Schroder Oriental Income Fund Limited (the "Company")
Annual Results
The Company's Annual Financial Report for the year ended 31 August 2024 is being published in hard copy format and an electronic copy will shortly be available to download from the Company's website: www.schroders.co.uk/orientalincome. Please click on the following link to view the document: http://www.rns-pdf.londonstockexchange.com/rns/3881J_1-2024-10-23.pdf
Key highlights
· The Company is pleased to report another period of strong performance. The net asset value (NAV) total return per share for the financial year ended 31 August 2024 was 18.2%, with the share price total return a little lower at 15.3%. These returns compare very favourably with our reference index, the MSCI AC Pacific ex Japan Index in Sterling terms, which rose by just 8.6%.
· Our significant underweight allocation to and strong stock selection in China was a major positive contributor to relative performance, as was stock selection in Taiwan, Korea and Hong Kong.
· In respect of the financial year the Company declared dividends totalling 12.00 pence per share, an increase of 1.7% year on year. This represents a yield of 4.4% on the latest share price. This is the 19th year of unbroken dividend growth.
· Over the financial year, the Company repurchased 11,395,000 shares at an average discount of 6.1%. The Company remains committed to doing so in the future when it is in the best interests of shareholders.
· Following the AGM on 3 December 2024, Paul Meader will be succeeded by Nick Winsor as Chairman of the Company.
Investor presentation
Our portfolio manager, Richard Sennitt, alongside Abbas Barkhordar, will be giving presentations at an investor webinar on Wednesday 4 December 2024 at 2.00 pm, which can be signed up to via the following link: https://www.schroders.events/SOI24.
Paul Meader, Chairman of Schroder Oriental Income Fund Limited, commented:
"Asia remains a vibrant and growing region, largely unfettered by the headwinds, such as huge government debts and weak productivity growth, faced by Europe and North America. The region remains fertile territory for a disciplined stock picker such as Schroders and the Company remains as relevant for investors today as it was at inception."
Enquiries:
Schroder Investment Management Limited
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Charlotte Banks/Kirsty Preston (Press) |
020 7658 2106 |
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Natalia de Sousa (Company Secretary) |
020 7658 6000 |
Chairman's Statement
"A pound invested at the launch of the Company in 2005 would today be worth £6.38 if you had reinvested your dividends. In comparison, the Asian region (as reflected by our reference index) would have produced £4.14 and, interestingly, a pound invested in the FTSE100 Index would be worth just £3.27."
Performance and background
I'm pleased to be able to report another period of strong performance for the Company. The NAV total return per share for the financial year ended 31 August 2024 was 18.2%, with the share price total return a little lower at 15.3%. These returns compare very favourably with our reference index, the MSCI AC Pacific ex Japan Index in sterling terms, which rose by just 8.6%. Much of the market performance came in the second half of the period as the outlook for US interest rates brightened, boosting sentiment in equity markets and weakening the US dollar, which traditionally helps the Asian region. The Portfolio Manager provides a full account of the period in its report below and it does appear that the outlook for Asia is now improving.
This is my last report to you. Following nine years' service, I am not seeking re-election at the Company's Annual General Meeting to be held on 3 December 2024. I have thoroughly enjoyed my time as Chairman and, reflecting over the last nine years, much has changed during that period. To name but a few milestones: globalisation has reversed towards fragmentation and protectionism, the pandemic disrupted global trade, authorities' policy responses and war saw inflation soar and interest rates "normalise" and we saw Richard Sennitt, supported by Abbas Barkhordar, take the reins from Matthew Dobbs as day to day Portfolio Manager of the Company. However, despite all of that, Schroders' approach to managing your money has remained calm, consistent and effective. Schroders continue to use their deep, long-standing Asian expertise to seek quality stocks with reliable and growing income. They are stock-pickers and do not rely upon predicting events or trading based on macro-economic trends. Their approach has proven resilient and the Company has notably outperformed the reference index over one, three, five and ten years, as well as since inception in 2005. It has generated highly attractive returns. Indeed, a pound invested at the launch of the Company in 2005 would today be worth £6.38 if you had reinvested your dividends. In comparison, the Asian region (as reflected by our reference index) would have produced £4.14 and, interestingly, a pound invested in the FTSE100 Index would be worth just £3.27.
Nonetheless, one area that has seen constant evolution of approach is Schroders' embedding of environmental, social, and governance ("ESG") considerations into investment decision making. As we have noted before, Schroders have long considered sustainability as a key factor in investing and, more recently, have invested materially in data and analytics to enhance this input. During the period, the Board deepened its scrutiny of how ESG is integrated into the Manager's investment process in the context of evolving regulation and industry best practice as well as better understanding the influence on our portfolio decision making. More information on this topic can be found in the full set of annual financial statements.
I mentioned earlier that I am handing over the baton and I am pleased to be able to announce that Nick Winsor will succeed me as Chairman from the AGM. Nick has served on the Board since 2020 and is an experienced non-executive following an executive career in financial services in Asia and Europe. During the past financial year, we were sad to say goodbye to Kate Cornish-Bowden who retired as a director and we welcomed Sam Davis to the Board in July this year. Sam was CEO of Putnam Investments Limited and co-head of equities for Putnam. We are delighted that he has agreed to join us and he is already making his mark. Going forward, the Board has a really strong combination of skills and expertise and combines corporate memory and new perspectives.
As the Portfolio Manager notes in his report, payouts from our portfolio have begun to improve again. The recent strengthening of sterling has tempered the benefit of this a little in our hands but, nonetheless, with payout ratios in the Asian region remaining very undemanding, we can have increased confidence in our future earnings stream. This has enabled us, once again, to grow our own dividend to you, even though receipts over the year, once converted into sterling, were down a little relative to the prior year. We retain very robust revenue reserves should receipts dip again in future years. In respect of the financial year we declared dividends totalling 12.00p per share, an increase of 1.7% year on year. This represents a yield of 4.4% on the share price as at 22 October 2024. This is our 19th year of unbroken growth in our dividend. The Board is confident of further dividend growth in the future and that would see us become an "AIC Dividend Hero"1 absent unforeseen circumstances.
Strong performance and an attractive, growing dividend have not been sufficient, however, to narrow our share price discount to NAV. This remains stubbornly in mid single digits and, it would seem, will need to await a turn in the tide of sentiment to the investment trust sector as a whole before it will return to the modest premium that we were accustomed to prior to COVID. In the meantime, the Board has continued to repurchase shares on days where there was a mismatch between buyers and sellers. Over the financial year, the Company repurchased 11,395,000 shares at an average discount of 6.1%. We remain committed to repurchasing shares in the future when we believe that it is in the best interests of shareholders.
Earlier, I noted the strong performance of the Company over its 19 years of life. The question is, looking forward, will this persist? As I hand over the baton, I see no reason why not. Asia remains a vibrant and growing region, largely unfettered by the headwinds, such as huge government debts and weak productivity growth, faced by Europe and North America. And issues that have troubled Asia in the past, like large current account deficits or poor corporate governance, are generally diminishing. China faces challenges in some sectors of its economy and, in the longer term, declining demographics. However, recent years have shown that the rest of the region can begin successfully to uncouple its fortunes from China. Economic cycles will come and go, markets will wax and wane, just as they have since 2005. Yet, the region remains fertile territory for a disciplined stock picker such as Schroders and the Company remains as relevant for investors today as it was at inception.
Finally, I would like thank you for your support and loyalty to the Company. It has been my privilege to serve this Company and I am confident that I leave you in excellent hands as regards both the Board and in the Manager.
Paul Meader
Chairman
23 October 2024
Investment Manager's Review
"Over the past six months, Asian markets have proven to be relatively resilient, making absolute gains and matching global returns."
In what has been a volatile year for Asian markets, I'm happy to be able to say that the Company has achieved strong absolute gains whilst meaningfully outperforming the region. China's economic struggles weighed on broader sentiment but the global drivers of falling interest rate expectations and a robust technology sector, an area where Asia has some of the world's leading companies, saw Asian markets rebound in the second half of 2024, matching global returns.
Against this backdrop, the net asset value per share of the Company recorded a total return of 18.2% over the 12 months to end August 2024 helped by meaningful allocations to Taiwan, which is heavily exposed to the AI theme, and Singapore, where financials were strong. This compared favourably to a regional benchmark which rose 8.6% over the period. Four interim dividends have been declared in respect of the financial year totalling 12.00p (11.80p last year).
This report delves further into the drivers of this performance as well as factors influencing the current investment landscape and the potential implications for investors.
Past performance is not a guide to future performance. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.
At the interim we had said that the backdrop for Asian markets was more constructive, but why did we see a market rally in the second half?
Firstly, during the period expectations for interest rate cuts in the US waxed and waned, but ultimately disinflationary trends across major global economies led to increased confidence that developed market central banks would be moving into an interest rate-cutting cycle in the second half of 2024. This is generally a helpful backdrop for markets.
Secondly, markets rose globally, with the "Magnificent Seven" leading the market higher, driven by optimism over the impact of artificial intelligence ("AI") and the knock-on demand for technology products being sold by the likes of Nvidia. This was mirrored in Asia, with the information technology ("IT") sector by far the strongest sector over the year, not only benefitting from the AI thematic but also a cyclical improvement across the broader industry. Country-wise, Taiwan was the biggest beneficiary of this trend as demand for the most advanced logic processors, essentially manufactured by one company globally (Taiwan Semiconductor Manufacturing Corporation - "TSMC"), continued unabated. This also led to companies in the supply chain, however peripheral, making significant gains as retail interest took hold in many segments of the market.
Singapore and Australia were the two other major markets that outperformed the reference index over the period. Australia benefited from the same disinflationary trends seen in other major markets, with inflation appearing to be peaking, leading to hopes that rates had peaked and could start to be cut following 13 successive hikes. Banks performed strongly against this backdrop, with resources coming under pressure as concerns over the strength of the Chinese economy and its troubled property sector gained traction. In Singapore, the market saw broad based strength with financials doing well as banks were seen as beneficiaries of the delay of rate cuts under a "higher-for-longer" scenario seen during the second half.
