TIDMSOI
RNS Number : 5012T
Schroder Oriental Income Fund Ltd
15 November 2019
15 November 2019
ANNUAL REPORT AND ACCOUNTS
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 www.schroders.co.uk/orientalincome. Please click
on the following link to view the document:
http://www.rns-pdf.londonstockexchange.com/rns/5012T_1-2019-11-14.pdf
The Company has submitted its annual report and accounts to the
National Storage Mechanism and it will shortly be available for
inspection at www.morningstar.co.uk/uk/NSM.
Enquiries:
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.
Gearing
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.
Outlook
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
Chairman
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
Strategic
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
markets.
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
investments.
Political
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
changes.
Custody
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
information.
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.
Cyber
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
------------------------- ------- ------- ------- ------- -------- --------
Earnings/(losses)
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
Capital
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:
2019
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
----------------------------------- ------- ------- ------- -------
2018
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 rns@lseg.com or visit www.rns.com.
END
FR LFFELLILSLIA
(END) Dow Jones Newswires
November 15, 2019 02:00 ET (07:00 GMT)
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