outperformance. 

Investing in the region is not just all about oil. It is about the process of diversification, infrastructure spending, expansion of the non-oil and gas sector, privatization, and economic, social, and capital market reforms.  The region also offers good dividend returns, with an estimated 4.9% yield for 2021 for GCC markets as whole, versus 2.2% for emerging markets generally (MSCI EM) and 1.9% for MSCI World.

We expect oil prices will recover in 2021 on the back of economic recovery and that the regional narrative will change from austerity to growth with economic momentum growing.

"The Board continue to view the future of the Company with confidence expecting improved growth in the region as a whole, as the vaccine continues to be rolled out and GCC economies fully reopen."

Enquiries:

Nicholas Wilson

Gulf Investment Fund Plc

+44 (0) 1624 622 851

William Clutterbuck / Alasdair Lennon

Maitland/AMO

+44 (0) 20 7379 5151

[email protected]

Chairman's Statement

On behalf of the board, I am pleased to present the interim results for Gulf Investment Fund Plc ("GIF") for the six months ending 31 December 2020.

Results

For the six months ending 31 December 2020, Net Asset Value per Share ("NAV") rose by 22% to 1.5069 compared with a rise of 17% in the S&P GCC Composite Index. Following a slight widening of the discount at which GIF shares trade to NAV, the share price rose 17.5% in the period.

At the Annual General Meeting on 13 November 2020 a final dividend of USD 3.0 cents per ordinary share for the year ended 30 June 2020 was approved. The dividend will be paid on 5 March 2021 with an ex-dividend date of 4 February 2021.

The main corporate event of the period was a 100% tender offer approved by shareholders at an extraordinary general meeting on 10 December 2020. As announced on 21 January 2021, of the 40,643,418 shares tendered 5,757,536 shares were transferred into treasury with the balance of 34,885,882 shares being cancelled. As a result, the total number of shares with voting rights is now 51,817,824.

Markets in the GCC region benefited from steadying hydrocarbon prices and improving trends in global stock markets. At the end of the period, GIF had 32 holdings: 15 in Saudi Arabia, 8 in Qatar, 2 in Kuwait and 7 in the UAE.

Outlook, risks and uncertainties

Fluctuations in oil and gas prices will continue to affect GCC economies as countries deal with budget deficits. The geopolitics of the region, despite the resolution of the Qatar blockade, remain an area of risk.

The main risks and uncertainties faced by the Company are: 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.

That said the Board continues to view the future of the Company with confidence expecting improved growth in the region as a whole, as progress in the non-hydrocarbon sector in a number of GCC members helps to balance their economies.

As disclosed in the Circular, the Board committed to implement certain proposals, including the introduction of an enhanced dividend policy, targeting an annual dividend equivalent to 4 per cent. of its Net Asset Value at the end of the preceding year and the introduction of a semi-annual 100 per cent. liquidity mechanism. The Board expect to make a further announcement in relation to the implementation of these proposals as soon as practicable.

Nicholas Wilson

Chairman

25 February 2021

Director's Responsibility Statement

The Directors confirm that, to the best of their knowledge:

a)             the condensed set of financial statements has been prepared in accordance with IAS 34;

b)           the interim management report and Chairman's statement include a fair review of the information required by the Disclosure and Transparency Rule 4.2.7R (indication of important events during the first six months and a description of the principal risks and uncertainties for the remaining six months of the year respectively);

c)            in accordance with Disclosure and Transparency Rule 4.2.8R there have been no related party transactions during the six months to 31 December 2020 and therefore nothing to report on any material effect by such a transaction on the financial position or the performance of the Company during that period; and there have been no changes in this position since the last Annual Report that could have a material effect on the financial position or performance of the Company in the first six months of the current financial year.

d)            in accordance with Disclosure and Transparency Rule 6.4.2, the Company confirms that its Home State is the United Kingdom.

The interim financial report has not been audited by the Company's Independent Auditor.

Nicholas Wilson

Chairman

25 February 2021

Report of the Investment Manager and the Investment Adviser

Regional Market Overview

The year 2020 was an extraordinary one for the global markets. The unprecedented stimulus measures and vaccine breakthroughs following the coronavirus crash led to a rapid rebound in stocks sending them to record highs. The MSCI World Index gained 14.1 per cent. The MSCI Emerging Markets Index followed global markets higher, up 15.8 per cent. Brent recovered at the end of the year but still closed the year 21.5 per cent lower than at the start of 2020.

GCC markets had a mixed performance. Most remained in the red for much of the year, hit by coronavirus and the oil price decline. Saudi Arabia outperformed its GCC peers, gaining 3.6 per cent in 2020, while Qatar was flat in 2020 and other GCC markets ended the year in the red.

