Schroder Orientl Inc - Half-year Report
23/05/2024 07:00
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RNS Number : 5521P Schroder Oriental Income Fund Ltd 23 May 2024
Schroder Oriental Income Fund Limited
Half Year Report
Schroder Oriental Income Fund Limited (the "Company") hereby submits its Half
Year Report for the six months ended 29 February 2024 as required by the
Financial Conduct Authority's Disclosure Guidance and Transparency Rule 4.2.
Key highlights
• Strong NAV per share performance of the Company at 7.5% over the six
months under review, considerably ahead of the MSCI AC Pacific ex Japan Index
(the "Reference Index") return of 1.9%, with a share price total return of
5.6%.
• The Company has enjoyed significant outperformance of the wider
markets in recent years and this latest period builds upon that. In the
three-year period to 29 February 2024, the Company's NAV total return
outperformed the Reference Index by 23.6%, testament to the fact that a
skilful active management approach in Asia has the ability to deliver
significant value to investors.
• Over the six-month period, we repurchased 5,670,000 shares at an
average discount of 6.0%. Please be assured that we will continue to do so
when we believe that it is in the best interests of shareholders.
• The Company has an 18-year track record of progressive and
significant dividend growth having grown its dividend every year since launch.
The Company is classed in the AIC's next generation of dividend heroes.
• During the period under review, two interim dividends have been
declared totalling 7.8 pence per share (2023: 7.6 pence per share).
Paul Meader, Chairman of Schroder Oriental Income, commented:
"As we approach our 20th anniversary, it is worth reflecting that, since
inception, a shareholder has received a total return of 489.0%, whereas a
passive investment in the Reference Index would have generated 288.5%."
The Half Year Report is also being published in hard copy format and an
electronic copy of that document will shortly be available to download from
the Company's web pages: schroders.com/orientalincome
(http://schroders.com/orientalincome) and can be viewed at
https://schro.link/orientalhyr24 (https://schro.link/orientalhyr24) .
The Company has submitted a copy of its Half Year Report to the National
Storage Mechanism and it will shortly be available for inspection
at https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism)
Enquiries:
Schroder Investment Management Limited
Augustine Chipungu (Press) 020 7658 2106
Matthew Riley 020 7658 6000
Half Year Report for the six months ended 29 February 2024
CHAIRMAN'S STATEMENT
"As we approach our 20th anniversary, it is worth reflecting that, since
inception, a shareholder has received a total return of 489.0%, whereas a
passive investment in the Reference Index would have generated 288.5%."
In the six month period to 29 February 2024, Asian equity markets largely
ended up where they started. Our reference index, the MSCI AC Pacific ex Japan
Index (the "Reference Index"), in Sterling terms, rose by a modest 1.9% over
the period. Your Company performed much more strongly, the NAV total return
producing a highly creditable 7.5% over the six months with the share price
total return a little less at 5.6%.
The Company has enjoyed significant outperformance of the wider markets in
recent years and this latest period builds upon that. In the three year period
to 29 February 2024, the Company's NAV total return outperformed the Reference
Index by 23.6%, testament to the fact that a skilful active management
approach in Asia has the ability to deliver significant value to investors. Of
course, an active management approach can never assure consistent
outperformance, but the Company has exceeded the Reference Index notably over
one, three, five and 10 years, as well as since inception in 2005. Similarly,
that outperformance is reflected against our peers where clear blue water lies
between us and our nearest competitor. As we approach our 20th anniversary, it
is worth reflecting that, since inception, a shareholder has received a total
return of 489.0%, whereas a passive investment in the Reference Index would
have generated 288.5%.
Asia's performance over the six month period is in contrast to that seen
across developed equity markets in North America and Europe. The relative lack
of growth can be laid at the door of China: China on its own is not Asia as a
whole, but it has been casting a shadow over the region in the last year or
so. As outlined in the Investment Manager's Review, sentiment towards Chinese
equities is now very poor indeed, in contrast to the post-lockdown frenzy.
Now, valuations are not at all demanding and are near multi-year lows. It is
hard to predict when things may improve but when they do, any recovery could
be swift. This would be likely to buoy the region as a whole. Our Investment
Manager, having avoided significant China exposure for some years, is alert to
this but they continue to believe that opportunities in other regional markets
remain more compelling for the medium term, despite detailed re-analysis of
individual Chinese shares. Fundamentally, we are stock pickers and do not seek
to predict macro-economic trends or geopolitics. Opportunities in quality
stocks with strong balance sheets, attractive dividends and good governance
are easier to find elsewhere in the region. We are likely to remain
underweight to China, albeit with a counterbalancing overweight to Hong Kong,
which has also been under a pall.
Whatever the vagaries in the short term, our medium to long term returns will
be driven by the quality of earnings from our portfolio of companies. It is in
identifying these quality companies that our Investment Manager excels.
Earnings from those companies is the power that drives our total return and
our dividend to you, our shareholders. In the last couple of years, earnings
growth has been muted in the Asian region but the cycle should turn soon as
global interest rates begin to fall and the US dollar weakens, as is widely
predicted. That should then be reflected in our dividend receipts because
payout ratios in the region remain low, giving plenty of scope for dividend
growth. The Company has an 18 year track record of progressive and significant
dividend growth and, absent a catastrophe, we do not see any reason why this
growth should not continue in the future. As we have grown our dividend over
all those years, so too we have grown our revenue reserve. This reserve of
undistributed income is important because it enables us, in a lean year, to
maintain our own dividend growth. We are happy to use this "rainy day fund"
for short periods, if needed, in order to give you the confidence to rely upon
our dividend payments.
Despite the excellent performance and strong dividend growth, our shares
continue to trade at a modest discount to NAV. This discount is all the more
frustrating because it cannot reflect any discount for illiquidity which has
plagued some investment trusts. Our underlying portfolio is highly liquid and
there is good daily liquidity in our own shares. Rather, it seems that the
position reflects poor sentiment towards the Asian region by global investors
and poor sentiment towards investment trusts. Both of those factors should
pass in due course and we should not be too despondent as our discount is
modest in comparison to most. In the meantime, we have been doing two things.
