Schroder Oriental Income Fund Ltd Annual Financial Report

Data : 15/11/2019 @ 08:00
Fonte : UK Regulatory (RNS & others)
Titolo : Schroder Oriental Income Fund Limited (SOI)
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Schroder Oriental Income Fund Ltd Annual Financial Report

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RNS Number : 5012T

Schroder Oriental Income Fund Ltd

15 November 2019

15 November 2019


Schroder Oriental Income Fund Limited (the "Company") hereby submits its annual report for the year ended 31 August 2019 as required by the UK Listing Authority's Disclosure Guidance and Transparency Rule 4.1.

The Company's annual report and accounts for the year ended 31 August 2019 are also being published in hard copy format and an electronic copy will shortly be available to download from the Company's webpages Please click on the following link to view the document:

The Company has submitted its annual report and accounts to the National Storage Mechanism and it will shortly be available for inspection at


Matthew Riley

Schroder Investment Management Limited

Tel: 020 7658 6596

Chairman's Statement

Dear Shareholder

This is my first annual report statement as Chairman, having taken on the role on 20 December 2018. I would like to extend the board's thanks to my predecessor Robert Sinclair for his service to the Company over the previous 14 years.

Revenue, Dividends and Performance

In the 14 years since the launch of your Company, it has delivered both a high total return to shareholders and a consistent growth in dividends.

NAV total return to shareholders since launch has been 350%, an annualised return of 9.4%. By comparison, equity markets in the region (as measured by the MSCI AC Pacific ex Japan Total Return Index in sterling terms) have returned 267%. This significant outperformance in comparison to the equity markets of the region demonstrates the value that Schroders has added as investment manager and validates the total return oriented approach taken by the Company. The high level of total return is notable given that this period spans the financial crisis of 2008/2009 and subsequent smaller tremors in 2013 and 2015 and that Asian stock markets are today, in dollar terms, broadly where they were in 2017.

Since its launch in 2005 the Company has also demonstrated consistent dividend growth, with the dividend having been increased in each successive year.

As my predecessor described in last year's annual report, patience and a long-term perspective are key attributes of successful investment, and the above returns demonstrate that shareholders who have invested in the Company with this approach have been very well rewarded.

Dividends from our underlying investments have this year grown by 3.32% and this has allowed the Company once again to grow its own dividend. The Company has declared dividends totalling 10.1 pence (2018: 9.7 pence) per share in respect of the year, representing a yield of 3.8%, based on the share price of 264p at 6 November 2019. As in previous years, the dividend was more than fully covered by income and so we were once again able to add to the revenue reserve, which is available to supplement distributions in future years.

The NAV total return for the financial year to 31 August 2019 was 3.7%, an improvement from the prior year of 1.5%. The two factors driving this return were the performance of Asian equity markets and the Brexit related weakening of sterling. The share price produced a total return of 5.4%.

Share price premium issuance and entry to the FTSE 250 Index

The share price return was higher than the NAV return through to the end of the year. This premium enabled the Company to issue a further 8,585,000 ordinary shares during the year under review, on terms accretive to existing shareholders. This issuance benefits shareholders because it improves the liquidity of shares and reduces the ongoing charges per share by spreading the costs across a greater number of shares. The Company's shares have historically traded at a price close to their net asset value, and the board appreciates that this characteristic is valued highly by shareholders.

The success of the Company's strategy has been reflected in its own growth in shareholder equity. The Company has grown from a market capitalisation of GBP161m at launch to GBP687m at the time of writing. We are very pleased that the growth of the Company resulted in the Company being added to the FTSE 250 Index on 17 September 2019.


The Company continues to maintain a credit facility, as detailed in the notes to the accounts. The gearing level increased slightly, beginning and ending the year at 4.5% and 5.3%, respectively. The Company's gearing continues to operate within pre-agreed limits so that net effective gearing does not represent more than 25% of shareholders' funds.

Engagement with the Manager

In July, the board visited the Schroders offices in Singapore and Hong Kong; and met senior management of a selection of portfolio investee companies. These visits help us to gain a thorough understanding of the local expertise of the Manager and examine the investment process in greater detail, Following the visit, the board is confident that the depth of experience of the local Schroders teams will continue to reinforce successful outperformance over the long term.