There was a wide spread between the highest and lowest returns across the region. Whilst Taiwan benefitted from the global AI thematic, China and Hong Kong were the laggards amongst the major markets, with both falling in sterling terms, principally on the back of slowing domestic growth. In China, sentiment swung on the expectations around potential stimulus packages, which generally disappointed the market, tending to be piecemeal in nature and lacking the 'shock and awe' of packages seen in the post-GFC (Global Financial Crisis) period. All this saw consumer confidence stagnate at low levels, with the weak property sector adding to the gloom. This weakness sparked a raft of measures to try and stabilise the sector, including a plan to buy in excess inventory from the private sector with the intention to repurpose units as social housing, in addition to monetary easing and a rolling back of restrictions around property purchases. On the bright side, exports showed signs of a pick up, and, although international investor concerns around geopolitical and domestic regulatory risks continued to weigh, there was some relief around geopolitical tensions, with the meeting of Presidents Xi and Biden at last year's November APEC (Asia-Pacific Economic Cooperation) summit in California. Additionally, the Taiwanese election passed off uneventfully, with a result that was broadly in line with expectations. Nevertheless, there is little sign of any easing of US policies towards China, if anything quite the opposite, and, with a presidential election looming in the US later in the year, little reason to expect much on this front in the short term.
Looking more broadly across the region, there has been an increased focus in some markets on shareholder returns which could potentially result in improved dividend payouts. This includes Korea, where the government launched a "value up" programme (on improving corporate governance and shareholder returns) earlier in the year, not unlike that seen in Japan. Progress here is likely to take time and requires some legislative changes to maximise its impact, but despite this we have seen some increases in dividend payouts coming out of companies. China has also been encouraging companies to focus more on shareholder returns - as a result, we have seen some companies increase the frequency of dividends and there has been a marked increase in buybacks in some sectors, such as amongst the internet names. These are obviously positive changes and augur well for a potential improvement of payout ratios in the medium term. Unsurprisingly dividends over the period were influenced by earnings. As an example, financials broadly saw increases as banks benefitted from higher interest rates which boosted margins and earnings. Where dividends were pared back, it tended to be in stocks in more cyclical areas such as Australian resources, or other economically sensitive industries. Otherwise, as highlighted in the Chairman's Statement, sterling has also generally been firmer against most currencies, in year-on-year terms, which has been a headwind.
Positioning and Performance
As we highlighted above, the Company made a strong positive return over the period, with a NAV total return of 18.2% which was considerably better than the reference index return of 8.6%. Our significant underweight allocation to and strong stock selection in China was a major positive contributor to relative performance, as was stock selection in Taiwan, Korea and Hong Kong. In China, strong selection came from stocks such as Midea, a manufacturer of branded white goods including air conditioners, and an absence of some of the e-commerce companies that pay little or no dividend. Although our overweight to Hong Kong was a headwind, our stock selection there more than offset that, with telecom operator HKT Trust & HKT Ltd the standout performer. Positive stock selection in both Taiwan and Korea was also noteworthy, with IT companies the driver including fabless design house MediaTek, foundry TSMC and Hon Hai a contract manufacturer that is benefitting from the increased demand for high end servers used in AI. In Korea, companies that could benefit from an improvement in shareholder focus also did well, including non-life insurance company Samsung Fire & Marine. The ASEAN markets of Indonesia and the Philippines also made positive stock contributions through holdings such as Bank Mandiri and port operator ICTSI, as did the overweight to and stock selection in Singapore. Stock selection in Australia lagged, as our positive financials return was offset by our positions in resources and telecom operator Telstra. From a sectoral perspective, stock selection in and overweight to IT and financials were our main positive contributors. Stock selection in industrials, materials and consumer staples was also positive. The overweight to real estate was the biggest drag.
The geographic exposure in the Company's portfolio continues to be focused on core markets such as Taiwan, Australia, Singapore, Korea, and China. China remains a substantial underweight, but we have looked to narrow that given its relative underperformance and sell off in certain areas. This has seen us buy a new position in NetEase, the video game company which operates in an increasingly consolidated marketplace and has improved its shareholder return policy. In our view, given its undemanding valuation, it has the potential to benefit from its upcoming pipeline of game launches. Other additions included to Shenzhou the sportwear manufacturer which had been sold down on a weaker outlook. The underweight continues to be partly offset by the overweight to the Hong Kong market which, in general, looks more attractive from a valuation perspective, albeit we have reduced exposure to some of the real estate names, including selling out of Fortune REIT and Kerry Properties, which had done relatively well. We also initiated a position in regional insurer AIA which has come out with an improved shareholder return policy, having been sold down dramatically on concerns over the Hong Kong business. Following its sell down valuations are now much more attractive and it should be a key beneficiary of rising levels of insurance cover, from what are very low levels when compared to markets like the UK, as increasing GDP growth leads to a growing middle class and increased affordability. Elsewhere, we continue to like Singapore, with positions in the banks and Singapore Telecom, as well as being overweight to some of the smaller markets such as Indonesia and the Philippines.
From a sectoral perspective our main additions were into some of the traditionally more defensive areas that had underperformed, such as consumer staples and healthcare. In Australia, we added to positions in supermarket operator Coles, and diagnostics company Sonic Healthcare. We also added to consumer discretionary via a new position in Kia, the Korean automaker that is well positioned in the growing hybrid segment. Its models have been well received by the market, resulting in lower incentives, and margins have benefited from an improvement in mix. It also should be a beneficiary of the "value up" programme where there is scope for further improvements in shareholder returns. These additions were, in part, financed by reductions to real estate, selling out of a number of names, not only in Hong Kong but also in Thailand and Australia. In financials we made a net reduction to our overweight by reducing our banks exposure, including the Australian names and SMFG in Japan, that had performed well. In part, the proceeds were reinvested in Singapore banks which had lagged earlier in the period on concerns over falling rates. Financials and IT remain the Company's two largest exposures, with the IT exposure predominantly coming through positions in Taiwan and Korea, where both the cycle and long-term outlook remains favourable.
Investment Outlook
I'll start by looking at a couple of the concerns that the market has. Amongst these, geopolitics has continued to be a concern in the region, with tensions around US-China relations, Taiwan, Ukraine and the Middle East all contributing to investor caution. However, regional elections (Taiwan, Korea, Indonesia and India) have all passed reasonably smoothly, but it is the upcoming US elections which appear finely poised, that have potentially very divergent impacts on Asia depending on the result. Here, there is potential for increases in tariffs on Chinese (and anyone else importing into the US) exports if Trump is elected. Although there is uncertainty as to what further tariffs or restrictions are put on China's (and other countries') ability to do business in the US, it is clear that in such a tight electoral race there is likely to be quite a lot of noise on these issues, which could well increase volatility.
Within the region, the Chinese economy remains weak as consumer confidence is still extremely low, with this increasingly being reflected in poor retail sales and greater evidence of downtrading. This weak confidence in part reflects a weaker job market together with falling property prices. All this has meant the consumer has become more risk averse which has resulted in a meaningful increase in savings versus consumption.
The key domestic overhang remains the property market, where activity and prices are yet to recover from earlier significant falls. Although the government has made some announcements to try to put a floor under the property market, in reality the fiscal sums backing these interventions are (so far) very small compared to the scale of the problem, and unlikely to make more than a marginal difference. Given this, and the structural challenges facing stock-pickers in China (poor capital allocation, structurally lower nominal growth, unpredictable regulatory and policy shifts, high debt levels), we remain significantly underweight the market albeit less so than where we were 12 months ago with the biggest underweight there being towards the internet platform companies. Although these names have been increasing their returns to shareholders this is principally being done via buybacks, rather than through dividends, so it remains an area where we are likely to be underweighted.
It is noteworthy that the most recently announced stimulus measures, at the time of writing, appear more substantive and coordinated and have provoked a meaningful rally in the stock market. Whilst we also view the stimulus as positive, in our view, the rally has already started to discount further easing and, therefore, risks disappointing. Aside from the size of any further measures it is also how it is spent that is key with a need, in our view, to have more of a focus on the demand side of the economy if the consumer is to get out of its malaise.
The Hong Kong market continues to suffer from not only the spillover impacts of a weak China, but also the high level of interest rates, which are inappropriate for the weak domestic economy. Whilst we have reduced our overweight to real estate held via the Hong Kong market we have also taken advantage of weak stock prices to add into other areas, such as non-bank financials. With US interest rates now having started to be cut, this should help to ease monetary conditions which should be supportive for the economy and market.
Australia continues to be a market that has historically offered strong long-term returns, in large part due to the reinvestment of dividends, but valuations are not obviously cheap versus the rest of the region, given its outperformance. Our principal exposure continues to be through the materials and financial sectors, but a derating of the health care sector and underperformance of consumer staples has seen us add to exposure there. More recently, the prospects of a soft landing have also seen banks perform strongly, which has led us to reduce our exposure to them. We continue to maintain exposure to the commodities names via the diversified resource names, where capital expenditure has remained relatively restrained, limiting supply in what ultimately remains a sector that is expected to benefit from ongoing decarbonisation spend. In the South-East Asian region, we are most exposed to Singapore, which is benefitting from its increasing status as a regional wealth management hub, as well as the growth of its ASEAN neighbours.
From a sector perspective, we remain overweight IT, given our positive view on the structural growth drivers behind global demand for technology, particularly advanced semiconductors. Valuations have moved higher on cyclical improvements as well as the surge in demand for AI-related hardware. However, we remain comfortable with the valuations of what we hold in the portfolio at present but are mindful we don't want to overstay our welcome.
We also remain overweight to financials - a diverse sector spanning not only banks, but also insurers and exchange companies. The banks we own are generally well-capitalised with strong deposit franchises. Many of our holdings are in the more mature markets, such as Singapore, which in general trade at attractive valuations and decent dividend yields, but we also have exposure to their faster growing hinterland. Direct exposure to faster growing markets is largely through Indonesia, where credit penetration is relatively low. With interest rates starting to come down, there has been some concern over the impact that this could have on bank margins. Albeit cuts will have an impact, in part, this should be offset by lower credit costs, potentially higher loan growth and an increase in wealth management revenues.
Aggregate valuations for the region are no longer particularly cheap, now trading at slightly above long-term averages. However, this masks a large variation across individual markets where Singapore, China and Hong Kong, amongst others, look relatively cheap versus history, whilst Taiwan looks relatively expensive and we have marginally reduced the size of our weighting there. Historically, a weaker US dollar has been positive for Asia, rather than interest rate cuts per se, although the latter are clearly supportive of greater liquidity.
