Schroder AsianTR Inv - Final Results
14/03/2024 07:00
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RNS Number : 7759G Schroder Asian Total Retn InvCo PLC 14 March 2024
Schroder Asian Total Return Investment Company plc
FINAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2023
Schroder Asian Total Return Investment Company plc (the "Company") hereby
submits its final results for the year ended 31 December 2023.
The Company's Annual Report and Accounts for the year ended 31 December 2023
are being published in hard copy format and an electronic copy will shortly be
available to download from the Company's web pages www.schroders.co.uk/satric
(http://www.schroders.co.uk/satric) .
The Annual Report and Accounts, including the Notice of Annual General
Meeting, together with the form of proxy will shortly be uploaded to the
Financial Conduct Authority's National Storage Mechanism and available for
inspection at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) . A separate
announcement will be released once this has taken place.
Page numbers and cross references in the following announcement refer to page
numbers and cross references in the Annual Report and Accounts for the year
ended 31 December 2023.
Enquiries:
Schroder Investment Management Limited
Augustine Chipungu (Press) 020 7658 6000
Kerry Higgins (Company Secretary) 020 7658 6000
Annual Report and Accounts for the year ended 31 December 2023
Performance Summary
NAV per share total return* Share price total return* Dividends per share MSCI AC Asia ex-Japan Index (with net income reinvested), sterling adjusted
8.8% 10.3% 11.5p 1.3%
2022: -12.7% 2022: -17.4% 2022: 11.0p 2022: -7.1%
Some of the financial measures are classified as Alternative Performance
Measures, as defined by the European Securities and Markets Authority and are
indicated with an asterisk (*). Definitions of these performance measures, and
other terms used in this report, are given on pages 78 and 79 together with
supporting calculations and sources, where appropriate.
Ongoing charges ratio* Share price discount to NAV per share* Revenue return per share
0.87% 4.6% 10.26p
2022: 0.82% 2022: 5.8% 2022: 12.47p
Gearing* Share price Net assets
7.8% 440.00p £448.48m
2022: 9.0% 2022: 409.50p 2022: £457.47m
Investment objective
Schroder Asian Total Return Investment Company plc seeks to provide a high
rate of total return through investment in equities and equity-related
securities of companies trading in the Asia Pacific region (excluding Japan).
The Company seeks to offer a degree of capital preservation through tactical
use of derivative instruments.
Why invest in the Company?
l Investing in high potential companies across the Asia Pacific region
The Portfolio Managers are benchmark agnostic, which means they can
back their highest conviction ideas with an active approach that is not tied
to any particular index resulting in a portfolio that is diversified across
region and sector. With a particular tilt towards small and mid cap names,
they focus on well-managed businesses that understand the importance of paying
a good, growing dividend to their shareholders as part of an attractive
long-term total return.
l Benefit from a smoother investment journey and the possibility for
higher returns
The ability to select stocks that have the potential to deliver
strong long-term returns is complemented by the use of a tactical hedging
strategy. This focuses on delivering a smoother ride in investing compared to
the Reference Index by reducing volatility and preserving capital. Altogether,
this helps to mitigate some of the broader risks associated with investing in
Asia.
l Rely on decades of Asian investment expertise
The Co-Portfolio Managers Robin Parbrook and King Fuei Lee have
more than 50 years of combined investment experience and are renowned for
their expertise in Asian equity investing. They draw upon the extensive
resources of Schroders' Asia Pacific equities research team based in
six offices across the region, as well as Schroders' London-based global
sector specialists. This helps provide an information advantage in an
under-researched and market inefficient region.
Please see page 24 for the full investment policy.
10-Year Financial Record
At 31 December 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Shareholders' funds (£'000) 152,342 154,186 195,017 294,426 293,783 357,871 483,548 551,745 457,474 448,484
NAV per share, diluted where applicable
(pence) 208.12 211.36 267.09 354.79 321.43 365.57 479.07 507.24 434.60 461.24
Share price (pence) 194.00 190.00 255.50 362.00 331.00 368.00 489.00 506.00 409.50 440.00
Share price (discount)/premium to
NAV per share* (6.8) (10.1) (4.3) 2.0 3.0 0.7 2.1 (0.2) (5.8) (4.6)
Gearing/(net cash) (%)* (1.3) 1.0 7.0 4.5 (0.9) 2.2 5.7 8.3 9.0 7.8
Year ended 31 December 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Net revenue after taxation (£'000) 2,272 3,236 3,940 4,183 6,303 7,653 8,308 9,809 13,466 10,497
Net revenue return per share (pence) 3.07 4.43 5.40 5.48 7.18 8.10 8.46 9.25 12.47 10.26
Dividends per share (pence) 3.25 3.80 4.50 4.80 6.20 6.50 7.10 8.50 11.00 11.50
Ongoing Charges (%)* 1.05 0.97 1.00 0.96 0.86 0.85 0.87 0.84 0.82 0.87
Performance(1) 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
NAV per share total return (pence)* 100.0 116.5 120.0 154.2 207.9 191.0 221.0 295.6 317.4 277.1 301.6
Share price total return (pence)* 100.0 112.3 111.7 153.0 220.2 204.1 230.8 313.0 328.4 271.1 299.1
Reference Index(2) total return (pence) 100.0 109.2 104.7 133.3 166.8 152.5 174.7 207.4 203.2 188.8 191.3
(1)Source: Morningstar/Thomson Reuters. Rebased to 100 at 31 December 2013.
(2)MSCI AC Asia ex-Japan Index (with net income reinvested), sterling
adjusted.
*Alternative Performance Measures. Further details can be found on pages 78
and 79.
Chair's Statement
"Our unconstrained approach to investing in Asia has not only delivered good
returns but also provided a degree of capital protection in difficult market
conditions."
Performance and background
The year to 31 December 2023 has proved to be more positive for your Company,
both in absolute terms and relative to the Reference Index, after a
challenging year in 2022. Furthermore, it is reassuring to see that our
long-term track record remains strong. The Investment Manager's unconstrained
approach to investing in Asia has not only delivered good returns but also
provided a degree of capital protection in difficult market conditions.
During the year ended 31 December 2023, the Company delivered a NAV total
return of 8.8%, outperforming the Reference Index which rose by 1.3%. The
share price total return was 10.3% as the discount slightly narrowed.
At the start of the year, China showed promise with expectations of a robust
recovery after the easing of COVID-related restrictions. However, this
momentum quickly waned as domestic consumption stalled, adversely impacted by
numerous factors. A weak residential property market precipitated the collapse
of Evergrande (China's second largest property developer) and defaults by
Country Garden (the largest private property developer) in the second half of
the year. High unemployment figures and job insecurity fostered by protracted
COVID lockdowns weighed upon consumer confidence. Local government debt has
reached excessive levels and put a cap on infrastructure investment in the
provinces. Our portfolio has remained consistently underweight China for the
year under review.
However, in Taiwan and South Korea, technology stocks and chipmakers saw
significant gains as investor enthusiasm for artificial intelligence ("AI")
continued to rise. The overweight position in Australia was also a positive,
making a significant contribution to returns. Notwithstanding these beneficial
asset allocation decisions, it was the strategic stock selection of our
Investment Manager that accounted for the majority of the Company's
outperformance during the year. In 10 of the 12 Asia Pacific markets, the
portfolio achieved positive outperformance.
Further comments on performance and investment policy may be found in the
Investment Manager's review.
Earnings and dividends
Whereas total return per share jumped from (65.66)p to 34.59p per share
revenue return from the portfolio for the year fell by 17.7% to 10.26p per
share, from 12.47p per share in 2022. This fall was primarily attributed to
stock disposals throughout the year, which reduced the values of dividends
received. The Board has recommended a final dividend of 11.50p per share for
the year ended 31 December 2023, an increase of 4.5% over the final dividend
of 11.00p per share paid in respect of the previous financial year. Subject
to shareholder approval at the Annual General Meeting ("AGM"), the dividend
will be paid on 10 May 2024 to shareholders on the register on 12 April 2024.
The ex-dividend date is 11 April 2024.
Promotion, share issuance and discount control
The discount at which the Company's share price trades at has narrowed
slightly during the review period, from 5.8% at the start of the year to 4.6%
at the end of December 2023.
The Company continued actively to pursue its objective that the discount at
which the shares traded remained within the Company's target of 5% or less in
normal market conditions and 8,029,083 shares were repurchased during the year
ended 31 December 2023, amounting to 7.6% of the issued share capital at the
start of the year. The shares were repurchased at an average discount of 6.0%,
for a total consideration of £32.9 million and placed in treasury for future
reissuance at a premium to NAV. The Company's shares traded at an average
discount of 5.5% during the year.
The Company will continue to implement both an issuance and a discount
management policy. Shares will be issued at a moderate premium to NAV and the
discount policy will continue to target a share price discount to NAV of no
more than 5% in normal market conditions. The Board believes that overall
liquidity and the relative discount to the Company's peers also has to be
considered in any decision to issue and to buy back shares.
The Board will be seeking approval from shareholders to renew the issuance and
buy back authorities at the AGM to be held on 24 April 2024, further details
of which can be found on page 74.
Gearing and the use of derivatives
Gearing was actively utilised by the Investment Manager during the year and
ranged between 4.6% at its lowest and 10.3% at its highest. Average debt was
7.9% and gearing made a positive contribution to performance. Shareholders
should be aware that the use of borrowing must be seen in the context of the
use of derivative hedging instruments. The Company may use gearing to enhance
performance but net gearing will not exceed 30% of NAV. The Board has agreed a
disciplined framework for using gearing to increase market exposure, based on
a number of valuation indicators.
Positive market performance over the year limited the contribution to returns
from the Company's put options, although hedging reduced portfolio volatility
and thereby proved beneficial.
The Board
The Board was pleased to welcome Jasper Judd as a non-executive Director on 1
February 2023 and as Chair of the Audit and Risk Committee following the
retirement of Mike Holt on 25 April 2023.
As stated in the half year report, Caroline Hitch has advised that, following
completion of her nine-year tenure as a Director she does not intend to seek
re-election at the AGM on 24 April 2024. The Board has therefore commenced a
search for a successor and engaged Cornforth Consulting to assist with the
process. An announcement on the appointment of a new non-executive Director is
expected to be made in the second quarter of the year.
On behalf of the Board, I should like to thank Caroline for her invaluable
contribution to the Board over the last nine years and to wish her well for
the future.
Results webinar
There will be a presentation by the Portfolio Managers at 12.00 noon on
Wednesday, 24 April 2024 which will be available to watch online. To sign up
to watch the presentation please click on this link:
https://schroders.zoom.us/webinar/register/WN_8ZW_8RxzRnmJ5bToMMkrKQ
Details on how to watch the presentation are also available on the Company's
web pages: www.schroders.co.uk/satric.
By holding a webinar, I hope that more shareholders and interested parties
will be able to listen to, and ask questions of, the Portfolio Managers.
AGM
The AGM will be held on Wednesday, 24 April 2024 at 1.00 pm at the Investment
Manager's offices at 1 London Wall Place, London EC2Y 5AU. Any shareholders
planning to attend the AGM will also be able to watch the Portfolio Managers'
presentation at the Manager's offices at 12 noon, prior to the AGM.
All shareholders are encouraged to vote by proxy. Proxy votes can be submitted
electronically through the registrar's portal, by post and also by email.
Details are set out in the Explanatory Notes to the Notice of AGM in this
annual report.
Outlook
Geopolitical tensions remain at the forefront of investors' concerns with
almost half the global population, a large proportion of which are in our
region, headed to the polls this year: 64 countries will hold elections in
2024. US elections and the consequences for relations with China will
predominate, along with the heightened tensions across the Taiwan Strait.
Ongoing conflicts in the Middle East and the consequent disruption to shipping
resulting in higher oil prices have further contributed to the overall
uncertainty. Central banks remain slow to execute forecast interest rate cuts,
and weaker economic growth in China has implications for global growth
forecasts and expectations for the region.
Notwithstanding the mixed outlook for global economic growth our Investment
Manager will continue to seek to build superior returns by bottom-up stock
selection based on extensive regional research and analysis. Earnings
prospects at the individual stock level offer attractive investment
opportunities while valuations remain modest compared both historically and
against other developed markets. Our two Portfolio Managers are supported by
a team of 40 research analysts based primarily in Hong Kong and Singapore
which, together with their decades of collective Asian investment experience,
place them in a strong position to identify the most attractive investment
opportunities in the region.
Sarah MacAulay
Chair
13 March 2024
Investment Manager's Review
A review of 2023
2023 proved to be a much better year for the Company with the NAV producing a
total return of 8.8% (Source: Schroders) (which compares to the Reference
Index which rose by 1.3%). Whilst returns were moderate, markets were rather
more tempestuous and volatile, buffeted by the spectre of "higher-for-longer"
US rate worries, geopolitical undercurrents, decelerating Chinese and European
economies, and the ominous clouds of the Israel-Hamas conflict.
So, what were the significant catalysts behind this performance?
Contributor #1: China stock selection
The largest driver of the Company's performance, notably against the Reference
Index, was our stock selection in China. The Chinese stockmarket had a
tumultuous year. It kicked off with a surge of investor optimism, riding high
on hopes pinned on its economic reopening, only to see the enthusiasm quickly
deflate amid flagging consumer sentiment, escalating youth unemployment, and a
burgeoning debt crisis in the property sector. Despite several attempts by the
Chinese authorities to reverse the market's downward trajectory, typically
fuelled by claims of large scale fiscal and monetary stimulus, all efforts
proved in vain. The year finished with the MSCI China Index recording a dismal
annual return of -16.2% in sterling, a sharp contrast against the region's
return of 1.3% in sterling.
Amidst these stormy market conditions in China the Company navigated its way
not only through stocks we chose to invest in, but also those we strategically
avoided. Our decision to steer clear of major ecommerce players like Alibaba,
JD.com, and Meituan, as well as sportswear giants Li Ning and ANTA, shielded
the Company from the fallout of their plummeting share prices. Our portfolio's
zero-weighting in the imploding property market and limited exposure to the
struggling domestic sectors further bolstered performance. Meanwhile, our
continued investments in Chinese consumption plays such as Shenzhou
International and LVMH, coupled with a well-timed purchase of New Oriental
Education, ensured that our overall stock selection in the Chinese market
yielded significant returns.
That said, charting the investment course in China has never been easy or
clear cut. This was particularly true in mid-2023 when, having correctly
sidestepped the temptation to jump on the reopening trade bandwagon, we found
ourselves staring at the emerging pool of potential Chinese stock
opportunities that invariably surfaces when markets plunge by 20%. The
temptation to lock in the profits from our successful large underweight
position in Chinese stockmarkets at that juncture was palpable.
However, after carefully trawling through these potential opportunities, we
were led to a sobering conclusion: few were truly appealing. Faced with a
scarcity of promising bottom-up ideas, and with stockbrokers universally
maintaining a bullish stance on China, we adhered to our investment philosophy
of only investing in companies that have robust long-term fundamentals and
attractive valuations. To our minds, this outcome also underscores, once
again, the advantages of a benchmark-agnostic, unconstrained bottom-up
investment approach.
Contributor #2: Taiwan stock selection
The second key pillar underpinning the Company's outperformance in 2023 was
our investments in Taiwan technology, and more broadly, our stock selection in
Taiwan. This was a mirror image of the Company's performance in 2022, when our
technology positions in Taiwan had a significant negative impact on returns.
Initial worries over bloated inventory levels at the start of the year
gradually evaporated over subsequent quarters as signs of digestion surfaced.