We have redoubled our efforts to spread the message of the Company's
attractions and, indeed, the Company has been recommended as an attractive
investment in many national newspapers as well as specialist websites. This
lays the foundations to broaden the investor base over time. Secondly, we have
been happy to repurchase shares at a discount. Over the six month period, we
repurchased 5,670,000 shares at an average discount of 6.0%. Please be assured
that we will continue to do so when we believe that it is in the best
interests of shareholders.
Finally, as noted in my last report to you, during the period,
Kate Cornish-Bowden resigned as a director due to other commitments. We have
commenced the recruitment process to appoint a new director and anticipate
being able to make an announcement in early summer. My own tenure as a
director is also drawing to a close as a part of long-term planning. I will
not be standing for re-election at the Annual General Meeting in December this
year, having completed nearly nine years as a director. Whilst we did not
expect to lose Kate as a director when we did, good succession planning in the
past has meant that, even with her departure and mine before year end, we will
have a strong mix of continuity, corporate memory and new perspectives. My
report to you in the autumn will be my last and I look forward to writing to
you then.
Paul Meader
Chairman
22 May 2024
INVESTMENT MANAGER'S REVIEW
"…although uncertainties remain around China's outlook, the region's
inexpensive aggregate valuations… and a potentially recovering goods export
cycle does set up a more constructive backdrop for Asian markets in 2024..."
The NAV per share of the Company recorded a positive total return of 7.5% over
the six months to end February 2024. During the period under review, two
interim dividends have been declared totalling 7.8 pence per share (2023: 7.6
pence per share).
Asian markets were volatile over the six months to end February 2024 finishing
up 1.9% in Sterling terms. Although positive, this performance lagged global
equity markets, which were up strongly over the period, driven by continuing
disinflationary trends across major global economies, and the resultant
increased confidence that developed market central banks would be moving into
an interest rate-cutting cycle in 2024.
Mirroring global performance, the strongest sector in Asia over the period, by
far, was IT, where stocks benefitted from the improving cycle, as well as the
longer-term benefits to demand of the impact of Artificial Intelligence
("AI"). The excess inventory, which surged after economies opened-up
post-Covid, has been a major overhang on IT stocks (and other goods exporters)
throughout much of the last two years, as companies have had to slash prices
and production to reduce inventory levels. The prospect of potentially
improving end-demand as interest rates come down, alongside the hope that
destocking is finally coming to an end, proved a potent catalyst for IT stocks
with anything remotely AI related seeing additional gains. This helped Taiwan
and Korea, the two Asian markets most exposed to the sector, outperform the
Reference Index.
Australia was the only other major country which outperformed the Reference
Index over the period. It benefitted from the same disinflationary trends seen
in other major markets, with inflation appearing to be peaking, leading to
hopes that rates can start to be cut following 13 successive hikes. Banks
performed strongly against this backdrop.
The major laggard in the region was China. It has been a challenging period
for Chinese stocks, as the ongoing slow recovery from Covid, lack of
significant fiscal stimulus, rock-bottom consumer confidence, and
international investor concerns around geopolitical and domestic regulatory
risks all combined to see the market sell off once again. An announcement in
December 2023 of tighter restrictions on videogames led to big falls in
several index heavyweights in that sector. Although the government appeared to
backtrack quite quickly following the negative market reaction, it was another
reminder of the unpredictable policy environment of the last few years in
China. On a more positive note, there was some relief around geopolitical
tensions, with the meeting of Presidents Xi and Biden at the November 2023
APEC summit in California. Despite the handshakes, however, there is little
sign of any easing of US policies towards China and, with a presidential
election looming in the US later in the year, little reason to expect much on
this front in the short-term.
Dividends continue to be largely driven by earnings, so for stocks in more
cyclical areas such as Australian resources, or other economically-sensitive
industries, where there has been some downward pressure in 2023 we have seen
some cuts, but in areas such as financials, including the banks, interest rate
rises have helped margins and earnings which has fed through into dividend
increases in many cases. In year-on-year terms, Sterling has also generally
been firmer against most currencies which has been a headwind.
Positioning and performance
The Company made a positive return over the period, with, as noted above, a
NAV total return of 7.5% which was considerably better than the Reference
Index return of 1.9%. Our significant underweight allocation to, and strong
stock selection in, China was a major positive contributor to relative
performance. Strong selection came from stocks such as Midea Group, a
manufacturer of branded white goods including air conditioners, and an absence
of internet platform companies that pay little or no dividend. Although our
overweight to Hong Kong was a headwind, our stock selection there more than
offset that, with telecom operator HKT Trust and HKT the standout performer.
Positive stock selection in both Taiwan and Korea was also noteworthy, with IT
companies including fabless design house MediaTek, foundry Taiwan
Semiconductor Manufacturing Company ("TSMC") and memory manufacturer Samsung
Electronics all performing strongly. In Korea, increasing focus on companies
that could benefit from an improvement in shareholder focus also did well,
including non-life insurance company Samsung Fire and Marine. The smaller
markets of Indonesia and the Philippines also made positive stock
contributions through holdings such as Bank Mandiri and port operator
International Container Terminal Services. Stock selection in Australia
lagged, as our positive return in financials was offset by our positions in
resources and telecom operator Telstra. From a sectoral perspective, stock
selection in, and overweight to, IT, our underweight to consumer discretionary
and stock selection in communication services all added value, as did our
overweight to financials. The overweight to real estate was a drag.
The geographic exposure in the Company's portfolio continues to be mainly
spread between Taiwan, Australia, Korea, Singapore, and China. Over the period
we added to positions in Australia and Korea as well as smaller markets such
as Indonesia. China remains a substantial underweight but is, in part, offset
by the overweight to the Hong Kong market which, in general, looks more
attractive from a valuation perspective, albeit we have reduced exposure to
some of the real estate names, such as Fortune REIT, which had performed
relatively well. Elsewhere, we continue to like Singapore, with positions in
the banks and Singapore Telecom, as well as overweights to some of the
smaller markets such as Indonesia and the Philippines.
