Annual Financial Report

RNS Number : 8241I

Schroder AsiaPacific Fund PLC

07 December 2022

 

ANNUAL REPORT AND ACCOUNTS

Schroder AsiaPacific Fund plc (the "Company") hereby submits its Annual Report for the year ended 30 September 2022 as required by the Financial Conduct Authority's Disclosure Guidance and Transparency Rule 4.1. 

The Company's annual report and accounts for the year ended 30 September 2022 are also being published in hard copy format and an electronic copy will shortly be available to download from the Company's webpages  www.schroders.co.uk/asiapacific . Please click on the following link to view the document:

http://www.rns-pdf.londonstockexchange.com/rns/8241I_1-2022-12-6.pdf

The Company has submitted its Annual Report and Accounts to the National Storage Mechanism, which will shortly be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.

Enquiries:

Kerry Higgins

Schroder Investment Management Limited 

Tel: [phone]

Chairman's Statement

Performance

The year under review saw challenging market conditions in Asia, in common with markets around the world. The Company's NAV produced a negative total return of -13.6% for the year under review, marginally outperforming the Benchmark's negative total return of -13.9%, while the share price produced a negative total return of -14.5%.

The faster than expected rises in global interest rates, the war in Ukraine and the economic impact of continued COVID lock-downs as well as other developments in China, have dominated Asian markets this year. There have also been beneficiaries, for example from rising commodity prices, and there has been a significant divergence of returns from Asian markets.

More detailed comment on performance and investment policy may be found in the Investment Manager's Review.

Revenue and dividend

The Company's principal investment objective is to achieve capital growth, and the Directors continue to distribute substantially all of the revenue it receives each year. The Company's revenue return recovered sharply from the previous year, increasing by 22.3% as portfolio companies increased dividend payments.

The Directors are recommending a final dividend of 12.00 pence per share for the year ended 30 September 2022, representing an increase of 23.7% over the 9.70 pence paid in respect of the previous financial year.

This dividend will be paid on 10 February 2023 to shareholders on the register on 30 December 2022, subject to approval by shareholders at the Annual General Meeting ("AGM") on 1 February 2023.

Gearing

During the year under review, the Company entered into a new one year revolving credit facility of £75 million with The Bank of Nova Scotia, London Branch which replaced the £100 million facility with SMBC Bank International PLC that was due to expire on 23 June 2022.

At 30 September 2022, while £13.4 million of the revolving facility was drawn down the Company's net gearing position was 0.2% taking into account cash balances, compared to 0.6% at the end of September 2021.

The Company also has access to an overdraft facility with HSBC.

Discount management

The Company continued to be active in buying back its shares during the year ended 30 September 2022 and a total of 4,060,000 shares were bought back for cancellation at a cost of £21.7 million (2021: 1,960,000 million shares were bought back and cancelled at a cost of £11.8 million). Since the year end, a further 1,690,000 shares have been bought back for cancellation at a cost of £8.0 million.

The discount at the end of September 2022 was 10.8% compared to 9.8% at the previous year end. The average discount during the year under review was 10.4%.

Overall, the Board's strategy is to limit discount volatility and to help maintain liquidity in the Company's shares. As such we believe that it is not necessarily in the best interests of shareholders as a whole to adopt a rigid discount control mechanism that seeks to target a defined maximum discount level regardless of market conditions. Our policy takes account of the level of discount at which the Company's peer group trades, prevailing market conditions and activity within our sector.

At the Company's last AGM, authority was given to purchase up to 14.99% of its issued share capital. We propose that the share buyback authority be renewed at the forthcoming AGM and that any shares so purchased be cancelled or held in treasury for potential reissue.

Environmental, social and governance issues ("ESG")

The Manager has always expressed the view that companies with good ESG often perform better and potentially deliver superior returns over time. Our Manager has provided more detail in the Strategic Report on how ESG considerations are incorporated into the investment process and given details of the Manager's ESG research capability. This year, our Manager has included graphs showing the portfolio's scope 1 and scope 2 carbon emissions (as detailed on page 16 of the published annual report and accounts for the year ended 30 September 2022). This covers 95% of the portfolio and 99% of the measured Benchmark. It is interesting to note that the portfolio generated less scope 1 and scope 2 carbon emissions than the Benchmark at 30 September 2022.

Management fee

Since 1 April 2021 the management fee has been 0.75% per annum on the first £600 million of net assets and 0.70% per annum on net assets in excess of £600 million.