The board also received presentations from the Schroders Environmental, Social and Governance (ESG) team. The board believes the Manager has significant experience in incorporating ESG considerations into investment decisions.

Management fee

The board negotiated a reduction in the annual management fee payable on net assets above GBP750 million from 0.70% to 0.65%.

Board composition and succession planning

In managing succession, the board has been mindful of maintaining the right mix and diversity of skills, experience and independence of thought whilst balancing fresh perspectives with corporate memory. As noted in last year's accounts I anticipate that I will serve as Chairman of the Company for a further year before leaving the board. Two new directors have been appointed in the last two years and we are seeking to appoint one more director within the next year.

Annual general meeting

The Company's annual general meeting will be held at 4.00 pm on Thursday, 12 December 2019 at Schroders' Guernsey offices. The board acknowledges that it is difficult for shareholders to attend general meetings held in Guernsey but I would encourage all shareholders to participate in the meeting and note that they may wish to vote by completing and returning their form of proxy to the Company's registrar if they are unable to attend in person.


Excellent as it is for the Company to have been successful enough to be included in the FTSE 250 index, it emphasises the need to repeat the factors behind that success: the sustained growth in the NAV and dividend, and the resulting investor demand that has increased the number of shares in the Company by three quarters since launch. At least in the short-term some of the favourable tail winds of recent years are under question. Trade and commercial differences between major powers have increased, Asian growth is slowing and the street protests in Hong Kong are impacting a stock market that is the Company's largest source of dividends.

These strike me, however, as almost inevitable challenges in the current investment environment. Slow growth and new political uncertainties are affecting markets worldwide and an appreciation of sterling could, as ever, have an adverse impact on the Company's returns. Where your Company has an advantage is a proven investment concept, with soundly financed Asian companies paying dividends that have continuing potential for growth. Yet again the Company has extended its record of increasing its dividend every year and, despite the challenges, there are simply too many good companies in the portfolio for me to be anything other than cautiously optimistic about the long-term outlook.

Peter Rigg


14 November 2019

Manager's Review

The net asset value per share of the company recorded a total return of +3.7% over the twelve months to end August 2019. Four interim dividends have been declared totalling 10.1 pence (2018: 9.7 pence).

Although regional markets ended the financial year in positive territory, this was thanks to the weakness of sterling in the last four months of the year amid rising speculation over a no deal UK exit from the European Union. The underlying reality is better represented by performance in US dollar terms in the chart above. Regional markets staged a strong rally early in 2019 from the depressed levels of December, spurred by a more accommodative stance from the US Federal Reserve. Since then, they have lacked more tangible sources of support. Outside the United States, global economic expectations continued to soften, global trade stagnated and corporate earnings revisions remained in negative territory across the region.

Politics also weighed on sentiment. The China-US disagreements have dominated the headlines, with concomitant impact on corporate confidence and investment. The varying perceptions of trade progress (or lack of it) caused significant market volatility through the period. In addition, the street protests in Hong Kong have materially impacted the domestic economy with retail sales and tourist arrivals falling sharply as the summer progressed. Less prominently but not helpful, Korea/Japanese relations have cooled due to a dispute over culpability for World War II atrocities.

With the notable exception of Malaysia, emerging ASEAN markets were leading performers, with the markets seen as less sensitive to trade and benefitting from increased scope to ease monetary conditions given quiescent inflation and relatively high real interest rates. Australia and New Zealand also performed well given their defensive characteristics and high yield stocks were notably strong at a time of interest rate cuts by their central banks. Korea suffered as its key exports fell sharply and the administration has pursued a populist agenda. Malaysia suffered as initial optimism surrounding the end of five decades of United Malays National Organisation leadership faded.

Positioning and Performance

The NAV's total return of 3.7% was slightly ahead of the MSCI index quoted above, which gave a total return of 1.9% in sterling over the period. Key contributors were positions in Thailand, Australia, Singapore and Hong Kong, despite the weakness in the last few months. Country allocation was helpful given the underweights in Korea, and Malaysia and over-weights in Thailand and Hong Kong. On the downside, the positions in Japan and New Zealand lagged.