From a sectoral perspective our main additions were into some of the
traditionally more defensive areas that had underperformed, such as consumer
staples and health care, where we added to positions in Australia, such as
supermarket operator Coles, and diagnostics company Sonic Healthcare. These
were, in part, financed by reductions to banks, including the Australian names
and Sumitomo Mitsui Financial Group in Japan, that had done well. We also
reduced the overweight to real estate, trimming a number of names across the
region. Financials and IT remain the Company's two largest exposures, with the
IT exposure predominantly coming through positions in Taiwan and Korea, where
both the cycle and long term outlook remains favourable.
Investment outlook and policy
Most of 2023 and the start of this year have been disappointing for Asian
markets relative to global equities, with the region lagging developed
markets. Much of this performance gap was driven by a divergence in valuation
multiples through the year, with China and Hong Kong in particular
experiencing significant de-rating for reasons outlined above.
Geopolitics has been another concern overhanging the region, with tensions
around US-China relations, Taiwan, Ukraine and most recently the Middle East
all contributing to investor caution. Positively, despite having the potential
to escalate cross-strait tensions, the recent Taiwanese election passed off
uneventfully with a result which was broadly in line with expectations.
However, later in the year, we have the US elections and there remains the
potential for heightened market volatility as these approach, where rhetoric
on China is likely to heat up once again after a more restrained period
recently. This can already be seen by a number of bills and policies that are
aimed at restricting Chinese growth and influence.
Nevertheless, there are some reasons to be a little more optimistic on the
outlook for the Chinese market in 2024. Most obviously, consensus expectations
are now very low, compared to the post-reopening euphoria seen in the market
at the start of 2023, and this is reflected in lower valuations than a year
ago. There is clearly therefore scope for better market performance, should
growth surprise on the upside. Although sentiment around the property market
remains very poor, activity in that industry is already subdued, and consumer
confidence is again at extremely depressed levels. That is not to say that
there can't be further deterioration, of course, but a large degree of
pessimism has already been priced in at this point. Given our underweight to
China, we continue to look for higher-quality stocks that have sold off to
levels which look attractive on a long-term view. However, the reality is that
it has been hard for us to find new names that are attractive from an income
perspective as many concerns remain when it comes to investing in the Chinese
market - poor capital allocation, structurally lower nominal growth,
unpredictable regulatory and policy shifts, high debt levels - and we remain
significantly underweight the market.
We retain our preference for Hong Kong, where valuations are generally lower
and shareholder returns are more of a focus for management teams. Although
visitor numbers to Hong Kong have picked up significantly since the borders
re-opened, the US dollar linked exchange rate system has meant that interest
rates have followed the path of US rates which has depressed activity. If US
rates do start to ease, the corollary for Hong Kong is expected to be that
monetary conditions are likely to also improve which should be positive for
the market.
Australia continues to be a market that has historically offered great
long-term returns, in large part due to the reinvestment of dividends, but
valuations are not obviously cheap versus the rest of the region, given its
strong outperformance. Our principal exposure continues to be through the
materials and financial sectors, but a de-rating of the health care sector
and underperformance of consumer staples has seen us add to exposure there.
More recently, the prospects of a soft landing have also seen banks perform
strongly, which has led us to reduce our exposure to them. In the South-East
Asian region, we are most exposed to Singapore, which is benefitting from its
increasing status as a regional wealth management hub, as well as the growth
of its ASEAN neighbours.
As noted above, the last 18 months or so have been tough for many Asian
exporters, with excess inventories piling up in a variety of sectors whether
in bicycles, textiles, power tools or semiconductors, to name a few. Of
course, the demand outlook for Asian exports in 2024 remains uncertain, but
the supply-side response of manufacturers, which is more under their control
(i.e. cutting capital expenditure and production), has led to encouraging
progress on destocking across many areas. Should expectations of a US "soft
landing" come to pass, that would likely be positive for Asian goods exports,
which historically has been supportive of Asian markets.
We remain overweight in IT, the best performing sector in 2023, as valuations
moved higher on the back of normalising inventories, as well as the impact of
AI on industry growth rates. Despite this, we view our holdings as still
trading at relatively attractive valuations given the long-term growth outlook
for the sector.
We also remain overweight to financials - a diverse sector spanning not only
banks, but also insurers and exchange companies. The banks we own are
generally well-capitalised, with strong deposit franchises. Many of our
holdings are in more mature markets, such as Singapore, which in general trade
at attractive valuations and decent dividend yields, but also have exposure to
their faster growing hinterland. Direct exposure to faster growing markets,
where credit penetration is relatively low, includes Indonesia. We also
continue to be overweight Real Estate, albeit we have reduced the size of that
overweight.
As mentioned, we have narrowed some of the underweights in those areas of the
market typically perceived as more defensive, including consumer staples,
health care and utilities. Given underperformance, relative valuations here
are starting to look more interesting.
Korea has recently benefitted from an expectation that we might see an
improvement in shareholder returns, similar to that which has been seen in
Japan over the last few years. Korea has always looked cheap versus the
region, and this in part has been due to perceived poor corporate governance
and low shareholder returns. The government's 'Corporate Value-up' programme
is meant to improve that, and companies that could benefit from that have
performed better. We do have exposure to several companies that have already
started to demonstrate improvement in shareholder returns, but have increased
exposure to this theme through a holding in automaker Kia.
Turning to the wider region, the dividend yield looks relatively attractive at
the moment versus a global benchmark. In the medium to long term, dividends
tend to follow earnings and earnings have recovered materially from the Covid
lows. However, earnings growth during 2023 has faced some ongoing pressures,
as has been seen in earnings revisions trends, particularly in some of the
more cyclical areas (areas where earnings follow the cycles of the economy)
such as amongst the energy and resource names. This year, if consensus
earnings are anything to go by, earnings growth should recover which should be
a positive, albeit we would caution that there is risk to these earnings
numbers. Still, we believe overall payout ratios in Asia do not look extended
in an absolute sense and corporates in Asia remain relatively lowly geared (a
relatively low rate of debt) which should be supportive of dividends. The
arguably more significant impact on dividends received comes from the
performance of Sterling, which was quite strong over the past 12 months, thus
impacting the progression of dividend growth.