Simultaneously, the surging demand for AI chips, spurred by the development of
large language models ("LLMs"), only served to highlight the potent structural
trends underpinning tech demand, a conviction your Portfolio Managers have
steadfastly held since the inception of the Schroder Asian Total Return
strategy in 2007.
This shift in market dynamics sparked a frenzied investor pursuit for tech
stocks with a link to AI, no matter how tangential. While the Company may have
missed out on not holding sizzling AI stocks like Quanta Computer, Accton, and
Wiwynn, the pain was assuaged by our investments in Taiwan Semiconductor
Manufacturing Corporation ("TSMC"), MediaTek, ASE Technology, and Chroma ATE,
who also reaped the benefits of this trend. Yet, it was not just the AI halo
effect that was propelling our holdings' share prices. MediaTek has benefitted
by growing investor optimism over a potential recovery in the smartphone
industry. The timely release of the Company's new system-on-chip, Dimensity
9300, designed to handle the more complex workloads of new generative AI and
gaming applications, further bolstered this bullish sentiment. This launch,
following a series of earlier designs that failed to ignite investor interest,
is now seen as a game-changer that could give MediaTek a competitive edge over
Qualcomm, the current leader in the high-end mobile market. A similar
sentiment holds for the semiconductor stalwart TSMC, which boasts major
clients like Nvidia, AMD, and Broadcom. While TSMC does reap benefits from the
surging demand for AI chips, even TSMC concedes that these sales constitute
only a small portion of its overall revenue. Nevertheless, with semiconductors
powering all modern applications - from PCs and smartphones to cloud
computing, AI, and autonomous cars - the long-term fundamentals of the firm
continue to shine brightly.
But it was not just technology stocks that bolstered our performance in the
Taiwan market. Our investments in non-technology sectors, including companies
like shades and blinds manufacturer Nien Made Enterprise, fabric producer
Eclat Textile, and industrial computing and automation solutions provider
Advantech, also registered robust share price gains, thereby amplifying our
overall stock selection returns in Taiwan.
Contributor #3: Australia and ASEAN
The Company achieved positive outperformance in 10 of the 12 Asia-Pacific
markets and, despite being theoretically more efficient, it was pleasing that
the Australian market emerged as a significant contributor to positive
returns.
Our Company was bolstered by investments in Cochlear, a trailblazer in hearing
solutions; James Hardie Industries, a titan of fibre cement production;
Aristocrat Leisure, a master manufacturer of slot machines; Seek, a
facilitator connecting job seekers with employers; and Medibank Private, a
stalwart in the health insurance landscape.
However, these gains were somewhat tempered by our lack of exposure to the
four major Australian banks and our stake in ResMed, a leading provider of
respiratory care solutions. The performance of the latter has been
disappointing and somewhat unexpected. This is particularly so considering
that the Company posted its highest-ever annual revenues in the fiscal year of
2023. The share price was hit by worries over the threat posed by GLP-1 drugs
which could potentially offer a new treatment avenue for obese individuals
with obstructive sleep apnea, thereby encroaching on ResMed's revenues. This
concern continues to cast a pall over its performance, even if the realistic
impact of the threat remains limited, in your Portfolio Managers' view.
In addition to Australia, our outperformance was boosted by our stock
selection in the ASEAN markets, which added a noteworthy 1.0% to our overall
gains. This is particularly heartening, considering the markets of Indonesia,
Malaysia and Philippines are small and we only hold a handful of stocks.
Main detractor: India stock selection
It was not all positive. India emerged as a detractor to the Company's
performance in 2023, contributing a -0.2% relative return (Source: Factset).
While in the broader scheme this is not a massive drag, it still marks a
regrettable milestone for your Portfolio Managers, as it is the second
consecutive year the Indian market has made a negative contribution to the
Company's returns. Despite the overall market weighting being in line with the
reference benchmark, our stock selection within this key market failed to hit
the mark, extending a period of underperformance.
The Company's lack of exposure to the so-called brown or traditional sectors,
encompassing internal combustion engine ("ICE") manufacturing, fossil fuel
production, cement manufacturing, and steel milling, surfaced as a significant
drag on our relative performance. These sectors collectively constitute
approximately one-fifth of our Company's Indian stock universe. Intriguingly,
they also account for a massive four-fifths of the stockmarket's total
greenhouse gas emissions - an unsurprising statistic given the environmentally
harmful nature of their operations. However, our strategic decision to
sidestep investments in these sectors culminated in a nearly one percent
negative contribution to relative returns.
Our Company's lack of exposure to India's non-bank financials ("NBFCs") also
emerged as a key detractor in a year that saw the sector undergo a remarkable
metamorphosis. The NBFC landscape was reshaped by a series of significant
developments, not least of which was the surge in credit demand from the small
enterprise sector - the NBFCs' primary clientele. This was propelled by
substantial government policy support, ranging from sector-specific
production-linked incentives to initiatives aimed at promoting businesses in
regions like the Northeast and those linked to technical skilling and digital
technologies. These measures ignited a boom in credit demand. The Reserve Bank
of India further stoked this positive momentum with a directive that provided
considerable relief to borrowers, mandating that lenders return all original
property documents and erase registered charges within 30 days of full loan
repayment. The sector's dynamism was further amplified by the arrival of
a new player, Jio Financial, following its demerger from Reliance, and the
continued pursuit of NBFC licenses by fintechs, which kept the sector in the
headlines. Amidst this flurry of activity, the robust share price performance
of Indian NBFCs weighed on our relative performance.
While the Company did enjoy strong returns from our holdings in MakeMyTrip,
Apollo Hospitals Enterprise, and ICICI Bank, they were insufficient to
counterbalance the impact of the stocks we did not own. This resulted in an
overall negative stock selection in India.
Hedging, gearing and exposure management
Our hedging policy had a relatively neutral impact on performance this year.
While our net exposure oscillated between 85% and 110% (on a notional basis)
over the year, the region's overall positive market performance meant that
there were limited opportunities for our put options1 to enhance our returns.
Nevertheless, the implementation of our hedging policy still proved
beneficial, as it significantly reduced the Company's volatility compared to
the region's index, resulting in better Sharpe and Sortino ratios (explained
on the next page) over most time frames.
Over the course of the year, gearing levels closely moved in line with the
levels suggested by our gearing models. We started the year using moderate
gearing of c. 10% and reduced this to c. 5% as markets rose during the first
quarter. Our gearing models turned positive on prospective returns from Asian
stockmarkets after the index falls over the summer and we moved back to a c.
10% geared position. This was subsequently partly reduced back to c. 5% in
December 2023 as several stocks hit our price targets. Overall, the use of
gearing had a positive impact on performance.
(1)A put is an options contract that gives the owner the right, not the
obligation, to sell a certain amount of the underlying asset, at a set price
within a specified time. The buyer of a put option believes that the
underlying stock will drop below the exercise price before the expiration
date.
Sharpe ratio: Risk-adjusted measure calculated by using standard deviation and
excess return to determine reward per unit of risk. The higher the Sharpe
Ratio, the better the fund's historical risk-adjusted performance. Calculated
by dividing a fund's annualised excess returns by the standard deviation of a
fund's annualised excess returns. Since this ratio uses standard deviation as
its risk measure, it is most appropriately applied when analyzing a fund that
is an investor's sole holding. The Sharpe Ratio can be used to compare two
funds directly on how much risk a fund had to bear to earn excess return over
the risk-free rate.
Sortino Ratio: similar to Sharpe Ratio except it uses downside risk (Downside
Deviation) in the denominator. Since upside variability is not necessarily a
bad thing, Sortino ratio is sometimes preferable to the Sharpe ratio.
Wrapping up, while 2023 proved to be a rollercoaster year for Asia Pacific
stock markets, we believe the Company has weathered the storms relatively
unscathed. Key to performance is our continued focus on long-term fundamentals
when selecting stocks. In the case of China and Taiwan our outperformance was
often as much about the stocks we avoided rather than the ones we held.
Frustratingly, India served as the major blot on our scorecard, marking a
second year of underperformance. Despite this, the overall impact remained
manageable, with the Company delivering an annual return of 8.8% versus the
Reference Index return of 1.3%. This underscores our belief that an
unconstrained, benchmark-unaware investing approach, focusing on the best
bottom-up ideas with strong long-term fundamentals and attractive valuations,
remains the optimal strategy for investing in the region.
Strategy review - musings after a month in Asia
We will keep our strategy review mercifully short this year. For professional
clients that would like a more comprehensive run down we would recommend they
ask their Schroder contact for our 60-page Year of the Dragon report, a
perfect cure for insomnia.
Instead, for the Company's annual review we thought a summary of our
observations post our recent five-week trip to the region would be of
interest. The month we spent in Asia was busy and fascinating and after many
meetings, including c. 50 one-on-one corporate meetings, it generated some
solid new investment ideas and some interesting bigger picture thoughts.
Our first observation reviewing our company visit notes is that inflation is
not an issue in the places we visited in Asia (Hong Kong, Taiwan, Singapore
and Thailand). Nearly all companies we met instead discussed weak end demand,
selective discounting, increasing promotions and incentives, the need to pass
on falling raw material costs, disruption, and oversupply and irrational
competition from China. This applied whether it was e-commerce in Taiwan, DIY
stores in Thailand, technology companies, battery manufacturers, convenience
stores, bicycle manufacturers, Indonesian paint suppliers or consumer staple
companies. The picture across the region was quite consistent with very few
companies talking about putting up prices or claiming to have pricing power.
For stockmarkets this is clearly a double-edged sword - falling inflation is
likely to be positive for market sentiment but clearly pricing pressure is a
headwind for earnings unless companies can eke out cost savings.
The other factor that came out of our visits was that oversupply from China in
certain industries is very real and poses a threat to those companies
competing with Chinese ones. This applies to multiple industries with China's
economic slowdown very clearly structural and likely to be prolonged given the
extent of the excesses particularly in the property and financial sectors.
With weak demand at home Chinese companies are likely to be exporting their
excess capacity whether this is electric vehicles ("EV"), batteries,
semiconductors, solar panels, wind turbines, pharmaceuticals, medical
equipment, construction machinery etc etc. Chart 1 overleaf is a rather scary
graph of Chinese export prices. The Chinese domestic slowdown and continued
build out of overcapacity in many industries is likely to be deflationary. As
Chart 2 shows for the EV and solar industries the capacity build out is huge
and this is being replicated across sectors that are considered "strategic" by
the Chinese Communist Party ("CCP").
The second observation from our extended trip was how visibly demographics in
Asia are changing. In Hong Kong we did not get in a taxi where the driver
looked under 70 years old, and whilst out hiking the many workers clearing up
after the recent typhoons and thunderstorms all looked well past the age that
they should be wielding chainsaws (especially after one just missed the head
of one of your Portfolio Managers). Restaurants in Taiwan meanwhile were full
of robot servers, and Taiwanese convenience stores are increasingly unmanned
(shoplifting is less of an issue in law abiding Taipei!) whilst at Bangkok
airport the same Portfolio Manager was literally run over by a robot cleaner
whilst not looking where he was going (rather embarrassingly I should add).
With many Asian countries facing a rapidly ageing demographic this will throw
up some interesting structural dynamics particularly in Korea, Taiwan, Hong
Kong, China and Thailand - it is an area we will be doing some more work on.
We remain convinced that ageing demographics in Asia at least are likely to be
profoundly deflationary - a quick cut and paste from Schroders internal Chat
GPT model probably explains this as well as any:
"The impact of aging demographics on inflation or deflation is not
straightforward and can vary depending on several factors. However, in
general, aging demographics tend to have a deflationary effect on an economy.
Here is why:
1. Decreased consumer spending: as the population ages, the proportion of
older individuals typically increases. Older individuals tend to have lower
consumption patterns compared to younger generations. This can lead to reduced
consumer spending, which can put downward pressure on prices and contribute to
deflationary pressures.
2. Declining workforce and productivity: aging demographics often result
in a shrinking workforce as the number of older individuals retiring exceeds
the number of younger individuals entering the workforce. A decline in the
working-age population can lead to lower productivity growth, which can
further contribute to deflationary pressures.
3. Increased savings and reduced investment: older individuals tend to
save more and have a higher propensity to save for retirement. This can result
in increased savings in the economy, which may lead to reduced investment and
lower aggregate demand. Lower investment can limit economic growth and
contribute to deflationary pressures.
4. Increased healthcare and pension costs: aging populations typically
require increased healthcare services and pension provisions. The rising costs
associated with healthcare and pensions can strain government budgets and
potentially lead to reduced spending in other areas of the economy,
contributing to deflationary pressures.
It is important to note that the impact of aging demographics on inflation or
deflation can be influenced by various factors, including government policies,
technological advancements, and global economic conditions. Therefore, it is
always advisable to consider a range of factors when assessing the potential
impact of aging demographics on inflation or deflation in a specific country
or region."
The third observation from our trip was how supply chains in Asia are rapidly
adapting to our new geo-political world. Most export related companies we met
indicated they are moving some of their production facilities out of China
with favoured destinations usually Vietnam, India and to lesser extent
Indonesia. US end clients increasingly want all final goods whether technology
products, semiconductors, window blinds, auto parts, textiles out of China -
whilst European clients are happier with China plus one (or derisking of
supply chains) strategies.
The question for investors then is whether the trade realignment is good or
bad news for corporate earnings - and for end consumers is it likely to be
inflationary as manufacturing outside China is likely to be higher cost? The
evidence here is interesting and certainly not yet conclusive.
For some technology companies where the threat of Chinese competition
decreases due to sanctions that work (bans on access to semiconductor
equipment and key skill sets) it increases their moats or competitive
positioning. This would be the case for companies like TSMC, Hynix and Samsung
Electronics and other specialist Taiwanese and Korean technology companies
with genuinely high levels of intellectual property.
For other industries however where we see companies adding large scale
capacity outside of China, whilst Chinese competitors continue to expand their
domestic facilities in China, we are likely to see very significant oversupply
and major price pressures. Areas we would be particularly worried about would
be EV batteries and the related supply chains, auto parts, commodity
semiconductors, green energy, biotech etc - basically any industry under the
American Inflation Reduction Act and/or any industry considered a strategic
priority for the CCP.
The other point to note around the movement in supply chains is this is not
currently a wholesale exit from China. The production moving to India, Mexico
and Vietnam is often just final assembly whereas all the components and higher
value-added parts still come from China. For the moment this is not a massive
realignment.
Digressing slightly this had your Portfolio Managers thinking: is
deglobalisation really happening and do sanctions normally actually work? The
truth looks to be that neither is having much impact. As the charts below on
Chinese (and German) exports to Kyrgyzstan and Kazakhstan suggest goods are
getting to Russia as middlemen facilitate trade, and latest trade numbers
showing booming European diesel shipments from India suggest Russian oil is
arriving in Europe just by different routes.
So, our conclusions after many company meetings in Asia and surveying evidence
on the ground is that the movement of supply chains appears real, but not
necessarily fundamentally large. By creating more capacity in many industries,
particularly the more commoditised ones we think it may actually be disruptive
and deflationary. This is quite contrary to what appears the consensus belief
amongst some top-down economists in the West.
What struck us after our month in Asia is that we may be seeing the return of
the 4Ds in Asia at least. The 4Ds was a presentation your Portfolio Managers
used to give 10 years ago. It highlighted that deflationary forces were likely
structural. These forces were Disruption (and overcapacity), Demographics
(i.e. aging societies), Debt (too much debt in China and the West), and
Disparity in Income (middle class incomes squeezed whilst rich do better but
the rich save more of their income thus depressing overall consumption). We
plan to do some more analysis on the implications but as it stands we do not
see evidence of inflationary forces, or higher for longer, in Asia (quite the
opposite in fact in China where the risks of a Japanese style prolonged debt
deflation are rising).