With effect from 1 April 2023, the Board has agreed with the Manager to reduce its management fee to 0.60% per annum on net assets in excess of £600 million. In respect of the first £600 million of net assets the management fee is unchanged.

Further details may be found in the Directors' Report on page 26 of the published annual report and accounts for the year ended 30 September 2022.

Board succession

As set out in the 2021 annual report, Rosemary Morgan stepped down from the Board at the AGM in February 2022 and was succeeded as chair of the audit and risk committee by Julia Goh. Following Rosemary's retirement, Martin Porter also assumed the role of Senior Independent Director.

The Board regularly considers its policy on director tenure, succession planning and its composition to ensure that it has the appropriate mix of relevant skills, diversity and experience. The Company has met the Financial Conduct Authority's board diversity target for listed companies that at least 40% of the board are women and for at least one member of the board to be from an ethnic minority background.

Webinar

Last year, the Investment Managers presented to shareholders using a webinar. We believe shareholders benefited from this, allowing anyone to watch remotely, and ask questions, without the need to travel. The Board is planning to continue with the same format this year, and the Investment Managers will be presenting to shareholders at a webinar on 17 January 2023 at 2.00 pm. To register your interest for this webinar please email [e-mail] .

One advantage of a webinar is that if you are not able to attend at this time, you will be able to watch it afterwards. It will be available on the Company's webpages at: www.schroders.co.uk/asiapacific .

AGM

The AGM will be held on Wednesday, 1 February 2023 at 12.00 noon at the offices of Schroders at 1 London Wall Place, London, EC2Y 5AU. A presentation from the Investment Managers will be given at the AGM, and attendees will also be able to ask questions in person and meet the directors. The presentation will be made available on the Company's website following the meeting. Details of the formal business of the meeting are set out in the Notice of Meeting on pages 62 to 64 of the published annual report and accounts for the year ended 30 September 2022.

All shareholders are recommended to vote by proxy in advance of the AGM and to appoint the Chairman of the meeting as their proxy. This will ensure that shareholders' votes will be counted even if they (or any appointed proxy) are not able to attend.

If shareholders have any questions for the Board, please write in, or email using the details below. The questions and answers will be published on the Company's webpages before the AGM.

To email, please use: [e-mail] or write to us at the Company's registered office address: Company Secretary, Schroder AsiaPacific Fund plc, 1 London Wall Place, London, EC2Y 5AU.

For regular news about the trust, shareholders are also encouraged to sign up to the Manager's investment trusts update by visiting the Company's website: https://www.schroders.com/en/uk/private-investor/fund- centre/funds-in-focus/investment-trusts/schroders-investment-trusts/never-miss-an-update/.

Outlook

It would be easy to be pessimistic in view of the current uncertainty seen in markets around the world. There is no question that the global repricing of the cost of capital which has followed increased US interest rates continues to be a headwind. It is unclear when these moves will have had the desired effect on inflation but there are signs that we may be nearing the end of this tightening cycle.

In the past few months share prices have continued to adjust and in many cases now reflect the current economic reality and aggregate valuations for the region are trading at or below long-term averages. It is the case now more than ever that Asian markets will continue to provide opportunities for those who can identify the winners. We believe that the Company continues to be well placed to take advantage of these conditions. Our Manager's ability to invest across the region while focusing on high conviction, bottom-up stock ideas driven by strong resources on the ground in Asia gives us confidence that we will return to generating positive returns for shareholders, once market conditions start to improve.

James Williams

Chairman

6 December 2022

Investment Manager's Review

The NAV per share of the Company recorded a total return of -13.6% over the twelve months to the end of September 2022. This was marginally ahead of the performance of the Benchmark, the MSCI All Country Asia ex Japan Index, which was down by -13.9% over the same period. (Source: Morningstar, net of fees, cum income NAV GBP return).

The past year has been a tumultuous period for markets with a number of headwinds globally and regionally weighing on sentiment. Geopolitical tensions worsened with the shock Russian invasion of Ukraine, as well as ongoing tensions between the US and China and increasing concerns surrounding Taiwan. Inflation, in part driven by the war in Ukraine and in part by shortages of both goods and labour, rose materially and saw aggressive responses from Central Banks which in turn focused attention back on to the state of the slowing global economy and its knock-on to earnings. In Asia, the period was dominated by concerns over the health of the Chinese economy with its 'zero-COVID' policy exacerbating ongoing worries over an already weak property market. Increased levels of regulation in China (particularly amongst the internet names) also weighed on sentiment. Later in the period, some easing measures announced by the Chinese government, together with an apparent shift in focus towards 'stability', looked to underpin sentiment.