Overall, aggregate valuations for the region are now trading at around
long-term averages. However, this masks a large variation across individual
markets where Singapore, China and Hong Kong, amongst others, look relatively
cheap versus history. Historically, easing global interest rates and a weaker
US dollar have been positive for Asia given the knock-on impact to domestic
monetary conditions. Therefore, if rates do start to fall later this year, and
it should be said that recent expectations have seen the timings for cuts
shift further out, it could be a potential catalyst for the markets given
where starting valuations are.
So in conclusion, although uncertainties remain around China's outlook, the
region's inexpensive aggregate valuations, alongside potentially easing global
interest rates, a weaker US dollar and a recovering goods export cycle does
set up a more constructive backdrop for Asian markets in 2024, barring a
global hard landing, or a more extreme geopolitical risk event.
Sectoral breakdown of portfolio (gearing* at 5.5%)
Portfolio Weight (%)
Information Technology 30.2
Banks 23.7
Communication Services 9.8
Other Financials 9.5
Real Estate 9.4
Materials 6.9
Consumer Discretionary 5.6
Consumer Staples 4.6
Industrials 2.8
Energy 1.9
Health Care 1.1
Utilities -
Source: Schroders as at 29 February 2024.
Regional breakdown of portfolio (gearing* at 5.5%)
Portfolio Weight (%)
Australia 21.8
Taiwan 21.5
Korea 15.9
Singapore 14.5
China 10.9
Hong Kong 10.1
Indonesia 4.5
Thailand 1.8
Philippines 1.7
Japan 1.6
Vietnam 1.2
Malaysia -
New Zealand -
Source: Schroders as at 29 February 2024.
*Borrowings used for investment purposes, less cash, expressed as
a percentage of net assets.
Past Performance is not a guide to future performance. The value of
investments and the income from them may go down as well as up and investors
may not get back the amounts originally invested. Any reference to
regions/countries/sectors/stocks/securities is for illustrative purposes only
and not a recommendation to buy or sell any financial instruments or adopt a
specific investment strategy.
Schroder Investment Management Limited
22 May 2024
INVESTMENT PORTFOLIO
as at 29 February 2024
Investments are classified by the Investment Manager in the region or country
of their main business operations or listing. Stocks in bold are the 20
largest investments, which by value account for 57.9% (28 February 2023: 56.7%
and 31 August 2023: 57.9%) of total investments.
£'000 %
Australia
BHP Billiton(1) 18,796 2.7
Telstra 17,825 2.6
National Australia Bank 16,808 2.4
Rio Tinto(1) 15,354 2.2
ANZ Group 10,600 1.5
Coles Group 10,597 1.5
Westpac Banking 10,103 1.4
Suncorp 8,861 1.3
ASX 8,184 1.2
Sonic Healthcare 6,712 1.0
Orica 6,166 0.9
Deterra Royalties 4,947 0.7
Woolworths 4,055 0.6
Woodside Energy 3,340 0.4
Mirvac 3,006 0.4
Total Australia 145,354 20.8
Taiwan
TSMC 65,544 9.3
MediaTek 18,877 2.7
ASE Technology 14,015 2.0
Delta Electronics 11,033 1.6
Hon Hai Precision Industries 10,172 1.5
United Microelectronics 9,014 1.3
Uni-President Enterprises 7,483 1.1
CTBC Financial 6,607 0.9
Total Taiwan 142,745 20.4
South Korea
Samsung Electronics (including
preference shares) 63,912 9.1
Samsung Fire and Marine Insurance
(including preference shares) 13,886 2.0
SK Telecom 10,481 1.5
Kia Corporation 7,478 1.1
KB Financial 7,419 1.1
LG Chemical preference shares 1,151 0.2
Total South Korea 104,327 15.0
Singapore
Oversea-Chinese Banking 21,217 3.0
Singapore Telecommunications 17,942 2.5
DBS 12,977 1.9
CapitaLand Integrated Commercial
Trust (REIT^) 9,030 1.3
Singapore Exchange 8,780 1.3
Venture 7,552 1.1
United Overseas Bank 6,691 1.0
Mapletree Industrial Trust (REIT^) 6,445 0.9
Mapletree Logistics Trust (REIT^) 5,110 0.7
Total Singapore 95,744 13.7
Mainland China
Midea Group warrants(2) 08/07/2024
and A shares 20,024 2.9
China Petroleum & Chemical H shares(3) 9,500 1.4
Shenzou International(3) 8,240 1.2
China Pacific Insurance(3) 7,474 1.1
Sany Heavy Industry A shares 7,194 1.0
China Construction Bank(3) 7,069 1.0
China Resources Land(3) 5,524 0.8
Ping An Insurance H shares(3) 5,341 0.8
Total Mainland China 70,366 10.2
Hong Kong (SAR)
BOC Hong Kong 18,458 2.6
HKT Trust and HKT 10,484 1.5
Link REIT^ 9,669 1.4
Hong Kong Exchanges & Clearing 8,701 1.2
Swire Properties 5,748 0.8
Kerry Properties 4,585 0.7
Hang Lung Properties 3,839 0.5
Hang Lung Group 3,459 0.5
Swire Pacific B 3,144 0.5
Total Hong Kong (SAR) 68,087 9.7
Indonesia
Bank Mandiri 16,363 2.3
Telekomunikasi Indonesia 8,372 1.2
Bank Negara Indonesia 5,820 0.8
Total Indonesia 30,555 4.3
Thailand
Kasikornbank NVDR* 6,728 1.0
Land and Houses NVDR* 5,172 0.7
Total Thailand 11,900 1.7
Philippines
International Container Terminal
Services 11,125 1.6
Total Philippines 11,125 1.6
Japan
Sumitomo Mitsui Financial Group 10,186 1.5
Total Japan 10,186 1.5
Vietnam
Vietnam Dairy Products 7,777 1.1
Total Vietnam 7,777 1.1
Total Investments(4) 698,166 100.0
(1) Listed in the UK
(2) Listed in Luxembourg
(3) Listed in Hong Kong
(4) Total investments comprises:
£'000 %
Equities and NVDR 622,557 89.2
Preference shares 57,541 8.2
Warrants 18,068 2.6
Total Investments 698,166 100.0
* "NVDR" means non-voting depositary receipts
^ "REIT" means real estate investment trust
INTERIM MANAGEMENT STATEMENT
Investment Policy
The investment policy of the Company is to invest in a diversified portfolio
of investments, primarily equities and equity-related investments, of
companies which are based in, or derive a significant proportion of their
revenues from, the Asia Pacific region. The portfolio is diversified across a
number of industries and a number of countries in that region. The portfolio
may include government, quasi-government, corporate and high yield bonds and
preferred shares.