What other observations came out of our trip? On a more positive note, we were
struck how financially healthy most of the companies we met were. Nearly all
companies we hold in the portfolio are net cash positive and nearly all
committed in our meetings to maintaining dividends whether in absolute terms
or percentage payout ratios. We see plenty of opportunities to make total
returns in Asia even if the total return comes principally from dividends. It
is particularly heartening to see increasing numbers of Asian companies like
Swire Pacific announcing very large buy backs. Another positive that came from
our meetings was that in most industries the painful process of running down
excess inventories built post-COVID is almost complete (homewares, textiles,
mobile handsets) or is well underway (semiconductors, bicycles). This means,
whilst the outlook for end demand in 2024 is uncertain and visibility low, at
least the double headwind we had in 2023 of weak demand and inventory clearing
has gone. This left us feeling more upbeat about select export businesses in
the region.
Overall then it was a great month in Asia, the first long trip your Portfolio
Managers have made since pre-COVID. Overall, we left a little more upbeat on
prospective Asian stockmarket returns as we enter 2024. We think inflation is
likely to be less of a headwind and outside of China the economic picture in
Asia looks reasonable. Company balance sheets are generally in good shape and
whilst the earnings outlook is uncertain, valuations and market sentiment in
the main reflect this in your Portfolio Managers' view.
Robin Parbrook and Lee King Fuei
13 March 2024
Investment Process
Responsible investment
The Company delegates responsibility to its Manager for taking environmental,
social and governance ("ESG") issues into account when assessing the
selection, retention and realisation of investments. The Board expects the
Investment Manager to engage with investee companies on social, environmental
and business ethics issues and to promote best practice. The Board expects the
Investment Manager to exercise the Company's voting rights in consideration of
these issues.
In addition to the description of the Manager's integration of ESG into the
investment process and the details in the Strategic Report on pages 4 to 32,
a description of the Managers' policy and its engagement with investee
companies on these matters can be found on Schroders' website at
https://www.schroders.com/en/sustainability/active-ownership/.
The Board notes that Schroders believes that companies with good ESG
management often perform better and deliver superior returns over time.
Engaging with companies to understand how they approach ESG management is an
integral part of the investment process. Schroders is compliant with the UK
Stewardship Code and its compliance with the principles therein is reported on
its website.
The Board receives reporting from the Manager on the application of its
policy.
Integration of ESG into the investment process
This Investment Process section of the annual report reflects the ESG views
and activities of the Manager in relation to the Company's portfolio, and more
widely. References to 'our' or 'we' in this section of the report refer to the
views of the Manager.
Schroders has been considering ESG issues, and sustainability generally, for
over 25 years.
Schroders has a team of more than 50 dedicated ESG professionals (31 December
2023) who develop proprietary ESG tools and oversee ESG analysis across
Schroders.
The ESG specialists also engage directly with companies, prioritising those
with exposure to higher ESG risk and low ESG ratings. They attend company
meetings with portfolio managers and analysts to discuss specific
sustainability issues directly with company management, in addition to
financial performance, as well as engaging with company sustainability experts
directly.
Corporate Governance analysts in the team also work alongside investors, and
internal compliance and legal teams to ensure voting activities comply with
the ESG policy.
In addition to our global sustainability resources, our Asia-based sustainable
investment analysts form a crucial part of our on-the-ground resources to
ensure the local investment teams are fully informed of key output from our
global sustainable investment team in London. The team is also tasked to bring
further insight and perspective to our ESG analysis and engagement alongside
the investment team, as well as regular discussion on topical sustainability
issues and ESG best practice across the region.
ESG and sustainability in Asia - the practical reality
Sustainability and ESG analysis in Asia is, in Schroders' view, of greater
importance when making investment decisions than perhaps any other region in
the world. Firstly, there are risks of poor corporate governance and fraud
owing to family and/or state shareholder structures and poor minority investor
protection. Secondly, Asia is the biggest greenhouse gas emitter in the world
and the region that faces the biggest environmental and economic costs of
global warming. Finally, environmental degradation and the social costs of
industrialisation and malpractice are widespread in Asia.
How does ESG analysis embed itself into the investment process for the
Company?
The first section of all Asian research reports covers governance - the
management, their background and track record, whether they treated minority
shareholders poorly in the past, and if they are credible and professional.
The Manager only invests in companies where it is believed management is
trustworthy, where interests are aligned and where there is no historic record
of misdemeanours. This screens out a significant part of the Asian universe.
In order to capture broader ESG considerations Schroders' Asian Equity
analysts are expected to provide additional written ESG analysis for all
companies under coverage. For this to be more robust and integrated, our
research team has also drawn upon the Schroders CONTEXT framework as outlined
in the chart below and adapted it to an Asian version ("Asia Context") using a
broader stakeholder-based approach to ESG analysis.
Active ownership at Schroders
Schroders has a long history of engagement and active ownership and we have
engaged with companies on ESG related matters for the past two decades. As
active investors we have always considered active ownership to be a key
channel of influence on management teams so that more sustainable practices
are properly considered in managing the companies and assets in which we
invest on behalf of our clients. We aim to drive change that we believe should
better protect and enhance the value of our clients' investments and we are
committed to leveraging our influence as an investor to change how a company
operates for the better. These regular engagements form an important aspect of
our role as stewards of our clients' capital and allow us to deploy capital in
businesses with long-term sustainability of returns and shareholder value
creation.
Active ownership
Enhancing our analysis
Influencing our investments
Engagement - Understanding how companies are preparing for the long-term challenges they
face
- Supporting investees to take action in the areas where change may be required
Voting - Using our voice and rights as shareholders to encourage change
Engagement in practice - Samsung Electronics
The diagram below provides an example of our continuous engagement effort on
Korea's Samsung Electronics, a core holding in the portfolio for many years.
Over the years we have engaged the management team of the company in regular
dialogue on a range of sustainability topics including governance, diversity
and inclusion and climate change. We are encouraged to see the company taking
an increasingly proactive approach in enhancing its shareholder return
policies while improving its transparency and disclosure on "E" and "S"
related matters.
Coupled with the favourable view that we hold on the structural outlook for
the memory/semiconductor sector, we have maintained an overweight position in
Samsung Electronics in recent years. The positive change in corporate
governance and increasing transparency around sustainable practices have given
us further confidence to hold our positions in the stock even through cyclical
downcycles, as we believe the improvements in ESG have set the company on a
more sustainable footing and allowed it to remain a key structural beneficiary
of the multi-year trends we are seeing in technology in general (cloud, 5G,
digitisation, AI, etc.).
Engaging across our priority engagement themes
Samsung Electronics
Themes Format Objectives Outcomes
Aug 2019 Diversity and Inclusion Email Encourage improvement on gender diversity. Company committed to improving culture and launched initiatives for female
employees.
IR
Aug 2020 Email Improve transparency on political lobbying. Communicated expectations on transparency and alignment.
IR Company recognised that investor trust needs to be earned and it is something
they will work on.
Corporate Governance
Re-election of 3 directors in light of adverse ISS recommendations.
Mar 2021 1x1 call
IR
Oct 2022 Climate Change 1x1 call Communicate climate expectations. Company has set Scope 1 and 2 emission targets and working to develop Scope 3
visibility.
IR
Diversity and Inclusion 1x1 call Improve board diversity. Company recognised the need for more global presence on the board but
highlighted their potential candidates sit on more than two seats, which will
IR likely be opposed by ISS/GL given their max two seats over-boarding policy in
South Korea.
Nov 2022 Corporate Governance Email Raise concerns on ROE cash drag. Communicated our analysis and concerns on valuation.
CEO
Aug 2023 1x1 call Improve shareholder return policy. The shareholder return policy is being actively discussed internally.
Management expects to provide a further update during 2024.
IR
Stakeholders addressed in engagements Governance & Management Regulators & Governments Environment
Employees Customers & Suppliers Local communities
Source: Schroders, as at October 2023.
Securities shown are for illustrative purposes only and should not be viewed
as a recommendation to buy or sell. We recognise that success factors may be
subjective, and that Schroders' influence may not have been the sole driving
force for this change. However, we believe it is important to track companies'
progress and measure the outcomes of our engagement.
In summary, the Manager looks for companies with sustainable business models
that are doing the right thing for broader stakeholders in order to generate
the best performance for the Company.
What is the practical reality of all the Manager's ESG work? The table below
shows the current positioning of the Company in sectors generally considered
"sensitive". The Manager does not invest in companies where their principal
activity is tobacco, coal, oil extraction, thermal utilities or agribusiness.
All of these are sectors where we would question the long-term sustainability
of the business model due to environmental and social factors. The Company
does have exposure to gaming companies and the resource sector, but the
exposure is limited to those stocks in well regulated markets where we are
confident of best practice. Exposure in both industries is unlikely to exceed
10% of the Company's assets respectively.
ESG and sustainability in action - the practical reality for the Company
Sector Reasons for Caution Our Approach Approximate portfolio Exposure
Agribusiness Environmental, Social, Governance, (low barriers of entry, widespread Avoid 0%
questionable practices)
Tobacco Social, Governance Avoid 0%
Gambling Social, Governance Limited exposure to best-in-class players in well-regulated markets (Macau, 4.0% (3 stocks)
Australia)
Utilities Environmental, Governance, (national service obligations, uncertain Avoid carbon heavy energy providers, focus on hydro and sustainable energy 0%
regulations/risks of backlash against coal plants, mostly state-owned providers in well-regulated markets (if such a thing exists?)
enterprises)
Auto Environmental (regulations against the sector - too much hot money in EVs and Avoid original equipment manufacturers ("OEMs"), minimise exposure to supply 0%
multiple players will mean poor returns for all) chains
Resources Environmental, Social, Governance (questionable practices such as bribery and Avoid except for Australian blue chip with minimal thermal coal exposure 4.1% (2 stocks)
poor environmental and safety controls concerns in Asia ex Australia)
Oil and Gas Environmental, Governance (regulations, unfavourable taxes, mostly Limited exposure to best-in-class companies ideally with an LNG/gas focus 0%
state-owned)
Property Environmental, Social, Governance (bribery issues, flooding, land clearance Exposure principally to Hong Kong and Singapore where there are better 3.0% (2 stocks)
compensation) practices and cities that "work". Outside HK/SG, only invest in management
teams we 100% trust (this is a small number of companies)
Source: Schroders, as at end of December 2023. For illustrative purposes only
and should not be viewed as a recommendation to buy or sell.
The table below shows a calculation of the carbon footprint of the Company's
investee companies versus the Reference Index. Whilst data for these
calculations can be open to interpretation, given the difficulties of
measuring scope 2 emissions, the Company appears to have a very low carbon
footprint versus the Reference Index. On current calculations, as illustrated
below, the carbon footprint of the Company's investee companies on Scope 1 and
2 emissions is less than half of the Reference Index levels.
Top 10 Investments
as at 31 December 2023
1 TSMC % of total investments: 9.2% (2022: 7.7%)
TSMC is a Taiwanese provider of semiconductor manufacturing services, and the
world's largest logic chip contract manufacturer. Its dominant position in the
manufacturing of the most cutting-edge chips is a result of a long track
record of R&D-driven innovation. TSMC's customers include most of the
world's most advanced chip design companies, for applications ranging from
smartphone processors to the most advanced AI chips.
2 Samsung Electronics % of total investments: 7.3% (2022: 6.1%)
Samsung Electronics is a Korean semiconductor and electronics manufacturing
company. Its key products include semiconductors (logic and memory chips),
mobile phone handsets, consumer electronics, and home appliances. As well as
being the leading player in both volatile (DRAM) and non-volatile (NAND)
memory, Samsung is one of only a handful of companies in the world able to
manufacture the most advanced logic chips at scale.
3 HDFC Bank % of total investments: 4.1% (2022: 2.0%)
HDFC Bank is an Indian financial services provider, offering banking,
insurance and mutual funds amongst other financial products. Following its
merger with HDFC Ltd, the non- bank financial company, it is now among India's
largest private sector financial companies, serving over 90 million customers
through both traditional and digital channels. India is a relatively
underpenetrated market for financial services.
4 Tencent % of total investments: 3.3% (2022: 3.2%)
Tencent is China's biggest internet company, with leading positions in mobile
gaming, online advertising and mobile payments. Its WeChat app is the leading
instant messaging app in China, and is a key platform for other features, such
as payments and social media content, and third-party services accessed
through "mini-programs" on the platform. In addition to its own operations,
Tencent is a significant shareholder in several other prominent internet
companies, in China and abroad.
5 DBS % of total investments: 3.1% (2022: 3.2%)
DBS is the largest banking group headquartered in Singapore. The bank offers a
full range of services in consumer banking, wealth management and
institutional banking across Singapore, Hong Kong and other ASEAN markets.
While being the leading incumbent banking group in Singapore, it has made
significant investment in revamping its digitalisation infrastructure over the
years, putting the bank at the forefront of financial innovation, which is
seen as a key differentiator for the bank and helps fend off the increasing
competition from emerging fintech companies over the medium term.
6 AIA % of total investments: 2.8% (2022: 2.9%)
AIA is an insurance company, providing life insurance, accident and health
insurance and savings plans, as well as financial products and services to
corporate clients. Based in Hong Kong, the company operates in 18 markets
across the Asia Pacific region and has sold over 40 million policies.
7 MediaTek % of total investments: 2.7% (2022: 1.7%)
MediaTek is a Taiwanese company engaged in the design and distribution of
semiconductor chips. Their products focus on mobile connectivity, for example
5G mobile communication chips, as well as bluetooth and Wifi chips, and are
mainly used in mobile phones, digital TVs, PCs, home appliances, wearable
devices and Internet of Things devices.
8 Bank Mandiri % of total investments: 2.6% (2022: 2.1%)
Bank Mandiri is one of Indonesia's largest banks, serving both retail and
corporate customers. Established in 1998 as part of a restructuring program
for four government-owned banks, Mandiri remains majority government-owned. It
also offers other financial services, such as insurance and securities
brokerage. Indonesia is a relatively underpenetrated market for financial
services.
9 Swire Pacific % of total investments: 2.1% (2022: 2.1%)
Swire Pacific is one of the leading commercial landlord conglomerates in Hong
Kong, with operations spanning office/retail properties, airline and beverage
businesses across China and South East Asia. Despite the challenging macro
backdrop in Hong Kong/China, Swire Pacific has been navigating well given its
very solid balance sheet. There is clear commitment from management to make
proactive efforts in enhancing shareholder returns via a combination of share
buy back, special dividends and maintaining a consistent and progressive
dividend policy, which should continue to allow the company to unlock
shareholder value over time.
10 Rio Tinto % of total investments: 2.0% (2022: 1.8%)
Rio Tinto is one of the largest and best managed resource companies globally,
with strong cash flow generation and a robust balance sheet. The company runs
best-in-class operations across its main business segments in iron ore,
aluminium, copper and diamonds, energy and minerals. Its high-quality mining
assets also allow it to run a lower-cost operation with longer asset life than
peers, making it less sensitive to adverse commodity price movements. Given
Rio Tinto's industry leading position and its commitment to carbon neutrality,
the company is an integral part of the global transition into a low carbon
economy, where the accelerating adoption of EVs, wind turbines, electric
grids, etc. will drive structurally higher metal demand over the coming years.