The other historically positive driver of Asian markets is the export cycle, as this tends to be correlated with underlying earnings per share ("EPS") growth and here we believe there has been an improvement. Inventory excesses from the post-COVID period have been run down and many industries have become more disciplined around production and supply additions, as highlighted in the interim report. This has seen exports recover for many Asian countries and we believe a soft landing in the US would be supportive of that trend continuing, albeit at a slower delta. Here, cuts in interest rates are key to avoid a sharper slowdown in US demand.
Often there is concern over the sustainability of dividends across Asia, given how it is viewed as a more volatile and cyclical region versus other parts of the world. Whilst we believe there is some truth to that assertion, it is also true that the payout ratio for the region does not look extended and gearing ratios look relatively low versus elsewhere, meaning that there should be resilience in dividends should a slowdown eventuate.
Over the longer term some markets where payout ratios have been lower, such as Korea and China, are starting to take action which should also be helpful. However, one area which could lead to an increase in volatility of payments to the sterling investor is the level of sterling versus Asian currencies. Here, the currency has been quite strong over the year, thus impacting the progression of dividend growth.
In summary, with rates already starting to fall and consensus projecting further cuts, this could see a weaker dollar and be a potential catalyst for the markets if history is any guide to go by. Combining this with a potential soft landing in the US, which would be supportive of the goods export cycle, would potentially provide a helpful backdrop for Asian markets, barring a more extreme geopolitical risk event. We should note that, in the short term at least, shifting views on the outcome of the US election and ongoing announcements around Chinese stimulus are likely to lead to volatility in regional markets.
Thank you for your continued trust and investment in the Schroder Oriental Income Fund.
Richard Sennitt
Portfolio Manager
Schroder Investment Management Limited
23 October 2024
Principal and emerging risks
The Board is responsible for the Company's system of risk management and internal control and for reviewing its effectiveness. The Board has adopted a detailed matrix of principal risks affecting the Company's business as an investment trust and has established associated policies and processes designed to manage and, where possible, mitigate those risks, which are monitored by the Audit and Risk Committee on an ongoing basis. This system assists the Board in determining the nature and extent of the risks it is willing to take in achieving the Company's strategic objectives.
Although the Board believes that it has a robust framework of internal controls in place this can provide only reasonable, and not absolute, assurance against material financial misstatement or loss and is designed to manage, not eliminate, risk.
Both the principal risks and the monitoring system are also subject to robust review at least annually. The last assessment took place in October 2024. The Board discussed and monitored a number of risks that could potentially impact the Company's ability to meet its strategic objectives and recognised that there continues to be an elevated geopolitical risk relating to the region, which is closely monitored. The Board also considered in detail whether there were any material emerging risks and concluded that there were a number of regional territorial issues which may impact the Company.
Actions taken by the Board and, where appropriate, its committees, to manage and mitigate the Company's principal risks and uncertainties are set out in the table below.
* The "Change" column on the right highlights at a glance the Board's assessment of any increases or decreases in risk during the year after mitigation and management. The arrows show the risks as increased, decreased, or stable.
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Geopolitical risk Political developments might materially affect the ability of the Company to achieve its investment objective Geopolitical considerations and sanctions could affect the Company's investment strategy, objective and performance. |
The Board ensures it is well informed by way of receiving insights and information, including research notes, provided by the Manager as well as independent sources on a regular basis. The Manager ensured the portfolio was adequately diversified in the context of the investment policy. The Board noted the general increase in geopolitical risk during the period under review. |
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Market risk The Company is exposed to the effect of market fluctuations due to the nature of its business. A significant fall in regional equity markets could have an adverse impact on the market value of the Company's underlying investments. |
The risk profile of the portfolio is considered and appropriate strategies to mitigate negative impact of substantial changes in markets are discussed with the Manager. The Manager seeks to invest in companies with strong balance sheets and gearing is maintained at relatively low levels. The Board continues to monitor the market volatility caused by current geo-political issues and will continue to do so on an ongoing basis. The Board notes the impact of inflation on macroeconomic and market factors. |
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Currency/exchange rate risk The Company is exposed to the effect of currency fluctuations due to the nature of its business. The Company invests predominantly in assets which are denominated in a range of currencies. Its exposure to changes in the exchange rate between sterling and other currencies has the potential to have significant impact on returns and the sterling value of dividend income from underlying investments. The Board notes that the variability in inflation and interest rates would in turn lead to volatility in exchange rates. |
The Board recognises that there continues to be an elevated currency/exchange rate risk relating to the region and monitored it carefully during the period. The Board carefully reviewed the recovery of sterling against Asian currencies which may erode total returns. The risk profile of the portfolio is considered and appropriate strategies to mitigate negative impact of substantial changes in currency are discussed with the Manager. Gearing is maintained at relatively low levels. The Company has no formal policy of hedging currency risk but may use foreign currency borrowings or forward foreign currency contracts to limit exposure. |
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Investment Performance The Company's investment objectives may become out of line with the requirements of investors, resulting in a wide discount of the share price to underlying NAV per share. |
The appropriateness of the Company's investment mandate and the long-term investment strategy is periodically reviewed and the success of the Company in meeting its stated objectives is monitored. The investment mandate and the long-term investment strategy are monitored by the Board. Share price relative to NAV per share is monitored by the Board as a key performance indicator and is reviewed against the Company's peers on a regular basis. The parameters and use of buyback authorities are considered regularly. The Manager and corporate broker monitor market feedback and the Board considers this at each quarterly meeting. Proactive engagement with Shareholders takes place via the AGM, feedback from Shareholder presentations, and ad hoc meetings with the Board. The Board notes that the Company is not immune to the widening discounts across the investment trust market and is committed to repurchasing shares at a discount where there is a notable imbalance in the market and it is in shareholders' best interests. |
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The Manager's investment strategy and levels of resourcing, if inappropriate, may result in the Company underperforming the market and/or peer group companies, leading to the Company and its objectives becoming unattractive to investors. |
The Board sets overall investment strategy and guidelines for use of derivatives and leverage, amongst other metrics. It also monitors investment performance and risk against objectives and strategy, and conducts an annual review of the Manager's ongoing suitability. Directors attend a presentation by the Manager's risk and internal audit functions at least annually. The Board also reviews the Manager's compliance with agreed investment restrictions, relative performance, the portfolio's risk profile, and whether appropriate strategies are employed to mitigate any negative impact of substantial changes in markets. At each Board meeting, detailed discussions about investment performance and changes to the portfolio have taken place. The Board also reviews investment restrictions at each quarterly Board meeting during the period. |
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Climate Change Investors and regulators are increasingly questioning how the Company's investments and performance could be affected by climate change, environmental, social and governance factors. |
The Manager has integrated ESG considerations, including climate change, into the investment process and reports on its ESG engagement at regular Board meetings. The Manager has implemented a comprehensive ESG policy which is outlined in detail in the full set of annual financial statements. The Board ensures that ESG factors are incorporated into reports to Shareholders. The Manager has presented to the Board on how it has developed and applied ESG tools to their investment process and established a framework under which it actively engages with portfolio companies on ESG issues. The Board reviewed the Net Zero commitments of service providers. The Board reviews detailed sustainability reporting annually. |
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Service provider performance The Company has no employees and has delegated certain functions to a number of service providers. Failure of controls, including as a result of fraud, and poor performance of any service provider, could lead to disruption, reputational damage or loss. |
Service providers are appointed subject to due diligence processes and with material service providers having clearly documented contractual arrangements. Regular reports are provided by key service providers and the quality of their services is monitored, including an annual presentation to the directors from key risk and internal controls personnel at the Company's main service providers. Review of annual audited internal controls reports from key service providers, including confirmation of business continuity arrangements and IT controls, is undertaken at an annual review of service providers by the Management Engagement Committee. Service providers' internal controls reports continue to be robust. |
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Cyber The Company's service providers are exposed to the risk of cyber attacks. Cyber attacks lead to loss of personal or confidential information, unauthorised payments or inability to carry out operations in a timely manner. |
The Company has outsource arrangements with service providers who report on cyber risk mitigation and management at least annually, which includes confirmation of business continuity capability in the event of a cyber attack and appoints a custodian/ depositary in respect of assets. In addition, the Board receives presentations from the Manager, the registrar, and the safekeeping agent and custodian on cyber risk. During the year, the Board reviewed independently audited internal controls reports from key service providers. |
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Risk assessment and internal controls review by the Board
Risk assessment includes consideration of the scope and quality of the systems of internal control operating within key service providers, and ensures regular communication of the results of monitoring by such providers to the Audit and Risk Committee, including the incidence of significant control failings or weaknesses that have been identified at any time and the extent to which they have resulted in unforeseen outcomes or contingencies that may have a material impact on the Company's performance or condition.
No significant control failings or weaknesses were identified from the Audit and Risk Committee's ongoing risk assessment which has been in place throughout the financial year and up to the date of this report. The Board is satisfied that it has undertaken a detailed review of the risks facing the Company and that the internal control environment continues to operate effectively.
A full analysis of the financial risks facing the Company is set out in note 20 to the accounts in the full set of annual financial statements.
Statement of Directors' Responsibilities
The directors are responsible for preparing the financial statements in accordance with applicable Guernsey law and generally accepted accounting principles.
Guernsey company law requires the directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the directors should:
- select suitable accounting policies, and apply them consistently;
- present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
- provide additional disclosures when compliance with the specific requirements in International Financial Reporting Standards ("IFRS") as adopted by the European Union is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance;
- state that the Company has complied with IFRS as adopted by the European Union, subject to any material departures disclosed and explained in the financial statements;
- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business; and
- make judgements and estimates that are reasonable and prudent.
The directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with The Companies (Guernsey) Law, 2008 (as amended). They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Directors' statement
Each of the directors, whose names and functions are listed in the full set of annual financial statements, and confirms that, to the best of their knowledge:
- the financial statements, which have been prepared in accordance with IFRS as adopted by the European Union and with The Companies (Guernsey) Law, 2008 (as amended) and in accordance with the requirements set out above, and give a true and fair view of the assets, liabilities, financial position and the net return of the Company;
- the Strategic Review includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces; and
- the Annual Report and Accounts, taken as a whole, are fair, balanced and understandable and provide the information necessary for Shareholders to assess the Company's position and performance, business model and strategy.
