Source - RNS
RNS Number : 5497K
Schroder Asian Total Retn InvCo PLC
22 September 2016
 

Half Year Report

 

Schroder Asian Total Return Investment Company Fund plc hereby submits its Half Year Report for the period ended 30 June 2016 as required by the UK Listing Authority's Disclosure Guidance and Transparency Rule 4.2. 

 

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 webpage. Please click on the following link to view the document:

 

 

The Company has submitted a pdf of the hard copy format of its Half Year Report to the National Storage Mechanism and it will shortly be available for inspection at www.morningstar.co.uk/uk/NSM.

 

Enquiries:

 

John Spedding

Schroder Investment Management Limited                               Tel: 020 7658 3206

 

22 September 2016

 

 

Interim Management Report

 

Chairman's Statement

 

Performance

 

During the six months to 30 June 2016, the Company produced a net asset value ("NAV") total return of 15.8%, outperforming both the Reference Index, which produced a total return of 12.9%, and the peer group average NAV total return of 14.5%. If this level of performance continues, a performance fee will be payable for the year ending 31 December 2016, with management fees as a whole capped at 2% of the Company's net asset value at the year end.

 

Much of the absolute return came from a sharp weakening of sterling after the EU referendum, rather than strong performance from Asian markets, which were mostly flat in local currency terms. However, it is pleasing to report that the portfolio, which had previously outperformed when the market slumped, continued to outperform the market. Relative performance during the period benefited from a strong contribution from technology stocks, leading internet players in China and holdings in Australia.

 

Further details on performance may be found in the Portfolio Managers' Review.

 

Promotion and discount management

 

The Board remains focused on promotion of the Company's shares based on the distinctive characteristics of the Company's strategy and the differentiation of the opportunities offered by the Company from those offered by its peer group.

 

The discount management policy continues to target a discount to net asset value of 5% in normal market conditions, using the Company's share buyback authority when required. In the six months to 30 June 2016, the average discount to NAV was 6.5% (7.9% on a cum income basis compared with an average 10.9% for the peer group).

 

Change of name

 

Following discussions with our advisers, and in view of the market awareness of the Manager's brand and the benefits which that brand can offer the Company when promoting its shares, the Board has decided to change the name of the Company and, with effect from 21 September 2016, it became known as Schroder Asian Total Return Investment Company plc.

 

Gearing and the use of derivatives

 

The portfolio managers continued to use gearing during the period and at 30 June 2016, net gearing stood at 5.1%. Gearing will not exceed 30% of net asset value. The Board has agreed a disciplined framework for gearing, based on valuation indicators.

 

General Meeting

 

The Board is making a number of recommendations to shareholders in relation to the Company's Articles of Association, including the introduction of a cap on Directors' fees for the first time, and is also seeking changes to the parameters for the reissue of shares from Treasury. Proposals will be made at a General Meeting to be held on 15 November 2016. A Circular outlining the changes will be mailed to those who have requested printed copies of all documents released by the Company and will be made available on the Company's webpage.

 

Outlook

 

In the current environment, we expect our portfolio managers to realise profits in overpriced holdings in order to target stocks which have lagged the market and which bear attractive and sustainable yields. Should markets rise from current levels the Board would also encourage the use of capital protection strategies in view of the portfolio managers' current views on valuations.

 

David Brief

Chairman

22 September 2016

 

Portfolio Managers' Review

 

Performance analysis

 

Most Asian equity markets ended the first half of the year close to where they began. Stock markets got off to a turbulent start following the devaluation in the Chinese currency and fears of a Chinese hard landing; however Asian markets then recovered on the back of reassuring comments from the US Federal Reserve and a rebound in oil prices. Flat local currency returns were turned into a strong gain for UK investors following the sharp fall in sterling after the UK's EU referendum, with the Company's reference index - the MSCI AC Asia Pacific ex-Japan Index - returning 12.9% in sterling terms (source: Thomson Reuters).