Investment Portfolio
as at 31 December 2023
Investments are classified by the Investment Manager in the country of
listing, except where noted. Stocks in bold are the 20 largest investments,
which by value account for 56.8% (2022: 54.2%) of total investments.
£'000 %
Taiwan
TSMC 44,683 9.2
MediaTek 13,011 2.7
Voltronic Power Technology 8,134 1.7
Nien Made Enterprise 6,901 1.4
ASE Technology 6,724 1.4
United Micro Electronics 6,487 1.3
Advantech 6,152 1.3
Merida Industry 6,022 1.2
Eclat Textile 5,449 1.1
Chroma ATE 5,382 1.1
Sinbon Electronics 3,126 0.7
Total Taiwan 112,071 23.1
Australia
Cochlear 9,220 1.9
CSL 9,007 1.9
BHP Billiton(1) 9,003 1.9
Aristocrat Leisure 7,194 1.5
ResMed 7,000 1.4
Medibank Private 6,827 1.4
Reliance Worldwide 6,775 1.4
Seek 6,707 1.4
Orica 5,169 1.1
Brambles 4,930 1.0
James Hardie Industries 4,744 1.0
Incitet Pivot 3,680 0.8
Total Australia 80,256 16.7
India
HDFC Bank 19,705 4.1
ICICI Bank 9,073 1.9
Apollo Hospitals Enterprise 8,929 1.8
MakeMyTrip(2) 6,994 1.4
Infosys (ADR)(2) 5,978 1.2
Tata Consultancy Services 5,557 1.1
KPIT Engineering 3,115 0.6
Total India 59,351 12.1
Hong Kong (SAR)
AIA 13,340 2.8
Swire Pacific 10,259 2.1
Techtronic Industries 8,352 1.7
Galaxy Entertainment 6,681 1.4
Hang Lung 3,128 0.6
Total Hong Kong (SAR) 41,760 8.6
Mainland China
Tencent(3) 15,849 3.3
Shenzhou International Group(3) 7,339 1.5
Yum China(3) 5,450 1.1
New Oriental Education (ADR)(2) 5,031 1.0
NetEase(3) 3,939 0.8
Wuxi Biologic(3) 2,523 0.5
Total Mainland China 40,131 8.2
Singapore
DBS 14,922 3.1
Singapore Exchange 7,696 1.6
United Overseas Bank 6,844 1.4
Sheng Siong 4,503 0.9
Venture 4,335 0.9
Total Singapore 38,300 7.9
South Korea
Samsung Electronics 35,009 7.3
Total South Korea 35,009 7.3
Philippines
Wilcon 8,128 1.7
International Container Terminal Services 7,066 1.5
BDO Unibank 5,576 1.2
SM Investments 5,191 1.1
Century Pacific Food 4,944 1.0
Total Philippines 30,905 6.5
Indonesia
Bank Mandiri 12,571 2.6
Sumber Alfaria Trijaya Tbk PT 1,248 0.3
Total Indonesia 13,819 2.9
United Kingdom
Rio Tinto 9,400 2.0
Total United Kingdom 9,400 2.0
Vietnam
FPT 4,458 0.9
Mobile World Investment 2,131 0.4
Total Vietnam 6,589 1.3
Thailand
Bangkok Dusit Medical Services 5,653 1.2
Total Thailand 5,653 1.2
United States
Las Vegas Sands 5,412 1.1
Total United States 5,412 1.1
France
LVMH 5,356 1.1
Total France 5,356 1.1
Total investments(4) 484,012 100.0
Derivative Financial Instruments
Index Put Options
Taiwan Stock Exchange Put Option 17600
February 2024 178 -
NIFTYM Put Option 19500 January 2024 - -
Total Index Put Options(5) 178 -
Total Investments and Derivative Financial Instruments 484,190 100.0
(1)Listed in the UK.
(2)Listed in the USA.
(3)Listed in Hong Kong (SAR).
(4)Total investments comprise the following:
£'000
Equities 473,003
American Depositary Receipts (ADR) 11,009
Total investments 484,012
(5)The options give downside protection to 6.1% of total investments.
Business Review
Purpose, values and culture
The Company's purpose is to create long-term shareholder value, in line with
the investment objective.
The Company's culture is driven by its values: transparency, engagement and
rigour, with collegial behaviour and constructive, robust challenge. The
values are all centred on achieving returns for shareholders in line with the
Company's investment objective. The Board also sets out the effective
management or mitigation of the risks faced by the Company and, to the extent
it does not conflict with the investment objective, aims to structure the
Company's operations with regard to all its stakeholders and take account of
the impact of the Company's operations on the environment and community.
As the Company has no employees and acts through its service providers, its
culture is represented by the values and behaviour of the Board and third
parties to which it delegates. The Board aims to fulfill the Company's
investment objective by encouraging a culture of constructive challenge with
all key suppliers and openness with all stakeholders. The Board is responsible
for embedding the Company's culture in its operations.
Business model
The Board has appointed Schroder Unit Trusts Limited (the "Manager"), to
implement the investment strategy and to manage the Company's assets in line
with the appropriate restrictions placed on it by the Board, including limits
on the type and relative size of holdings which may be held in the portfolio
and on the use of gearing, cash, derivatives and other financial instruments
as appropriate. The terms of the appointment of the Manager, and the
delegation by the Manager of investment management services to Schroder
Investment Management Limited ("SIM" or the "Investment Manager"), are
described more completely in the Directors' Report. The Manager also promotes
the Company using its sales and marketing teams. The Board and Manager work
together to deliver the Company's investment objective, as demonstrated in the
diagram below.
Investment trust status
The Company carries on business as an investment trust. Its shares are listed
and admitted to trading on the premium segment of the main market of the
London Stock Exchange. It has been approved by HM Revenue & Customs as an
investment trust in accordance with section 1158 of the Corporation Tax Act
2010, by way of a one-off application and it is intended that the Company will
continue to conduct its affairs in a manner which will enable it to retain
this status.
The Company is domiciled in the UK and is an investment company within the
meaning of section 833 of the Companies Act 2006. The Company is not a "close"
company for taxation purposes.
Continuation vote
It is not intended that the Company should have a limited life but the
Directors consider it desirable that the shareholders should have the
opportunity to review the future of the Company at appropriate intervals.
Accordingly, the articles of association contain provisions requiring the
Directors to put a proposal for the continuation of the Company to
shareholders at three yearly intervals. The next continuation vote is due to
be proposed at the AGM in 2025.
Investment model
Investment objective
The Company seeks to provide a high rate of total return through investment in
equities and equity-related securities of companies trading in the Asia
Pacific region (excluding Japan). The Company seeks to offer a degree of
capital preservation through tactical use of derivative instruments.
Investment policy
The Company invests principally in a diversified portfolio of 40-70 companies
operating primarily in Asia, including Australasia but excluding Japan. It is
intended that the Company will have a bias to investing in small and mid cap
companies.
Investments may be made in companies listed on the stock markets of countries
located in the region and/or listed elsewhere but controlled from within the
region and/or with a material exposure to the region. The Company will focus
on investing in companies with sound balance sheets, professional management
and capital allocation policies that are aligned with the interests of
minority shareholders.
The use of derivatives to protect the capital value of the portfolio or for
efficient portfolio management is fundamental to the strategy of the Company's
Portfolio Managers. Such derivatives may include listed futures, call options,
long puts, OTC instruments and instruments to hedge currency exposure with
Board approval. The Board will monitor the effectiveness of the underlying
process and the use of derivatives.
In order to obtain further exposure to equity indices or individual stocks,
the Company may enter into contracts for difference where the underlying
investments are not delivered and settlement is made in cash. In extreme
circumstances, and subject to Board approval, the majority, or even all, of
the Company's assets could be held in cash or near cash instruments, with
appropriate diversification of cash held on deposit.
The Company may use gearing to enhance performance but net gearing will not
exceed 30% of net asset value.
The Company does not tie its portfolio construction to the constituents of any
benchmark; instead, the size of stock positions are set on an absolute basis
reflecting where the best potential risk adjusted returns are to be found.
Investment restrictions and spread of investment risk
In accordance with its investment objective, the Company invests in
a diversified portfolio with the aim of spreading investment risk, which is
monitored by the Board and the Manager.
The key restrictions imposed on the Manager are that:
(a) no more than 15% of the Company's total net assets, at the date of
acquisition, may be invested in any one single company or group of companies;
(b) subject to the approval of the Board, the Company may invest in collective
vehicles. If it was to do so, however, no more than 10% of the Company's total
net assets, at the date of acquisition, may be invested in UK listed
closed-ended investment companies unless such companies have a stated
investment policy not to invest more than 15% of their gross assets in other
UK listed closed-ended investment companies;
(c) the Company will not invest more than 15% of its gross assets in UK
listed closed-ended investment companies;
(d) no more than 50% of the Company's total net assets may be invested in
equities listed on a single stock exchange; and
(e) the Manager will not invest in unlisted equities other than with the
approval of the Board or when entitlements are received or immediately prior
to a listing.
The Investment Portfolio on pages 21 and 22 demonstrates that, as at 31
December 2023, the Company held 62 investments spread over a range of
industry sectors. The largest investment, Taiwan Semiconductor Manufacturing
Company, represented 9.2% of total investments. The Board therefore believes
that the objective of spreading investment risk has been achieved.
Key performance indicators ("KPIs")
The Board reviews performance, using a number of key measures, to monitor and
assess the Company's success in achieving its objective. Further comment on
performance can be found in the Chair's statement. The following KPIs are
used:
• NAV performance;
• Share price discount/premium management; and
• Ongoing charges ratio.
Some KPIs are Alternative Performance Measures ("APMs").
Further details can be found on page 4 and definitions of these terms on pages
78 and 79.
Promotion
The Company promotes its shares to a broad range of investors including
discretionary wealth managers, private investors, financial advisers and
institutions which have the potential to be long-term supporters of the
investment strategy. The Company seeks to achieve this through its Manager and
Corporate Broker, which promote the shares of the Company through regular
contact with both current and potential shareholders.
These activities consist of investor lunches, one-on-one meetings, regional
road shows and attendance at conferences for professional investors. In
addition, the Company's shares are supported by the Manager's wider marketing
of investment companies targeted at all types of investors. This includes
maintaining close relationships with adviser and execution-only platforms,
advertising in the trade press, maintaining relationships with financial
journalists and the provision of digital information on Schroders' website.
The Board also seeks active engagement with investors, and meetings with the
Chair are offered to investors when appropriate.
Shareholders are encouraged to sign up to the Manager's Investment Trusts
update, to receive information on the Company directly
www.schroders.com/trust-updates/.
Stakeholder engagement
Section 172 of the Companies Act 2006
During the year under review, the Board discharged its duty under section 172
of the Companies Act 2006 to promote the success of the Company for the
benefit of its members as a whole, having regard to the interests of all
stakeholders. As an externally managed investment trust, the Company has no
employees, operations or premises. The Board has identified its key
stakeholders as the Company's shareholders, the Investment Manager, other
service providers, investee companies and the Company's lender. The table
below explains how the Directors have engaged with all stakeholders during the
year and outlines the key activities undertaken. The key decisions made by the
Board during the year are set out following the table.
Stakeholder Significance Engagement 2023 highlights
Shareholders Continued shareholder support and engagement are critical to the continuing - Annual General Meeting (AGM): The Company welcomes attendance and At the AGM in 2023 questions and feedback from shareholders were welcomed. The
existence of the business and the delivery of the long-term strategy of its participation from shareholders at the AGM. Shareholders have the opportunity Board, along with the Manager, look forward to meeting and interacting with
business to meet the Directors and the Investment Manager and to ask questions. The more shareholders at the forthcoming AGM in April 2024.
Board values the feedback it receives from shareholders which is incorporated
into Board discussions. The Company's web pages continued to be refreshed and enhanced during the year
to optimise the user experience for shareholders and investors. Shareholders
- Publications: The annual and half year results presentations, as well can, via the Company's web pages, subscribe to the Schroders investment trusts
as factsheets, are available on the Company's web pages with their newsletter to receive regular updates on the Company.
availability announced via the Stock Exchange. Feedback and/or questions
received from shareholders enable the Company to evolve its reporting which, The Investment Manager engaged with a number of its shareholders and investors
in turn, helps to deliver transparent and understandable updates. during the year and regular feedback was provided to the Board. A number of
promotional activities were undertaken during the year including Investment
- Shareholder communication: The Investment Manager communicates with Manager interviews, webinars and coverage in key publications.
shareholders periodically. All investors are offered the opportunity to meet
the Chair, Senior Independent Director, or other Board members without using The Board continues to work with Kepler on promoting the Company through its
the Manager or Company Secretary as a conduit, by writing to the Company's research notes which were published twice during the year.
registered office. The Board also corresponds with shareholders by letter and
email. The Board receives regular feedback from its broker on investor
engagement and sentiment.
- Investor Relations updates: At every Board meeting, the Directors
receive updates on share trading activity, share price performance and any
shareholders' feedback, as well as any publications or comments in the press.
To gain a deeper understanding of the views of its shareholders and potential
investors, the Manager also undertakes Investor Roadshows following
publications of results.
The Investment Manager Holding the Company's shares offers investors a liquid investment vehicle Maintaining a close and constructive working relationship with the Investment Representatives of the Investment Manager, including at least one of the
through which they can obtain exposure to the Company's diversified portfolio Manager is crucial as the Board and the Investment Manager both aim to Portfolio Managers, attend each Board meeting to provide an update on the
of investments. continue to achieve consistent, long-term returns in line with the investment investment portfolio along with presenting on macroeconomic issues.
objective. The Board invites the Investment Manager to attend all Board and
The Investment Manager's performance is critical for the Company to deliver certain Committee meetings in order to update the Directors on the performance The portfolio activities undertaken by the Investment Manager and the impact
its investment strategy successfully and meet its objective to provide a high of the investments and the implementation of the investment strategy and of decisions affecting investment performance are set out in the Investment
rate of total return through investment in equities and equity-related objective. Manager's Review on pages 7 to 14.
securities of companies trading in the Asia Pacific region (excluding Japan).
Important components in the Board's collaboration with the Investment Manager
are:
- Encouraging open discussion with the Board;
- Recognising that the interests of shareholders and the Investment
Manager (as well as of its other clients) are, for the most part, well
aligned, adopting a tone of constructive challenge, balanced when those
interests are not fully congruent by robust negotiation of the Investment
Manager's terms of engagement; and
- Drawing on Directors' individual experience to support the Manager in
its monitoring and change management of portfolio companies, for the benefit
of all of the Investment Manager's clients.
The Management Engagement Committee reviews the performance of the Investment
Manager, its remuneration and the discharge of its contractual obligations at
least annually.
Investee companies The Board is committed to responsible investing and actively monitors the The Investment Management team conducts face-to-face and/or virtual meetings The Board received regular updates on engagement with investee companies from
activities of investee companies through its delegation to the Investment with the management teams of all investee companies to understand current the Investment Manager at its board meetings.
Manager. trading and prospects for their businesses, and to ensure that their ESG
investment principles and approach are understood. During the year, the Investment Manager engaged with many of its investee
companies and voted at shareholder meetings (further details can be found on
The Investment Manager has discretionary powers to exercise the Company's page 16).
voting rights on resolutions proposed by the investee companies within the
Company's portfolio. The Investment Manager report to the Board on stewardship
(including voting) issues and the Board will question the rationale for voting
decisions made.
By active engagement and exercising voting rights, the Investment Manager
actively works with companies to improve corporate standards, transparency and
accountability.