Source: Bloomberg

GCC Budget and Economic Update

GCC countries delivered a comprehensive response to limit the spread and impact of the coronavirus including strict lockdown measures, and also launched a series of relief measures for businesses and individuals. These stimulus packages added to governments' existing spending commitments, even as public revenues declined as the oil price fell and lockdowns impacted domestic economic activity. Despite the emergency response that dominated the year, GCC governments' core policy of diversification away from the oil sector continued.

Saudi Arabia's 2021 budget shows a continued commitment to achieving fiscal stability and sustainable long-term economic growth amid oil market volatility. Planned expenditure for 2021 is US$264 billion, with focus on promoting economic growth and better spending efficiency.

Table: Saudi Arabia Budget 2021 and Medium Term Projections

Source: Saudi Arabia MoF; Table contains budgeted numbers for respective year

Spending in Saudi remains focused on building the non-oil economy, which will support higher economic and social returns, as well as job creation. The government is committed to spending on healthcare and education, as part of the Vision 2030 objectives of creating a better quality of life and a diversified economy with higher local content.

The budget deficit in 2021 is expected to be US$38 billion (4.9 per cent of the estimated 2021 GDP), an improvement on US$79 billion (12 per cent of GDP) expected for 2020, owing largely to improving oil revenues. Public debt in 2021 is expected to reach US$250 billion (32.7 per cent of the estimated 2021 GDP) vs. US$228 billion (34.3 per cent of GDP) estimated for 2020 and 22.8 per cent of GDP in 2019.

Real GDP growth in Saudi is expected to reach 3.2 per cent in 2021 driven by economic recovery and strengthening of the private sector. The Investment Adviser agrees with the government's sentiment of driving economic growth by increasing the role of the private sector.

Saudi Arabia's PMI (Purchasing manager's Index) rose to 57.0 in December from 54.7 in November, the highest reading since November 2019.  Output and new work rose sharply in December, with the latter driven by increased domestic demand as new export order growth was slower than in November. Firms increased purchasing activity and inventories on the back of increased demand.

Embedded image removed - please refer to the Company's website www.gulfinvestmentfundplc.com for Chart: PMI data shows recovering regional economic activity and positive risk sentiment

The UAE PMI rose to 51.2 in December from 49.5 in November, as output witnessed a solid rise underpinned by rising new orders.

Qatar's PMI eased slightly from 52.5 in November to 51.8 in December, broadly in line with the fourth quarter average of 51.9 and well above the long-run trend level of 49.6.

Dubai and the UAE approved several structural reforms in 2020 including allowing foreign investors to own 100 per cent of onshore companies in some sectors and new more flexible visa regulations. These measures should start yielding benefits in 2021. The new agreement with Israel has already led to an estimated 50,000 visitors from there, which has helped to offset the decline in visitor numbers from traditional markets. Finally, Dubai's Expo2020 is set to go ahead from October 2021, which should spur the recovery in tourism in 2H2021. Dubai began rolling out coronavirus vaccines in December 2020, and as the vaccination program in other countries continue, it is expected that restrictions in the UK, Europe and elsewhere would start to see some easing in Q1 2021.  With the global economy likely to rebound from 2H2021, accordingly, the outlook for Dubai's transport, logistics and hospitality sectors looks brighter.           

Additionally, the central bank of UAE (CBUAE) extended parts of the Targeted Economic Support Scheme. Under this extension, the CBUAE will extend the duration of the zero cost facility of AED50 billion (US$13.5 billion), which benefits retail and corporate banking customers and facilitates liquidity management for banks through collateralised funding at zero cost, for an additional period of six months.

The Dubai government has approved a budget of US$15.6 billion for 2021 with an estimated deficit of US$1.3 billion. The 2021 budget makes a provision for a 1.6 per cent increase in total expenditure over the revised budget of 2020 (US$15.3 billion). Revenues are expected to recover in 2021 as activity normalises.  Total revenue is projected at US$14.3 billion in 2021, almost 70 per cent of which is non-tax (fee income, investment income and oil & gas income). Dubai government expects GDP to shrink by 6.2 per cent in 2020 before recovering 4 per cent in 2021.

Table: Dubai budget 2021

Source: Dubai MoF; Table contains budgeted numbers for respective year

The UAE Cabinet also approved the US$15.8 billion federal budget for 2021. This focuses on social and economic development. The budget aims to expand development plans and projects to raise the standard of living for Emiratis and residents. A large share of the 2021 budget will be allocated to social development including social welfare, health and education.

Qatar's 2021 budget sees huge spending on major projects, as well as on education and health, affirming the importance of these sectors. US$19.8 billion has been allocated for major projects, a 37 per cent of the total expenditure worth US$53.5 billion. The budget also allocated funds to develop citizens' lands by providing an integrated infrastructure of water, electricity, sewage, roads, and all other facilities in different regions of the country. Development of these lands will lead to the expansion of residential communities, which would enhance urban expansion.