Hong Kong, Australia, Taiwan and Singapore remain core positions in the Company's portfolio, with lesser exposures in Korea and Thailand (although over the year we reduced exposure in the latter). We cut China exposure, re-investing the proceeds into Singapore and, marginally, adding to Japan.

Investment Outlook

It is difficult to regard recent global macro and political developments as having been supportive of either equity markets or investor sentiment. Global political developments have dominated the front pages in Asia, but have scarcely been absent closer to home. The broad threads to these tensions could be viewed as the nexus between populism and resentment at perceived widening of wealth disparities. Whether related or not, economic trends have softened, with retracement in global sentiment indices, soft private capital spending in a number of countries, and slowing global trade growth.

The growth scare has been given further credence by the flattening/inversion of yield curves worldwide. The historic evidence linking this to inevitable recession is ambivalent, but increasingly desperate measures from central banks (at least outside the US) to support growth smack of panic that may do more harm than good. Albeit circumspectly, we do not sit in the recession camp, and indeed are inclined to feel that many cyclical growth sectors and stocks offer the most attractive medium-term prospects. In contrast, defensives and bond proxies seem inordinately rewarded for income generation and their perceived stability. We therefore continue to take a relatively balanced approach within the Company's portfolio.

Softening global sentiment indices, sluggish trade volumes, and supply chain disruption are obvious impediments for Asian markets. Aside from the political noise, it would also be true to say that more domestic stimulus attempts have been pretty half hearted. China remains notably disciplined despite excitements surrounding the recent National People's Congress meetings, and activity elsewhere is far short (mercifully?) of European-style policy panic. Short term growth numbers are undoubtedly being distorted by inventory build ups/drawdowns surrounding tariff increases (and indeed cancellation/deferment thereof). It is also undoubtedly affecting investment decisions; bad news short term, but this suggests that there is strong pent-up demand in industrial investment and related areas.

The situation in Hong Kong is obviously of concern as it remains a substantial exposure for the Company, with real estate and financials particularly vulnerable should confidence in stability be permanently impaired. While respecting the political motivations behind the protests, there is also an economic backdrop as the squeezed middle classes articulate their dissatisfaction. The local administration has considerable fiscal fire power should they elect to use it, while strong corporate balance sheets should provide some re-assurance as to shareholder returns.

As we have said before, we believe current dividend payment levels in Asia are generally well supported given strong cash flows, conservative capital spending intentions and strong balance sheets. More doubt surrounds the likely level of growth we can expect. Markets have, probably correctly, written off hope for much earnings growth in calendar 2019, but expectations look too sanguine for 2020, and this will feed through to dividend outturns. Many pieces of the jigsaw for recovery might fall into place (trade truce, recovery in Western economies, re-stocking, a return of corporate confidence) but these are not our central expectation.

Schroder Investment Management Limited

14 November 2019

Principal risks and uncertainties

The board is responsible for the Company's system of risk management and internal controls and for reviewing its effectiveness. The board has adopted a detailed matrix of principal risks affecting the Company's business as an investment company 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 using both qualitative and quantitative measures taking into account both the potential impact and the likelihood of those risks materialising. 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. The principal risks, emerging risks, and the monitoring system are subject to robust assessment at least annually. The last review took place in October 2019.

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.

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.

Emerging risks and uncertainties

During the year, the board also discussed and monitored a number of emerging risks that could potentially impact the Company's ability to meet its strategic objectives. These were political risk and climate change risk. As a result of this ongoing review, political risk was classified as a principal risk.

Climate change risk includes consideration of how climate change could affect the Company's investments, and potentially detrimental effect on shareholder returns. The board will continue to monitor the risk in future.