So far as each of the directors are aware, there is no relevant audit information of which the Company's auditors are unaware, and each director has taken all the steps that he or she ought to have taken as a director in order to make himself or herself aware of any relevant audit information and to establish that the Company's auditors is aware of that information.
On behalf of the Board
Paul Meader
Director
23 October 2024
Statement of Comprehensive Income
for the year ended 31 August 2024
|
|
2024 |
2023 |
|||||
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
Note |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Gains/(losses) on investments at fair value through profit or loss |
2 |
- |
89,708 |
89,708 |
- |
(55,772) |
(55,772) |
|
Adjustments for: Net foreign currency (gains) |
|
- |
1,266 |
1,266 |
- |
3,262 |
3,262 |
|
Income from investments |
3 |
33,824 |
510 |
34,334 |
36,430 |
386 |
36,816 |
|
Other income |
3 |
161 |
- |
161 |
142 |
- |
142 |
|
Total income/(loss) |
|
33,985 |
91,484 |
125,469 |
36,572 |
(52,124) |
(15,552) |
|
Management fee |
4 |
(1,905) |
(2,858) |
(4,763) |
(1,935) |
(2,903) |
(4,838) |
|
Performance fee |
4 |
- |
(4,552) |
(4,552) |
- |
- |
- |
|
Other administrative expenses |
5 |
(1,170) |
(3) |
(1,173) |
(1,130) |
(3) |
(1,133) |
|
Profit/(loss) before finance costs and taxation |
|
30,910 |
84,071 |
114,981 |
33,507 |
(55,030) |
(21,523) |
|
Finance costs |
6 |
(1,075) |
(1,611) |
(2,686) |
(854) |
(1,280) |
(2,134) |
|
Profit/(loss) before taxation |
|
29,835 |
82,460 |
112,295 |
32,653 |
(56,310) |
(23,657) |
|
Taxation |
7 |
(1,899) |
- |
(1,899) |
(2,254) |
- |
(2,254) |
|
Net profit/(loss) and total comprehensive income/(expense) |
|
27,936 |
82,460 |
110,396 |
30,399 |
(56,310) |
(25,911) |
|
Earnings/(losses) per share (pence) |
9 |
11.29 |
33.34 |
44.63 |
11.81 |
(21.88) |
(10.07) |
The "Total" column of this statement represents the Company's Statement of Comprehensive Income, prepared in accordance with IFRS as adopted by the European Union. The "Revenue and Capital" columns represent supplementary information prepared under guidance set out in the statement of recommended practice for investment trust companies (the "SORP") issued by the Association of Investment Companies in July 2022.
The Company does not have any income or expense that is not included in net profit/(loss) for the year. Accordingly the "Net profit/(loss)" for the year is also the "Total comprehensive income/expense" for the year.
All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the year.
The notes in the full set of annual financial statements form an integral part of these financial statements.
Statement of Changes in Equity
for the year ended 31 August 2024
|
|
|
|
Treasury |
Capital |
|
|
|
|
|
|
|
Share |
Share |
redemption |
Special |
Capital |
Revenue |
|
|
|
|
capital |
reserve |
reserve |
reserve |
reserves |
reserve |
Total |
|
|
Note |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
At 31 August 2022 |
|
234,347 |
(25,991) |
39 |
150,374 |
329,011 |
36,367 |
724,147 |
|
Repurchase of ordinary shares into treasury |
|
- |
(20,127) |
- |
- |
- |
- |
(20,127) |
|
Net (loss)/profit and total comprehensive |
|
|
|
|
|
|
|
|
|
(expenses)/income |
|
- |
- |
- |
- |
(56,310) |
30,399 |
(25,911) |
|
Dividends paid in the year |
8 |
- |
- |
- |
- |
- |
(29,901) |
(29,901) |
|
At 31 August 2023 |
|
234,347 |
(46,118) |
39 |
150,374 |
272,701 |
36,865 |
648,208 |
|
Repurchase of ordinary shares into treasury |
|
- |
(29,007) |
- |
- |
- |
- |
(29,007) |
|
Net profit and total comprehensive income |
|
- |
- |
- |
- |
82,460 |
27,936 |
110,396 |
|
Dividends paid in the year |
8 |
- |
- |
- |
- |
- |
(29,282) |
(29,282) |
|
At 31 August 2024 |
|
234,347 |
(75,125) |
39 |
150,374 |
355,161 |
35,519 |
700,315 |
The notes in the full set of annual financial statements form an integral part of these financial statements.
Balance Sheet
at 31 August 2024
|
|
|
2024 |
2023 |
|
|
Note |
£'000 |
£'000 |
|
Non current assets |
|
|
|
|
Investments at fair value through profit or loss |
10 |
735,607 |
676,323 |
|
Current assets |
11 |
|
|
|
Receivables |
|
6,017 |
4,271 |
|
Cash and cash equivalents |
|
6,942 |
11,000 |
|
|
|
12,959 |
15,271 |
|
Total assets |
|
748,566 |
691,594 |
|
Current liabilities |
|
|
|
|
Payables |
12 |
(48,251) |
(43,386) |
|
Net assets |
|
700,315 |
648,208 |
|
Equity attributable to equity holders |
|
|
|
|
Share capital |
13 |
234,347 |
234,347 |
|
Treasury share reserve |
14 |
(75,125) |
(46,118) |
|
Capital redemption reserve |
14 |
39 |
39 |
|
Special reserve |
14 |
150,374 |
150,374 |
|
Capital reserves |
14 |
355,161 |
272,701 |
|
Revenue reserve |
14 |
35,519 |
36,865 |
|
Total equity Shareholders' funds |
|
700,315 |
648,208 |
|
Net asset value per share (pence) |
15 |
289.63 |
256.01 |
The financial statements in the full set of annual financial statements were approved by the Board of Directors on 23 October 2024 and signed on its behalf by:
Paul Meader
Director
The notes in the full set of annual financial statements form an integral part of these financial statements.
Registered in Guernsey as a company limited by shares
Company registration number: 43298
Cash Flow Statement
for the year ended 31 August 2024
|
|
|
2024 |
2023 |
|
|
Note |
£'000 |
£'000 |
|
Operating activities |
|
|
|
|
Profit/(loss) before finance costs and taxation |
|
114,981 |
(21,523) |
|
Add back net foreign currency (gains) |
|
(1,266) |
(3,262) |
|
(Gains)/losses on investments at fair value through profit or loss |
|
(89,708) |
55,772 |
|
Net sales of investments at fair value through profit or loss |
|
29,282 |
20,161 |
|
Decrease in receivables |
|
1,144 |
274 |
|
Increase in payables |
|
4,559 |
10 |
|
Overseas taxation paid |
|
(1,972) |
(2,247) |
|
Net cash inflow from operating activities before interest |
|
57,020 |
49,185 |
|
Interest paid |
|
(2,679) |
(2,168) |
|
Net cash inflow from operating activities |
|
54,341 |
47,017 |
|
Financing activities |
|
|
|
|
Repurchase of ordinary shares into treasury |
|
(28,969) |
(20,022) |
|
Dividends paid |
|
(29,282) |
(29,901) |
|
Net cash outflow from financing activities |
|
(58,251) |
(49,923) |
|
Decrease in cash and cash equivalents |
|
(3,910) |
(2,906) |
|
Cash and cash equivalents at the start of the year |
|
11,000 |
14,155 |
|
Effect of foreign exchange rates on cash and cash equivalents |
|
(148) |
(249) |
|
Cash and cash equivalents at the end of the year |
|
6,942 |
11,000 |
Dividends received during the year amounted to £35,326,000 (2023: £37,004,000) and bond and deposit interest receipts amounted to £171,000 (2023: £117,000).
The notes in the full set of annual financial statements form an integral part of these financial statements.
Notes to the Accounts
1. Material Accounting Policies
(a) Basis of accounting
The financial statements have been prepared in accordance with the Companies Guernsey Law 2008 and International Financial Reporting Standards ("IFRS"), which comprise standards and interpretations approved by the International Accounting Standards Board ("IASB"), together with interpretations of the International Accounting Standards and Standing Interpretations Committee approved by the International Accounting Standards Committee ("IASC"), that remain in effect and to the extent that they have been adopted by the European Union.
Where consistent with the requirements of IFRS, the directors have sought to prepare the financial statements on a basis compliant with presentational guidance set out in the statement of recommended practice for investment trust companies (the "SORP") issued by the Association of Investment Companies in July 2022.
The policies applied in these financial statements are consistent with those applied in the preceding year.
The Company's share capital is denominated in sterling and this is the currency in which its shareholders operate and expenses are generally paid. The Board has therefore determined that sterling is the functional currency and the currency in which the financial statements are presented. Amounts have been rounded to the nearest thousand.
The financial statements have been prepared on a going concern basis under the historical cost convention, as modified by the revaluation of investments held at fair value through profit or loss. The directors believe that the Company has adequate resources to continue operating to 30 November 2025, which is at least 12 months from the date of approval of these financial statements. In forming this opinion, the directors have taken into consideration: the controls and monitoring processes in place; the Company's level of debt and other payables; the low level of operating expenses, comprising largely variable costs which would reduce pro rata in the event of a market downturn; and that the Company's assets comprise cash and readily realisable securities quoted in active markets. In forming this opinion, the directors have also considered any potential impact of climate change, inflation, and high interest rates on the viability of the Company.
Further details of directors' considerations regarding this are given in the Chairman's Statement, Investment Manager's Review, Going Concern Statement, Viability Statement, and under the Principal and emerging risks heading in the full set of annual financial statements.
The material accounting polices adopted are set out below.
(b) Presentation of the Statement of Comprehensive Income
In order to better reflect the activities of an investment company and in accordance with the recommendations of the SORP, supplementary information has been presented which analyses items in the Statement of Comprehensive Income between those which are income in nature and those which are capital in nature.
(c) Investments at fair value through profit or loss
The Company's business is investing in financial assets with a view to profiting from their total return in the form of income and capital growth. This portfolio of financial assets is managed and its performance evaluated on a fair value basis, in accordance with a documented investment objective and information is provided internally on that basis to the Company's Board of directors. Accordingly, investments are designated upon initial recognition as investments at fair value through profit or loss, and are measured at subsequent reporting dates at fair value, which are quoted bid market prices for investments traded in active markets.
Investments that are unlisted or not actively traded are valued using a variety of techniques to determine their fair value; all such valuations are reviewed by both the AIFM's fair value pricing committee and by the directors.