 

Within the region, the ASEAN markets were the biggest outperformers as stabilising currencies and hopes of reforms in Indonesia and the Philippines led to a strong recovery. The Chinese stock market was the laggard as concerns over economic growth and worries over rising bad debts continued to weigh on sentiment. There was high dispersion in performance across sectors, with Energy and Materials leading gains driven by higher commodity prices. Financials on the other hand came under pressure on the back of general weakness across insurance and bank stocks, due to concerns about a deteriorating credit cycle and the negative impact on margins of continued unconventional monetary policy.

 

Against this backdrop, the portfolio delivered an NAV return of 15.8% in sterling terms (source: Morningstar) in the first half. Performance was driven by a strong contribution from technology holdings, in particular smartphone components and supply chain stocks in Taiwan and China on hopes of a pick-up in demand. Korean IT conglomerate Samsung Electronics also extended its positive momentum on signs of a turnaround in earnings driven by stabilising margins in its mobile handset division. In the internet space, China's leading players Tencent and Alibaba outperformed as earnings continued to deliver steady growth on the back of long-term growth opportunities in the e-commerce and online advertising business.

 

Positive contributions also came from the Australian holdings, with logistics and healthcare names advancing on solid corporate results. Amongst the top contributors was Medibank, a private health insurer, which surged following news that it received government approval for a premium increase. Elsewhere, most ASEAN stocks saw broad-based gains amid improving sentiment, with Thai financials leading gains on expectations of a stabilising macro environment.

 

Amongst the detractors, export-oriented companies saw sluggish returns. Automotive component supplier Johnson Electric, bicycle manufacturers Merida Industry and Giant Manufacturing, as well as textile companies Pacific Textile and Shenzhou International fell on concerns over a slower global demand backdrop. Hong Kong-based conglomerate CK Hutchison was also down on worries over its UK business exposure post-Brexit.

 

The portfolio was slightly geared at 5.1% with total equity exposure of 104.7% at the end of June. Gearing was used to purchase high-yielding telecom stocks and REITs, which added to returns over the period. The contribution from capital protection (in the form of put options on the Australian, Korean and Taiwan markets and short futures on the Hong Kong, China H-shares and Singapore indices) was small given the flat markets, while the currency hedge on the Australian dollar pared some gains as the currency appreciated on the back of higher commodity prices. Adjusting for the derivative protection, net exposure was approximately 85.0% (93.3% delta-adjusted) at the end of June.

 

Outlook

 

The earnings backdrop for Asian companies continues to look challenging. Falling interest rates in Asia are squeezing net interest margins for banks and insurance companies at a time where non-performing loans are rising across the region after the strong credit cycle since 2010. On the export front, we find it hard to expect a sustained improvement in export demand from Europe, the largest export region for Asian goods and services, given the continued sluggish economic backdrop. We are slightly more sanguine on domestic demand in Asia. Whilst we do not expect a major pick-up, some stabilization and improvement is possible in India, Indonesia and the Philippines where there has been better policy follow-through and where the impact on the agricultural sector of last year's El Nino will wane.

 

We have pared down most of the portfolio's exposure in ASEAN as valuations are now high compared to recent history. We see few structural improvements to justify the recent major re-rating and we think the valuation premium is down to an 'anything but China' mentality. We increasingly question the competitive advantage of the region, and without better government, we think ASEAN may well be stuck in a low-growth rut.

 

The portfolio is now mostly focused in Australia, Hong Kong, China, Taiwan and India. With the exception of India, the holdings are principally concentrated on names that offer attractive dividend yields, such as telecom stocks and Hong Kong property investors, or that we think have good niches with potential to grow globally, e.g. China/Hong Kong exporters, Taiwan technology and Australian healthcare. The only significant domestic consumption plays are Chinese internet names, the Jardine group, and the Indian banks and consumer stocks which we are still comfortable to hold despite high valuations, given these are amongst the only good structural demand stories in Asia.

 

Conclusion

 

Overall we think little has changed, and with Asian valuations looking expensive relative to history, we are inclined to lock in profits on some of the more cyclical holdings and put the proceeds into a few laggards, particularly where we can find attractive and sustainable yields. Further price rises from current levels will also see us add to capital protection if pricing is attractive, given the lack of fundamental underpinning for further market rallies.

 

Robin Parbrook, King Fuei Lee

For Schroder Investment Management Limited

22 September 2016

 

Principal risks and uncertainties

 

The principal risks and uncertainties with the Company's business fall into the following categories: strategic risk; investment management risk; custody risk; financial and currency risk; gearing and leverage risk; accounting, legal and regulatory risk; and service provider risk. A detailed explanation of the risks and uncertainties in each of these categories can be found on pages 18 and 19 of the Company's published Annual Report and Accounts for the year ended 31 December 2015. These risks and uncertainties have not materially changed during the six months ended 30 June 2016.

 

Going concern

 

Having assessed the principal risks and uncertainties, and the other matters discussed in connection with the viability statement as set out on page 20 of the published Annual Report and Accounts for the year ended 31 December 2015, 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 30 June 2016.

 

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 United Kingdom Generally Accepted Accounting Practice ("UK GAAP") and with the Statement of Recommended Practice, "Financial Statements of Investment Trust Companies and Venture Capital Trusts" issued in November 2014 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.

 

Income Statement

 

 



(Unaudited) for the six months

ended 30 June 2016

(Unaudited) for the six months

ended 30 June 2015

(Audited) for the year

ended 31 December 2015





Revenue

Capital

Total

Revenue

Capital

Total

Revenue

Capital

Total


Note

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

Gains on investments held at fair value through profit or loss












 

-

 

25,220

 

 25,220

 

-

 

3,506

 

 3,506

 

 -

 

2,704

 

 2,704

Net (losses)/gains on derivative contracts












-

(744)

 (744)

-

(72)

 (72)

 -

596

 596

Net foreign currency losses


 -

(914)

(914)

 -

(123)

 (123)

 -

(940)

 (940)

Income from investments


2,396

-

 2,396

 2,002

-

 2,002

 4,117

-

 4,117

Other interest receivable and similar income












233

-

 233

57

-

 57

96

-

 96

Gross return


2,629

23,562

26,191

2,059

3,311

5,370

4,213

2,360

6,573

Investment management fee


(143)

(428)

 (571)

 (136)

(408)

 (544)

 (259)

(777)

 (1,036)

Performance fee

3

 -

(1,429)

 (1,429)

 -

-

 -

 -

-

 -

Administrative expenses


(288)

-

 (288)

(239)

-

 (239)

 (520)

 -

 (520)

Net return before finance











costs and taxation


2,198

 21,705

 23,903

 1,684

 2,903

 4,587

 3,434

 1,583

 5,017

Finance costs


(16)

 (49)

 (65)

 (18)

 (54)

 (72)

 (33)

 (100)

 (133)

Net return on ordinary











activities before taxation


 2,182

 21,656

 23,838

 1,666

 2,849

 4,515

 3,401

 1,483

 4,884

Taxation on ordinary activities

 

4

 

 (184)

 

 -

 

 (184)

 

 (123)

 

 -

 

 (123)

 

 (165)

 

 -

 

 (165)

Net return on ordinary











activities after taxation


1,998

 21,656

 23,654

 1,543

 2,849

 4,392

 3,236

 1,483

 4,719

Return per share

5

2.74p

 29.69p

32.43p

2.11p

3.89p

6.00p

4.43p

2.03p

6.46p

 

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 Association of Investment Companies. The Company has no recognised gains and losses other than those disclosed in the Income Statement and Statement of Changes in Equity.

 

 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 30 June 2016 (unaudited)

 



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 2015


4,260

 5

 11,646

 29,182

 98,120

 10,973

 154,186

Net return on ordinary









activities


 -

 -

 -

 -

 21,656

 1,998

 23,654

Dividend paid in the period

6

 -

 -

 -

 -

 -

 (2,772)

 (2,772)

At 30 June 2016


4,260

 5

 11,646

 29,182

 119,776

 10,199

 175,068

 

for the six months ended 30 June 2015 (unaudited)

 



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 2014


4,260

 5

 11,646

 29,182

 97,133

 10,116

 152,342

Repurchase of the Company's









own shares into Treasury


-

-

-

-

 (215)

-

 (215)

Net return on ordinary activities


-

-

-

-

 2,849

 1,543

 4,392

Dividend paid in the period

6

-

-

-

-

-

 (2,379)

 (2,379)

At 30 June 2015


4,260

 5

 11,646

 29,182

 99,767

 9,280

 154,140

 

for the year ended 31 December 2015 (audited)

 



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 2014


4,260

 5

 11,646

 29,182

 97,133

 10,116

 152,342

Repurchase of the Company's









own shares into Treasury


-

-

-

-

 (496)

-

 (496)

Net return on ordinary activities


-

-

-

-

 1,483

 3,236

 4,719

Dividend paid in the year

6

-

-

-

-

-

 (2,379)

 (2,379)

At 31 December 2015


4,260

 5

 11,646

 29,182

 98,120

 10,973

 154,186

 

Statement of Financial Position

 



(Unaudited)

(Unaudited)

(Audited)



30 June

30 June

31 December



2016

2015

2015


Note

£'000

£'000

£'000

Fixed assets





Investments held at fair value through profit or loss


 183,231

 165,444

 155,403

Current assets





Debtors


 3,131

 546

 409

Cash at bank and in hand


4,420

 715

 6,101

Derivative financial instruments held at fair value





through profit or loss


 472

 789

 403



 8,023

 2,050

 6,913

Current liabilities





Bank loans


 (13,315)

 (12,399)

(7,667)

Creditors: amounts falling due within one year


 (2,789)

 (955)

 (388)

Derivative financial instruments held at fair value





through profit or loss


 (82)

-

 (75)



 (16,186)

 (13,354)

 (8,130)

Net current liabilities


 (8,163)

 (11,304)

 (1,217)

Total assets less current liabilities


 175,068

 154,140

 154,186

Net assets


 175,068

 154,140

 154,186






Capital and reserves





Called-up share capital

7

 4,260

 4,260

 4,260

Share premium


5

 5

 5

Capital redemption reserve


11,646

 11,646

 11,646

Special reserve


29,182

 29,182

 29,182

Capital reserves


119,776

 99,767

 98,120

Revenue reserve


10,199

 9,280

 10,973

Total equity shareholders' funds


175,068

 154,140

 154,186

Net asset value per share

8

239.99p

210.86p

211.36p

 

Notes to the Accounts

 

1.         Financial statements

 

The information contained within the accounts in this Half Year report has not been audited or reviewed by the Company's auditors.

 

The figures and financial information for the year ended 31 December 2015 are extracted from the latest published accounts of the Company and do not constitute statutory accounts for that year. Those accounts have been delivered to the Registrar of Companies and included the report of the auditors which was unqualified and did not contain a statement under either section 498(2) or 498(3) of the Companies Act 2006.

 

2.         Accounting policies

 

The accounts have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice and with the Statement of Recommend Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" issued by the Association of Investment Companies in November 2014.

 

All of the Company's operations are of a continuing nature.

 

The accounting policies applied to these accounts are consistent with those applied in the accounts for the year ended 31 December 2015.

 

3.         Performance fee

 

The performance fee is a provision based on the performance of the Company in the half year to 30 June 2016, calculated in accordance with the AIFM Agreement. The provision represents the amount that would be payable for the year ending 31 December 2016, if the Company's NAV per share were to remain unchanged at the year end. Note that under the terms of the AIFM Agreement, any performance fee payable is capped at an amount which, when added to the management fee payable for the year, is equal to 2.0% of the Company's NAV at the year end.