Lender Availability of funding and liquidity are crucial to the Company's ability to Considering how important the availability of funding is, the Company aims to During the year, gearing was regularly considered. The Board entered into an
take advantage of investment opportunities as they arise. demonstrate to lenders that it is a well managed business and, in particular, amendment and restatement agreement in July 2023 with The Bank of Nova Scotia,
that the Board focuses regularly and carefully on the management of risk. London, Branch in respect of the revolving credit facility as previously
amended and restated in July 2022.
The Manager manages the relationship with the Company's lender and reports to
the Board at each meeting as and when required for renewals of terms or
negotiation of loan covenants. The Manager provides a monthly statement of
compliance of the loan covenants to the lender.
Other service providers In order to operate as an investment trust with a premium listing on the The Board maintains regular contact with its key external providers, both Under delegated authority from the Board, the Management Engagement Committee
London Stock Exchange, the Company relies on a diverse range of advisers to through the Board and Committee meetings, as well as outside of the regular reviewed all material third party service providers. The Board considered the
support meeting all relevant obligations. meeting cycle. Their advice, as well as their needs and views, are routinely ongoing appointments of its service providers to be in the best interests of
taken into account. the Company and its shareholders as a whole and will continue to monitor their
progress in the year ahead.
During the year, Directors were invited to attend an internal controls
briefing session, hosted by the Manager which assessed the internal controls
of certain key service providers including the Company's depositary and
custodian, HSBC and the Company's registrar, Equiniti.
Wider society and the environment Whilst strong long-term investment performance is essential for an investment The Board engages with the Investment Manager at each Board meeting in respect The Board's desire for greater engagement reporting has resulted in the
trust, the Board recognises that to provide an investment vehicle that is of its ESG considerations on existing and new investments. inclusion of case studies showcasing how the Investment Manager supports and
sustainable over the long-term, both it and the Investment Manager must have integrates responsible investing in its investment process set out in this
regard to ethical and environmental issues that impact society. Hence ESG annual report. Further details of the ESG practices and case studies can be
considerations are integrated into the Investment Manager's investment process found in the Investment Process section of this report.
and will continue to evolve.
During the year, the Board took a number of other key decisions which also
fall under the Section 172 scope set out above:
• the declaration of a final dividend of 11.00p per Ordinary share
(2022: 8.5p) which, following approval by shareholders at the AGM held on 25
April 2023 was paid to shareholders on 11 May 2023.
• the consideration of Board succession planning, and following the
appointment of Jasper Judd as a new non-executive Director on 1 February
2023, has commenced the search for a successor to Caroline Hitch who plans to
step down from the Board following the 2024 AGM.
• the implementation of the Board's discount control policy to
target a discount to NAV of no more than 5% in normal market conditions.
• maintaining the Company's disciplined gearing framework, based on
a number of valuation indicators to increase market exposure, which should,
over the longer term, enhance returns to shareholders. The Company will also
use derivative hedging instruments in addition to borrowing under the
revolving credit facility provided by The Bank of Nova Scotia, London Branch,
as amended and restated in July 2023.
• together with the Portfolio Managers, the Board undertook its
second annual visit to the region, since the lifting of COVID travel
restrictions, and visited Hong Kong and Taiwan to undertake due diligence
meetings with key personnel from the Investment Manager, consultants and
investee companies.
Following the year end, the Board declared a final dividend of 11.50p per
Ordinary share (2023: 11.00p) which, if approved by shareholders at the AGM,
will be paid on 10 May 2024.
Corporate and social responsibility
The Board recognises the Company's responsibilities with respect to corporate
and social responsibility and engages with its outsourced service providers to
safeguard the Company's interests. As part of this ongoing monitoring, the
Board receives reporting from its service providers with respect to their
anti-bribery and corruption policies; Modern Slavery Act 2015 statements;
diversity policies; financial crime policies; greenhouse gas and energy usage
reporting.
Diversity policy
The Board has adopted a diversity and inclusion policy. Appointments and
succession plans will always be based on merit and objective criteria and,
within this context, the Board seeks to promote diversity of gender, social
and ethnic backgrounds, cognitive and personal strengths. The Board will
encourage any recruitment agencies it engages to find a range of candidates
that meet the objective criteria agreed for each appointment. Candidates for
Board vacancies are selected based on their skills and experience, which are
matched against the balance of skills and experience of the overall Board
taking into account the criteria for the role being offered.
Statement on Board diversity - gender and ethnic background
The Board has made a commitment to consider diversity when reviewing the
composition of the Board and notes the new Listing Rules requirements (LR
9.8.6R(9) and (11)) regarding the targets on board diversity:
• at least 40% of individuals on the Board are women;
• at least one senior Board position is held by a woman; and
• at least one individual on the Board is from a minority ethnic
background.
The FCA defines senior board positions as Chairman, Chief Executive Officer
("CEO"), Chief Financial Officer ("CFO") or Senior Independent Director
("SID"). As an investment trust with no executive officers, the Company has no
CEO or CFO. The Board has reflected the senior positions of the Chair of the
Board, the Chair of the Audit and Risk Committee and the SID in its diversity
tables.
The Board has chosen to align its diversity reporting reference date with the
Company's financial year end and proposes to maintain this alignment for
future reporting periods. The following information has been provided by each
Director through the completion of a questionnaire.
As at 31 December 2023, the Company met two of the three criteria including
the target in relation to the number of women on the Board and for at least
one senior board position to be held by a woman. The target for at least one
individual on the Board to be from a minority ethnic background was not met
and the Board is conscious that while the Directors are all independent and
have a diverse range of views and experience, its small composition will make
these targets challenging to fully implement. Recognising the benefits of a
diverse Board, it is intended that improving diversity will continue to be a
key factor when the Board makes its next appointment. There have been no
changes since 31 December 2023 to the date of publication of the annual report
and accounts.
The below tables set out the gender and ethnic diversity composition of the
Board as at 31 December 2023 and at the date of this report.
Gender identity
Number of
Number of Percentage senior
Board of the positions on
members Board the Board
Men 2 50 1
Women 2 50 2
Not specified/prefer not
to say - - -
Not specified/prefer not to say - - -
Ethnic background
Number of
Number of Percentage senior
Board of the positions on
members Board the Board
White British or other White
(including minority-white
groups) 4 100 3
Mixed/Multiple Ethnic Groups - - -
Asian/Asian British - - -
Black/African/Caribbean/Black
British - - -
Other ethnic group, including
Arab - - -
Not specified/prefer not to say - - -
Financial crime policy
The Company continues to be committed to carrying out its business fairly,
honestly and openly, and operates a financial crime policy, covering bribery
and corruption, tax evasion, money laundering, terrorist financing and
sanctions, as well as seeking confirmations that the Company's service
providers' policies are operating soundly.
Modern Slavery Act 2015
As an investment trust, the Company does not provide goods or services in the
normal course of business and does not have customers. Accordingly, the
Directors consider that the Company is not required to make any slavery or
human trafficking statement under the Modern Slavery Act 2015.
Climate
Greenhouse gas emissions and energy usage
As the Company outsources its operations to third parties, it has no
significant greenhouse gas emissions and energy usage to report.
Taskforce for Climate-Related Financial Disclosures ("TCFD")
Investment trusts are currently exempt from the TCFD. The Board will continue
to monitor the situation. However, the Company's Manager produces an annual
product level disclosure consistent with the TCFD which can be found here:
https://mybrand.schroders.com/m/4acd06a887b01a60/original/TCFD-SG12092M-Schroder-Asian-Total-Reurnlnvestment-Company-20221231.pdf.
Principal and emerging risks and uncertainties
The Board, itself and through its delegation to its Audit and Risk Committee,
is responsible for the Company's system of risk management and internal
control and for reviewing its effectiveness. The Board has adopted a detailed
matrix of principal risks affecting the Company's business as an investment
trust and has established associated policies and processes designed to manage
and, where possible, mitigate those risks, which are monitored by the Audit
and Risk Committee on an ongoing basis. This system assists the Board in
determining the nature and extent of the risks it is willing to take in
achieving the Company's strategic objectives.
Risk assessment and internal controls review by the Board
Risk assessment includes consideration of the scope and quality of the systems
of internal control operating within key service providers, and ensures
regular communication of the results of monitoring by such providers to the
Audit and Risk Committee, including the incidence of significant control
failings or weaknesses that have been identified at any time and the extent to
which they have resulted in unforeseen outcomes or contingencies that may have
a material impact on the Company's performance or condition.
Although the Board believes that it has a robust framework of internal
controls in place this can provide only reasonable, and not absolute,
assurance against material financial misstatement or loss and is designed to
manage, not eliminate, risk.
Both the principal risks and uncertainties and the monitoring system are also
subject to robust review at least annually. The last assessment took place in
March 2024.
During the year, the Board discussed and monitored a number of risks that
could potentially impact the Company's ability to meet its strategic
objectives. The Board receives updates from the Investment Manager, Company
Secretary and other service providers on emerging risks that could affect the
Company. The Board was mindful of the evolving global environment during the
year; and the risks posed by volatile markets; geopolitical uncertainty; and
inflation and corresponding interest levels which could affect the asset
class. However, these are not factors which explicitly impacted the Company's
performance. These risks are seen as exacerbating existing risks and have been
incorporated in the macro factors, including the geopolitical/economic
environment and climate change risk section in the table below.
The Board considered in detail whether there were any material emerging risks
and has included the development of artificial intelligence as an emerging
risk in the table below.
No significant control failings or weaknesses were identified from the Audit
and Risk Committee's ongoing risk assessment throughout the financial year and
up to the date of this report. The Board is satisfied that it has undertaken a
detailed review of the risks facing the Company and that the internal control
environment continues to operate effectively.
Actions taken by the Board and, where appropriate, its Committees, to manage
and mitigate the Company's principal risks and uncertainties are set out in
the table below. The "Change" column on the right highlights at a glance the
Board's assessment of any increases or decreases in risk during the year after
mitigation and management. The arrows show the risks as increased, decreased,
or unchanged.
Risk Mitigation and management Change
Strategy
Macro factors, including the geopolitical/economic environment and climate Geopolitical risks are an input into the investment process and are monitored é
change at each Board meeting where there is also an opportunity to discuss key market
risk factors with the Portfolio Managers. Further information on geopolitical The continued increased risk reflects the changing global environment and the
Geopolitical instability or changes to the global economic environment might risk is included in the Outlook section of the Chair's Statement. risks posed by volatile markets and geopolitical uncertainty.
materially affect the ability of the Company to achieve its investment
objective. The Board visited Hong Kong and Taiwan during the year and met with investee
companies and analysts to understand better the tensions and opportunities in
The impact of climate change on investee companies may also materially affect the region.
investment outcomes.
The risks associated with the economic environment that might impact the
Company include market risk, liquidity risk and credit risk, all of which are
mitigated, to some extent, by the Investment Manager. Note 22 to the financial
statements provides further details of the steps taken to mitigate those risks
associated with the portfolio.
The Manager's investment process includes an assessment of climate related
risks in the evaluation of investee companies.
Investment objective and promotion The appropriateness of the Company's investment mandate and the long-term á â
investment strategy is periodically reviewed by the Board and the success of
The Company's investment objective may become out of line with the the Company in meeting its stated objectives is monitored. The Board holds a
requirements of investors and lead to the Company becoming unattractive to strategy meeting each year to consider the investment objective and policy and
investors, decreasing demand for its shares and a widening discount of the the Company's longer term investment strategy.
share price to underlying NAV per share.
The share price relative to the NAV per share is kept under review as a key
The Company is not promoted in a way which generates investor demand. performance indicator and is considered against the Company's peers on a
regular basis. The use of the buy back authority is also reviewed regularly.
The Investment Manager and corporate broker monitor market feedback and the
Board consider this at each quarterly meeting.
Proactive engagement with shareholders takes place via the AGM, feedback from
shareholder presentations, and ad hoc meetings with the Board.
The Manager provides a dedicated experienced investment trust marketing team
together with PR resource.
Investment
Investment performance The Investment Manager is experienced and has a long track record in á â
successfully investing in Asian equity holdings.
Poor stock selection or investing outside of the investment restrictions and
guidelines set by the Board could result in poor performance. The Board oversees the implementation of the investment strategy, compliance
with investment restrictions and guidelines and keeps investment performance
under close review. The Portfolio Managers attend all Board meetings and
review the portfolio with the Board using performance data and KPIs.
A detailed formal appraisal of the performance of the Manager is carried out
annually by the Management Engagement Committee.
Key person The Investment Manager has a compensation and incentive scheme to recruit and á â
retain key staff including the Portfolio Managers, and has developed a
The departure of one or more of the Manager's key investment professionals suitable succession planning programme, which seeks to ease the impact that
could impact the Company's performance. the loss of a key investment professional may have on the Company's
performance. The Investment Manager would notify any change in its key
professionals to the Board at the earliest possible opportunity and the Board
would be made aware of all efforts made to fill a vacancy.
Investment decisions are made by a team of professionals, mitigating the
impact of the loss of any key professional within the Manager's organisation
on the Company's performance.
ESG considerations The consideration of climate change risks and ESG factors is integrated into á â
the investment process and reported at Board meetings.
Failure by the Company to disclose in an appropriate manner how the investment
process integrates consideration of ESG factors could lead to the Company's The Investment Manager considers and evaluates the approach investee companies
shares being less attractive to investors as well as potential valuation take to recognise and mitigate climate change risks and also considers the
issues in the underlying investee companies. portfolio's investee companies carbon footprint versus the Reference Index.
The Manager has implemented a comprehensive ESG policy outlined in detail on
pages 15 to 18.
Gearing/liquidity The Board sets gearing limits of 30% of net asset value and the Investment á â
Manager reports to the Board on gearing levels and derivative activity at
The Company adopts an inappropriate gearing or derivative strategy. every Board meeting.
The Company's investments are insufficiently liquid resulting in breach of Liquidity stress testing is carried out on a regular basis.
loan covenants in the event of a severe fall in valuations.
Compliance
Compliance with regulations The Board and Manager monitor changes in government policy and legislation á â
which may have an impact on the Company, and the Audit and Risk Committee
Failure to comply with relevant laws and regulations could result in fines, monitors compliance with regulations by reviewing internal control reports
loss of reputation and potentially loss of investment trust status. from the Manager.
From time to time the Board employs external advisers to advise on specific
matters.
Operational
Oversight of service providers The Board receives reports from the Manager on its internal controls and risk á â
management throughout the year, including those relating to cybersecurity, and
The Company has no employees and has delegated certain functions to a number receives assurances from all its other significant service providers on at
of service providers. Failure of controls, including as a result of fraud, and least an annual basis.
poor performance of any service provider, could lead to disruption,
reputational damage or loss. The Management Engagement Committee reviews the performance of key service
providers at least annually. The Manager also monitors closely the control
environments and quality of services provided by third parties, including
those of the Depositary, through service level agreements and regular
meetings.
Directors are invited to an annual internal controls briefing session, hosted
by the Manager in respect of the internal controls of the Company's key
service providers including the Company's Depositary and custodian, HSBC, the
Company's registrar, Equiniti, and Schroders Group Internal Audit team.
Experienced service providers are appointed by the Company subject to due
diligence processes and clearly documented contractual arrangements which
include agreed service level specifications and notice periods for
terminations.
Further details of the internal controls which are in place are set out in the
Audit and Risk Committee's Report on pages 39 to 41.
Information technology resilience and security Cybersecurity is closely monitored by the Audit and Risk Committee as part á â
of the review of the internal controls of its service providers.
Cyber risk such as fraud, sabotage or crime perpetrated against the Company or
any of its third party service providers could result in data theft, service Schroders IT security team present to the Directors on the Manager's
disruption and reputational damage. cybersecurity controls as part of the annual internal controls briefing
session hosted by Schroders.