Risk                                            Mitigation and management 
 The Company's investment objectives              The appropriateness of the Company's 
 may become out of line with the                  investment remit is periodically 
 requirements of investors, resulting             reviewed and the success of the 
 in a wide discount of the share                  Company in meeting its stated objectives 
 price to underlying NAV per share.               is monitored. 
                                                  Share price relative to NAV per 
                                                  share is monitored by the board 
                                                  as a key performance indicator and 
                                                  the use of buy back authorities 
                                                  is considered on a regular basis. 
                                                  Marketing and distribution activity 
                                                  is actively reviewed. 
                                                  Proactive engagement with shareholders. 
The Company's cost base could become            The ongoing competitiveness of all 
 uncompetitive, particularly in light            service provider fees is subject 
 of open-ended alternatives.                     to periodic benchmarking against 
                                                 its competitors. 
                                                 Annual consideration of management 
                                                 and performance fee levels is undertaken. 
Investment management 
 The Manager's investment strategy                Review of: the Manager's compliance 
 and levels of resourcing, if inappropriate,      with agreed investment restrictions, 
 may result in the Company underperforming        investment performance and risk 
 the market and/or peer group companies,          against investment objectives and 
 leading to the Company and its objectives        strategy; relative performance; 
 becoming unattractive to investors.              the portfolio's risk profile; and 
                                                  whether appropriate strategies are 
                                                  employed to mitigate any negative 
                                                  impact of substantial changes in 
                                                  Annual review of the ongoing suitability 
                                                  of the Manager, including resources 
                                                  and key personnel risk. 
Financial and currency 
 The Company is exposed to the effect             The risk profile of the portfolio 
 of market and currency fluctuations              is considered and appropriate strategies 
 due to the nature of its business.               to mitigate any negative impact 
 A significant fall in regional equity            of substantial changes in markets 
 markets could have an adverse impact             or currency are discussed with the 
 on the market value of the Company's             Manager. 
 underlying investments and, as the 
 Company invests predominantly in                 The Company has no formal policy 
 assets which are denominated in                  of hedging currency risk but may 
 a range of currencies, its exposure              use foreign currency borrowings 
 to changes in the exchange rate                  or forward foreign currency contracts 
 between sterling and other currencies            to limit exposure. 
 has the potential to have a significant 
 impact on returns and the sterling 
 value of dividend income from underlying 
 Political developments globally                  The board monitors key political 
 might materially affect the ability              developments, including the potential 
 of the Company to achieve its investment         impact of Brexit and noted that 
 objective.                                       the portfolio's investments in the 
                                                  Asia Pacific region limited the 
                                                  direct impact from Brexit other 
                                                  than through shareholders' exposure, 
                                                  principally to exchange rate fluctuations 
                                                  against sterling. 
                                                  The board and the portfolio manager 
                                                  periodically meet with the Manager's 
                                                  economists to gauge the likelihood 
                                                  and impact of certain political 
 Safe custody of the Company's assets             The safekeeping and cashflow monitoring 
 may be compromised through control               agent reports on the safe custody 
 failures by the safekeeping and                  of the Company's assets, including 
 cashflow monitoring agent.                       cash and portfolio holdings, which 
                                                  are independently reconciled with 
                                                  the Manager's records. 
                                                  Review of audited internal controls 
                                                  reports covering custodial arrangements 
                                                  is undertaken. 
                                                  An annual report from the safekeeping 
                                                  and cashflow monitoring agent on 
                                                  its activities, including matters 
                                                  arising from custody operations 
                                                  is reviewed. 
Gearing and leverage 
 The Company utilises credit facilities.          Gearing is monitored and strict 
 These arrangements increase the                  restrictions on borrowings are imposed: 
 funds available for investment through           gearing continues to operate within 
 borrowing. While this has the potential          pre-agreed limits so as not to exceed 
 to enhance investment returns in                 25% of the Company's net assets. 
 rising markets, in falling markets 
 the impact could be detrimental 
 to performance. 
Accounting, legal and regulatory 
 Breaches of the UK Listing Rules,                Confirmation of compliance with 
 The Companies (Guernsey) Law, 2008               relevant laws and regulations by 
 (as amended) or other regulations                key service providers is reviewed. 
 with which the Company is required 
 to comply, could lead to a number                Shareholder documents and announcements, 
 of detrimental outcomes.                         including the Company's published 
                                                  Annual Report, are subject to stringent 
                                                  review processes. 
                                                  Procedures are established to safeguard 
                                                  against the disclosure of inside 
Service provider 
 The Company has no employees and                 Service providers appointed subject 
 has delegated certain functions                  to due diligence processes and with 
 to a number of service providers.                clearly-documented contractual arrangements 
 Failure of controls, including as                detailing service expectations. 
 a result of cyber hacking, and poor 
 performance of any service provider,             Regular reports are provided by 
 could lead to disruption, reputational           key service providers and the quality 
 damage or loss.                                  of their services is monitored. 
                                                  Review of annual audited internal 
                                                  controls reports from key service 
                                                  providers, including confirmation 
                                                  of business continuity arrangements 
                                                  and IT controls, is undertaken. 
 The Company's service providers                  Service providers report on cyber 
 are all exposed to the risk of cyber             risk mitigation and management at 
 attacks. Cyber attacks could lead                least annually, which include confirmation 
 to loss of personal or confidential              of business continuity capability 
 information, unauthorised payments               in the event of a cyber attack. 
 or inability to carry out operations 
 in a timely manner. 