Equity-related investments which the Company may hold include investments in
other collective investment undertakings (including real estate investment
trusts and related stapled securities), warrants, depositary receipts,
participation certificates, guaranteed performance bonds, convertible bonds,
other debt securities, equity-linked notes and similar instruments (whether or
not investment grade) which give the Company access to the performance of
underlying equity securities, particularly where the Company may be restricted
from directly investing in such underlying equity securities or where the
Manager considers that there are benefits to the Company in holding such
investments instead of directly holding the relevant underlying equity
securities. Such investments may be listed or traded outside the Asia Pacific
region. Such investments may subject the Company to credit risk against the
issuing entity. The Company may also participate, subject to regulatory and
tax implications, in debt-to-equity conversion programmes.
The Manager may consider writing calls over some of the Company's holdings, as
a low risk way of enhancing the returns from the portfolio, although it has
not written any to date. The Company may only invest in derivatives for the
purposes of efficient portfolio management. The Board has set a limit such
that covered calls cannot be written over portfolio holdings representing in
excess of 15% of gross assets. Investors should note that the types of
equity-related investments listed above are not exhaustive of all of the types
of securities and financial instruments in which the Company may invest, and
the Company will retain the flexibility to make any investments unless these
are prohibited by the investment restrictions applicable to the Company.
Although the Company has the flexibility to invest in bonds and preferred
shares as described above, the intention of the directors is that the assets
of the Company which are invested (that is to say, which are not held in cash,
money funds, debt securities, interest bearing gilts or treasuries) will
predominantly comprise Asia Pacific equities and equity-related investments.
Principal risks and uncertainties
The principal risks and uncertainties of the Company's business fall into the
following categories: geopolitical, market, currency/exchange rate, investment
performance, climate change, service provider performance, and cyber.
A detailed explanation of the risks and uncertainties in each of these
categories can be found on pages 24 to 26 of the Company's published annual
report and accounts for the year ended 31 August 2023.
These principal risks and uncertainties have not materially changed during the
six months ended 29 February 2024.
Going concern
Having assessed the principal risks and uncertainties, and the other matters
discussed in connection with the viability statement as set out on pages 26
and 27 of the Company's published annual report and accounts for the year
ended 31 August 2023, the directors consider it appropriate to adopt the going
concern basis in preparing the accounts.
Related party transactions
There have been no transactions with related parties that have materially
affected the financial position or the performance of the Company during the
six months ended 29 February 2024.
Directors' responsibility statement
The directors confirm that, to the best of their knowledge, this set of
condensed financial statements has been prepared in accordance with the
Companies (Guernsey) Law, 2008, International Financial Reporting Standards
and with the Statement of Recommended Practice, "Financial Statements of
Investment Companies and Venture Capital Trusts" issued in July 2022 and that
this Interim Management Report includes a fair review of the information
required by 4.2.7R and 4.2.8R of the Financial Conduct Authority's Disclosure
Guidance and Transparency Rules.
Paul Meader
Chairman
For and on behalf of the Board
22 May 2024
STATEMENT OF COMPREHENSIVE INCOME
for the six months ended 29 February 2024 (unaudited)
(Unaudited) (Unaudited) (Audited)
For the six months For the six months For the year
ended 29 February 2024 ended 28 February 2023 ended 31 August 2023
Revenue Capital Total Revenue Capital Total Revenue Capital Total
Note £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Gains/(losses) on investments
held at fair value through profit
or loss - 41,051 41,051 - 1,460 1,460 - (55,772) (55,772)
Net foreign currency (losses)/gains - (118) (118) - 1,539 1,539 - 3,262 3,262
Income from investments 9,541 504 10,045 11,174 199 11,373 36,430 386 36,816
Other income 84 - 84 55 - 55 142 - 142
Total income/(loss) 9,625 41,437 51,062 11,229 3,198 14,427 36,572 (52,124) (15,552)
Management fee (925) (1,387) (2,312) (995) (1,492) (2,487) (1,935) (2,903) (4,838)
Administrative expenses (584) (1) (585) (556) (2) (558) (1,130) (3) (1,133)
Profit/(loss) before finance
costs and taxation 8,116 40,049 48,165 9,678 1,704 11,382 33,507 (55,030) (21,523)
Finance costs (547) (820) (1,367) (378) (567) (945) (854) (1,280) (2,134)
Profit/(loss) before taxation 7,569 39,229 46,798 9,300 1,137 10,437 32,653 (56,310) (23,657)
Taxation 4 (445) - (445) (691) - (691) (2,254) - (2,254)
Net profit/(loss) and total
comprehensive income/(expenses) 7,124 39,229 46,353 8,609 1,137 9,746 30,399 (56,310) (25,911)
Earnings/(loss)
per share (pence) 5 2.84 15.66 18.50 3.32 0.44 3.76 11.81 (21.88) (10.07)
The "Total" column of this statement represents the Company's Statement of
Comprehensive Income, prepared in accordance with International Financial
Reporting Standards. The "Revenue" and "Capital" columns represent
supplementary information prepared under guidance issued by the Association of
Investment Companies. The Company has no other items of other comprehensive
income, and therefore the net profit/(loss) for the period is also the total
comprehensive income/(loss) for the period.