With the rise in and potential for a more sustained higher level of inflation globally, there was renewed concern over higher interest rates. This saw some of the more highly-rated growth stocks come under pressure, especially the less profitable names, with value stocks outperforming growth stocks over the period. Towards the end of the period there were some hopes that inflation was nearing a peak and this would elicit a pivot from the US Federal Reserve to a more dovish stance. This proved to be relatively short lived, however.

The divergence of returns across the regional markets continued to be high, with China lagging for the reasons mentioned above. Korea, often a market correlated with global growth expectations, was also weak with the memory sector names deteriorating on concerns over falling demand as well as some of the more highly-rated internet names under pressure. Similarly, Taiwan lagged as information technology ("IT") stocks underperformed owing to concerns over the impact that a slowing consumer would have on end demand, as rising inflation crimped real incomes. Of the larger markets, India and Singapore outperformed. India, being relatively more insulated from the impacts of slowing global growth combined with the domestic economy recovering from the impacts of COVID, has proven to be relatively resilient from a stock market perspective. Loose domestic liquidity and strong domestic flows into the market have also been supportive. Singapore was aided by a strong recovery in the financials sector. The other ASEAN markets also outperformed, helped initially by the potential for post-pandemic re-opening, as well as value stocks outperforming, in which they tend to have higher weightings. Whilst most of Asia is negatively impacted by rising energy prices Indonesia was a beneficiary.

Sector returns across the region also saw a large spread. Beneficiaries of rising commodity prices did well, especially energy names, and higher interest rates meant financials also outperformed. More defensive areas such as utilities and consumer staples also held up. Sectors with a high growth component sold off, including the healthcare names dragged down by the high-multiple biotechnology stocks, as did a number of the e-commerce and internet related names largely found in the consumer discretionary and communication services sectors. Information technology sold off towards the end of the period as there was increasing concern over a slowdown in consumer demand at a time when some of the bottlenecks around supply were clearing.

Performance and Portfolio Activity

The Company's NAV total return of -13.6% over the period was marginally ahead of that of the reference Benchmark which fell by -13.9% over the period. As described above, the faster than expected rise in global interest rates not only impacted markets but particularly growth names within that. Although the Company is not an out and out growth fund, its modest growth bias was a headwind to returns. This was seen most acutely amongst the internet related names we held in Korea and Singapore which underperformed materially. Although we benefited from our stock selection in, and underweight to, healthcare stocks, avoiding some of the more high rated biotech names, our underweight positioning in some of the other more defensive areas such as consumer staples and utilities was a drag.

Positively our overweight to, and stock selection in, financials added value. This was driven by the positions in banks which in general benefitted from a firming of interest rate expectations combined with their lowly valuations. The out of benchmark Australian resources exposure, including BHP, was also a positive contributor, thanks to higher commodity prices driven by the global recovery. Although our overweight to IT was a headwind as the sector saw negative earnings revisions, our positions added value thanks to strong stock selection in some of the Taiwanese names, such as Hon Hai and Delta Electronics, which more than offset the negative from being overweight the sector.

From a regional perspective, the significant underweight to China added value, as the ongoing issues highlighted above impacted the market. Here, the internet names were among those that bore the brunt of the sell down. In Singapore, our overweight was positive but stock selection was a drag as the internet name we held there (Sea) was in part impacted by higher rates, which resulted in a greater focus on the timeline for profitability from its fast growing e-commerce business. Korean and Taiwanese exposure was also a drag, in part due to the markets being quite globally focused which impacted our IT names. Our lack of exposure to financials in Taiwan, and our allocation to more domestic growth areas in Korea, also detracted from relative performance. Our out of index exposure to Australia and Vietnam was positive, as was stock selection in Indonesia (Bank Mandiri) but our underweight to some of the other ASEAN markets, in particular Malaysia and the Philippines, detracted.

The geographic exposure in the Company's portfolio continues to be mainly spread between China, India, Taiwan, Hong Kong, Korea and Singapore. China remains a substantial underweight, despite modest additions during the year as the market underperformed. In part, this is offset by the overweight to Hong Kong. Over the period we also reduced our exposure to some of the more expensive domestic Indian names that had performed well, whilst adding to some of the IT services companies there (Infosys and Tata Consultancy Services) but overall taking us down to being slightly underweight the index in relative terms. Elsewhere, we added to some of the smaller ASEAN markets including Vietnam (where we now have local access) and the Philippines.