Investments are recognised and derecognised on the trade date where a purchase or sale is under a contract whose terms require delivery within a timeframe established by the market concerned.
(d) Accounting for reserves
Gains and losses on sales of investments, including the related foreign exchange gains and losses, are included in the Statement of Comprehensive Income and in capital reserves within "Gains and losses on sales of investments". Increases and decreases in the valuation of investments held at the year end, including the related foreign exchange gains and losses, are included in the Statement of Comprehensive Income and in capital reserves within "Holding gains and losses on investments".
Foreign exchange gains and losses on cash and deposit balances are included in the Statement of Comprehensive Income and in capital reserves within Gains and losses on sales of investments. Unrealised exchange gains and losses on foreign currency loans are included in the Statement of Comprehensive Income and dealt with in capital reserves within Holding gains and losses on investments.
(e) Repurchases of shares into treasury and subsequent reissues
The cost of repurchasing shares into Treasury is debited to "Treasury share reserve". The sales proceeds of Treasury shares reissued are credited back to Treasury share reserve until the debit balance on that reserve is extinguished and thereafter to capital reserves.
(f) Income
Dividends receivable from equity shares are included in revenue on an ex-dividend basis except where, in the opinion of the Board, the dividend is capital in nature, in which case it is included in capital.
Income from fixed interest debt securities is recognised using the effective interest method.
Deposit interest outstanding at the year end is calculated and accrued on a time apportionment basis using market rates of interest.
(g) Expenses
All expenses are accounted for on an accruals basis. Expenses are allocated wholly to revenue with the following exceptions:
- The management fee is allocated 40% to revenue and 60% to capital in line with the Board's expected long-term split of revenue and capital return from the Company's investment portfolio.
- Any performance fee is allocated 100% to capital.
- Expenses incidental to the purchase or sale of investments are charged to capital. These expenses are commonly referred to as transaction costs and mainly comprise brokerage commission. Details of transaction costs are given in note 10 in the full set of annual financial statements.
(h) Finance costs
Finance costs, including any premiums payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis in profit or loss using the effective interest method.
Finance costs are allocated 40% to revenue and 60% to capital in line with the Board's expected long-term split of revenue and capital return from the Company's investment portfolio.
(i) Other financial assets and liabilities
Cash and cash equivalents may comprise cash and demand deposits which are readily convertible to a known amount of cash and are subject to insignificant risk of changes in value. Other receivables are non interest bearing, short-term in nature and are accordingly stated at nominal value as reduced by appropriate allowances for estimated irrecoverable amounts.
Interest bearing bank loans are initially recognised at cost, being the proceeds received net of direct issue costs, and subsequently at amortised cost.
(j) Taxation
The taxation charge in the Statement of Comprehensive Income comprises irrecoverable overseas withholding tax deducted from dividends receivable.
Current taxation comprises of the tax withheld at the source on foreign income, with adjustments for any amounts recoverable under tax treaties. The taxation is recorded in the revenue section of the Statement of Comprehensive Income, except when it pertains to capital related items where it will be accounted for in the capital section of the statement.
Deferred taxation represents the taxation liability or asset arising from anticipated variations in the treatment of items for accounting purposes compared to tax purposes. The calculation is based on tax rates that have been officially approved or are highly likely for the period when the tax becomes payable. Deferred tax assets are recognised when there is an expectation of having future taxable profits.
(k) Foreign currency
The results and financial position are expressed in sterling. Transactions in currencies other than sterling are recorded at the rates of exchange prevailing on the dates of the transaction. At each Balance Sheet date, monetary items and non monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing at 1600 hours on the Balance Sheet date. Gains or losses arising on translation are included in net profit or loss for the year and presented as revenue or capital as appropriate.
(l) New and amended accounting standards
At the date of authorisation of these financial statements there are no new or revised Standards or Interpretations, which are in issue but which are not yet effective, which the Board expects to have any significant effect on the Company's financial statements.
(m) Significant accounting judgments, estimates and assumptions
Other than the directors' assessment of going concern, no significant judgements, estimates or assumptions have been required in the preparation of these financial statements in accordance with IFRS.
(n) Dividends payable to Shareholders
Interim dividends to Shareholders are recorded in the financial statements when paid.
2. Gains/(losses) on investments held at fair value through profit or loss
|
|
2024 |
2023 |
|
|
£'000 |
£'000 |
|
Gains on sales of investments based on historic cost |
14,373 |
20,618 |
|
Amounts recognised in investment holding gains and losses in the previous year in respect of investments sold |
|
|
|
in the year |
(4,657) |
(24,198) |
|
Gains/(losses) on sales of investments based on the carrying value at the previous Balance Sheet date |
9,716 |
(3,580) |
|
Net movement in investment holding gains and losses |
79,992 |
(52,192) |
|
Gains/(losses) on investments held at fair value through profit or loss |
89,708 |
(55,772) |
3. Income
|
|
2024 |
2023 |
|
|
£'000 |
£'000 |
|
Income from investments |
|
|
|
Overseas dividends |
33,824 |
36,430 |
|
Other income |
|
|
|
Deposit interest |
161 |
142 |
|
Total income |
33,985 |
36,572 |
|
Capital |
|
|
|
Special dividend allocated to capital |
510 |
386 |
4. Management and performance fee
|
|
2024 |
2023 |
||||
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Management fee |
1,905 |
2,858 |
4,763 |
1,935 |
2,903 |
4,838 |
|
Performance fee |
- |
4,552 |
4,552 |
- |
- |
- |
|
|
1,905 |
7,410 |
9,315 |
1,935 |
2,903 |
4,838 |
The basis for calculating the investment management fee and any performance fee is set out in the Directors' Report in the full set of annual financial statements.
5. Other administrative expenses
|
|
2024 |
2023 |
||||
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Administration expenses |
764 |
3 |
767 |
717 |
3 |
720 |
|
Directors' fees |
192 |
- |
192 |
203 |
- |
203 |
|
Secretarial fee |
150 |
- |
150 |
150 |
- |
150 |
|
Auditors' remuneration for audit services1 |
64 |
- |
64 |
60 |
- |
60 |
|
|
1,170 |
3 |
1,173 |
1,130 |
3 |
1,133 |
1No amounts are payable to the auditor for non-audit services.
6. Finance costs
|
|
2024 |
2023 |
||||
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Interest on bank loans and overdrafts |
1,075 |
1,611 |
2,686 |
854 |
1,280 |
2,134 |
With effect from 1 September 2022, the Board determined that the finance costs will be allocated 40% to revenue and 60% to capital in line with the Board's expected long-term split of revenue and capital return from the Company's investment portfolio. Prior to this date, these expenses had been allocated 30% to revenue and 70% to capital.
7. Taxation
(a) Analysis of tax charge for the year
|
|
2024 |
2023 |
||||
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Irrecoverable overseas tax |
1,899 |
- |
1,899 |
2,254 |
- |
2,254 |
|
Taxation for the year |
1,899 |
- |
1,899 |
2,254 |
- |
2,254 |
The Company became resident in the United Kingdom for taxation purposes with effect from 1 September 2020. The Company has no corporation tax liability for the year ended 31 August 2024 (2023: £nil).
(b) Factors affecting tax charge for the year
The tax assessed for the year ended 31 August 2024 is lower (2023: higher) than the Company's applicable rate of corporation tax for that year of 25% (2023: 21.5%).
The factors affecting the tax charge for the year are as follows:
|
|
2024 |
2023 |
||||
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Net return/(loss) before taxation |
29,835 |
82,460 |
112,295 |
32,653 |
(56,310) |
(23,657) |
|
Net return/(loss) before taxation multiplied by the Company's |
|
|
|
|
|
|
|
applicable rate of corporation tax for the year of 25% (2023: 21.5%) |
7,459 |
20,615 |
28,074 |
7,020 |
(12,107) |
(5,087) |
|
Effects of: |
|
|
|
|
|
|
|
(Gains) on investments not taxable/capital losses on investments not deductible |
- |
(22,743) |
(22,743) |
- |
11,290 |
11,290 |
|
Revenue not chargeable to corporation tax |
(7,672) |
(127) |
(7,799) |
(6,917) |
(83) |
(7,000) |
|
Expenses disallowed |
- |
(1) |
(1) |
- |
1 |
1 |
|
Unrelieved expenses |
236 |
2,256 |
2,492 |
- |
899 |
899 |
|
Tax relief on overseas tax suffered |
(23) |
- |
(23) |
- |
- |
- |
|
Double tax relief |
- |
- |
- |
(103) |
- |
(103) |
|
Irrecoverable overseas tax |
1,899 |
- |
1,899 |
2,254 |
- |
2,254 |
|
Taxation for the year |
1,899 |
- |
1,899 |
2,254 |
- |
2,254 |
(c) Deferred taxation
The Company has an unrecognised deferred tax asset of £6,205,000 (2023: £3,713,000) based on a main rate of corporation tax of 25%. In its 2020 budget, the UK government announced that the main rate of corporation tax would increase to 25% for the fiscal year beginning on 1 April 2023.
The deferred tax asset has arisen due to the excess of deductible expenses over taxable income. Given the composition of the Company's portfolio, it is not likely that this asset will be utilised in the foreseeable future and therefore no asset has been recognised in the financial statements.
The Company was granted status as an investment trust company by HMRC effective from 1 September 2020, and intends to continue to meet the conditions required to retain that status. Therefore, no provision has been made for deferred UK capital gains tax on any capital gains or losses arising on the revaluation or disposal of investments.
8. Dividends
(a) Dividends paid and declared
|
|
2024 |
2023 |
|
|
£'000 |
£'000 |
|
2023 fourth interim dividend of 5.80p (2022: 5.60p) |
14,547 |
14,527 |
|
First interim dividend of 2.00p (2023: 2.00p) |
4,982 |
5,165 |
|
Second interim dividend of 2.00p (2023: 2.00p) |
4,899 |
5,124 |
|
Third interim dividend of 2.00p (2023: 2.00p) |
4,854 |
5,085 |
|
Total dividends paid in the year |
29,282 |
29,901 |
|
|
|
|
|
|
2024 |
2023 |
|
|
£'000 |
£'000 |
|
Fourth interim dividend declared of 6.00p (2023: 5.80p) |
14,508 |
14,685 |
Under the Companies (Guernsey) Law 2008, the Company may pay dividends out of both capital and revenue reserves, subject to passing a solvency test. However all dividends paid and declared to date have been paid, or will be paid, out of revenue profits. The Company has passed a solvency declaration for all dividends paid to date.