 

4.         Taxation on ordinary activities

 

The Company's effective corporation tax rate is nil, as deductible expenses exceed taxable income. The taxation charge comprises irrecoverable overseas withholding tax on dividends receivable and overseas capital gains tax.

 

5.         Return per share

 


(Unaudited)

(Unaudited)



Six months

Six months

(Audited)


ended

ended

Year ended


30 June

30 June

31 December


2016

2015

2015

Revenue return £'000

1,998

1,543

3,236

Capital return £'000

21,656

2,849

1,483

Total return £'000

23,654

4,392

4,719

Weighted average number of shares in issue during the period,




excluding shares held in Treasury

72,949,141

73,171,240

73,104,209

Revenue return per share

2.74p

2.11p

4.43p

Capital return per share

29.69p

3.89p

2.03p

Total return per share

32.43p

6.00p

6.46p

 

6.         Dividend paid

 


(Unaudited)

(Unaudited)



Six months

Six months

(Audited)


ended

ended

Year ended


30 June

30 June

31 December


2016

2015

2015


£'000

£'000

£'000

2015 dividend paid of 3.80p (2014: 3.25p)

2,772

2,379

2,379

 

No interim dividend has been declared in respect of the six months ended 30 June 2016 (2015: nil).

 

7.         Called-up share capital

 

Changes in issued shares are as follows:

 


(Unaudited)

(Unaudited)



Six months

Six months

(Audited)


ended

ended

Year ended


30 June

30 June

31 December


2016

2015

2015


£'000

£'000

£'000

Opening balance of 72,949,141 (31 December 2015: 73,199,141)




shares of 5p each

3,647

3,660

3,660

Repurchase of nil (30 June 2015: 100,000 and




31 December 2015: 250,000) shares into Treasury

-

(5)

(13)

Subtotal of 72,949,141 (30 June 2015: 73,099,141 and




31 December 2015: 72,949,141) shares

3,647

3,655

3,647

12,255,671 (30 June 2015: 12,105,671 and 31 December 2015:




12,255,671) shares held in Treasury

613

605

613

Closing balance of 85,204,812 (30 June 2015 and




31 December 2015: same) shares of 5p each, including




shares held in Treasury.

4,260

4,260

4,260

 

8.         Net asset value per share

 

Net asset value per share is calculated by dividing total equity shareholders' funds by the number of shares in issue, excluding shares held in Treasury, at 30 June 2016 of 72,949,141 (30 June 2015: 73,099,141 and 31 December 2015: 72,949,141).

 

9.         Financial instruments measured at fair value

 

The Company's financial instruments that are held at fair value include its investment portfolio and derivative financial instruments.

 

These financial instruments are categorised into a hierarchy consisting of the following three levels:

 

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.

 

The following table sets out the fair value measurements using the above hierarchy:

 



30 June 2016 (unaudited)


Level 1

Level 2

Level 3

Total


£'000

£'000

£'000

£'000

Financial instruments held at fair value through





profit or loss





Equity investments and derivative financial instruments

166,197

-

-

166,197

Participatory notes1

-

17,424

-

17,424

Total

166,197

17,424

-

183,621

 



30 June 2015 (unaudited)


Level 1

Level 2

Level 3

Total


£'000

£'000

£'000

£'000

Financial instruments held at fair value through





profit or loss





Equity investments and derivative financial instruments

153,389

-

-

153,389

Participatory notes1

-

12,844

-

12,844

Total

153,389

12,844

-

166,233

 



31 December 2015 (audited)


Level 1

Level 2

Level 3

Total


£'000

£'000

£'000

£'000

Financial instruments held at fair value through





profit or loss





Equity investments and derivative financial instruments

141,907

-

-

141,907

Participatory notes1

-

13,824

-

13,824

Total

141,907

13,824

-

155,731

 

¹Participatory notes, which are valued using the quoted prices of the underlying securities, have been allocated to Level 2 as, strictly, these are not identical assets.

 

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.

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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