Table: Qatar budget 2021

Source: Qatar MoF; Table contains budgeted numbers for respective year

The Investment Adviser believes Qatar's new budget showcases its resilience and durability.

Oman's government drew up a budget for 2021 with the objective of economic expansion and efficient spending. Higher non-oil revenues, economic growth and diversification, optimal public spending, increasing domestic and foreign investment and enabling the private sector to help achieve economic growth and job creation were the key goals. Public expenditures are expected at US$28.3 billion, while revenues are expected to reach US$22.5 billion, leaving a deficit of US$5.8 billion. The implementation of 5 per cent VAT in 2021 is expected to add US$779 million in tax revenue.

Table: Oman budget 2021

Source: Oman MoF; Table contains budgeted numbers for respective year

Oman also announced a new medium-term fiscal plan (National Plan for Fiscal Balance 2020-2024) with an introduction of the GCC's first income tax on wealthy individuals from 2022. The Sultanate aims to bring the budget deficit down to 1.7 per cent of GDP by 2024. Oman also plans to raise debt in 2021 outside of the government's balance sheet by transferring its 60 per cent stake in Block 6, the largest oil-producing block (650k barrels per day) to a new entity that could then tap international capital markets.

The Oman government will start reducing power and water subsidies in January 2021, in line with the medium-term fiscal plan. Initially, households earning more than US$3,260 per month will not be entitled to a subsidy, and by 2025, all utility subsidies are to be phased out.

Saudi led quartet ended Qatar's 43-month blockade

On January 5, GCC leaders signed a solidarity and stability agreement to end a 43-month long blockade against Qatar. The Investment Adviser believes the end of the blockade will bring political stability in the region and build a stronger GCC block. The opening of airspace and land borders will help tourism (both leisure and business) and trade & investment in the region. Real estate and hospitality sectors will benefit as the pandemic eases and GCC tourists start to visit Qatar. Additionally, Qatari bank's funding and liquidity profile would also get a boost. Qatari banking system had witnessed ~US$30 billion outflow of deposits when the blockade was imposed which was managed by ~US$40 billion liquidity injection by the government.

GCC Other Economic Update 2H20

UAE ADNOC oil discovery of 2 billion barrels -boosting reserves to 107 billion

UAE's state-run ADNOC discovered 2 billion barrels of oil boosting reserves to 107 billion, in addition to 22 billion barrels of unconventional crude. Abu Dhabi's Supreme Petroleum Council approved US$122 billion of capex for 2021-25.

OPEC+ agrees to increase output by 500,000 bpd starting January 2021

In light of the current oil market fundamentals and the outlook for 2021, OPEC+ countries agreed to adjust production by 500,000 bpd, starting January 2021. This will bring down the total production cuts at the start of 2021 to 7.2 million bpd. from earlier 7.7 million bpd.

Saudi Arabia to cut production in February and March 2021

Saudi Arabia committed to extra, voluntary oil output cuts of 1 million bpd in February and March as part of a deal under which most OPEC+ producers will hold production steady during new lockdowns. Brent hit 11-month high to close the week ending 8^th January 2021 at US$56 per barrel.

Saudi Arabia to Saudise' accountancy profession

The Ministry of Human Resources and Social Development decided to Saudise the accountancy profession, targeting to create, initially, around 10,000 jobs for Saudis. This comes in line with the government's strategy and additional professions are expected to follow in 2021.

Saudi Arabia increased the size of weekly bill offering

SAMA increased the size of its weekly bill offering from SAR3 billion to 10 billion to help banks manage their liquidity, which has increased recently, partly driven by SAMA's support initiatives that included providing banks with interest-free deposits.

Bahrain extends loan repayment deferrals by additional 6 months

The Central Bank of Bahrain extended loans repayment deferral by an additional six months starting January to help corporate and individual borrowers manage with the impact of the health crisis.

Masraf Al Rayan and Al Khaliji entered into merger agreement

On 7^th January 2021, the Boards of Masraf Al Rayan (MARK) and Al Khaliji (KCBK) approved a merger agreement to create the largest Shari'ah-compliant bank in Qatar with combined assets worth around QAR172 billion (US$47 billion). Following the merger, KCBK's business will be absorbed into MARK's business. MARK will issue 0.50 shares for every KCBK share, corresponding to a total of 1,800 million new shares to be issued to KCBK shareholders.