Risk assessment and internal controls

Risk assessment includes consideration of the scope and quality of the system of internal controls 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.

A full analysis of the financial risks facing the Company is set out in note 20 on pages 48 to 53 of the 2019 annual report.

Viability statement

The directors have assessed the viability of the Company over a five year period, taking into account the Company's current financial position, its cash flows and its liquidity, along with an assessment of any material uncertainties and events that might cast significant doubt upon the Company's ability to continue as a going concern.

The board believes that a period of five years reflects a suitable time horizon for strategic planning, taking into account the long-term nature of the investment policy of the Company, the inherent characteristics and volatility profile of the securities held by it and the potential impact of economic and market cycles.

In their assessment of the viability of the Company, the directors have considered each of the principal risks and uncertainties detailed on pages 14 and 15 of the 2019 annual report. In particular the directors have considered a stress test which represents a severe but plausible scenario. This scenario assumes a severe stock market collapse and/or exchange rate movements at the beginning of the five year period, resulting in a 50% fall in the value of the Company's investments and investment income and no subsequent recovery in either prices or income in the following five years. It is assumed that the Company continues to pay an annual dividend in line with current levels and that the borrowing facility remains available and remains drawn, subject to the gearing cap.

The Company's investments comprise highly liquid, large, listed companies and so its assets are readily realisable securities and could be sold to meet funding requirements or the repayment of the gearing facility should the need arise. There is no expectation that the nature of the investments held within the portfolio will be materially different in the future.

The expenses of the Company are predictable and modest in comparison with the assets and there are no capital commitments foreseen which would alter that position. Furthermore, the Company has no employees and consequently no redundancy or other employment related liabilities.

Although there continue to be material regulatory changes which could increase costs or impact revenue, the directors do not believe that this would be sufficient to affect its viability.

The board reviews the performance of the Company's service providers regularly, including the Manager, along with internal controls reports to provide assurance regarding the effective operation of internal controls as reported on by their reporting accountants. The board also considers the business continuity arrangements of the Company's key service providers.

The board has assumed that the business model of a closed ended investment company, as well as the Company's investment objective, will continue to be attractive to investors.

Based on the above, along with the limits imposed on gearing, counterparty exposure, liquidity risk and financial controls, the directors have concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period to 31 August 2024.

Going concern

Having assessed the principal risks and the other matters discussed in connection with the viability statement set out above, and the "Guidance on Risk Management, Internal Control and Related Financial and Business Reporting" published by the FRC in 2014, the directors consider it appropriate to adopt the going concern basis in preparing the accounts.

Statement of Directors' Responsibilities in respect of the Annual Report and Accounts

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") 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, 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.

Each of the directors, whose names and functions are listed on pages 17 and 18 of the annual report, 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), give a true and fair view of the assets, liabilities, financial position and the net return of the Company;

- the Strategic Report 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.