Financial See note 22 for a detailed analysis of these risks. á â
The Company is exposed to a range of financial risks including market,
liquidity, interest rate, credit and fair values of financial assets and
financial liabilities.
Emerging risk
Artificial Intelligence ("AI")
The development of AI presents potential risks to businesses in almost every
sector. The extent of the risk presented by AI is extremely hard to assess at
this point but the Board considers that it is an emerging risk and together
with the Manager will monitor developments in this area.
Viability statement
The Directors have assessed the viability of the Company over the five year
period ending 31 December 2028, taking into account the Company's position at
31 December 2023 and the potential impact of the principal and emerging risks
and uncertainties it faces for the review period. This is further detailed in
the Chair's Statement, Investment Manager's Review and principal risks and
uncertainties sections of this report. The Directors have assessed the
Company's operational resilience and they are satisfied that the Company's
outsourced service providers will continue to operate effectively.
The Board believes that a period of five years 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 and emerging risks and
uncertainties detailed on pages 29 to 31, including the impact of
climate-related risks.
In preparing these financial statements the Directors have considered the
impact of the Company's emerging risks as set out on page 31, and have
concluded that there was no further impact to be taken into account as
investments are valued based on market pricing. In line with FRS102
investments are valued at fair value, which for the Company are quoted bid
prices for investments in active markets at the statement of financial
position date and therefore reflect market participants' views of emerging
risks on the investments held.
The Directors considered the beneficial tax treatment the Company is eligible
for as an investment trust. If changes to these taxation arrangements were to
be made it would affect the viability of the Company to act as an effective
investment vehicle.
The Directors reviewed a stress test in which the Company's NAV dropped by 50%
and noted that, based on the assumptions in the test, the Company would
continue to be viable over a five year period.
Whilst the Company's articles of association require that a proposal for the
continuation of the Company be put forward at the Company's AGM in 2025, the
Directors have no reason to believe that such a resolution will not be passed
by shareholders.
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. 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
The Directors have assessed the principal and emerging risks and uncertainties
and the matters referred to in the viability statement. The Directors noted
the Company's portfolio is comprised of liquid stocks, and the Company's
operating expenses are predominantly variable costs, which would fall pro-rata
in the event of a severe market downturn. Based on the work the Directors have
performed, they have not identified any material uncertainties relating to
events or conditions that, individually or collectively, may cast significant
doubt on the Company's ability to continue as a going concern for the period
assessed by the Directors, being the period to 31 March 2025 which is at
least 12 months from the date the financial statements are authorised for
issue.
By order of the Board
Schroder Investment Management Limited
Company Secretary
13 March 2024
Statement of Directors' Responsibilities
Directors' Responsibilities
The Directors are responsible for preparing the annual report, and the
financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors have prepared the financial
statements in accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards, comprising Financial Reporting
Standard ("FRS") 102 "The Financial Reporting Standard applicable in the UK
and Republic of Ireland" and applicable law). Under company law the Directors
must not approve the financial statements unless they are satisfied that they
give a true and fair view of the state of affairs of the Company and of the
return or loss of the Company for that period. In preparing these financial
statements, the Directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and accounting estimates that are reasonable and
prudent;
- state whether applicable UK Accounting Standards, comprising FRS 102,
have been followed, subject to any material departures disclosed and explained
in the financial statements;
- notify the Company's shareholders in writing about the use of
disclosure exemptions in FRS 102, used in the preparation of the financial
statements; and
- prepare the financial statements on a going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements and the Directors'
Remuneration Report comply with the Companies Act 2006. 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.
The Manager is responsible for the maintenance and integrity of the web pages
dedicated to the Company. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
Directors' Statement
Each of the Directors, whose names and functions are listed on pages 34 and
35, confirm that to the best of their knowledge:
- the financial statements, which have been prepared in accordance with
United Kingdom Generally Accepted Accounting Practice (United Kingdom
Accounting Standards and applicable law), give a true and fair view of the
assets, liabilities, financial position and net return of the Company;
- the Strategic Report contained in the report and accounts 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 and
emerging 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.
On behalf of the Board
Sarah MacAulay
Chair
13 March 2024
Financial
Income Statement
for the year ended 31 December 2023
2023 2022
Revenue Capital Total Revenue Capital Total
Note £'000 £'000 £'000 £'000 £'000 £'000
Gains/(losses) on investments held at fair value
through profit or loss 2 - 28,264 28,264 - (86,397) (86,397)
Net (losses)/gains on derivative contracts - (1,991) (1,991) - 9,487 9,487
Net foreign currency gains/(losses) - 1,846 1,846 - (5,341) (5,341)
Income from investments 3 13,568 1,639 15,207 16,278 63 16,341
Other interest receivable and similar income 3 180 - 180 34 - 34
Gross return/(loss) 13,748 29,758 43,506 16,312 (82,188) (65,876)
Management fee 4 (763) (2,288) (3,051) (809) (2,427) (3,236)
Performance fee 4 - - - - - -
Administrative expenses 5 (862) - (862) (720) - (720)
Net return/(loss) before finance costs and taxation 12,123 27,470 39,593 14,783 (84,615) (69,832)
Finance costs 6 (695) (2,084) (2,779) (300) (903) (1,203)
Net return/(loss) before taxation 11,428 25,386 36,814 14,483 (85,518) (71,035)
Taxation 7 (931) (505) (1,436) (1,017) 1,129 112
Net return/(loss) after taxation 10,497 24,881 35,378 13,466 (84,389) (70,923)
Return/(loss) per share (pence) 8 10.26 24.33 34.59 12.47 (78.13) (65.66)
The "Total" column of this statement is the profit and loss account of the
Company. The "Revenue" and "Capital" columns represent supplementary
information prepared under guidance issued by the AIC. The Company has no
other items of other comprehensive income, and therefore the net return/(loss)
after taxation is also the total comprehensive income/(loss) 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 59 to 72 form an integral part of these accounts.
Statement of Changes in Equity
for the year ended 31 December 2023
Called-up Capital
share Share redemption Special Capital Revenue
capital premium reserve reserve reserves reserve Total
Note £'000 £'000 £'000 £'000 £'000 £'000 £'000
At 31 December 2021 5,439 113,004 11,646 29,182 370,969 21,505 551,745
Issue of new shares 17 1,652 - - - - 1,669
Repurchase of the Company's own shares
into treasury - - - - (15,742) - (15,742)
Net (loss)/return after taxation - - - - (84,389) 13,466 (70,923)
Dividend paid in the year 9 - - - - - (9,275) (9,275)
At 31 December 2022 5,456 114,656 11,646 29,182 270,838 25,696 457,474
Repurchase of the Company's own shares
into treasury - - - - (32,936) - (32,936)
Net return after taxation - - - - 24,881 10,497 35,378
Dividend paid in the year 9 - - - - - (11,432) (11,432)
At 31 December 2023 5,456 114,656 11,646 29,182 262,783 24,761 448,484
The notes on pages 59 to 72 form an integral part of these accounts.
Statement of Financial Position
at 31 December 2023
2023 2022
Note £'000 £'000
Fixed assets
Investments held at fair value through profit or loss 10 484,012 499,305
Current assets
Debtors 11 1,194 517
Cash and cash equivalents 11 2,527 5,161
Derivative financial instruments held at fair value through profit or loss 11 178 -
3,899 5,678
Current liabilities
Creditors: amounts falling due within one year 12 (38,841) (47,509)
Net current liabilities (34,942) (41,831)
Total assets less current liabilities 449,070 457,474
Non current liabilities
Deferred taxation 13 (586) -
Net assets 448,484 457,474
Capital and reserves
Called-up share capital 14 5,456 5,456
Share premium 15 114,656 114,656
Capital redemption reserve 15 11,646 11,646
Special reserve 15 29,182 29,182
Capital reserves 15 262,783 270,838
Revenue reserve 15 24,761 25,696
Total equity shareholders' funds 448,484 457,474
Net asset value per share (pence) 16 461.24 434.60
These accounts were approved and authorised for issue by the board of
directors on 13 March 2024 and signed on its behalf by:
Sarah MacAulay
Chair
The notes on pages 59 to 72 form an integral part of these accounts.
Registered in England and Wales as a public company limited by shares
Company registration number: 02153093
Cash Flow Statement
for the year ended 31 December 2023
2023 2022
Note £'000 £'000
Net cash inflow from operating activities 17 10,928 11,019
Investing activities
Purchases of investments (115,573) (151,044)
Sales of investments 158,529 165,507
Net cash flows on derivative instruments (2,169) 8,938
Net cash inflow from investing activities 40,787 23,401
Net cash inflow before financing 51,715 34,420
Financing activities
Dividends paid (11,432) (9,275)
Interest paid (2,732) (1,122)
Bank loans repayment (6,530) -
Bank loans drawn down - 18,237
Issue of shares - 1,669
Repurchase of the Company's own shares into treasury (33,222) (15,451)
Net cash outflow from financing activities (53,916) (5,942)
Net cash (outflow)/inflow in the year 18 (2,201) 28,478
Cash and cash equivalents at the beginning of the year 5,161 (23,107)
Change in cash and cash equivalents (2,201) 28,478
Exchange movements (433) (210)
Cash and cash equivalents at the end of the year 2,527 5,161
Dividends received during the year amounted to £15,263,000 (2022:
£16,365,000) and deposit interest receipts amounted to £178,000
(2022: £31,000).
The notes on pages 59 to 72 form an integral part of these accounts.
Notes to the Accounts
1. Accounting policies
(a) Basis of accounting
Schroder Asian Total Return Investment Company plc (the "Company") is
registered in England and Wales as a public company limited by shares. The
Company's registered office is 1 London Wall Place, London EC2Y 5AU.
The accounts are prepared in accordance with the Companies Act 2006, United
Kingdom Generally Accepted Accounting Practice ("UK GAAP"), in particular in
accordance with Financial Reporting Standard (FRS) 102 "The Financial
Reporting Standard applicable in the UK and Republic of Ireland", and with the
Statement of Recommended Practice "Financial Statements of Investment Trust
Companies and Venture Capital Trusts" (the "SORP") issued by the Association
of Investment Companies in July 2022. All of the Company's operations are of a
continuing nature.
The accounts have been prepared on a going concern basis under the historical
cost convention, as modified by the revaluation of investments and derivative
financial instruments held at fair value through profit or loss. The Directors
believe that the Company has adequate resources to continue operating for the
period to 31 March 2025, which is at least 12 months from the date of approval
of these accounts. In forming this opinion, the Directors have taken into
consideration: the controls and monitoring processes in place; the Company's
low level of debt and other payables; the low level of operating expenses,
comprising largely variable costs which would reduce pro rata in the event of
a market downturn; and that the Company's assets comprise cash and readily
realisable securities quoted in active markets. In forming this opinion, the
Directors have also considered any potential impact of climate change on the
viability of the Company. Further consideration of Directors' considerations
regarding any potential impact of climate change are given in the Chair's
Statement, Investment Managers' Review, Going Concern Statement, Viability
Statement and in the principal risks and uncertainties on page 29.
In preparing these financial statements the Directors have also considered the
impact of climate change on the value of the listed investments that the
company holds. As the portfolio consists of listed equities, which are valued
using quoted bid prices for investments in an active market, the fair value
reflects market participants' view of climate change risk.
The accounts are presented in sterling and amounts have been rounded to the
nearest thousand.
The accounting policies applied to these accounts are consistent with those
applied in the accounts for the year ended 31 December 2022.
No significant judgements, estimates or assumptions have been required in the
preparation of the accounts for the current or prior financial year.
(b) Valuation of investments
The Company's business is investing in financial assets with a view to
profiting from their total return in the form of income and capital growth.
This portfolio of financial assets and derivative financial instruments is
managed, and its performance evaluated, on a fair value basis, in accordance
with a documented investment strategy and information is provided internally
on that basis to the Company's Board of Directors. Accordingly, upon initial
recognition the investments are classified by the Company as "held at fair
value through profit or loss". Investments are included initially at
transaction price, excluding expenses incidental to purchase, which are
written off to capital at the time of acquisition. Subsequently, investments
are valued at fair value, which are quoted bid prices at the close of each
market on the accounting date, for investments traded in active markets.
All purchases and sales are accounted for on a trade date basis.
(c) Accounting for reserves
Gains and losses on sales of investments are included in the Income Statement
and in capital reserves within "gains and losses on sales of investments".
Increases and decreases in the valuation of investments held at the year end
are included in the Income Statement and in capital reserves within "holding
gains and losses on investments".
Foreign exchange gains and losses on cash and deposit balances are included in
the Income Statement and in capital reserves.
The cost of repurchasing the Company's own shares for cancellation or to hold
in treasury, including the related stamp duty and transactions costs is
charged to a distributable capital reserve.
(d) Income
Dividends receivable are included in revenue on an ex-dividend basis except
where, in the opinion of the Board, the dividend is capital in nature, in
which case it is included in capital.
Dividends from overseas companies are included gross of any withholding tax.
Where the Company has elected to receive dividends in the form of additional
shares rather than in cash, the amount of the cash dividend foregone is
recognised in revenue. Any excess in the value of the shares received over the
amount of the cash dividend is recognised in capital.
Deposit interest outstanding at the year end is calculated and accrued on a
time apportionment basis using market rates of interest.
(e) Expenses
All expenses are accounted for on an accruals basis. Expenses are allocated
wholly to the revenue column of the Income Statement with the following
exceptions:
- The management fee is allocated 25% to revenue and 75% to capital in
line with the Board's expected long-term split of revenue and capital return
from the Company's investment portfolio.
- Any performance fee is allocated 100% to capital.
- Expenses incidental to the purchase or sale of an investment are
charged to capital. These expenses are commonly referred to as transaction
costs and mainly comprise brokerage commission. Details of transaction costs
are given in note 10 on page 63.
(f) Finance costs
Finance costs are accounted for on an accruals basis using the effective
interest method in accordance with FRS 102.
Finance costs are allocated 25% to revenue and 75% to capital in line with the
Board's expected long-term split of revenue and capital return from the
Company's investment portfolio.
(g) Other financial instruments
Cash and cash equivalents may comprise cash and demand deposits which are
readily convertible to a known amount of cash and are subject to insignificant
risk of changes in value.
Other debtors and creditors do not carry any interest, are short-term in
nature and are accordingly stated at nominal value, with debtors reduced by
appropriate allowances for estimated irrecoverable amounts.
Bank loans and overdrafts are initially recognised at cost, being the proceeds
received net of direct issue costs, and subsequently at amortised cost.
(h) Taxation
The tax charge for the year includes a provision for all amounts expected to
be received or paid.
Deferred tax is provided on all timing differences that have originated but
not reversed by the balance sheet date.
Deferred tax liabilities are recognised for all taxable timing differences but
deferred tax assets are only recognised to the extent that it is probable that
taxable profits will be available against which those timing differences can
be utilised.
Deferred tax is measured at the tax rate which is expected to apply in the
periods in which the timing differences are expected to reverse, based on tax
rates that have been enacted or substantively enacted at the balance sheet
date and is measured on an undiscounted basis.
(i) Value added tax ("VAT")
Expenses are disclosed inclusive of any related irrecoverable VAT.
(j) Foreign currency
In accordance with FRS 102, the Company is required to determine a functional
currency, being the currency in which the Company predominantly operates. The
Board, having regard to the currency of the Company's share capital and the
predominant currency in which its shareholders operate, has determined that
sterling is the functional currency and the currency in which the accounts are
presented.