The fourth interim dividend declared in respect of the year ended 31 August 2023 differs from the amount actually paid due to shares repurchased and cancelled after the Balance Sheet date but prior to the share register record date.
(b) Dividends for the purposes of Section 1158 of the Corporation Tax Act 2010 ("Section 1158")
The Company was granted status as an investment trust company by HMRC effective from 1 September 2020, and intends to continue to meet the minimum distribution requirements of Section 1158, in order to retain that status. Those requirements are considered on the basis of dividends declared in respect of the financial year as shown below. The revenue available for distribution by way of dividend for the year is £27,935,000 (2023: £30,399,000).
|
|
2024 |
2023 |
|
|
£'000 |
£'000 |
|
First interim dividend of 2.00p (2023: 2.00p) |
4,982 |
5,165 |
|
Second interim dividend of 2.00p (2023: 2.00p) |
4,899 |
5,124 |
|
Third interim dividend of 2.00p (2023: 2.00p) |
4,854 |
5,085 |
|
Fourth interim dividend of 6.0p (2023: 5.80p) |
14,508 |
14,685 |
|
Total dividends of 12.0p (2023: 11.80p) |
29,243 |
30,059 |
9. Earnings/(losses) per share
|
|
2024 |
2023 |
|
|
£'000 |
£'000 |
|
Revenue profit |
27,936 |
30,399 |
|
Capital profit/ (loss) |
82,460 |
(56,310) |
|
Total profit/(loss) |
110,396 |
(25,911) |
|
Weighted average number of ordinary shares in issue during the year |
247,361,808 |
257,369,408 |
|
Revenue earnings per share (pence) |
11.29 |
11.81 |
|
Capital earnings/(losses) per share (pence) |
33.34 |
(21.88) |
|
Total earnings/(losses) per share (pence) |
44.63 |
(10.07) |
|
10. Investments at fair value through profit or loss |
|
|
|
|
2024 |
2023 |
|
|
£'000 |
£'000 |
|
Opening book cost |
624,190 |
621,849 |
|
Opening investment holding gains |
52,133 |
128,523 |
|
Opening fair value |
676,323 |
750,372 |
|
Analysis of transactions made during the year |
|
|
|
Purchases at cost |
136,746 |
124,788 |
|
Sales proceeds |
(167,170) |
(143,065) |
|
Gains/(losses) on investments held at fair value through profit or loss |
89,708 |
(55,772) |
|
Closing fair value |
735,607 |
676,323 |
|
Closing book cost |
608,139 |
624,190 |
|
Closing investment holding gains |
127,468 |
52,133 |
|
Closing fair value |
735,607 |
676,323 |
All investments are listed on a recognised stock exchange.
The Company received £167,170,000 (2023: £143,065,000) from disposal of investments in the year. The book cost of these investments when they were purchased was £152,797,000 (2023: £122,447,000). These investments have been revalued over time and until they were sold any unrealised gains/losses were included in the fair value of the investments.
The following transaction costs, mainly comprising brokerage commissions, were incurred during the year:
|
|
2024 |
2023 |
|
|
£'000 |
£'000 |
|
On acquisitions |
102 |
114 |
|
On disposals |
278 |
221 |
|
|
380 |
335 |
11. Current assets
Receivables
|
|
2024 |
2023 |
|
|
£'000 |
£'000 |
|
Dividends and interest receivable |
2,962 |
3,992 |
|
Securities sold awaiting settlement |
3,017 |
199 |
|
Other receivables |
38 |
80 |
|
|
6,017 |
4,271 |
The directors consider that the carrying amount of receivables approximates to their fair value.
Cash and cash equivalents
Cash and cash equivalents comprises bank balances and cash held by the Company, including short-term deposits. The carrying amount of these represents their fair value. Cash balances in excess of a predetermined amount are placed on short-term deposit at market rates of interest.
12. Current liabilities
Payables
|
|
2024 |
2023 |
|
|
£'000 |
£'000 |
|
Bank loan |
38,045 |
39,459 |
|
Securities purchased awaiting settlement |
3,757 |
2,081 |
|
Repurchase of ordinary shares into treasury awaiting settlement |
405 |
367 |
|
Other payables and accruals |
6,044 |
1,479 |
|
|
48,251 |
43,386 |
The bank loan comprises US$50 million drawn down on the Company's £100 million multicurrency credit facility with the Bank of Nova Scotia. The facility is secured and drawings are subject to covenants and restrictions which are customary for a facility of this nature and all of these have been complied with.
Further details of the facility are given in note 20(a)ii in the full set of annual financial statements.
The bank loan at the prior year end comprised US$50 million drawn down on the Company's £100 million multicurrency credit facility with Bank of Nova Scotia.
13. Share capital
|
|
2024 |
2023 |
|
|
£'000 |
£'000 |
|
Ordinary shares of 1p each, allotted, called-up and fully paid: |
|
|
|
Opening balance of 253,193,024 (2023: 261,203,024) shares, excluding shares held in treasury |
188,229 |
208,356 |
|
Repurchase of 11,395,000 (2023: 8,010,000) shares into treasury |
(29,007) |
(20,127) |
|
Subtotal of 241,798,024 (2023: 253,193,024) shares, excluding shares held in treasury |
159,222 |
188,229 |
|
29,435,000 (2023: 18,040,000) shares held in treasury |
75,125 |
46,118 |
|
Closing balance of 271,233,024 (2023: 271,233,024) shares |
234,347 |
234,347 |
The ordinary shares rank pari passu, and each share carries one vote in the event of a poll at a general meeting. The Company has authority to issue an unlimited number of ordinary shares.
During the year, the Company purchased 11,395,000 of its own shares, nominal value £113,950 to hold in treasury for a total consideration of £29,007,000 representing 4.5% of the shares outstanding at the beginning of the year. The reason for these share purchases was to seek to manage the volatility of the share price discount to net asset value per share.
14. Reserves
|
|
Capital reserves |
|
|||||
|
|
|
|
|
|
Gains and |
Investment |
|
|
|
|
Treasury |
Capital |
|
losses on |
holding |
|
|
|
Share |
Share |
redemption |
Special |
sales of |
gains and |
Revenue |
|
|
capital |
reserve |
reserve |
reserve |
investments |
losses |
reserve |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
At 1 September 2023 |
234,347 |
(46,118) |
39 |
150,374 |
218,977 |
53,724 |
36,865 |
|
Gains on sales of investments based on the carrying |
|
|
|
|
|
|
|
|
value at the previous Balance Sheet date |
- |
- |
- |
- |
9,716 |
- |
- |
|
Movement in investment holding gains and losses |
- |
- |
- |
- |
- |
79,992 |
- |
|
Transfer on disposal of investments |
- |
- |
- |
- |
4,657 |
(4,657) |
- |
|
Realised exchange losses on cash and short-term deposits |
- |
- |
- |
- |
(148) |
- |
- |
|
Exchange gains on foreign currency credit facility |
- |
- |
- |
- |
- |
1,414 |
- |
|
Repurchase of ordinary shares into treasury |
- |
(29,007) |
- |
- |
- |
- |
- |
|
Management fee, finance costs and other expenses |
|
|
|
|
|
|
|
|
charged to capital |
- |
- |
- |
- |
(4,472) |
- |
- |
|
Performance fee charged to capital |
- |
- |
- |
- |
(4,552) |
- |
- |
|
Dividends allocated to capital |
- |
- |
- |
- |
510 |
- |
- |
|
Dividends paid in the year |
- |
- |
- |
- |
- |
- |
(29,282) |
|
Net revenue profit for the year |
- |
- |
- |
- |
- |
- |
27,936 |
|
At 31 August 2024 |
234,347 |
(75,125) |
39 |
150,374 |
224,688 |
130,473 |
35,519 |
|
|
Capital reserves |
|
|||||
|
|
|
|
|
|
Gains and |
Investment |
|
|
|
|
Treasury |
Capital |
|
losses on |
holding |
|
|
|
Share |
Share |
redemption |
Special |
sales of |
gains and |
Revenue |
|
|
capital |
reserve |
reserve |
reserve |
investments |
losses |
reserve |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
At 1 September 2022 |
234,347 |
(25,991) |
39 |
150,374 |
202,408 |
126,603 |
36,367 |
|
Losses on sales of investments based on the carrying |
|
|
|
|
|
|
|
|
value at the previous Balance Sheet date |
- |
- |
- |
- |
(3,580) |
- |
- |
|
Movement in investment holding gains and losses |
- |
- |
- |
- |
- |
(52,192) |
- |
|
Transfer on disposal of investments |
- |
- |
- |
- |
24,198 |
(24,198) |
- |
|
Realised exchange losses on cash and short-term deposits |
- |
- |
- |
- |
(249) |
- |
- |
|
Exchange gains on foreign currency credit facility |
- |
- |
- |
- |
- |
3,511 |
- |
|
Repurchase of ordinary shares into treasury |
- |
(20,127) |
- |
- |
- |
- |
- |
|
Management fee, finance costs and other expenses |
|
|
|
|
|
|
|
|
charged to capital |
- |
- |
- |
- |
(4,186) |
- |
- |
|
Dividends allocated to capital |
- |
- |
- |
- |
386 |
- |
- |
|
Dividends paid in the year |
- |
- |
- |
- |
- |
- |
(29,901) |
|
Net revenue profit for the year |
- |
- |
- |
- |
- |
- |
30,399 |
|
At 31 August 2023 |
234,347 |
(46,118) |
39 |
150,374 |
218,977 |
53,724 |
36,865 |
Under The Companies (Guernsey) Law 2008, the Company may buy back its own shares, or pay dividends, out of any reserves, subject to passing a solvency test. This test considers whether, immediately after the payment, the Company's assets exceed its liabilities and whether it will be able to pay its debts when they fall due.
15. Net asset value per share
|
|
2024 |
2023 |
|
Total equity shareholders' funds (£'000) |
700,315 |
648,208 |
|
Shares in issue at the year end |
241,798,024 |
253,193,024 |
|
Net asset value per share (pence) |
289.63 |
256.01 |
16. Contingent liabilities and capital commitments
There were no contingent liabilities or capital commitments at the Balance Sheet date (2023: none).