Saudi Arabia announced initiatives to support Industrial and Tourism sectors 

A SAR3.7 billion Saudi Industrial Development Fund (SIDF) was announced to support 536 private sector industrial enterprises hit by the pandemic. A new Saudi Tourism Development Fund with initial capital of US$4 billion was also announced. The latter Fund recently signed a US$43bn deal for tourism development projects. The Fund aims to provide investment to develop the tourism sector with the support of private and investment banks. Tourism is a key driver of Vision2030, and the Fund can be expected to play an important role in attracting and supporting investments, incentivizing the development of, and overcoming some of the challenges facing the Saudi tourism sector. Domestic and international businesses involved in the tourism and related sectors are expected be the key beneficiaries of this initiative. Additionally, the Saudi Ministry of Environment, Water and Agriculture announced 94 agricultural investment opportunities to the private sector.

Saudi Arabia excluded property deals from VAT

Saudi Arabia excluded property deals from VAT and introduced a new 5 per cent tax on transactions to boost the property sector and help citizens seeking to buy homes. The government will also waive the cost of the new Real Estate Transaction Tax for Saudi citizens purchasing their first home, provided that the amount does not exceed SAR1 million (US$266,442). This measure supports the country's vision of increasing home ownership to 70 per cent by 2030.

Saudi bourse Tadawul officially launches derivatives market

Saudi Arabia launched the country's first exchange traded derivative market and clearing house as a part of its strategy to make its equity market more attractive to foreign investors.

UAE signed US$10 billion gas infrastructure deal

The Abu Dhabi National Oil Company signed a US$10 billion gas infrastructure deal with a consortium of investors, backed by an US$8 billion bridge loan provided by 17 banks.

Kuwait Ratings Update

Moody's lowered Kuwait's credit rating to A1 from Aa2, quoting liquidity risks due to the depletion of the General Reserve Fund, the absence of a debt law and broader fiscal reforms taking place amid continued political disputes that have hampered effective policymaking.

Oman Ratings Update

Fitch Ratings cut Oman's credit rating for a second time this year to BB- (outlook negative), citing the "continued erosion of its fiscal and external balance sheets". The ratings agency expects Oman to report a fiscal deficit of 20 per cent of GDP in 2020 versus 9 per cent in 2019.

S&P also cut Oman's credit rating for a second time this year, to B+ (outlook stable), due to the impact of lower oil revenue and the COVID pandemic on the its finances.

Bahrain Ratings Update

Fitch lowered Bahrain's long-term credit rating from BB- to B+, deeper into the non-investment grade zone, due to concerns about the widening fiscal deficit and increasing public debt levels, which continue to weigh on the nation's already low foreign exchange reserves.

Bahrain raised its debt ceiling

The government raised its debt ceiling for the second time in three years, by BHD2 billion to BHD15 billion (US$39.8 billion), in an effort to help plug its public financing gap.

GIF Portfolio structure

Country allocation

GIF's weightings in GCC markets are based on the Investment Adviser's assessment of outlook and valuation. Compared to the benchmark, GIF remained overweight Qatar (33.3 per cent of NAV vs. a S&P GCC Qatar weighting of 13.9 per cent) and overweight UAE (19.2 per cent vs S&P GCC of 11.9 per cent).  GIF is underweight Saudi Arabia (42.0 per cent vs S&P GCC weighting of 60.6 per cent) and Kuwait (5.2 per cent vs S&P GCC of 10.7 per cent).

During the period (2H2020), the Fund's exposure to Saudi Arabia and the UAE was increased by 10.5 per cent and 5.1 per cent, respectively while exposure to Kuwait was reduced by 11.6 per cent. The fund's cash position reduced to 0.4 per cent of NAV as of 31 December 2020 (30 June 2020: 5.5 per cent).

As of 31 December 2020, GIF had 32 holdings: 15 in Saudi Arabia, 8 in Qatar, 2 in Kuwait and 7 in the UAE (vs. 31 holdings in 2Q2020: 13 in Saudi Arabia, 8 in Qatar, 7 in Kuwait and 3 in the UAE).

Embedded image removed - please refer to the Company's website www.gulfinvestmentfundplc.com for a chart depicting country allocation 2020.

Portfolio

Top 5 holdings

Source: QIC

The Investment Adviser follows a detailed bottom-up stock picking strategy, which has led the fund's outperformance in different economic cycles.

In the current scenario, the Investment Adviser believes that markets will remain volatile, and plans to focus on companies with solid balance sheet and stable cash flows, at attractive valuations.

Embedded image removed - please refer to the Company's website www.gulfinvestmentfundplc.com for a chart depicting Sector Allocation.

The Financial sector remained the largest sector allocation for GIF at 31.0 per cent of NAV. The Investment Adviser believes that most GCC banks have strong capital and liquidity buffers to safeguard them from systematic risk. However, lower interest rates along with an expected increase in non-performing loans could impact profitability in the near term. As a result, GIF remained underweight the sector.