Statement of Comprehensive Income for the year ended 31 August 2019

                                     2019                        2018 
                           Revenue  Capital    Total  Revenue   Capital     Total 
                           GBP'000  GBP'000  GBP'000  GBP'000   GBP'000   GBP'000 
Gains/(losses) on 
 investments at fair 
 value through profit 
 or loss                         -    1,538    1,538        -  (13,193)  (13,193) 
Net foreign currency 
 losses                          -  (2,414)  (2,414)        -     (895)     (895) 
Income from investments     32,294    1,076   33,370   31,257     1,033    32,290 
Other income                    64        -       64       22         -        22 
-------------------------  -------  -------  -------  -------  --------  -------- 
Total income/(loss)         32,358      200   32,558   31,279  (13,055)    18,224 
Management fee             (1,352)  (3,155)  (4,507)  (1,365)   (3,184)   (4,549) 
Other administrative 
 expenses                    (950)      (6)    (956)    (813)       (4)     (817) 
-------------------------  -------  -------  -------  -------  --------  -------- 
Profit/(loss) before 
 finance costs and 
 taxation                   30,056  (2,961)   27,095   29,101  (16,243)    12,858 
Finance costs                (332)    (768)  (1,100)    (334)     (777)   (1,111) 
-------------------------  -------  -------  -------  -------  --------  -------- 
Profit/(loss) before 
 taxation                   29,724  (3,729)   25,995   28,767  (17,020)    11,747 
Taxation                   (2,348)        -  (2,348)  (2,346)      (29)   (2,375) 
-------------------------  -------  -------  -------  -------  --------  -------- 
Net profit/(loss) 
 and total comprehensive 
 income                     27,376  (3,729)   23,647   26,421  (17,049)     9,372 
-------------------------  -------  -------  -------  -------  --------  -------- 
 per share                  10.60p  (1.44)p    9.16p   10.52p   (6.79)p     3.73p 

The "Total" column of this statement represents the Company's Statement of Comprehensive Income, prepared in accordance with IFRS. The "Revenue and Capital" columns represent supplementary information prepared under guidance issued by the Association of Investment Companies.

The Company does not have any income or expense that is not included in net profit for the year. Accordingly the "Net profit" for the year is also the "Total comprehensive income" 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.

Statement of Changes in Equity for the year ended 31 August 2019

                      Share  redemption  Special   Capital   Revenue 
                    capital     reserve  reserve  reserves   reserve     Total 
                    GBP'000     GBP'000  GBP'000   GBP'000   GBP'000   GBP'000 
At 31 August 2017   170,076          39  150,374   288,008    26,969   635,466 
Issue of ordinary 
 shares              21,462           -        -         -         -    21,462 
Net (loss)/profit         -           -        -  (17,049)    26,421     9,372 
Dividends paid in 
 the year                 -           -        -         -  (23,589)  (23,589) 
------------------  -------  ----------  -------  --------  --------  -------- 
At 31 August 2018   191,538          39  150,374   270,959    29,801   642,711 
Issue of ordinary 
 shares              21,248           -        -         -         -    21,248 
Net (loss)/profit         -           -        -   (3,729)    27,376    23,647 
Dividends paid in 
 the year                 -           -        -         -  (25,802)  (25,802) 
------------------  -------  ----------  -------  --------  --------  -------- 
At 31 August 2019   212,786          39  150,374   267,230    31,375   661,804 
------------------  -------  ----------  -------  --------  --------  -------- 

Balance Sheet at 31 August 2019

                                                            2019      2018 
                                                         GBP'000   GBP'000 
Non current assets 
Investments at fair value through profit or loss         694,569   668,985 
Current assets 
Receivables                                                2,553     3,794 
Cash and cash equivalents                                  5,043    39,165 
Derivative financial instrument at fair value through 
 profit or loss                                              836         - 
------------------------------------------------------  --------  -------- 
                                                           8,432    42,959 
------------------------------------------------------  --------  -------- 
Total assets                                             703,001   711,944 
Current liabilities 
Payables                                                (41,197)  (69,233) 
------------------------------------------------------  --------  -------- 
Net assets                                               661,804   642,711 
------------------------------------------------------  --------  -------- 
Equity attributable to equity holders 
Share capital                                            212,786   191,538 
Capital redemption reserve                                    39        39 
Special reserve                                          150,374   150,374 
Capital reserves                                         267,230   270,959 
Revenue reserve                                           31,375    29,801 
------------------------------------------------------  --------  -------- 
Total equity shareholders' funds                         661,804   642,711 
------------------------------------------------------  --------  -------- 
Net asset value per share                                251.94p   252.94p 