17. Transactions with the Manager
The Company has appointed Schroder Unit Trusts Limited ("the Manager"), a wholly owned subsidiary of Schroders plc, to provide investment management, accounting, secretarial and administration services. Details of the management and performance fee agreement are given in the Directors' Report in the full set of annual financial statements .The management fee payable in respect of the year amounted to £4,763,000 (2023: £4,838,000), of which £1,241,000 (2023: £1,148,000) was outstanding at the year end. The company secretarial fee payable to the Manager amounted to £150,000 (2023: £150,000) of which £37,500 (2023: £37,500) was outstanding at the year end. The fee payable in respect of the year amounted to £4,552,000 (2023: nil) and the whole of this amount was outstanding at the year end.
If the Company invests in funds managed or advised by the Manager or any of its associated companies, any fee earned by the Manager from those funds is deducted from the management fee payable by the Company. There have been no such investments during the current or comparative year.
18. Related party transactions
Details of the remuneration payable to directors are given in the Directors' Remuneration Report in the full set of annual financial statements and details of directors' shareholdings are given in the Directors' Remuneration Report in the full set of annual financial statements. Details of transactions with the Manager are given in note 17 above. There have been no other transactions with related parties during the year (2023: nil).
19. Disclosures regarding financial instruments measured at fair value
The Company's portfolio of investments, which may comprise investments in equities, equity linked securities, government bonds and derivatives, are carried in the Balance Sheet at fair value. Other financial instruments held by the Company may comprise amounts due to or from brokers, dividends and interest receivable, accruals and cash at bank.
For these instruments, the Balance Sheet amount is a reasonable approximation of fair value.
The investments are categorised into a hierarchy comprising the following three levels:
Level 1 - valued using quoted prices in active markets.
Level 2 - valued by reference to valuation techniques using observable inputs other than quoted market prices included within Level 1.
Level 3 - valued by reference to valuation techniques using inputs that are not based on observable market data.
Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset.
Details of the valuation techniques used by the Company are given in note 1(c) in the full set of annual financial statements.
At 31 August 2024, the Company's investment portfolio was categorised as follows:
|
|
2024 |
|||
|
|
Level 1 |
Level 2 |
Level 3 |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Investments in equities and equity linked securities |
719,252 |
16,355 |
- |
735,607 |
|
Total |
719,252 |
16,355 |
- |
735,607 |
Level 2 investments comprise one holding in Midea Group warrants 10/07/2025. There were no transfers between Levels 1, 2 or 3 during the year ended 31 August 2024.
|
|
2023 |
|||
|
|
Level 1 |
Level 2 |
Level 3 |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Investments in equities and equity linked securities |
658,116 |
18,207 |
- |
676,323 |
|
Total |
658,116 |
18,207 |
- |
676,323 |
Level 2 investments comprise one holding in Midea Group warrants 08/07/2024. There were no transfers between Levels 1, 2 or 3 during the year ended 31 August 2023.
20. Financial instruments' exposure to risk and risk management policies
The Company's investment objective is to provide a total return for investors primarily through investments in equities and equity-related investments, of companies which are based in, or which derive a significant proportion of their revenues from, the Asia Pacific region and which offer attractive yields. In pursuing this objective, the Company is exposed to a variety of risks that could result in a reduction in the Company's net assets. These risks include market risk (comprising currency risk, interest rate risk and market price risk), liquidity risk and credit risk. The directors' policy for managing these risks is set out below. The Board coordinates the Company's risk management policy.
The objectives, policies and processes for managing the risks and the methods used to measure the risks that are set out below, have not changed from those applying in the comparative year.
The Company's classes of financial instruments are as follows:
- investments in equities and equity-related securities of companies in the Asia Pacific region which are held in accordance with the Company's investment objective;
- short-term receivables, payables and cash arising directly from its operations; and
- a multicurrency credit facility with Bank of Nova Scotia, the purpose of which is to assist in financing the Company's operations.
(a) Market risk
The fair value or future cash flows of a financial instrument held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements - currency risk, interest rate risk and market price risk. Information to enable an evaluation of the nature and extent of these three elements of market risk is given in parts (i) to (iii) of this note, together with sensitivity analysis where appropriate. The Board reviews and agrees policies for managing these risks and these policies have remained unchanged from those applying in the comparative year. The Manager assesses the exposure to market risk when making each investment decision and monitors the overall level of market risk on the whole of the investment portfolio on an ongoing basis.
(i) Currency risk
The majority of the Company's assets, liabilities and income are denominated in currencies other than sterling, which is the Company's functional currency and the presentational currency of the financial statements. As a result, movements in exchange rates will affect the sterling value of those items.
Management of currency risk
The Manager monitors the Company's exposure to foreign currencies and regularly reports to the Board. The Manager measures the risk to the Company of the foreign currency exposure by considering the effect on the Company's net asset value and income of a movement in the rates of exchange to which the Company's assets, liabilities, income and expenses are exposed.
Income denominated in foreign currencies is converted into sterling on receipt.
Foreign currency exposure
The fair value of the Company's monetary items that have foreign currency exposure at 31 August are shown below. The Company's investments (which are not monetary items) have been included separately in the analysis so as to show the overall level of exposure.
|
|
2024 |
|||||||||
|
|
|
|
|
|
|
|
New |
|
|
|
|
|
Japanese |
Hong Kong |
Australian |
Singapore |
Taiwan |
Thai |
Zealand |
US |
|
|
|
|
yen |
dollars |
dollars |
dollars |
dollars |
baht |
dollars |
dollars |
Other |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Current assets |
- |
2,770 |
2,117 |
651 |
2,774 |
- |
- |
521 |
374 |
9,207 |
|
Current liabilities |
- |
(2,290) |
(1,128) |
- |
- |
- |
- |
(38,045) |
(740) |
(42,203) |
|
Foreign currency |
|
|
|
|
|
|
|
|
|
|
|
exposure on net |
|
|
|
|
|
|
|
|
|
|
|
monetary items |
- |
480 |
989 |
651 |
2,774 |
- |
- |
(37,254) |
(366) |
(32,996) |
|
Investments at fair value |
|
|
|
|
|
|
|
|
|
|
|
through profit or loss1 |
7,986 |
132,790 |
110,040 |
111,422 |
163,787 |
7,977 |
- |
16,355 |
154,185 |
(32,996) |
|
Total net foreign |
|
|
|
|
|
|
|
|
|
|
|
currency exposure |
7,986 |
133,270 |
111,029 |
112,073 |
166,561 |
7,977 |
- |
(21,169) |
153,819 |
671,546 |
|
|
2023 |
|||||||||
|
|
|
|
|
|
|
|
New |
|
|
|
|
|
Japanese |
Hong Kong |
Australian |
Singapore |
Taiwan |
Thai |
Zealand |
US |
|
|
|
|
yen |
dollars |
dollars |
dollars |
dollars |
baht |
dollars |
dollars |
Other |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Current assets |
- |
991 |
1,585 |
1,881 |
668 |
143 |
- |
1,213 |
493 |
6,974 |
|
Current liabilities |
- |
(150) |
(702) |
(1,380) |
- |
- |
- |
(39,466) |
- |
(41,698) |
|
Foreign currency |
|
|
|
|
|
|
|
|
|
|
|
exposure on net |
|
|
|
|
|
|
|
|
|
|
|
monetary items |
- |
841 |
883 |
501 |
668 |
143 |
- |
(38,253) |
493 |
(34,724) |
|
Investments at fair value |
|
|
|
|
|
|
|
|
|
|
|
through profit or loss1 |
13,065 |
135,215 |
88,660 |
98,987 |
123,753 |
13,888 |
3,591 |
18,207 |
143,375 |
638,741 |
|
Total net foreign |
|
|
|
|
|
|
|
|
|
|
|
currency exposure |
13,065 |
136,056 |
89,543 |
99,488 |
124,421 |
14,031 |
3,591 |
(20,046) |
143,868 |
604,017 |
1Excluding any stocks priced in sterling.
The above year end amounts are broadly representative of the exposure to foreign currency risk during the current and comparative year.
Foreign currency sensitivity
The following tables illustrate the sensitivity of net profit for the year and net assets with regard to the Company's monetary financial assets and financial liabilities and exchange rates. The sensitivity analysis is based on the Company's monetary currency financial instruments held at each Balance Sheet date and assumes a 10% (2023: 10%) appreciation or depreciation in sterling against the currencies to which the Company is exposed, which is considered to be a reasonable illustration based on the volatility of exchange rates during the year.
If sterling had weakened by 10% this would have had the following effect:
|
|
2024 |
2023 |
|
|
£'000 |
£'000 |
|
Statement of Comprehensive Income - net profit/(loss) |
|
|
|
Net revenue profit |
3,101 |
3,346 |
|
Net capital (loss) |
(2,415) |
(3,562) |
|
Net total profit/(loss) for the year and net assets/(liabilities) |
686 |
(216) |
|
Conversely if sterling had strengthened by 10% this would have had the following effect: |
|
|
|
|
|
|
|
|
2024 |
2023 |
|
|
£'000 |
£'000 |
|
Statement of Comprehensive Income - net (loss)/profit |
|
|
|
Net revenue (loss) |
(3,101) |
(3,346) |
|
Net capital profit |
2,415 |
3,562 |
|
Net total profit/(loss) for the year and net assets/(liabilities) |
(686) |
216 |
In the opinion of the directors, the above sensitivity analysis with respect to monetary financial assets and liabilities is broadly representative of the whole of the current and comparative year. The sensitivity of the Company's investments to changes in foreign currency exchange rates is subsumed into market price risk sensitivity in the full set of annual financial statements.
(ii) Interest rate risk
Interest rate movements may affect the level of income receivable on cash deposits and the interest payable on variable rate borrowings when interest rates are re-set.
Management of interest rate risk
Liquidity and borrowings are managed with the aim of increasing returns to shareholders. The Company's gearing policy is to limit gearing to 25% where gearing is defined as borrowings used for investment purposes, less cash, expressed as a percentage of net assets.
The possible effects on cash flows that could arise as a result of changes in interest rates are taken into account when the Company draws on the credit facility. However, amounts drawn down on this facility are for short-term periods and therefore exposure to interest rate risk is not significant.