The COVID slowdown has accelerated consolidation in the GCC Banking sector. This can be seen from merger talks between National Commercial Bank (NCB) and Samba in Saudi Arabia and recent merger deal between Masraf Al Rayan (MARK) and Alkhalij Commercial Bank (KCBK) in Qatar.

Industrials continued to be the second largest exposure in the fund at 30.8 per cent.

Profile of Top Five Holdings:

Commercial Bank of Qatar (5.3% of NAV)

Commercial Bank of Qatar (CBQ) is the second largest commercial bank in Qatar. Under its 5-year turnaround strategy, it is strengthening its balance sheet by cautiously managing risk. 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. For 2020, CBQ reported net profit of US$357 million (vs. US$555 million in 2019). Excluding US$218 million losses from international operations, 2020 net profit would have been US$575 million. As at 31-December-2020, the Bank has total assets of US$42.2 billion. We expect healthy growth in the bottom line in the forecasted period led by strong growth in loan book and normalisation of provisions as high provision cycle comes to an end.

Qatar Gas Transport (5.0% of NAV)

Qatar Gas Transport Company (Nakilat), established in 2004, is a leader in energy transportation, with the world's largest Liquified Natural Gas (LNG) carrier fleet in operation. This comprises 74 vessels including 69 LNG vessels, 4 LPG vessels and 1 floating storage regasification unit FSRU vessel. It is placed to benefit from increased transport demand arising from Qatar's North Field expansion plan. For 2020, Nakilat reported a net profit of US$318.7 million vs. US$275.3 million in 2019, an increase of 15.8 per cent.

Industries Qatar (5.0% of NAV)

Industries Qatar (IQ) mainly operates in steel, petrochemicals and fertilizers business. We expect favorable financial impact on IQs earnings from recent acquisition of remaining 25 per cent stake in its Fertilizer JV "QAFCO" and extension of feedstock gas arrangements until 2035. Additionally, IQ may seek similar opportunities acquiring remaining stakes in other JVs which would give the company more exposure to petrochemicals. For 2020, IQ reported a net profit of US$542.5 million vs. US$707.3 million in 2019.

Al Khaleej Commercial Bank (5.0% of NAV)

Incorporated in 2007, Al Khalij Commercial Bank (KCBK) is a commercial bank headquartered in Doha, Qatar. Qatari Government entities are major shareholders in the Bank with more than 47 per cent ownership. KCBK's principal business activities include wholesale banking, treasury services and personal banking. KCBK has a network of 4 branches (including the head office) in Qatar, and 3 branches overseas. For 2020, KCBK reported net profit of US$188 million vs. US$178 million in 2019, an increase of 5.7 per cent. As at 31-December-2020, the Bank has total assets of US$15.5 billion. KCBK and MARK recently approved the merger agreement which will create largest Islamic Bank in Qatar with combined assets worth ~US$49 billion as of 4Q2020.

Qatar Insurance (5.0% of NAV)

Qatar Insurance Company (QIC) is a composite insurer with a consistent performance history of over 50 years and a global underwriting footprint. Founded in 1964, QIC was the first domestic insurance company in the State of Qatar. Today, QIC is the market leader in Qatar and a dominant insurer in the GCC and MENA region. QIC is one of the highest rated insurers in the Gulf region with a rating of A/Stable from Standard & Poor's and A (Excellent) from A.M. Best. For 2020, QIC reported a net loss of US$40.5 million vs. a net profit of US$133 million in 2019. The underwriting performance of QIC Global, namely, Qatar Re, Antares, QIC Europe Limited, and the Gibraltar-based insurance companies, was negatively impacted by COVID-19 and the lockdown in key economies. Despite pandemic, QIC was able to grew its Gross Written Premiums by 4 per cent YoY in 9M2020 to QAR 10.2 billion led by hardening of premium rates in the commercial insurance market and the continued expansion of domestic online business, which delivered stable returns.

Performance

NAV rose 22.2 per cent in 2H2020. The fund's benchmark, the S&P GCC index, was up 17.1 per cent.

For 2020, GIF NAV is up 7.8 per cent vs the benchmark index down 1.7 per cent, so GIF outperformed its benchmark by 9.5 per cent.

Looking back to when the investment mandate widened from Qatari-focused to Gulf-wide in December 2017, NAV has risen 59.9 per cent (dividend included), against the S&P GCC total return of 33.1 per cent.

On 31 December 2020, the GIF share price was trading at a 10.9 per cent discount to NAV. The five-year average discount was 13.1 per cent.

Embedded image removed - please refer to the Company's website www.gulfinvestmentfundplc.com for a chart depicting GIF NAV.