All revenue and capital items in the above statement derive from continuing
operations. No operations were acquired or discontinued in the period.
STATEMENT OF CHANGES IN EQUITY
For the six months ended 29 February 2024 (unaudited)
Treasury Capital
Share share redemption Special Capital Revenue
capital reserve reserve reserve reserves reserve Total
Note £'000 £'000 £'000 £'000 £'000 £'000 £'000
At 31 August 2023 234,347 (46,118) 39 150,374 272,701 36,865 648,208
Repurchase of ordinary shares into treasury - (13,857) - - - - (13,857)
Net profit and total comprehensive income - - - - 39,229 7,124 46,353
Dividends paid in the period 6 - - - - - (19,525) (19,525)
At 28 February 2024 234,347 (59,975) 39 150,374 311,930 24,464 661,179
For the six months ended 28 February 2023 (unaudited)
Treasury Capital
Share share redemption Special Capital Revenue
capital reserve reserve reserve reserves reserve Total
Note £'000 £'000 £'000 £'000 £'000 £'000 £'000
At 31 August 2022 234,347 (25,991) 39 150,374 329,011 36,367 724,147
Repurchase of shares into treasury - (7,797) - - - - (7,797)
Net profit and total comprehensive income - - - - 1,137 8,609 9,746
Dividends paid in the period 6 - - - - - (19,692) (19,692)
At 28 February 2023 234,347 (33,788) 39 150,374 330,148 25,284 706,404
For the year ended 31 August 2023 (audited)
Treasury Capital
Share share redemption Special Capital Revenue
capital reserve reserve reserve reserves reserve Total
Note £'000 £'000 £'000 £'000 £'000 £'000 £'000
At 31 August 2022 234,347 (25,991) 39 150,374 329,011 36,367 724,147
Repurchase of ordinary shares into treasury - (20,127) - - - - (20,127)
Net (loss) /profit and total comprehensive
(expenses)/income - - - - (56,310) 30,399 (25,911)
Dividends paid in the year 6 - - - - - (29,901) (29,901)
At 31 August 2023 234,347 (46,118) 39 150,374 272,701 36,865 648,208
STATEMENT OF FINANCIAL POSITION
as at 29 February 2024 (unaudited)
(Unaudited) (Unaudited) (Audited)
29 February 2024 28 February 2023 31 August 2023
Note £'000 £'000 £'000
Non-current assets
Investments at fair value through profit or loss 698,166 740,122 676,323
Current assets
Receivables 3,130 3,158 4,271
Cash and cash equivalents 3,044 7,087 11,000
6,174 10,245 15,271
Total assets 704,340 750,367 691,594
Current liabilities
Payables (43,161) (43,963) (43,386)
Net assets 661,179 706,404 648,208
Equity attributable to shareholders
Share capital 7 234,347 234,347 234,347
Treasury share reserve (59,975) (33,788) (46,118)
Capital redemption reserve 39 39 39
Special reserve 150,374 150,374 150,374
Capital reserves 311,930 330,148 272,701
Revenue reserve 24,464 25,284 36,865
Total equity attributable to shareholders 661,179 706,404 648,208
Net asset value per share (pence) 8 267.12 273.73 256.01
Registered in Guernsey
Company registration number: 43298
CASH FLOW STATEMENT
for the six months ended 29 February 2024 (unaudited)
(Unaudited) (Unaudited) (Audited)
For the six For the six For the
months ended months ended year ended
29 February 2024 28 February 2023 31 August 2023
£'000 £'000 £'000
Operating activities
Profit/(loss) before finance costs and taxation 48,165 11,382 (21,523)
Add back net foreign currency losses/(gains) 118 (1,539) (3,262)
(Gains)/losses on investments at fair value through profit or loss (41,051) (1,460) 55,772
Net sales of investments at fair value through profit or loss 17,038 11,659 20,161
Decrease in receivables 1,903 1,044 274
Increase in payables 1,149 1,194 10
Overseas taxation paid (427) (487) (2,247)
Net cash inflow from operating activities 26,895 21,793 49,185
Financing activities 26,895 21,793 49,185
Interest paid (1,365) (979) (2,168)
Repurchase of ordinary shares into treasury (13,911) (8,059) (20,022)
Dividends paid (19,525) (19,692) (29,901)
Net cash outflow from financing activities (34,801) (28,730) (52,091)
Decrease in cash and cash equivalents (7,906) (6,937) (2,906)
Cash and cash equivalents at the start of the period 11,000 14,155 14,155
Effect of foreign exchange rate changes on cash and cash equivalents (50) (131) (249)
Cash and cash equivalents at the end of the period 3,044 7,087 11,000
Dividends received during the period amounted to £11,800,000 (period ended 28
February 2023: £12,428,000 and year ended 31 August 2023: £37,004,000) and
bond and deposit interest receipts amounted to £100,000 (period ended 28
February 2023: £45,000 and year ended 31 August 2023: £117,000).
NOTES TO THE FINANCIAL STATEMENTS
1. Principal activity
The Company carries on business as a Guernsey closed-ended investment company.
2. Financial statements
The financial information for the six months ended 29 February 2024 and 28
February 2023 has not been audited or reviewed by the Company's auditor. These
financial statements do not include all of the information required to be
included in annual financial statements and should be read in conjunction with
the financial statements of the Company for the year ended 31 August 2023.
3. Accounting policies
(a) Basis of accounting
The financial statements have been prepared in accordance with International
Accounting Standard 34 "Interim Financial Reporting" and the accounting
policies set out in the statutory accounts of the Company for the year ended
31 August 2023. Where presentational guidance set out in the Statement of
Recommended Practice (the "SORP") for investment trusts issued by the
Association of Investment Companies in July 2023 is consistent with the
requirements of International Financial Reporting Standards, the financial
statements have been prepared on a basis compliant with the recommendations of
the SORP.