Interest rate exposure
The exposure of financial assets and financial liabilities to floating interest rates, giving cash flow interest rate risk when rates are re-set, is shown below:
|
|
2024 |
2023 |
|
|
£'000 |
£'000 |
|
Exposure to floating interest rates: |
|
|
|
Cash and cash equivalents |
6,942 |
11,000 |
|
Other payables: drawings on the credit facility |
(38,045) |
(39,459) |
|
Total exposure |
(31,103) |
(28,459) |
Cash deposits at call earn interest based on the Sterling Overnight Interest Average ("SONIA") (2023: SONIA) rates.
The Company has arranged a £100 million credit facility with The Bank of Nova Scotia, effective from 30 July 2024. Interest is payable at the aggregate of the compounded Risk Free Rate ("RFR") for the relevant currency and loan period, plus a margin. Amounts are normally drawn down on the facility for a one month period, at the end of which it may be rolled over or adjusted. At 31 August 2024, the Company had drawn down US$50.0 million (£38.0 million) for a one month period, at an interest rate of 6.38% per annum.
The above year end amounts are not representative of the exposure to interest rates during the year as the level of cash balances and drawings on the credit facility have fluctuated. The maximum and minimum net interest rate exposure during the year has been as follows:
|
|
2024 |
2023 |
|
|
£'000 |
£'000 |
|
Maximum debit interest rate exposure during the year - net debt |
(36,485) |
(36,718) |
|
Minimum debit interest rate exposure during the year - net debt |
(22,131) |
(28,459) |
Interest rate sensitivity
The following table illustrates the sensitivity of the return after taxation for the year and net assets to a 1.0% (2023: 1.0%) increase or decrease in interest rates in regards to the Company's monetary financial assets and financial liabilities. This level of change is considered to be a reasonable illustration based on observation of current market conditions. The sensitivity analysis is based on the Company's monetary financial instruments held at the Balance Sheet date with all other variables held constant.
|
|
2024 |
2023 |
||
|
|
1.0% increase |
1.0% decrease |
1.0% increase |
1.0% decrease |
|
|
in rate |
in rate |
in rate |
in rate |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Statement of Comprehensive Income - net (loss)/profit |
|
|
|
|
|
Net revenue (loss)/profit |
(83) |
83 |
(48) |
48 |
|
Net capital (loss)/profit |
(228) |
228 |
(237) |
237 |
|
Net total (loss)/profit |
(311) |
311 |
(285) |
285 |
|
Net (liabilities)/assets |
(311) |
311 |
(285) |
285 |
In the opinion of the directors, this sensitivity analysis may not be representative of the Company's future exposure to interest rate changes due to fluctuations in the level of cash balances and drawings on the credit facility.
(iii) Market price risk
Market price risk includes changes in market prices which may affect the value of the Company's investments.
Management of market price risk
The Board meets on at least four occasions each year to consider the asset allocation of the portfolio and the risk associated with particular industry sectors. The investment management team has responsibility for monitoring the portfolio, which is selected in accordance with the Company's investment objective and seeks to ensure that individual stocks meet an acceptable risk/reward profile.
Market price risk exposure
The Company's total exposure to changes in market prices at 31 August comprised the following:
|
|
2024 |
2023 |
|
|
£'000 |
£'000 |
|
Investments held at fair value through profit or loss |
735,607 |
676,323 |
The above data is broadly representative of the exposure to market price risk during the year.
Concentration of exposure to market price risk
An analysis of the Company's investments is given in the full set of annual financial statements This shows that the portfolio principally comprises investments quoted on Asian stock markets. Accordingly there is a concentration of exposure to that region. However it should be noted that an investment may not be entirely exposed to the economic conditions in its country of domicile or of listing.
Market price risk sensitivity
The following table illustrates the sensitivity of the net profit for the year and net assets to an increase or decrease of 20% (2023: 20%) in the fair value of the Company's equities. This level of change is considered to be a reasonable illustration based on observation of current market conditions. The sensitivity analysis is based on the Company's equities, adjusting for changes in the management fee, but with all other variables held constant.
|
|
2024 |
2023 |
||
|
|
20% increase |
20% decrease |
20% increase |
20% decrease |
|
|
in fair value |
in fair value |
in fair value |
in fair value |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Statement of Comprehensive Income - net (loss)/profit |
|
|
|
|
|
Net revenue (loss)/profit |
(412) |
412 |
(379) |
379 |
|
Net capital profit/(loss) |
146,503 |
(146,503) |
134,696 |
(134,696) |
|
Net total profit/(loss) for the year and net assets/(liabilities) |
146,091 |
(146,091) |
134,317 |
(134,317) |
(b) Liquidity risk
This is the risk that the Company will encounter difficulty in meeting its obligations associated with financial liabilities that are settled by delivering cash or another financial asset.
Management of the risk
Liquidity risk is not significant as the Company's assets comprise mainly readily realisable securities, which can be sold to meet funding requirements if necessary. Short-term flexibility is achieved through the use of a credit facility.
The Board's policy is for the Company to remain fully invested in normal market conditions and that the credit facility be used to manage working capital requirements and to gear the Company as appropriate.
Liquidity risk exposure
Contractual maturities of financial liabilities, based on the earliest date on which payment can be required are as follows:
|
|
2024 |
2023 |
|
|
Three |
Three |
|
|
months |
months |
|
|
or less |
or less |
|
|
£'000 |
£'000 |
|
Other payables |
|
|
|
Bank loan - including interest |
38,251 |
39,680 |
|
Securities purchased awaiting settlement |
3,757 |
2,081 |
|
Other payables and accruals |
6,037 |
1,479 |
|
|
48,045 |
43,240 |
(c) Credit risk
Credit risk is the risk that the failure of the counterparty to a transaction to discharge its obligations under that transaction could result in loss to the Company.
Management of credit risk
This risk is managed as follows:
Portfolio dealing
The Company invests almost entirely in markets that operate a "Delivery Versus Payment" settlement process which mitigates the risk of losing the principal of a trade during settlement. The Manager continuously monitors dealing activity to ensure best execution, which involves measuring various indicators including the quality of trade settlement and incidence of failed trades. Counterparties must be pre-approved by the Manager's credit committee.
The Company may sometimes invest in equity linked securities, such as low exercise price options, warrants, participatory notes and depositary receipts, which provide synthetic equity exposure where the Company may otherwise find it problematic to invest in the underlying assets directly. They have the same economic risks as a direct investment, except that there is a counterparty risk to the issuing investment bank. Counterparties must be approved by the Manager's Credit Risk Team based on a list of criteria and are monitored on an ongoing basis by Schroders' Portfolio Compliance Team.
Exposure to the Custodian
The Custodian of the Company's assets is HSBC Bank plc which has Long-Term Credit Ratings of AA- with Fitch and A1 with Moody's.
The Company's investments are held in accounts which are segregated from the Custodian's own trading assets. If the Custodian were to become insolvent, the Company's right of ownership of its investments is clear and they are therefore protected. However the Company's cash balances are all deposited with the Custodian as banker and held on the Custodian's Balance Sheet. In accordance with usual banking practice, the Company will rank as a general creditor to the Custodian in respect of cash balances and open currency contracts.
Credit risk exposure
The following amounts shown in the Balance Sheet represent the maximum exposure to credit risk at the current and comparative year end.
|
|
2024 |
2023 |
||
|
|
Balance |
Maximum |
Balance |
Maximum |
|
|
sheet |
exposure |
sheet |
exposure |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Current assets |
|
|
|
|
|
Receivables - dividends and interest |
2,962 |
2,962 |
3,992 |
3,992 |
|
Securities sold awaiting settlement |
3,017 |
3,017 |
199 |
199 |
|
Cash and cash equivalents |
6,942 |
6,942 |
11,000 |
11,000 |
|
|
12,921 |
12,921 |
15,191 |
15,191 |
No items included in "Receivables" are past their due date and none have been provided for.
21. Capital management policies and procedures
The Company's objectives, policies and processes for managing capital are unchanged from the preceding year.
The Company's debt and capital structure comprises the following:
|
|
2024 |
2023 |
|
|
£'000 |
£'000 |
|
Debt |
|
|
|
Bank loan |
38,045 |
39,459 |
|
Equity |
|
|
|
Share capital |
234,347 |
234,347 |
|
Reserves |
465,968 |
413,861 |
|
|
700,315 |
648,208 |
|
Total debt and equity |
738,360 |
687,667 |
The Company's capital management objectives are to ensure that it will continue as a going concern and to maximise total return to its equity shareholders through an appropriate level of gearing.
The Board's policy is to limit gearing to 25%. Gearing for this purpose is defined as borrowings used for investment purposes, less cash, expressed as a percentage of net assets.
|
|
2024 |
2023 |
|
|
£'000 |
£'000 |
|
Borrowings used for investment purposes, less cash |
31,103 |
28,459 |
|
Net assets |
700,315 |
648,208 |
|
Gearing |
4.4% |
4.4% |
The Board, with the assistance of the Manager, monitors and reviews the broad structure of the Company's capital on an ongoing basis. This review includes:
- the planned level of gearing, which takes into account the Manager's views on the market;
- the need to buy back the Company's own shares for cancellation or to hold in treasury, which takes into account the share price discount;
- the opportunities for issues of new shares or to reissue shares from treasury; and
- the amount of dividend to be paid, in excess of that which is required to be distributed.
22. Status of results announcement
2024 Financial Information
The figures and financial information for 2024 are extracted from the Annual Report and Financial Statements for the year ended 31st August 2024 and do not constitute the statutory accounts for that year.
2023 Financial Information
The figures and financial information for 2023 are extracted from the published Annual Report and Financial Statements for the year ended 31st August 2023 and do not constitute the statutory accounts for the year.
Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.
23 October 2024
For further information:
Schroder Investment Management Limited
E-mail: AMCompanySecretary@Schroders.com
Issued by Schroder Investment Management Limited. Registration No 1893220 England.
Authorised and regulated by the Financial Conduct Authority. For regular updates by e-mail please register online at www.schroders.com for our alerting service.
ENDS
A copy of the 2024 Annual Report will shortly be submitted to the FCA's National Storage Mechanism and will be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism
The 2024Annual Report will shortly be available on the Company's website at www.schroders.co.uk/orientalincome where up-to-date information on the Company, including daily NAV and share prices, factsheets and portfolio in formation can also be found.
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