Outlook

The Investment Adviser emphasizes that investing in the region is not just all about oil. It is about the process of diversification, infrastructure spending, expansion of the non-oil and gas sector, privatization, and economic, social, and capital market reforms. The Investment Adviser continues to see greater opportunities going forward in the region.

The improving PMI measures in the region are telling

Expansion of the North Field in Qatar will increase Qatar's hydrocarbon production by about 64 per cent in 4 to 5 years. The upcoming FIFA World Cup will generate opportunities for the region and specifically to Qatar. Forecasts indicate that upwards of 1.7 million people could visit Qatar during the tournament with approximately 500,000 visitors in the country on the busiest days. Socio-economic and capital market reforms in Saudi continue to throw up opportunities for long term investors. Valuations in the region and especially in UAE (despite the current challenges being faced) are attractive. Additionally, the pandemic has thrown open opportunities for many sectors looking for consolidation to form stronger entities in order to gain market share and improve operational efficiency. Going forward, we believe consolidation is going to accelerate in multiple sectors in order to increase profitability.

To sum up, these opportunities are compelling when compared to investment opportunities elsewhere given the recent strong rally in the global equity markets which has pushed markets into expensive territory. Additionally, one should not ignore the dollar-linked superior dividend yield in the region.

The Investment Adviser believes that oil prices will recover in 2021 on the back of economic recovery and that the regional narrative will change from austerity to growth with economic momentum gaining foothold from 2021 onwards. GCC markets typically outperform global/EM during risk-off periods, after the initial sharp recovery. This flows from their defensive qualities, which include higher local participation, US$-pegged currencies, low betas versus EM, and low correlation.

Valuations

Source: Bloomberg; Valuations as of 11-February-2021; Market Cap. as at 10-February-2021

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

25 February 2021                                                                                                  25 February 2021

Income Statement

Statement of Financial Position

Statement of Changes in Equity

Statement of Cash Flows

Notes to the Interim Financial Statements

1(a)         Investment at fair value through profit or loss

The Company has one subsidiary, Epicure Qatar Opportunities Holdings Limited ("the Subsidiary"), which holds the portfolio of investments and has the investment management and custodian agreements. The investment in subsidiary is stated at fair value through profit or loss in accordance with the IFRS 10 Investment Entity Consolidation Exception. The fair value of the investment in Subsidiary is based on the year-end net asset value of the Subsidiary as reported by the Administrator. The loan to Subsidiary, with an aggregate principal amount of US$64,570,629 (2019: US$63,154,393), is included within this balance. The loan is subject to interest on the aggregate principal amount drawn down from 1 January 2011, at the US prime rate per annum. All loan repayments made by the Subsidiary will first be deducted from the outstanding loan interest before being applied to the principal balance. The loan is secured by fixed and floating charges over the assets of the Subsidiary and is repayable on demand. Additions and disposals regarding the investment in subsidiary are recognised on trade date.

1(b)         Financial assets at fair value through profit or loss held by the Subsidiary

The Subsidiary holds a portfolio of quoted equities and P-Notes which are classified as fair value through profit or loss. The fair value for quoted equities is based on the current bid price ruling at the year-end without regard to selling prices. The fair value of P-Notes is based on the quoted period-end bid price of the underlying equity to which they relate. P-Notes are promissory notes issued by certain counterparty banks that are designed to offer the holder a return linked to the performance of a particular underlying equity security or market and used where direct investment in the relevant underlying equity security or market is not possible for regulatory or other reasons. To the extent dividends are received on the securities to which the P-Notes are linked, these are taken to investment income.

At 31 December 2020 the Subsidiary held 15 P-Notes with a value of US$32,604,000, (June 2020 14 P-Notes US$37,048,232) held to obtain exposure to Saudi Arabia where direct investment in equities is not possible for foreign investors.

Purchases and sales of investments are recognised on trade date - the date on which the Company commits to purchase or sell the asset. Investments are initially recorded at fair value, and transaction costs for all financial assets and financial liabilities carried at fair value through profit and loss are expensed as incurred.

Gains and losses (realised and unrealised) arising from changes in the fair value of the financial assets are included in the income statement in the year in which they arise.

Investments held by the Subsidiary

31 December 2020: Financial assets at fair value through profit or loss; all quoted equity securities or P-Notes:

2              Net Asset Value per Share

The net asset value per share as at 31 December 2020 is US$1.5069 per share based on 92,461,242 ordinary shares in issue as at that date (30 June 2020: US$1.2323 based on 92,461,242 ordinary shares in issue).

3              Profit per Share

Basic and diluted profit/(loss) per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the period:

4              Other payables and accrued expenses

5              Charges and Fees

Investment management fees and custodian fees borne by the Subsidiary were US$585,762 and US$85,903 respectively (2019: US$569,055 and US$107,636 respectively).