Transactions denominated in foreign currencies are converted at actual
exchange rates as at the date of the transaction. Monetary assets, liabilities
and equity investments, denominated in foreign currencies at the year end, are
translated at the rates of exchange prevailing at the year end.
(k) Dividends payable
In accordance with FRS 102, the final dividend is included in the accounts in
the year in which it is approved by shareholders.
(l) Repurchases of shares into treasury and subsequent reissues
The cost of repurchasing shares into treasury, including the related stamp
duty and transaction costs is dealt with in the Statement of Changes in
Equity. The cost of repurchases of shares into treasury is charged to a
distributable capital reserve. Share repurchase transactions are accounted for
on a trade date basis.
The sales proceeds of treasury shares reissued are treated as a realised
profit up to the amount of the purchase price of those shares and
is transferred to capital reserves. The excess of the sales proceeds over the
purchase price is transferred to "share premium".
2. Gains/(losses) on investments held at fair value through profit or loss
2023 2022
£'000 £'000
Gains/(losses) on sales of investments based on historic cost 22,776 (4,066)
Amounts recognised in investment holding gains and losses in the previous year
in respect of
investments sold in the year (21,733) (39,534)
Gains/(losses) on sales of investments based on the carrying value at the 1,043 (43,600)
previous balance sheet date
Net movement in investment holding gains and losses 27,221 (42,797)
Gains/(losses) on investments held at fair value through profit or loss 28,264 (86,397)
3. Income
2023 2022
£'000 £'000
Income from investments
Overseas dividends 12,934 15,480
Overseas special dividends 601 735
Stock dividend 33 63
13,568 16,278
Other interest receivable and similar income
Deposit interest 180 34
13,748 16,312
Capital
Special dividend allocated to capital 1,639 63
4. Management and performance fee
2023 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Management fee 763 2,288 3,051 809 2,427 3,236
No performance fee is payable for the current or prior year and no provision
is required at 31 December 2023.
The basis for calculating the management and performance fees are set out in
the Report of the Directors on page 37 and details of all amounts payable to
the Manager are given in note 19 on page 67.
5. Administrative expenses
2023 2022
£'000 £'000
Custody fees 208 235
Administrative expenses 363 212
Directors' fees(1) 164 155
Secretarial fee 75 75
Auditor's remuneration(2) 52 43
862 720
(1)Details of all amounts payable to Directors are given in the Directors'
Remuneration Report on page 46.
(2)No amounts are payable to the auditor for non-audit services.
6. Finance costs
2023 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Interest on bank loans and overdrafts 695 2,084 2,779 300 903 1,203
7. Taxation
(a) Analysis of tax charge for the year
2023 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Irrecoverable overseas tax 931 - 931 1,017 - 1,017
Overseas capital gains tax - 505 505 - (1,129) (1,129)
Taxation for the year 931 505 1,436 1,017 (1,129) (112)
The Company has no corporation tax liability for the year (2022: nil).
The overseas capital gains tax relates to the deferred tax liability on
unrealised gains on Indian investments held at the year end.
(b) Factors affecting tax charge for the year
The standard rate of corporation tax in the UK is 25%, effective from 1 April
2023. Accordingly, the Company's profits for this accounting year would be
taxed at a rate of 23.5% (2022: 19.0%). However the corporation tax charge for
the year is nil (2022: nil), as dividends and capital gains are not subject to
corporation tax. The tax charge comprises irrecoverable withholding tax
deducted at source from dividends receivable and overseas capital gains tax.
The table below shows how taxable income is reduced to zero by reconciling the
expected corporation tax due on the net return before tax based on current tax
rates, to the actual tax charge for the year.
2023 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Net return/(loss) on ordinary activities before taxation 11,428 25,386 36,814 14,483 (85,518) (71,035)
Net return/(loss)on ordinary activities before taxation multiplied by
the Company's applicable rate of corporation tax for the year
of 23.5% (2022: 19.0%) 2,686 5,966 8,652 2,752 (16,248) (13,496)
Effects of:
Capital (gains)/losses on investments - (6,608) (6,608) - 15,628 15,628
Income not subject to taxation (3,161) (385) (3,546) (3,071) (12) (3,083)
Overseas capital gains tax - 505 505 - (1,129) (1,129)
Irrecoverable overseas tax 931 - 931 1,017 - 1,017
Unrelieved expenses 475 1,027 1,502 319 632 951
Tax on ordinary activities 931 505 1,436 1,017 (1,129) (112)
(c) Deferred tax
The Company has an unrecognised deferred tax asset of £17,738,000 (2022:
£16,139,000) based on a prospective corporation tax rate of 25%
(2022: 25%). In its 2021 budget, the government announced that the main rate
of corporation tax would increase to 25% for the fiscal year beginning on 1
April 2023. This deferred tax asset has arisen due to the cumulative excess of
deductible expenses over taxable income. Given the composition of the
Company's portfolio, it is not likely that this asset will be utilised in the
foreseeable future and therefore no asset has been recognised in the accounts.
Given the Company's intention to meet the conditions required to retain its
status as an Investment Trust Company, no provision has been made for UK
capital gains tax on any capital gains or losses arising on the revaluation or
disposal of investments. Please refer to note 13 for details of deferred
taxation in relation to overseas capital gains tax.
8. Return/(loss) per share
2023 2022
£'000 £'000
Revenue return 10,497 13,466
Capital return/(loss) 24,881 (84,389)
Total return/(loss) 35,378 (70,923)
Weighted average number of shares in issue during the year 102,272,753 108,005,903
Revenue return per share (pence) 10.26 12.47
Capital return/(loss) per share (pence) 24.33 (78.13)
Total return/(loss) per share (pence) 34.59 (65.66)
9. Dividends
(a) Dividends paid and declared
2023 2022
£'000 £'000
2022 final dividend of 11.0p per share (2021: 8.5p per share), paid out of 11,432 9,275
revenue profits(1)
2023 2022
£'000 £'000
2023 final dividend of 11.5p per share (2022: 11.0p per share), to be paid out 11,182 11,579
of revenue profits
(1)The 2022 final dividend amounted to £11,579,000. However the amount
actually paid was £11,432,000, as shares were repurchased into treasury after
the accounting date but prior to the dividend record date.
(b) Dividends for the purposes of Section 1158 of the Corporation Tax Act 2010
("Section 1158")
The requirements of Section 1158 are considered on the basis of dividends
declared in respect of the financial year as shown below. The revenue
available for distribution by way of dividend for the year is £10,497,000
(2022: £13,466,000).
2023 2022
£'000 £'000
Final dividend of 11.5p (2022: 11.0p) 11,182 11,579
10. Investments held at fair value through profit or loss
(a) Movement in investments
2023 2022
£'000 £'000
Opening book cost 391,040 409,406
Opening investment holding gains 108,265 190,596
Opening fair value 499,305 600,002
Analysis of transactions made during the year
Purchases at cost 115,788 151,107
Sales proceeds (159,345) (165,407)
Gains/(losses) on investments held at fair value 28,264 (86,397)
Closing fair value 484,012 499,305
Closing book cost 370,259 391,040
Closing investment holding gains 113,753 108,265
Closing fair value 484,012 499,305
Sales proceeds amounting to £159,345,000 (2022: £165,407,000) were
receivable from disposals of investments in the year. The book cost of these
investments when they were purchased was £136,568,000 (2022: £169,473,000).
These investments have been revalued over time and until they were sold any
unrealised gains and losses were included in the fair value of the
investments.
(b) Transaction costs
The following transaction costs, mainly comprising brokerage commissions, were
incurred during the year:
2023 2022
£'000 £'000
On acquisitions 170 197
On disposals 264 337
434 534
11. Current assets
Debtors
2023 2022
£'000 £'000
Dividends and interest receivable 346 484
Securities sold awaiting settlement 816 -
Taxation recoverable 8 10
Other debtors 24 23
1,194 517
The Directors consider that the carrying amount of debtors approximates to
their fair value.
Cash and cash equivalents
The carrying amount of cash, amounting to £2,527,000 (2022: £5,161,000),
represents its fair value. No cash equivalents were held at the year end
(2022: same).
Derivative financial instruments held at fair value through profit or loss
2023 2022
£'000 £'000
Index put options 178 -
Details of the index put options held at the year end are given on page 22.
12. Current liabilities
Creditors: amounts falling due within one year
2023 2022
£'000 £'000
Bank loan 37,339 46,148
Securities purchases awaiting settlement 122 -
Repurchase of ordinary shares into treasury awaiting settlement - 285
Other creditors and accruals 1,380 1,076
38,841 47,509
The Directors consider that the carrying amount of creditors falling due
within one year approximates to their fair value.
The bank loan comprises US$47.6 million (2022: US$55.5 million) drawn down on
the Company's £75 million (2022: £50 million), 364 day multi-currency credit
facility with Scotiabank Europe plc. The facility is unsecured but is subject
to covenants and restrictions which are customary for a facility of this
nature, all of which have been complied with during the year. The facility is
reviewed annually, at which point the Directors can decide to restate and
renew the facility for a further year. Further details of this facility are
given in note 22(a)(ii) on pages 69 and 70.
13. Deferred taxation
Deferred taxation comprises the deferred tax liability on the unrealised gains
on Indian investments. Indian capital gains tax crystallises on disposal of
the underlying asset. The provision for deferred taxation at the year end was
£586,000 (2022: £nil).
14. Called-up share capital
2023 2022
£'000 £'000
Ordinary shares of 5p each, allotted, called-up and fully paid
Opening balance of 105,263,203 (2022: 108,774,651) shares 5,263 5,439
Issue of nil (2022: 340,000) new shares - 17
Repurchase of 8,029,083 (2022: 3,851,448) shares into treasury (401) (193)
Subtotal of 97,234,120 (2022: 105,263,203) shares 4,862 5,263
11,880,531 (2022: 3,851,448) shares held in treasury 594 193
Closing balance(1) 5,456 5,456
(1)Represents 109,114,651 (2022: 109,114,651) shares of 5p each, including
11,880,531 (2022: 3,851,448) held in treasury.
During the year, the Company repurchased 8,029,083 of its own shares, nominal
value £401,000, to hold in treasury, representing 7.6% of the shares
outstanding at the beginning of the year. The total consideration paid for
these shares amounted to £32,936,000. The reason for these purchases was to
seek to manage the volatility of the share price discount to NAV per share.
15. Reserves
Capital reserves
Gains and Investment
Capital losses on holding
Share redemption Special sales of gains and Revenue
premium(1) reserve(2) reserve(3) investments(4) losses(5) reserve(6)
£'000 £'000 £'000 £'000 £'000 £'000
At 31 December 2022 114,656 11,646 29,182 167,204 103,634 25,696
Gains on sales of investments based on the carrying value
at the previous balance sheet date - - - 1,043 - -
Net movement in investment holding gains and losses - - - - 27,221 -
Transfer on disposal of investments - - - 21,733 (21,733) -
Losses on derivatives - - - (1,627) (364) -
Realised exchange losses on cash and short-term deposits - - - (433) - -
Exchange (losses)/gains on foreign currency loans - - - (632) 2,911 -
Special dividend allocated to capital - - - 1,639 - -
Repurchase of shares into treasury - - - (32,936) - -
Management fee and finance costs allocated to capital - - - (4,372) - -
Overseas capital gains tax - - - 88 (593) -
Dividend paid - - - - - (11,432)
Retained revenue for the year - - - - - 10,497
At 31 December 2023 114,656 11,646 29,182 151,707 111,076 24,761
Capital reserves
Gains and Investment
Capital losses on holding
Share redemption Special sales of gains and Revenue
premium(1) reserve(2) reserve(3) investments(4) losses(5) reserve(6)
£'000 £'000 £'000 £'000 £'000 £'000
At 31 December 2021 113,004 11,646 29,182 182,021 188,948 21,505
Losses on sales of investments based on the carrying value
at the previous balance sheet date - - - (43,600) - -
Net movement in investment holding gains and losses - - - - (42,797) -
Transfer on disposal of investments - - - 39,534 (39,534) -
Gains on derivatives - - - 8,613 874 -
Realised exchange losses on cash and short-term deposits - - - (210) - -
Exchange losses on foreign currency loans - - - (145) (4,986) -
Special dividend allocated to capital - - - 63 - -
Issue of new shares 1,652 - - - - -
Repurchase of shares into treasury - - - (15,742) - -
Management fee and finance costs allocated to capital - - - (3,330) - -
Capital gains tax provision - - - - 1,129 -
Dividend paid - - - - - (9,275)
Retained revenue for the year - - - - - 13,466
At 31 December 2022 114,656 11,646 29,182 167,204 103,634 25,696
(1)The share premium is a non distributable reserve and represents the amount
by which the fair value of the consideration received from shares issued
exceeds the nominal value of shares issued.
(2)The capital redemption reserve represents the accumulated nominal value of
shares repurchased for cancellation. This reserve is not distributable.
(3)This is a distributable capital reserve arising from the cancellation of
the share premium, and may be distributed as dividends or used to repurchase
the Company's own shares.
(4)This is a realised (distributable) capital reserve and a positive balance
may be used to repurchase the Company's own shares or distributed as
dividends.
(5)This reserve may include some holding gains on liquid investments (which
may be deemed to be realised) and other amounts which are unrealised. An
analysis has not been made between those amounts that are realised (and may be
distributed as dividends or used to repurchase the Company's own shares) and
those that are unrealised.
(6)A positive balance on the revenue reserve may be distributed as dividends
or used to repurchase the Company's own shares.
16. Net asset value per share
2023 2022
Total equity shareholders' funds (£'000) 448,484 457,474
Shares in issue at the year end 97,234,120 105,263,203
Net asset value per share (pence) 461.24 434.60
17. Reconciliation of total return on ordinary activities before finance costs
and taxation to net cash inflow from operating activities
2023 2022
£'000 £'000
Total return/(loss) on ordinary activities before finance costs and taxation 39,593 (69,832)
Less capital (return)/loss on ordinary activities before finance costs and (27,470) 84,615
taxation
Decrease in prepayments and accrued income 146 83
Decrease/(increase) in other debtors 1 (1)
Increase/(decrease) in other creditors 258 (388)
Special dividend allocated to capital 1,639 63
Less stock and accumulation dividends (93) (63)
Management fee allocated to capital (2,288) (2,427)
Overseas withholding tax deducted at source (858) (1,031)
Net cash inflow from operating activities 10,928 11,019
18. Analysis of changes in net debt
Cash Exchange
2022 flow movements 2023
£'000 £'000 £'000 £'000
Cash and cash equivalents 5,161 (2,201) (433) 2,527
Bank loan (46,148) 6,530 2,279 (37,339)
Net debt (40,987) 4,329 1,846 (34,812)
19. Transactions with the Manager
Under the terms of the Alternative Investment Fund Manager Agreement, the
Manager is entitled to receive management, secretarial and performance fees.
Details of the basis of these calculations are given in the Directors' Report
on page 37. If the Company invests in funds managed or advised by the Manager,
any fees earned by the Manager are rebated to the Company. The management fee
payable in respect of the year ended 31 December 2023 amounted to £3,051,000
(2022: £3,236,000) of which £775,000 (2022: £799,000) was outstanding at
the year end.
No performance fee is payable in respect of the year (2022: nil was payable
and outstanding at the year end).
The secretarial fee payable for the year amounted to £75,000 (2022: £75,000)
of which £19,000 (2022: £19,000) was outstanding at the year end.
No Director of the Company served as a Director of any company within the
Schroder Group at any time during the year.