Cash Flow Statement for the year ended 31 August 2019

                                                                 2019      2018 
                                                              GBP'000   GBP'000 
Operating activities 
Profit before finance costs and taxation                       27,095    12,858 
Add back net foreign currency losses                            2,414       895 
(Gains)/losses on investments at fair value through 
 profit or loss                                               (1,538)    13,193 
Net purchases of investments at fair value through 
 profit or loss                                              (22,755)  (29,608) 
Less amortisation of discount on fixed interest securities          -      (27) 
(Increase)/decrease in receivables                            (1,002)       571 
Increase/(decrease) in payables                                     2   (7,431) 
Overseas taxation paid                                        (2,232)   (2,527) 
-----------------------------------------------------------  --------  -------- 
Net cash inflow/(outflow) from operating activities 
 before interest                                                1,984  (12,076) 
-----------------------------------------------------------  --------  -------- 
Interest paid                                                 (1,104)   (1,104) 
-----------------------------------------------------------  --------  -------- 
Net cash inflow/(outflow) from operating activities               880  (13,180) 
-----------------------------------------------------------  --------  -------- 
Financing activities 
Bank loans drawn down                                          11,460    46,415 
Bank loans repaid                                            (44,063)  (21,275) 
Issue of ordinary shares                                       21,248    21,462 
Dividends paid                                               (25,802)  (23,589) 
-----------------------------------------------------------  --------  -------- 
Net cash (outflow)/inflow from financing activities          (37,157)    23,013 
-----------------------------------------------------------  --------  -------- 
(Decrease)/increase in cash and cash equivalents             (36,277)     9,833 
Cash and cash equivalents at the start of the year             39,165    29,881 
Effect of foreign exchange rates on cash and cash 
 equivalents                                                    2,155     (549) 
-----------------------------------------------------------  --------  -------- 
Cash and cash equivalents at the end of the year                5,043    39,165 
-----------------------------------------------------------  --------  -------- 

Dividends received during the year amounted to GBP33,184,000 (2018: GBP32,614,000) and bond and deposit interest receipts amounted to GBP68,000 (2018: GBP234,000).

Notes to the Accounts for the year ended 31 August 2019

   1.             Accounting Policies 

Basis of accounting

The accounts 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, together with interpretations of the International Accounting Standards and Standing Interpretations Committee approved by the International Accounting Standards Committee, that remain in effect and to the extent that they have been adopted by the European Union.

The accounts have been prepared on a going concern basis under the historical cost convention, as modified by the revaluation of investments at fair value through profit or loss.

Where consistent with the requirements of IFRS, the directors have sought to prepare the accounts 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 November 2014 and updated in February 2018.

The policies applied in these accounts 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 accounts are presented. Amounts have been rounded to the nearest thousand.

The directors have also considered the Company's income and expenditure projections and the fact that the Company's investments comprise readily realisable securities which can be sold to meet funding requirements if necessary and conclude that it is reasonable to prepare the financial statements on a going concern basis. The principal accounting policies adopted are set out below.

   2.             Taxation 

The Company has been granted an exemption from Guernsey taxation, under the Income Tax (Exempt Bodies) Guernsey Ordinance 1989, for which it is charged an annual exemption fee of GBP1,200 (2018: GBP1,200). Taxation comprises irrecoverable overseas withholding tax deducted from dividends receivable.

   3.             Dividends 

Dividends paid and declared

                                                         2019     2018 
                                                      GBP'000  GBP'000 
2018 fourth interim dividend of 4.50p (2017: 4.20p)    11,505   10,477 
First interim dividend of 1.80p (2018: 1.70p)           4,653    4,254 
Second interim dividend of 1.80p (2018: 1.70p)          4,672    4,284 
Third interim dividend of 1.90p (2018: 1.80p)           4,972    4,574 
----------------------------------------------------  -------  ------- 
Total dividends paid in the year                       25,802   23,589 
----------------------------------------------------  -------  ------- 
                                                         2019     2018 
                                                      GBP'000  GBP'000 
Fourth interim dividend declared of 4.60p (2018: 
 4.50p)                                                12,083   11,434 
----------------------------------------------------  -------  ------- 

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 the solvency test for all dividends paid to date.