Investment Manager's fees

Annual fees

The Investment Manager is entitled to an annual fee of 0.90% of the net asset value of the Company.

Management fees for the period ended 31 December 2020 amounted to US$585,762 (31 December 2019: US$569,055) and the amount accrued but not paid at the period-end was US$322,754 (31 December 2019: US$297,232). This fee is borne by the Subsidiary.

Custodian fees

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

In addition the Custodian is entitled to receive fees of 8 basis points per annum in respect of Qatari securities held by the Subsidiary and 10 basis points per annum in respect of non-Qatari, GCC securities held by the Subsidiary and $45 per settled transaction (Qatar)/$50 per settled transaction (GCC excluding Qatar). From 1 March 2013 the custodian agreed to a 25% reduction in custodian fees relating to the Qatari market.

Custodian and sub-custodian fees for the period ending 31 December 2020 amounted to US$85,903 (31 December 2019: US$107,635). This fee is borne by the Subsidiary

Administrator and Registrar fees

The Administrator is entitled to receive a fee of 12.5 basis points per annum of the net asset value of the Company between US$0 and US$100 million, 10 basis points of the net asset value of the Company above US$100 million.

This is subject to a minimum monthly fee of US$15,000, payable quarterly in arrears. The Administrator receives an additional fee of £1,200 per month for providing monthly valuation data to the Association of Investment Companies.

5              Charges and Fees continued

Administrator and Registrar fees continued

The Administrator assists in the preparation of the financial statements of the Company and provides general secretarial services.

Administration fees paid for the period ending 31 December 2020 amounted to US$99,665 and US$9,482 for additional services (31 December 2019: US$100,053 and US$9,857 respectively).

Directors' Remuneration

The maximum amount of remuneration payable to the Directors permitted under the Articles of Association is £200,000 per annum.

Nick Wilson as non-executive chairman is entitled to receive an annual fee of £52,500. He also receives an additional fee in respect of his work regarding the Company's share buy-back programme of £10,000 per annum.

Paul Macdonald as non-executive director and chairman of the audit committee was entitled to receive £37,500 per annum. Mr. MacDonald did not stand for re-election as a Director and consequently retired on 20 November 2020.

David Humbles and Neil Benedict in their capacity as non-executive directors receive £35,000 each per annum.

The Directors are each entitled to receive reimbursement of any expenses incurred in relation to their appointment. Total fees and expenses paid to the Directors for the period ended 31 December 2020 amounted to US$98,914 (31 December 2019: US$158,376).

6              Taxation

Isle of Man taxation

The Company is resident for taxation purposes in the Isle of Man by virtue of being incorporated in the Isle of Man and is  subject to taxation at the rate of 0% in the Isle of Man.

7              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 Company 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 (via the Subsidiary) and through common Directors. Fees paid and payable to the Investment Manager are disclosed in note 5.

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

8              The Company

Gulf Investment Fund plc (the "Company") was incorporated and registered in the Isle of Man under the Isle of Man Companies Acts 1931-2004 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 of 1 cent each, 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 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 distributable reserves.

The Shares of the Company were admitted to trading on the Main Market of the London Stock Exchange on 13 May 2011.

On 8 December 2017 the Company's shareholders approved a change in investment policy from a largely Qatar focussed strategy to one which focusses more on a broader Gulf Co-operation Council strategy.

During the period 1 July 2020 to 31 December 2020, the Company purchased none of its ordinary shares.

On 21 January 2021, the Company concluded a tender offer for 40,643,418 shares at a price of US$1.4940 per share. These shares were purchased by the Company and the funds paid to tendering shareholders on 29 January 2021.

The shareholders approved a dividend of 3.0 cents per share on 20 November 2020. This will be paid to shareholders on 5 March 2021.

The Company's agents and the Manager perform all significant functions. Accordingly, the Company itself has no employees.

9              The Subsidiary

The Company has the following subsidiary company:

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.

10            Significant Accounting Policies

The accounting policies applied by the Company in these condensed interim financial statements are the same as those applied by the Company in its financial statements for the year ended 30 June 2020.

Change in presentation from prior period

In the current period the Company has applied the requirements of the IFRS 10 Investment Entity Consolidation Exception regarding the presentation of the financial statements. This has resulted in consolidated financial statements not being presented - with the investment in Subsidiary in the Company's financial statements stated at fair value through profit or loss. In the prior period, the Company financial statements also accounted for the investment in Subsidiary at fair value through profit or loss and the profit and net asset value reported in last period's Company and Consolidated financial statements was the same. Therefore, this change is only a presentational change, with no change to reported numbers.