20. Related party transactions
Details of the remuneration payable to Directors are given in the Directors'
Remuneration Report on page 46 and details of Directors' shareholdings are
given in the Directors' Remuneration Report on page 47. Details of
transactions with the Manager are given in note 19 above. There have been no
other transactions with related parties during the year (2022: nil).
21. Disclosures regarding financial instruments measured at fair value
The Company's financial instruments within the scope of FRS 102 that are held
at fair value include its investment portfolio and derivative financial
instruments.
FRS 102 requires financial instruments to be categorised into a hierarchy
consisting of the three levels below.
Level 1 - valued using unadjusted quoted prices in active markets for
identical assets.
Level 2 - valued using observable inputs other than quoted prices included
within Level 1.
Level 3 - valued using inputs that are unobservable.
Details of the Company's policy for valuing investments and derivative
instruments are given in note 1(b) on page 59.
The following table sets out the fair value measurements using the FRS 102
hierarchy at 31 December:
2023
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Financial instruments held at fair value through profit or loss
Equity investments 484,012 - - 484,012
Derivative financial instruments - index put options 178 - - 178
Total 484,190 - - 484,190
2022
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Financial instruments held at fair value through profit or loss
Equity investments 499,305 - - 499,305
Total 499,305 - - 499,305
22. Financial instruments' exposure to risk and risk management policies
In pursuing its objective, the Company is exposed to a variety of financial
risks including market risk (comprising currency risk, interest rate risk and
market price risk), liquidity risk and credit risk. The Directors' policy for
managing these risks is set out below.
The process for managing risk is unchanged from the previous year. The
Company's financial instruments may comprise:
- investments in equities and equity related securities which are held
in accordance with the Company's investment objective;
- short-term debtors, creditors and cash arising directly from its
operations;
- a multi-currency overdraft facility with HSBC, the purpose of which is
to assist in financing the Company's operations;
- a multi-currency credit facility with Scotiabank, the purpose of which
is to assist in financing the Company's operations; and
- index put options, which are used to protect the capital value of the
portfolio.
(a) Market risk
Market risk comprises three elements - currency risk, interest rate risk and
market price risk. Information to enable an evaluation of the nature and
extent of these three elements of market risk is given in parts (i) to (iii)
of this note, together with sensitivity analyses where appropriate.
(i) Foreign Currency risk
The majority of the Company's assets, liabilities and income are denominated
in currencies other than sterling, which is the Company's functional currency
and the presentational currency of the accounts. As a result, movements in
exchange rates will affect the sterling value of those items.
Management of foreign currency risk
The Manager monitors the Company's exposure to foreign currencies on a daily
basis and reports to the Board. The Board has authorised the use of derivative
instruments to hedge currency exposure as part of the investment strategy to
protect the capital value of the portfolio, or for efficient portfolio
management.
Foreign currency exposure
The fair value of the Company's monetary items that have foreign currency
exposure at 31 December are shown below. The Company's investments and index
put options (which are not monetary items) have been included separately in
the analysis so as to show the overall level of exposure.
2023
Hong South
Kong US Taiwanese Korean Indian Singaporean Thai Australian Vietnamese
dollars dollars dollars won rupees dollars baht dollars dong Other Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Current assets 11 1,256 302 137 86 1 122 9 41 1 1,966
Current liabilities - (38,327) - - - - (122) - - - (38,449)
Non current liabilities - - - - (586) - - - - - (586)
Foreign currency exposure on
net monetary items 11 (37,071) 302 137 (500) 1 - 9 41 1 (37,069)
Investments held at fair value
through profit or loss 76,860 23,415 112,071 35,009 46,379 38,300 5,653 80,256 6,589 50,080 474,612
Derivative instruments held at
fair value through profit or loss
- index put options - - 178 - - - - - - - 178
Total net foreign currency
exposure 76,871 (13,656) 112,551 35,146 45,879 38,301 5,653 80,265 6,630 50,081 437,721
2022
Hong South
Kong US Taiwanese Korean Indian Singaporean Thai Australian Vietnamese
dollars dollars dollars won rupees dollars baht dollars dong Other Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Current assets 12 275 291 178 - 1 - 221 1,843 - 2,821
Current liabilities - (46,270) - - - - - - - - (46,270)
Foreign currency exposure on net
monetary items 12 (45,995) 291 178 - 1 - 221 1,843 - (43,449)
Investments held at fair value
through profit or loss 80,881 22,394 102,549 38,146 45,747 47,327 - 78,030 7,183 51,112 473,369
Total net foreign currency
exposure 80,893 (23,601) 102,840 38,324 45,747 47,328 - 78,251 9,026 51,112 429,920
The above year end amounts are broadly representative of the exposure to
foreign currency risk during the current and prior year.
Foreign currency sensitivity
The following tables illustrate the sensitivity of net profit for the year and
net assets with regard to the Company's monetary financial assets and
financial liabilities and exchange rates. The sensitivity analysis is based on
the Company's monetary currency financial instruments held at each balance
sheet date and assumes a 10% (2022: 10%) appreciation or depreciation in
sterling against the currencies to which the Company is exposed, which is
considered to be a reasonable illustration based on the volatility of exchange
rates during the year.
If sterling had weakened by 10% this would have had the following effect:
2023 2022
£'000 £'000
Income Statement - return after taxation
Revenue return 1,212 1,500
Capital return (3,802) (4,316)
Total return after taxation (2,590) (2,816)
Net assets (2,590) (2,816)
Conversely if sterling had strengthened by 10% this would have had the
following effect:
2023 2022
£'000 £'000
Income Statement - return after taxation
Revenue return (1,212) (1,500)
Capital return 3,802 4,316
Total return after taxation 2,590 2,816
Net assets 2,590 2,816
In the opinion of the Directors, the above sensitivity analyses with respect
to monetary financial assets and liabilities is broadly representative of the
whole of the current and comparative year. The sensitivity with regard to the
Company's investments, and any derivative instruments held, to changes in
foreign currency exchange rates is subsumed into market price risk sensitivity
below.
(ii) Interest rate risk
Interest rate movements may affect the level of income receivable on cash
deposits and the interest payable on variable rate borrowings when rates are
re-set.
Management of interest rate risk
Liquidity and borrowings are managed with the aim of increasing returns to
shareholders. The Board would not expect gearing to exceed 30% where gearing
is defined as borrowings used for investment purposes, less cash, expressed as
a percentage of net assets.
Interest rate exposure
The possible effects on cash flows that could arise as a result of changes in
interest rates are taken into account when the Company draws on its overdraft
facility or its credit facility.
The exposure of financial assets and financial liabilities to floating
interest rates, giving cash flow interest rate risk when rates are re-set, is
shown below:
2023 2022
£'000 £'000
Exposure to floating interest rates:
Cash and cash equivalents 2,527 5,161
Creditors: amounts falling due within one year:
Bank loan (37,339) (46,148)
Total exposure (34,812) (40,987)
Interest receivable on cash balances, or paid on overdrafts, is at a margin
below or above the applicable Risk Free Reference Rates, respectively (2022:
same).
During the year, the Company's multi-currency credit facility with Scotiabank
Europe plc was increased to £75 million and extended to 5 July 2024.
Amounts are normally drawn down on the facility for one month periods.
Interest is payable at a rate based on the Secured Overnight Financing Rate,
plus a margin, plus the Credit Adjustment Spread. At 31 December 2023, the
Company had drawn down US$47.6million (£37.3 million) at an interest rate of
6.61%, repayable on 5 January 2024. At 31 December 2022, the Company had drawn
down US$55.5 million (£46.1 million) at an interest rate of 3.95%.
The above year end amounts are not representative of the exposure to interest
rates during the year as the level of cash balances and drawings on the credit
facility have fluctuated. The maximum and minimum net debt balances during the
year are as follows:
2023 2022
£'000 £'000
Maximum debit interest rate exposure during the year - net debt (47,462) (55,987)
Minimum debit interest rate exposure during the year - net debt (22,561) (34,641)
Interest rate sensitivity
The following table illustrates the sensitivity of the return after taxation
for the year and net assets to a 1.5% (2022: 1.5%) increase or decrease in
interest rates in regards to the Company's monetary financial assets and
financial liabilities. This level of change is considered to be a reasonable
illustration based on observation of current market conditions. The
sensitivity analysis is based on the Company's monetary financial instruments
held at the balance sheet date with all other variables held constant.
2023 2022
1.5% increase 1.5% decrease 1.5% increase 1.5% decrease
in rate in rate in rate in rate
£'000 £'000 £'000 £'000
Income statement - return after taxation
Revenue return (102) 102 (96) 96
Capital return (420) 420 (519) 519
Total return after taxation (522) 522 (615) 615
Net assets (522) 522 (615) 615
Given the increase in UK interest rates, the interest rate sensitivity has
been updated to 1.5%. The prior year disclosure has been updated to 1.5% to
show a direct comparison in the sensitivity. In the prior year report, the
sensitivity was calculated using 1.0%, which was representative of the market
at 31 December 2022. As disclosed in the prior year annual report, an increase
of 1.0% reduced total return after taxation by £410,000 (a decrease of 1.0%
had an equal and opposite effect).
In the opinion of the Directors, this sensitivity analysis may not be
representative of the Company's future exposure to interest rate changes due
to fluctuations in the level of cash balances and drawings on the credit
facility.
(iii) Market price risk
Market price risk includes changes in market prices, other than those arising
from interest rate risk, which may affect the value of equity investments.
Management of other price risk
The Board meets on at least four occasions each year to consider the asset
allocation of the portfolio and the risk associated with particular countries
and industry sectors. The Board has authorised the Manager to enter derivative
transactions as a means of seeking capital preservation, subject to limits on
the percentage of the portfolio hedged and the duration of derivatives used.
Market risk exposure
The Company's total exposure to changes in market prices at 31 December
comprises the following investments:
2023 2022
£'000 £'000
Investments held at fair value through profit or loss 484,012 499,305
Derivative financial instruments held at fair value through profit or loss:
Index put options 178 -
484,190 499,305
The above data is broadly representative of the exposure to market price risk
during the year.
Concentration of exposure to market price risk
An analysis of the Company's investments is given on pages 21 and 22. This
shows that the portfolio mainly comprises investments quoted on Asian stock
markets. Accordingly there is a concentration of exposure to that region.
However it should be noted that an investment may not be entirely exposed to
the economic conditions in its country of classification.
Market price risk sensitivity
The following table illustrates the sensitivity of net return after taxation
for the year and net assets to an increase or decrease of 10% (2022: 10%) in
the fair values of the Company's investments. This level of change is
considered to be a reasonable illustration based on observation of current
market conditions. The sensitivity analysis is based on the Company's
investments, adjusting for the hedging effect of the index put options and
including the resulting effect on the management fee, but with all other
variables held constant. The sensitivity analysis also takes account of the
"beta coefficient" of the portfolio. This is a measure of the volatility of
the portfolio compared with the systemic risk of the entire market. As a
result, the percentages in the table below represent a 8.05% (2022: 8.43%)
increase in fair value and a 7.87% (2022: 8.43%) decrease in fair value.
2023 2022
10% increase 10% decrease 10% increase 10% decrease
in fair value in fair value in fair value in fair value
£'000 £'000 £'000 £'000
Income statement - return after taxation
Revenue return (63) 62 (68) 68
Capital return 38,774 (37,906) 41,887 (41,887)
38,711 (37,844) 41,819 (41,819)
Percentage change in net asset value 8.6 (8.4) 9.1 (9.1)
(b) Liquidity risk
This is the risk that the Company will encounter difficulty in meeting its
obligations associated with financial liabilities that are settled by
delivering cash or another financial asset.
Management of liquidity risk
Liquidity risk is not significant as the Company's assets comprise mainly
readily realisable securities, which can be sold to meet funding requirements
if necessary. Short-term flexibility is achieved through the use of overdraft
and credit facilities.
Liquidity risk exposure
Contractual maturities of financial liabilities, based on the earliest date on
which payment can be required are as follows:
2023 2022
Three Three
months months
or less or less
£'000 £'000
Creditors: amounts falling due within one year
Bank loan - including interest 37,546 46,359
Securities purchased awaiting settlement 122 -
Other creditors and accruals 1,208 954
38,876 47,313
(c) Credit risk
Credit risk is the risk that the failure of the counterparty to a transaction
to discharge its obligations under that transaction could result in loss to
the Company.
Management of credit risk
This risk is not significant and is managed as follows:
Portfolio dealing
The Company invests almost entirely in markets that operate a "Delivery Versus
Payment" settlement process which mitigates the risk of losing the principal
of a trade during settlement. The Manager continuously monitors dealing
activity to ensure best execution, which involves measuring various indicators
including the quality of trade settlement and incidence of failed trades.
Counterparties must be pre-approved by the Manager's Credit Committee.
Exposure to the Custodian
The custodian of the Company's assets is HSBC Bank plc which has Long-Term
Credit Ratings of AA- with Fitch and Aa3 with Moody's.
The Company's investments are held in accounts which are segregated from the
custodian's own trading assets. If the custodian were to become insolvent, the
Company's right of ownership of its investments is clear and they are
therefore protected. However the Company's cash balances are all deposited
with the custodian as banker and held on the custodian's balance sheet.
Accordingly, in accordance with usual banking practice, the Company will rank
as a general creditor to the custodian in respect of cash balances.
Credit risk exposure
The amounts shown in the balance sheet under debtors and cash at bank and in
hand represent the maximum exposure to credit risk at the current and
comparative year ends. No debtors are past their due date and none have been
provided for. There has been no stock lending during the year, or prior year.
(d) Fair values of financial assets and financial liabilities
All financial assets and liabilities are either carried in the balance sheet
at fair value, or the balance sheet amount is a reasonable approximation of
fair value.
23. Capital management policies and procedures
The Company's capital is represented by its net assets and borrowings, which
are managed to achieve the Company's investment objective, as set out on page
24.
The Company has overdraft and credit facilities in place which may be used to
maximise the return to shareholders through an appropriate level of gearing.
The Board would not expect the level of gearing to exceed 30%, where gearing
is defined as borrowings used for investment purposes, less cash, expressed as
a percentage of net assets.
The Board, with the assistance of the Manager, monitors and reviews the broad
structure of the Company's capital on an ongoing basis. This review includes:
- the planned level of gearing, which takes into account the Manager's
views on the market;
- the need to buy back the Company's own shares for cancellation or to
hold in treasury, which takes into account the share price discount;
- the opportunities for issues of new shares or to reissue shares out of
treasury; and
- the amount of dividend to be paid, in excess of that which is required
to be distributed.
Status of announcement
2022 Financial Information
The figures and financial information for 2022 are extracted from the
published Annual Report and Accounts for the year ended 31 December 2022 and
do not constitute the statutory accounts for that year. The 2022 Annual Report
and Accounts have been delivered to the Registrar of Companies and included
the Report of the Independent Auditors which was unqualified and did not
contain a statement under either section 498(2) or section 498(3) of the
Companies Act 2006.
2023 Financial Information
The figures and financial information for 2023 are extracted from the Annual
Report and Accounts for the year ended 31 December 2023 and do not constitute
the statutory accounts for the year. The 2023 Annual Report and Accounts
include the Report of the Independent Auditors which is unqualified and does
not contain a statement under either section 498(2) or section 498(3) of the
Companies Act 2006. The 2023 Annual Report and Accounts will be delivered to
the Registrar of Companies in due course.
Neither the contents of the Company's web pages nor the contents of any
website accessible from hyperlinks on the Company's web pages (or any other
website) is incorporated into, or forms part of, this announcement.
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