(b) Accounting estimates
In common with many other investment companies, the Board has chosen to adopt
the 'allocation approach', as set out in the SORP, and has determined that
basis of allocation of expenses to capital should reflect the long term split
of returns in the form of capital gains and income. The Company allocates 60%
of the management fee and finance costs to capital and the remaining 40% to
revenue. The Board monitors the assumptions that underpin the basis of
allocation.
4. Taxation
Taxation comprises irrecoverable overseas withholding tax deducted from
dividends receivable. The Company became resident in the United Kingdom for
taxation purposes on 1 September 2020 and has been granted approval as an
investment trust under Sections 1158 and 1159 of the Corporation Tax Act 2010,
from that date.
5. Earnings/(losses) per share
(Unaudited) (Unaudited)
Six months Six months (Audited)
ended ended Year ended
29 February 2024 28 February 2023 31 August 2023
£'000 £'000 £'000
Net revenue profit 7,124 8,609 30,399
Net capital profit/(loss) 39,229 1,137 (56,310)
Net total profit 46,353 9,746 (25,911)
Weighted average number of shares in issue during the period 250,573,464 259,185,344 257,369,408
Revenue earnings per share (pence) 2.84 3.32 11.81
Capital earnings/(loss) per share (pence) 15.66 0.44 (21.88)
Total earnings/(loss) per share (pence) 18.50 3.76 (10.07)
6. Dividends paid
(Unaudited) (Unaudited)
Six months Six months (Audited)
ended ended Year ended
29 February 2024 28 February 2023 31 August 2023
£'000 £'000 £'000
2023 fourth interim dividend of 5.80p (2022: 5.60p) 14,547 14,527 14,527
First interim dividend of 2.00p (2023: 2.00p) 4,978 5,165 5,165
Second interim dividend of 2.00p - - 5,124
Third interim dividend of 2.00p - - 5,085
Total dividends paid in the period 19,525 19,692 29,901
A second interim dividend of 2.00p (2023: 2.00p) per share, amounting to
£4,899,000 (2023: £5,124,000) has been declared payable in respect of the
year ending 31 August 2024.
7. Share capital
Changes in the number of shares in issue during the period were as follows:
(Unaudited) (Unaudited)
Six months Six months (Audited)
ended ended Year ended
29 February 2024 28 February 2023 31 August 2023
Ordinary shares of 1p each, allotted, called-up and fully paid
Opening balance of shares in issue, excluding shares held in treasury 253,193,024 261,203,024 261,203,024
Repurchase of shares into treasury (5,670,000) (3,135,000) 8,010,000
Closing balance of shares in issue, excluding shares held in treasury 247,523,024 258,068,024 253,193,024
Shares held in treasury 23,710,000 13,165,000 18,040,000
Closing balance of shares in issue 271,233,024 271,233,024 271,233,024
8. Net asset value per share
(Unaudited) (Unaudited) (Audited)
29 February 2024 28 February 2023 31 August 2023
Net assets attributable to shareholders (£'000) 661,179 706,404 648,208
Shares in issue at the period end, excluding shares held in treasury 247,523,024 258,068,024 253,193,024
Net asset value per share (pence) 267.12 273.73 256.01
9. Financial instruments measured at fair value
The Company's portfolio of investments, comprising investments in companies
and any derivatives, are carried in the balance sheet at fair value. Other
financial instruments held by the Company comprise amounts due to or from
brokers, dividends and interest receivable, accruals, cash and drawings on the
credit facility. For these instruments, the balance sheet amount is a
reasonable approximation of fair value. The recognition and measurement
policies for financial instruments measured at fair value have not changed
from those set out in the statutory accounts of the Company for the year ended
31 August 2023.
The investments in the Company's portfolio are categorised into a hierarchy
comprising the following three levels:
Level 1 - valued using quoted prices in active markets.
Level 2 - valued by reference to valuation techniques using observable inputs
other than quoted market prices included within Level 1.
Level 3 - valued by reference to valuation techniques using inputs that are
not based on observable market data.
Categorisation within the hierarchy has been determined on the basis of the
lowest level input that is significant to the fair value measurement of the
relevant asset.
At 29 February 2024, the Company's investment portfolio and derivative
financial instruments were categorised as follows:
(Unaudited) (Unaudited) (Audited)
29 February 2024 28 February 2023 31 August 2023
£'000 £'000 £'000
Level 1 680,098 721,538 658,116
Level 2 18,068 18,584 18,207
Level 3 - - -
Total 698,166 740,122 676,323
Level 2 investments comprise one holding in Midea Group warrants.
There have been no transfers between Levels 1, 2 or 3 during the period
(period ended 28 February 2023 and year ended 31 August 2023: nil).
10. Events after the interim period that have not been reflected in
the financial statements for the interim period
The directors have evaluated the period since the interim date and have not
noted any significant events which have not been reflected in the financial
statements.
ALTERNATIVE PERFORMANCE MEASURES ("APMS") AND DEFINITIONS OF FINANCIAL TERMS
The terms and performance measures below are those commonly used by investment
companies to assess values, investment performance and operating costs.
Numerical calculations are given where relevant. Some of the financial
measures below are classified APMs as defined by the European Securities and
Markets Authority. Under this definition, APMs include a financial measure of
historical financial performance or financial position, other than
a financial measure defined or specified in the applicable financial
reporting framework. APMs have been marked with an asterisk.
Net asset value ("NAV") per share
The NAV per share of 267.12p (31 August 2023: 256.01p) represents the net
assets attributable to equity shareholders of £661,179,000 (31 August 2023:
£648,208,000) divided by the number of shares in issue, excluding shares held
in treasury of 247,523,024 (31 August 2023: 253,193,024).