10.1         Basis of presentation

These financial statements have been prepared in accordance with International Financial Reporting Standard ("IFRS") IAS 34 Interim Financial Reporting. They do not include all of the information required for full annual financial statements and should be read in conjunction with the financial statements of the Company as at and for the year ended 30 June 2020.

In accordance with IFRS 10, 'Consolidated financial statements', the Directors have concluded that the Company falls under the definition of an investment entity because the Company has the following characteristics:

·      the Company has obtained funds for the purpose of providing investors with investment management services;

·      the Company's investing policy, which was communicated directly to investors, is investment solely for returns from capital appreciation and investment income; and

·      the performance of investments is measured and evaluated on a fair value basis.

As a result, the Company does not consolidate its subsidiaries, instead it is required to account for these subsidiaries at fair value through profit or loss in accordance with IFRS 9, 'Financial instruments' and prepares separate company financial statements only.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires the Board of Directors to exercise its judgement in the process of applying the Company's accounting policies. The financial statements do not contain any critical accounting estimates

10.2         Segment reporting

The Company is organised into one operating segment, comprising the investment in a portfolio of equity securities in the GCC region via the wholly owned subsidiary. The financial performance of this portfolio is presented to and monitored by the Board of Directors, being the chief operating decision makers as defined under IFRS 8. All of the Company's activities are interrelated, and each activity is dependent on the others. Accordingly, all significant operating decisions are based upon analysis of the Company as one segment. The financial results from this segment are equivalent to the financial statements of the Company as a whole.

11            Cash and Cash Equivalents

12            Post Balance Sheet Events

On 21 January 2021, the Company concluded a tender offer for 40,643,418 shares at a price of US$1.4940 per share. 5,757,536 shares were transferred into treasury with the balance of 34,885,882 being cancelled. The funds paid to tendering shareholders amounted to US$60,721,266 and was paid on 29 January 2021.

Appendix

Unaudited consolidated financial information

Consolidated Income Statement

Notes:

1)   Consolidated information has been presented to assist the user in interpreting the results of the Company and to be consistent with previous years. This information consolidates the results of the Subsidiary with the Company. It is based on IFRS requirements that would apply if the IFRS 10 consolidation exception for investment entities did not apply to the Company.

2)  Where relevant to understanding the risks of financial instruments held by the Company certain disclosures relating to the subsidiary's assets and liabilities have been given in the notes to the Financial Statements and would be relevant to understanding the consolidated position presented in this appendix.

Consolidated Statement of Comprehensive Income

Consolidated Statement of Financial Position

Consolidated Statement of Cash Flows

Glossary

Alternative performance measures (APM)

An APM is a measure of performance or financial position that is not defined in applicable accounting standards and cannot be directly derived from the financial statements. The Company's APMs are set out below and are cross-referenced where relevant to the financial inputs used to derive them as contained in other sections of the Interim Financial report.

Ongoing charges ratio

Ongoing charges (%) = Annualised ongoing charges divided by Average undiluted net asset value in the period

Ongoing charges are those expenses of a type which are likely to recur in the foreseeable future, whether charged to capital or revenue, and which relate to the operation of the investment company as a collective fund. Ongoing charges are based on costs incurred in the period as being the best estimate of future costs and include the annual management charge. As recommended by the AIC in its guidance, ongoing charges are calculated using the Company's annualised revenue and capital expenses (excluding finance costs, direct transaction costs, custody transaction charges, non-recurring charges and taxation) expressed as a percentage of the average daily net assets of the Company during the period. The inputs that have been used to calculate the ongoing charges percentage are set out in the following table:

*Including expenses of the Subsidiary.

Discount and premium

Shares can frequently trade at a discount to net asset value (NAV). This occurs when the share price (based on the mid-market share price) is less than the NAV and investors may therefore buy shares at less than the value attributable to them by reference to the underlying assets. The discount is the difference between the share price and the NAV, expressed as a percentage of the NAV. As at 31 December 2020, the share price was 1.3400c and the audited NAV per share was 1.5069c, giving a discount of 11.1%. A premium occurs when the share price (based on the mid-market share price) is more than the NAV and investors would therefore be paying more than the value attributable to the shares by reference to the underlying assets.

Period to date net asset value

This is the fall or rise, calculated as a percentage, in value of the Company's assets attributable to one ordinary share since 30 June 2020. The net asset value per share is calculated by dividing 'equity shareholders' funds' by the total number of ordinary shares in issue (excluding treasury shares). The rise in period to date NAV is set out in the table below:

Increase in net asset value since change in investment policy

In December 2017 there was a change in investment policy whereby the Company's underlying subsidiary was able to invest in the broader GCC region rather than being specifically focussed in Qatar. The rise in NAV (dividend included) from 7 December 2019 to 31 December 2020 was 60.2%. The following table shows the movement in NAV (including dividends) in this time: