TIDMSOI
RNS Number : 4125X
Schroder Oriental Income Fund Ltd
24 November 2017
24 November 2017
ANNUAL REPORT AND ACCOUNTS
Schroder Oriental Income Fund Limited (the "Company") hereby
submits its annual financial report for the year ended 31 August
2017 as required by the UK Listing Authority's Disclosure and
Transparency Rule 4.1.
The Company's Annual Report and Accounts for the year ended 31
August 2017 are also being published in hard copy format and an
electronic copy will shortly be available to download from the
Company's webpage http://www.schroders.co.uk/orientalincome. Please
click on the following link to view the document:
http://www.rns-pdf.londonstockexchange.com/rns/4125X_-2017-11-23.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:
Louise Richard
Schroder Investment Management Limited Tel: 020 7658 6501
Chairman's Statement
I am pleased to be able to report on another successful year for
your Company. The NAV per share generated a total return of 20.6%
in the financial year, building on the gain of over 32% the prior
year. The share price followed suit, returning 20.7%, to reach an
all-time high of GBP2.61 at the financial year end.
Some of these exceptional gains over the past two years reflect
the depreciation of sterling against other currencies following the
Brexit vote. However, Asian equity markets have also performed
strongly. That said, the gains this year were of a different
character to last year. This year the strength of Asian equity
indices was driven by a much narrower range of fashionable "high
growth" stocks, particularly in the e-commerce and technology
sectors. The low yield of these types of stocks constrains how much
a company with a mandate like yours can invest in them. The core
strategy of your portfolio is to always seek out companies that
generate strong, consistent and predictable earnings, which are
attractively priced and which pay a regular and well covered
dividend.
So it is no surprise that the Company has underperformed the
wider Asian equity markets this year. Neither your Board nor the
Manager makes any apology for this. The Company's track record over
the past 12 years, where it has generated an annualised return of
13.3%, comfortably outperforming the Asian markets, demonstrates
the value of the investment approach. The approach won't be flavour
of the month all the time but therein lies opportunity for future
gains when investors' focus returns once again to the value
embedded in the companies that the Company owns. In the meantime,
your Company waits and enjoys robust and growing dividends.
The Company's own dividend payments have also continued to grow
strongly. With an underpin of revenue earnings per share rising by
10.1% to 9.94 pence this year, total dividends of 9.20 pence per
share for the year ended 31 August 2017 represent growth of 8.2%
since last year. Dividends have now increased for the 11th
consecutive year and the Association of Investment Companies has
listed the Company as a "Next Generation Dividend Hero".
The fact that the Company's shares have traded at a small
premium to NAV for much of the year shows the value that
shareholders place upon the Company's approach, consistency and
dividend growth. Feedback from our shareholders regularly confirms
that the Company has an important place in their portfolios in both
global income and Asian equity contexts.
The Board recognises the value that shareholders place upon
stability of the share price relative to the intrinsic value of the
shares and, as a result, the Company has issued 8,161,450 new
shares during the year at a slight premium to NAV. A further
3,855,000 shares have been issued since the financial year end. As
well as assisting with the stability of the premium, this issuance
has the additional benefit of further reducing the Ongoing Charges
per share by spreading fixed costs more widely. For the latest
financial year, Ongoing Charges reduced to 0.85%, from 0.89% last
year. At the forthcoming Annual General Meeting ("AGM"), to be held
on 15 December 2017, the Board is seeking to renew the existing
authorities to issue shares on a non-pre-emptive basis and to buy
back shares for cancellation or holding in treasury.
Also at the AGM, all continuing Directors will be presenting
themselves for re-election, in accordance with the Board's policy
of annual re-election. However, in line with our refreshment plans,
Fergus Dunlop will not be offering himself for re-election, having
served nine years as a Director. On behalf of the Board, I would
like to thank Fergus for his invaluable contribution during this
time.
Your Board is committed to progressive refreshment, balancing
fresh perspectives with the benefits of continuity. A search is
currently underway to replace Fergus and his retirement follows the
appointment of Paul Meader in January 2016 succeeding Chris
Sherwell. Another of the long serving directors will retire at the
AGM in 2018. Through this process the Board has agreed that four
directors is optimal to meet the Company's needs, although this
number may vary during periods of refreshment.
Since the year end, your Board has undertaken its annual review
of fees payable to the Manager. While the Board remains supportive
of the structure of the fee arrangements, which it believes are
well aligned to the interests of shareholders, it has reassessed
the scale of the performance fee in providing value to shareholders
as the Company grows. Consequently, I am pleased to report that the
Manager has agreed to reduce the cap on the performance fee from
1.0% to 0.75% of the net assets of the Company calculated at the
end of any one accounting period, effective from 1 September 2017.
Full details of the performance fee calculation may be found on
page 20 of the 2017 Annual Report.
Regulatory change continues apace, with the Manager's response
bringing further financial benefits to the Company. The turn of
2017 will see the implementation of MIFID II. There are two
consequences for the Company. Firstly, the Manager will issue a Key
Information Document about the Company which will be maintained on
its webpages. The second relates to the explicit charging for the
costs of investment research. Schroders has, however, announced
that it does not intend to continue to charge external research
costs to its clients, including your Company, and will instead bear
this expense itself from 1 January 2018. Your Board welcomes this
development in managing the Company's costs for the benefit of
shareholders.
Looking forward, whilst "income investing" may have fallen out
of fashion temporarily, overall earnings growth in Asia is strong,
driven by the first period of synchronised global economic growth
since the financial crisis. The Manager's Review on pages 5 to 7 of
the 2017 Annual Report notes the value in the portfolio's holdings
and how their higher cash flows are being reflected in higher
dividends. As has been a general theme during the 12 years since
inception of the Company, the Board believes that this will, in due
course, be reflected in long-term capital gains, as well as enable
us to meet the Company's record of increasing the Company's
dividends each year. The Company's fortunes are, of course, always
buffeted by the swings of sentiment in global equity markets.
However, the Company's mandate towards solid, well managed
companies with strong cash flows in one of the world's most dynamic
and vibrant economic regions remains as relevant today as at its
launch.
I look forward to reporting to you again in the half year report
to be published next June.
Robert Sinclair
Chairman
23 November 2017
Manager's Review
The NAV per share of the Company recorded a total return of
20.6% over the 12 months to the end of August 2017.
It has been another strong year for Asian stock markets,
registering a rise of just over a quarter in sterling terms. There
was understandable uncertainty for the region in the wake of Mr
Trump's victory in the US presidential election last November.
However, the consequent fears over greater protectionism and
heightened geopolitical tension proved to have only a brief impact
on the region. From the beginning of 2017, a number of more
positive developments came into play. These included increasing
evidence of a co-ordinated recovery in the global economy, with
leading indicators in the overwhelming majority of developed
economies moving into positive territory, mirrored also by similar
developments across Asia itself. After a number of years of
stagnation, global trade flows have responded, with total trade in
dollar terms reaching record highs.
Supported by the benign environment, earnings estimates for
Asian companies have been rising consistently over the year, with
expectations for 2017 rising from around 10% growth to over 20%
relative to 2016. This has been in contrast to the pattern of the
previous three years, and has clearly been very supportive for
investor sentiment. Free cash flow has also been rising sharply
across the region as capital spending remains generally
disciplined, underpinning healthy dividend growth.
The period saw a number of potentially troubling geo-political
developments, most notably the increasingly belligerent stance of
the Democratic People's Republic of Korea, further threatening to
destabilise the always delicate relationship between China and the
US. Investors have, thus far, been remarkably calm; indeed the
market with arguably the greatest proximity to the epicentre, that
of South Korea, ended the fiscal year within 5% of all-time
highs.
China remained an important determinant of sentiment. Although
the external environment was supportive to trade growth, the
economy has not shown the same pick up in momentum evident
elsewhere. To an extent, this has been a deliberate thrust of
policy on the part of the Beijing authorities, reflecting
confidence that the measure of stimulus taken in late 2015 could be
withdrawn without undue threat to all-important "stability".
Consequently, monetary stimulus was gradually reduced through the
summer, augmented by policies to rein in the residential property
market and greater regulatory scrutiny of unorthodox financing
vehicles and off-balance sheet exposures in the banking sector.
In the event, the gentle tightening in China has done no harm to
local market returns, although a large measure of the
outperformance has been thanks to a strong showing from a
relatively small number of large capitalisation internet stocks.
Taiwan and Korea have been the other strong performers, with the
higher export exposure favouring returns. In contrast, more
domestically-oriented markets such as the emerging ASEAN markets
did not perform well.
Positioning and performance
The Company has registered a very solid absolute return over the
financial year, but has significantly lagged the returns on the
reference index which rose 25.8%. The biggest single factor has
been the underweighting and stock selection in China, and more
particularly the very strong returns from large cap internet stocks
which, with minimal, if any, dividend yield, are never likely to
feature largely in an income portfolio. Furthermore, a number of
markets with relatively low dividend yields (Korea being the most
notable) performed well, and in distinct contrast to higher
yielding markets such as Thailand and New Zealand.
Hong Kong, Australia, China, Taiwan and Singapore remain the
main country exposures in the portfolio, with allocations between
5% and 10% in Thailand and Korea. Key sector exposures are
financials, real estate, information technology, materials and
telecoms. In terms of changes to the portfolio, we added to
Australia, Korea and China, and to a lesser extent to Japan and
Singapore, balanced by reductions in Taiwan, Hong Kong and the sale
of our sole Indian holding.
Investment outlook
Over the last 12 months, investors have taken a relatively
sanguine view of global equity markets. The stance has been
rewarded and Asian equities have more than participated in this
strength. The scale and extent of returns naturally raises the
question of whether enough is enough, and at least a pause for
breath, or a correction, is imminent.
Perhaps the first point to make is that many fundamental
supports to equity markets remain in force. PMI data (Purchasing
Managers' Indices) paints a picture of an impressively co-ordinated
upturn in global growth, with 80% of countries solidly in expansion
territory. Equity valuations relative to bonds remain in extremely
attractive territory, and there have been few of the usual signals
that surround a market peak such as narrowing market breadth,
widening credit spreads or excess investment by corporates. This
suggests that the outlook for the region's exporters remains
relatively sound, although the pace of expansion is likely to
moderate over coming quarters as comparisons get more
demanding.
As regards the external environment for Asia, the extent of any
tapering following on from recent Federal Reserve and European
Central Bank announcements must be taken seriously. However, the
$300bn projected withdrawal by the Federal Reserve over the next 12
months must be seen against a total central bank balance sheet
expansion globally of $11trn since 2009, and in aggregate Central
Bank balance sheets are likely to still grow until Q4 2018. The key
will remain inflation expectations, and the risks here surround
tightening labour markets (including a surge in Euro area companies
reporting labour shortages) and the impact of supply curtailments
in China.
As regards domestic conditions in Asia, the impact of the
self-induced (and hopefully controlled) slowdown in Chinese growth
will need to be closely monitored. Our calculation is that this can
be smoothly managed, aided by the broadly helpful global
environment in terms of liquidity (aided by a gently weaker US
dollar) and robust trade flows. The October political transition in
China has seen a smooth entrenchment of President Xi, but
accompanied by the departure of a number of more pro-reform cadres.
In all probability, the prospect of real reform has receded, with
the exception of supply curtailments in a number of basic
industries driven by the pressing need to tackle pollution. Credit
growth will remain a key lever of State economic control. Although
there must be an eventual end to the process, we believe it is too
early to incorporate the serious long-term consequences of the debt
build up given that China continues to enjoy a strong external
balance and growth is gradually shifting towards services and the
consumer.
As we reported at the half way stage, we also take heart from
the fact that the corporate sector around the region is generally
in robust health. Outside sectors and companies whose investment
patterns are determined by state and government-led priorities,
capital spending discipline remains impressive, resulting in a
strong expansion in underlying cash flows and stronger balance
sheets. We continue to see an encouraging flow of positive dividend
news. It may be difficult for an income-oriented company such as
this to access the high growth low yield areas of the market so
much in favour over the last 18 months, but we see solid value
across the income universe in Asia.
Schroder Unit Trusts Limited
23 November 2017
Principal risks and uncertainties
The Board is responsible for the Company's system of risk
management and internal control and for reviewing its
effectiveness. The Board has adopted a detailed matrix of principal
risks affecting the Company's business as an investment company and
has established associated policies and processes designed to
manage and, where possible, mitigate those risks, which are
monitored by the Audit Committee on an ongoing basis. This system
assists the Board in determining the nature and extent of the risks
it is willing to take in achieving the Company's strategic
objectives. Both the principal risks and the monitoring system are
also subject to robust review at least annually. The last review
took place in November 2017.
Although the Board believes that it has a robust framework of
internal control 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.
The principal risks and uncertainties faced by the Company have
remained unchanged throughout the year under review, except in
respect of cyber risk relating to the Company's service providers,
which has now been extended beyond the custodian. Cyber risk
relating to all of the Company's key service providers is
considered an increased threat in light of the rising propensity
and impact of cyber attacks on businesses and institutions. To
address the risk, the Board is seeking enhanced reporting on cyber
risk mitigation and management from its key service providers to
ensure that it is managed and mitigated appropriately.
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.
Risk Mitigation and management
Strategic
The Company's investment Appropriateness of the Company's
objectives may become investment remit periodically
out of line with the reviewed and success of the
requirements of investors, Company in meeting its stated
resulting in a wide objectives monitored.
discount of the share
price to underlying Share price relative to NAV
NAV per share. per share monitored and use
of buy back authorities considered
on a regular basis.
Marketing and distribution
activity actively reviewed.
The Company's cost base Ongoing competitiveness of
could become uncompetitive, all service provider fees
particularly in light subject to periodic benchmarking
of open ended alternatives. against competitors.
Annual consideration of management
and performance fee levels.
Investment management
The Manager's investment Review of: the Manager's
strategy and levels compliance with agreed investment
of resourcing, if inappropriate, restrictions, investment
may result in the Company performance and risk against
underperforming the investment objectives and
market and/or peer group strategy; relative performance;
companies, leading to the portfolio's risk profile;
the Company and its and appropriate strategies
objectives becoming employed to mitigate any
unattractive to investors. 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 Risk profile of the portfolio
to the effect of market considered and appropriate
and currency fluctuations strategies to mitigate any
due to the nature of negative impact of substantial
its business. A significant changes in markets or currency
fall in regional equity discussed with the Manager.
markets could have an
adverse impact on the The Company has no formal
market value of the policy of hedging currency
Company's underlying risk but may use foreign
investments and, currency borrowings or forward
as the Company invests foreign currency contracts
predominantly in assets to limit exposure.
which are denominated
in a range of currencies,
its exposure to changes
in the exchange rate
between sterling and
other currencies has
the potential to have
a significant impact
on returns.
Custody
Safe custody of the Depositary reports on safe
Company's assets may custody of the Company's assets,
be compromised through including cash and portfolio
control failures by holdings, independently reconciled
the Depositary, including with the Manager's records.
cyber hacking.
Review of audited internal
controls reports covering
custodial arrangements.
Annual report from the Depositary
on its activities, including
matters arising from custody
operations.
Gearing and leverage
The Company utilises Gearing is monitored and strict
credit facilities. These restrictions on borrowings
arrangements increase imposed: gearing continues
the funds available to operate within pre-agreed
for investment through limits so as not to exceed
borrowing. While this 25% of the Company's net assets.
has the potential to
enhance investment returns
in rising markets, in
falling markets the
impact could be detrimental
to performance.
Accounting, legal and
regulatory
Breaches of the UK Listing Confirmation of compliance
Rules, the Companies with relevant laws and regulations
(Guernsey) Law, 2008 by key service providers.
(as amended) or other
regulations with which Shareholder documents and
the Company is required announcements, including the
to comply, could lead Company's published Annual
to a number of detrimental Report, subject to stringent
outcomes. review processes.
Procedures established to
safeguard against disclosure
of inside information.
Service provider
The Company has no employees Service providers appointed
and has delegated certain subject to due diligence processes
functions to a number and with clearly-documented
of service providers. contractual arrangements detailing
Failure of controls, service expectations.
including as a result
of cyber hacking, and Regular reporting by key service
poor performance of providers and monitoring of
any service provider, the quality of services provided.
could lead to disruption,
reputational damage Review of annual audited internal
or loss. controls reports from key
service providers, including
confirmation of business continuity
arrangements and IT controls.
Risk assessment and internal controls
Risk assessment includes consideration of the scope and quality
of the systems of internal control operating within key service
providers, and ensures regular communication of the results of
monitoring by such providers to the Audit 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 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 44 to 49 of the 2017 Annual Report.
Viability statement
The Directors have assessed the viability of the Company over a
five year period, taking into account the Company's position at 31
August 2017 and the potential impacts of the principal risks and
uncertainties it faces for the review period.
A period of five years has been chosen as the Board believes
that this reflects a suitable time horizon for strategic planning,
taking into account the investment policy, liquidity of
investments, potential impact of economic cycles, nature of
operating costs, dividends and availability of funding.
In its assessment of the viability of the Company, the Directors
have considered each of the Company's principal risks and
uncertainties detailed on pages 14 and 15 of the 2017 Annual
Report. In particular the Directors have stress-tested a very
severe fall in market prices. They 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 on that
basis consider that five years is an appropriate time period.
Based on the Company's processes for monitoring operating costs,
the Board's view that the Manager has the appropriate depth and
quality of resource to achieve superior returns in the longer term,
the portfolio risk profile, 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 five year period of their assessment.
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
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 in accordance with IAS 8:
Accounting Policies, Changes in Accounting Estimates and Errors,
and then 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 2017 Annual Report, confirms that, to the
best of their knowledge:
- the financial statements, which have been prepared in
accordance with IFRS as adopted in the EU 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, is fair,
balanced and understandable and provides 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 2017
2017 2016
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------- ------- ------- ------- ------- ------- -------
Gains on investments at
fair value through profit
or loss - 94,537 94,537 - 123,772 123,772
Net foreign currency losses - (963) (963) - (8,116) (8,116)
Income from investments 28,197 446 28,643 24,811 244 25,055
Other income 11 - 11 10 - 10
------------------------------------ ------- ------- ------- ------- ------- -------
Total income 28,208 94,020 122,228 24,821 115,900 140,721
Management fee (1,258) (2,935) (4,193) (997) (2,326) (3,323)
Performance fee - (6,355) (6,355) - (5,287) (5,287)
Other administrative expenses (775) (5) (780) (685) (5) (690)
------------------------------------ ------- ------- ------- ------- ------- -------
Profit before finance
costs
and taxation 26,175 84,725 110,900 23,139 108,282 131,421
Finance costs (223) (518) (741) (271) (632) (903)
------------------------------------ ------- ------- ------- ------- ------- -------
Profit before taxation 25,952 84,207 110,159 22,868 107,650 130,518
Taxation (2,013) (36) (2,049) (1,572) - (1,572)
------------------------------------ ------- ------- ------- ------- ------- -------
Net profit and total comprehensive
income 23,939 84,171 108,110 21,296 107,650 128,946
------------------------------------ ------- ------- ------- ------- ------- -------
Earnings per share 9.94p 34.97p 44.91p 9.03p 45.66p 54.69p
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.
The notes on pages 37 to 50 of the 2017 Annual Report form an
integral part of these accounts.
Statement of Changes in Equity
for the year ended 31 August 2017
Treasury Capital
Share share redemption Special Capital Revenue
capital reserve reserve reserve reserves reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------ ------- -------- ---------- ------- -------- -------- --------
At 31 August
2015 148,880 (6,286) 39 150,374 95,104 21,979 410,090
Issue of shares 1,371 - - - - - 1,371
Reissue of shares
from treasury - 6,286 - - 1,083 - 7,369
Net profit - - - - 107,650 21,296 128,946
Dividends paid
in the year - - - - - (19,114) (19,114)
------------------ ------- -------- ---------- ------- -------- -------- --------
At 31 August
2016 150,251 - 39 150,374 203,837 24,161 528,662
Issue of shares 19,825 - - - - - 19,825
Net profit - - - - 84,171 23,939 108,110
Dividends paid
in the year - - - - - (21,131) (21,131)
------------------ ------- -------- ---------- ------- -------- -------- --------
At 31 August
2017 170,076 - 39 150,374 288,008 26,969 635,466
------------------ ------- -------- ---------- ------- -------- -------- --------
The notes on pages 37 to 50 of the 2017 Annual Report form an
integral part of these accounts.
Balance Sheet
at 31 August 2017
2017 2016
GBP'000 GBP'000
Non current assets
Investments at fair value through
profit or loss 654,213 534,093
Current assets
Receivables 2,908 3,178
Cash and cash equivalents 29,881 33,859
--------------------------------------- -------- --------
32,789 37,037
-------------------------------------- -------- --------
Total assets 687,002 571,130
Current liabilities
Payables (51,536) (42,395)
Derivative financial instruments
at fair value through profit or
loss - (73)
--------------------------------------- -------- --------
(51,536) (42,468)
-------------------------------------- -------- --------
Net assets 635,466 528,662
--------------------------------------- -------- --------
Equity attributable to equity holders
Share capital 170,076 150,251
Capital redemption reserve 39 39
Special reserve 150,374 150,374
Capital reserves 288,008 203,837
Revenue reserve 26,969 24,161
--------------------------------------- -------- --------
Total equity shareholders' funds 635,466 528,662
--------------------------------------- -------- --------
Net asset value per share 258.63p 222.56p
The notes on pages 37 to 50 of the 2017 Annual Report form an
integral part of these accounts.
Cash Flow Statement
for the year ended 31 August 2017
2017 2016
GBP'000 GBP'000
Operating activities
Profit before finance costs and taxation 110,900 131,421
Add back net foreign currency losses 963 8,116
Less gains on investments at fair value
through profit or loss (94,537) (123,772)
Net (purchases)/sales of investments
at fair value through profit or loss (25,219) 20,287
Less amortisation of discount on fixed
interest securities - (7)
Decrease/(increase) in receivables 296 (188)
Increase in payables 2,341 5,497
Overseas taxation paid (2,074) (1,473)
----------------------------------------- -------- ---------
Net cash (outflow)/inflow from operating
activities before interest (7,330) 39,881
----------------------------------------- -------- ---------
Interest paid (739) (926)
----------------------------------------- -------- ---------
Net cash (outflow)/inflow from operating
activities (8,069) 38,955
----------------------------------------- -------- ---------
Financing activities
Bank loans drawn down 44,254 91,095
Bank loans repaid (38,192) (106,141)
Reissue of shares from treasury - 7,369
Issue of shares 19,825 1,371
Dividends paid (21,131) (19,114)
----------------------------------------- -------- ---------
Net cash inflow/(outflow) from financing
activities 4,756 (25,420)
----------------------------------------- -------- ---------
(Decrease)/increase in cash and cash
equivalents (3,313) 13,535
Cash and cash equivalents at the start
of the year 33,859 18,259
Effect of foreign exchange rates on
cash and cash equivalents (665) 2,065
----------------------------------------- -------- ---------
Cash and cash equivalents at the end
of the year 29,881 33,859
----------------------------------------- -------- ---------
Dividends received during the year amounted to GBP27,608,000
(2016: GBP24,706,000) and bond and deposit interest receipts
amounted to GBP1,005,000 (2016: GBP449,000).
The notes on pages 37 to 50 of the 2017 Annual Report form an
integral part of these accounts.
Notes to the Accounts
for the year ended 31 August 2017
1. Accounting policies
Basis of accounting
The accounts have been prepared in accordance with the Companies
(Guernsey) Law, 2008 and International Financial Reporting
Standards, which comprise standards and interpretations approved by
the International Accounting Standards Board ("IASB"), together
with interpretations of the International Accounting Standards and
Standing Interpretations Committee approved by the International
Accounting Standards Committee ("IASC"), that remain in effect and
to the extent that they have been adopted by the European Union
("IFRS").
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
January 2017.
The policies applied in these accounts are consistent with those
applied in the preceding year.
2. Taxation
2017 2016
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Irrecoverable overseas
tax 2,013 36 2,049 1,572 - 1,572
------------------------ ------- ------- ------- ------- ------- -------
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 (2016:
GBP1,200).
3. Dividends
Dividends paid and declared
2017 2016
GBP'000 GBP'000
2016 fourth interim dividend of 3.80p
(2015: 3.40p) 9,068 8,017
First interim dividend of 1.60p (2016:
1.50p) 3,818 3,541
Second interim dividend of 1.70p
(2016: 1.60p) 4,074 3,777
Third interim dividend of 1.70p (2016:
1.60p) 4,171 3,779
--------------------------------------- ------- -------
Total dividends paid in the year 21,131 19,114
--------------------------------------- ------- -------
2017 2016
GBP'000 GBP'000
Fourth interim dividend declared
of 4.20p (2016: 3.80p) 10,320 9,027
--------------------------------------- ------- -------
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 2016 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 per share
2017 2016
GBP'000 GBP'000
Net revenue profit 23,939 21,296
Net capital profit 84,171 107,650
---------------------------------- ----------- -----------
Net total profit 108,110 128,946
---------------------------------- ----------- -----------
Weighted average number of shares
in issue during the year 240,721,945 235,746,033
Revenue earnings per share 9.94p 9.03p
Capital earnings per share 34.97p 45.66p
---------------------------------- ----------- -----------
Total earnings per share 44.91p 54.69p
---------------------------------- ----------- -----------
5. Share capital
2017 2016
GBP'000 GBP'000
Ordinary shares of 1p each, allotted,
called-up and fully paid:
Opening balance of 237,541,574 (2016:
233,071,574) shares 150,251 142,594
Issue of 8,161,450 (2016: 600,000)
shares 19,825 1,371
Reissue of nil (2016: 3,870,000)
shares from treasury - 6,286
-------------------------------------- ------- -------
Closing balance of 245,703,024 (2016:
237,541,574) shares 170,076 150,251
-------------------------------------- ------- -------
No shares were held in treasury at the year end (2016: nil).
During the year a total of 8,161,450 shares, nominal value
GBP81,615 were issued to the market to satisfy demand, at an
average price of 242.91p per share, for a total consideration
received of GBP19,825,000.
6. Net asset value per share
2017 2016
Net assets attributable to shareholders
(GBP'000) 635,466 528,662
Shares in issue at the year end 245,703,024 237,541,574
----------------------------------------- ------------ ------------
Net asset value per share 258.63p 222.56p
----------------------------------------- ------------ ------------
7. Disclosures regarding financial instruments measured at fair value
The Company's portfolio of investments, comprising investments
in equities, equity linked securities and government bonds and any
derivatives are carried in the balance sheet at fair value. Other
financial instruments held by the Company 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 37, and note 1(i) on page 38 of the 2017
Annual Report.
At 31 August 2017, the Company's investment portfolio was
categorised as follows:
2017
Level 1 Level 2 Level 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
Investments in equities, equity linked securities
and government bonds 654,213 - - 654,213
--------------------------------------------------- ------- ------- ------- -------
Total 654,213 - - 654,213
--------------------------------------------------- ------- ------- ------- -------
2016
Level 1 Level 2 Level 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
Investments in equities, equity linked securities
and government bonds 534,093 - - 534,093
Derivative financial instrument - forward
foreign currency contract - (73) - (73)
--------------------------------------------------- ------- ------- ------- -------
Total 534,093 (73) - 534,020
--------------------------------------------------- ------- ------- ------- -------
There have been no transfers between Levels 1, 2 or 3 during the
year (2016: nil).
8. Status of announcement
2016 financial Information
The figures and financial information for 2016 are extracted
from the published Annual Report and Accounts for the year ended 31
August 2016 and do not constitute the statutory accounts for that
year. The 2016 Annual Report and Accounts included the Report of
the Independent Auditor, which was unqualified.
2017 financial Information
The figures and financial information for 2017 are extracted
from the Annual Report and Accounts for the year ended 31 August
2017 and do not constitute the statutory accounts for the year. The
2017 Annual Report and Accounts include the Report of the
Independent Auditor, 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 webpages or website) is incorporated into, or forms
part of, this announcement.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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