The change in the NAV amounted to +4.3% (year ended 31 August 2023: -7.7%)
over the period. However this performance measure excludes the positive impact
of dividends paid out by the Company during the period. When these dividends
are factored into the calculation, the resulting performance measure is termed
the "total return". Total return calculations and definitions are given below.
Total return*
The combined effect of any dividends paid, together with the rise or fall in
the share price or NAV per share. Total return statistics enable the investor
to make performance comparisons between investment companies with different
dividend policies. Any dividends received by a shareholder are assumed to have
been reinvested in either the assets of the Company at its NAV per share at
the time the shares were quoted ex-dividend (to calculate the NAV per share
total return) or in additional shares of the Company (to calculate the share
price total return).
The NAV total return for the period ended 29 February 2024 is calculated as
follows:
Opening NAV at 31/8/23 256.01p
Closing NAV at 29/2/24 267.12p
NAV on Cumulative
Dividend received XD date XD date Factor factor
5.80p 16/11/23 257.58p 1.0225 1.0225
2.00p 1/2/24 256.89p 1.0078 1.0305
NAV total return, being the closing NAV, multiplied
by the cumulative factor, expressed as a percentage
increase in the opening NAV: +7.5%
The NAV total return for the six months ended 28 February 2023 is calculated
as follows:
Opening NAV at 31/8/22 277.24p
Closing NAV at 28/2/23 273.73p
NAV on Cumulative
Dividend received XD date XD date Factor factor
5.60p 10/11/22 250.92p 1.0223 1.0223
2.00p 26/1/23 286.60p 1.0070 1.0295
NAV total return, being the closing NAV, multiplied
by the cumulative factor, expressed as a percentage
increase in the opening NAV: 1.6%
The share price total return for the period ended 29 February 2024 is
calculated as follows:
Opening share price at 31/8/23 244.50p
Closing share price at 29/2/24 250.00p
Share
price on Cumulative
Dividend received XD date XD date Factor factor
5.80p 16/11/23 243.00p 1.0239 1.0239
2.00p 1/2/24 241.00p 1.0083 1.0324
Share price total return, being the closing share
price, multiplied by the cumulative factor, expressed
as a percentage increase in the opening share price: +5.6%
The share price total return for the six months ended 28 February 2023 is
calculated as follows:
Opening share price at 31/8/22 264.00p
Closing share price at 28/2/23 264.00p
Share
price on Cumulative
Dividend received XD date XD date Factor factor
5.60p 10/11/22 248.00p 1.0226 1.0226
2.00p 26/1/23 277.50p 1.0072 1.0300
Share price total return, being the closing share price,
multiplied by the cumulative factor, expressed as a
percentage increase in the opening share price: 3.0%
Discount/premium*
The amount by which the share price of an investment trust is lower (discount)
or higher (premium) than the NAV per share. If shares are trading at a
discount, investors would be paying less than the value attributable to the
shares by reference to the underlying assets. A premium or discount is
generally the consequence of supply and demand for the shares on the stock
market. The discount or premium is expressed as a percentage of the NAV per
share. The discount at the period end amounted to 6.4% (31 August 2023: 4.5%),
as the closing share price at 250.00p (31 August 2023: 244.50p) was 6.4%
(31 August 2023: 4.5%) lower than the closing NAV of 267.12p (31 August
2023: 256.01p).
Gearing*
The gearing percentage reflects the amount of borrowings (i.e. bank loans or
overdrafts) which the Company has drawn down and invested in the market. This
figure is indicative of the extra amount by which shareholders' funds would
move if the Company's investments were to rise or fall. Gearing is defined as:
borrowings used for investment purposes, less cash, expressed as a percentage
of net assets. The gearing figure at the relevant period/year end is
calculated as follows:
29 February 31 August
2024 2023
£'000 £'000
Borrowings used for investment purposes, less cash 36,536 28,459
Net assets 661,179 648,208
Gearing 5.5% 4.4%
Ongoing charges ratio*
Ongoing charges ratio is calculated in accordance with the AIC's recommended
methodology and represents the management fee and all other operating expenses
excluding finance costs and transaction costs, amounting to £5,869,000 (31
August 2023: £5,971,000), expressed as a percentage of the average daily net
asset values during the period of £651.1 million (31 August 2023:
£678.7 million).
SHAREHOLDER INFORMATION
Warning to shareholders
Companies are aware that their shareholders have received unsolicited
telephone calls or correspondence concerning investment matters. These are
typically from overseas-based 'brokers' who target UK shareholders, offering
to sell them what often turn out to be worthless or high risk shares or
investments.
These operations are commonly known as 'boiler rooms'. These 'brokers' can be
very persistent and extremely persuasive.
Shareholders are advised to be wary of any unsolicited advice, offers to buy
shares at a discount or offers of free company reports. If you receive any
unsolicited investment advice:
• Make sure you get the correct name of the person and organisation
• Check that they are properly authorised by the FCA before getting
involved by visiting register.fca.org.uk
• Report the matter to the FCA by calling 0800 111 6768 or visiting
fca.org.uk/consumers/report-scam-unauthorised-firm
• Do not deal with any firm that you are unsure about
If you deal with an unauthorised firm, you will not be eligible to receive
payment under the Financial Services Compensation Scheme. The FCA provides a
list of unauthorised firms of which it is aware, which can be accessed at
fca.org.uk/consumers/unauthorised-firms-individuals#list.
More detailed information on this or similar activity can be found on the FCA
website at fca.org.uk/consumers/protect-yourself-scams.
Dividends
Paying dividends into a bank or building society account helps reduce the risk
of fraud and will provide you with quicker access to your funds than payment
by cheque. Applications for an electronic mandate can be made by contacting
the Registrar. If your dividend is paid directly into your bank or building
society account, you will receive an annual consolidated dividend
confirmation, which will be sent to you in September each year at the time the
interim dividend is paid. Dividend confirmations are available electronically
at investorcentre.co.uk to those Shareholders who have their payments mandated
to their bank or building society accounts and who have expressed a preference
for electronic communications.
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