The fourth interim dividend declared in respect of the year ended 31 August 2018 differs from the amount actually paid due to shares issued after the balance sheet date but prior to the share register record date.

   4.             Earnings/(losses) per share 
                                                       2019         2018 
                                                    GBP'000      GBP'000 
Net revenue profit                                   27,376       26,421 
Net capital loss                                    (3,729)     (17,049) 
----------------------------------------------  -----------  ----------- 
Net total profit                                     23,647        9,372 
----------------------------------------------  -----------  ----------- 
Weighted average number of Ordinary shares in 
 issue during the year                          258,190,873  250,958,435 
Revenue earnings per share                           10.60p       10.52p 
Capital loss per share                              (1.44)p      (6.79)p 
----------------------------------------------  -----------  ----------- 
Total earnings per share                              9.16p        3.73p 
----------------------------------------------  -----------  ----------- 
   5.             Share capital 
                                                         2019     2018 
                                                      GBP'000  GBP'000 
Ordinary shares of 1p each, allotted, called-up and 
 fully paid: 
Opening balance of 254,098,024 (2018: 245,703,024) 
 shares                                               191,538  170,076 
Issue of 8,585,000 (2018: 8,395,000) shares            21,248   21,462 
----------------------------------------------------  -------  ------- 
Closing balance of 262,683,024 (2018: 254,098,024) 
 shares                                               212,786  191,538 
----------------------------------------------------  -------  ------- 

No shares were held in treasury at the year end (2018: nil).

During the year a total of 8,585,000 shares, nominal value GBP85,850 were issued to the market to satisfy demand, at an average price of 247.50p per share, for a total consideration received of GBP21,248,000.

   6.             Net asset value per share 
                                                           2019         2018 
Net assets attributable to shareholders (GBP'000)       661,804      642,711 
Shares in issue at the year end                     262,683,024  254,098,024 
--------------------------------------------------  -----------  ----------- 
Net asset value per share                               251.94p      252.94p 
--------------------------------------------------  -----------  ----------- 
   7.             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, cash at bank and drawings on the credit facility. 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) on page 41, and note 1(i) on page 42 of the 2019 annual report.

At 31 August 2019, the Company's investment portfolio was categorised as follows:

                                     Level 1  Level 2  Level 3    Total 
                                     GBP'000  GBP'000  GBP'000  GBP'000 
Investments in equities and equity 
 linked securities                   694,569        -        -  694,569 
Derivative financial instrument - 
 forward currency contract                 -      836        -      836 
-----------------------------------  -------  -------  -------  ------- 
Total                                694,569      836        -  695,405 
-----------------------------------  -------  -------  -------  ------- 
                                     Level 1  Level 2  Level 3    Total 
                                     GBP'000  GBP'000  GBP'000  GBP'000 
Investments in equities and equity 
 linked securities                   668,985        -        -  668,985 
-----------------------------------  -------  -------  -------  ------- 
Total                                668,985        -        -  668,985 
-----------------------------------  -------  -------  -------  ------- 

There have been no transfers between Levels 1, 2 or 3 during the year (2018: nil).

   8.             Status of announcement 

2018 Financial Information

The figures and financial information for 2018 are extracted from the published annual report and accounts for the year ended 31 August 2018 and do not constitute the statutory accounts for that year. The 2018 annual report and accounts included the Report of the Independent Auditors which was unqualified.

2019 Financial Information

The figures and financial information for 2019 are extracted from the annual report and accounts for the year ended 31 August 2019 and do not constitute the statutory accounts for the year. The 2019 annual report and accounts include the Report of the Independent Auditors which is unqualified.

Neither the contents of the Company's webpages nor the contents of any website accessible from hyperlinks on the Company's webpages (or any other website) is incorporated into, or forms part of, this announcement.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact or visit



(END) Dow Jones Newswires

November 15, 2019 02:00 ET (07:00 GMT)

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