As throughout much of last year, portfolio activity tended to take advantage of the valuation spread that we saw across industries, reducing those stocks that had performed particularly strongly and now looked more fully valued in favour of those names that had lagged and looked more attractive from a valuation perspective. We continued in aggregate to add to financials, where we are overweight, with valuations still looking relatively attractive given higher interest rates and subdued credit costs. Here we added principally to names in Singapore, including Oversea-Chinese Banking and United Overseas Bank. Looking elsewhere, an area where we have reduced exposure is to the Australian resource names. The sector has performed strongly over the last year, in part helped by the surge in commodity prices.

Information technology is one of the biggest sectoral exposures in the fund, along with financials. Although near term earnings have been seeing downward revisions, we continue to see some strong long-term drivers for growth around digitisation and the roll out of 5G and 'Internet of Things' and our focus remains on the Taiwanese and Korean companies such as TSMC and Samsung Electronics.

Outlook and Policy

Slowing global and weak Chinese growth, elevated geopolitical tensions around Ukraine and Taiwan and rising interest rates, combined with ongoing downward revisions to earnings, mean that headwinds for markets are likely to continue. However, some areas of the markets are starting to look more attractive from a longer term perspective having derated markedly.

Globally, consumption is under pressure as rising prices eat into real incomes. This, allied with the shift away from consumption of goods to consumption of services as the majority of economies open up post-pandemic, has seen the demand for goods falter. This in turn has started to see inventories accumulate across supply chains globally, leading to a fear that we will see a painful period of inventory adjustment on top of an already slowing global economy. From an Asian perspective, this is likely to have an impact on exports and from our portfolio's perspective is most likely to evidence itself in the technology hardware sector. To an extent, markets have already started to discount this with technology names in both Korea and Taiwan already underperforming despite earnings holding up relatively well for now. In our view, valuations are now starting to factor in a slowdown but not yet a "hard landing" which, although not our base case, is a possibility. In general, the stocks we own in this sector are leaders in their area with high market shares and strong balance sheets on attractive valuations, so in our view should prove to be relatively resilient. Although we did take some money out of the sector earlier in the year, we remain overweight.

The other trend that the pandemic and Ukraine crisis have reinforced has been the need for increased self sufficiency. The need for diversified supply chains was something that the COVID crisis had highlighted, given the disruption the pandemic caused. With security of supply already a focus in areas such as semiconductor production, thanks to ongoing US-China tensions and the concentration of advanced manufacturing in Taiwan, the Ukraine conflict has also highlighted the vulnerability of nations to energy supply dependency. The recently concluded Party Congress in China saw President Xi mention 'security' 91 times in his opening speech (according to Bloomberg) compared with 55 mentions five years ago, reinforcing a view that China will continue to intensify efforts around 'self sufficiency' in core technologies and strategic industries. All this will likely lead to further localisation of supply chains and an era of reduced globalisation.

Geopolitics will continue to remain a risk, including surrounding Taiwan as highlighted by the recent visit by Nancy Pelosi to the island, which has resulted in increased tensions between the US and China. Other actions, such as the recent moves by the US to restrict China's ability to purchase and manufacture high-end semiconductors, combined with the mid-term elections in the US mean it is unlikely we will see any meaningful relaxation in tensions near term and this is likely to continue to weigh on sentiment.

From an Asian perspective the biggest impact on growth is coming from the 'zero COVID' policy in China, where the lockdowns have had a severe impact on growth as well as exacerbating the weakness in the property sector. It is not clear how long this policy will remain in place but for now there is unlikely, in our view, to be any major volte-face in the near term. The recent Party Congress gave no indication when the policy might be eased and, whilst vaccination rates in China are high and comparable to most developed nations, a large tranche of the elderly still remain unvaccinated making it difficult for them to open up until this is rectified. Although a wholesale opening up is unlikely near term, it is likely that some more incremental easing measures occur. But in our view, China's consumption and growth will continue to remain lacklustre as uncertainty over the path of COVID weighs on sentiment.

Given this, we have started to see a number of actions to loosen policy including rate cuts, easing of property purchase restrictions and increases in infrastructure spending and fiscal incentives. We consider it likely that we will see further easing measures but, whilst the 'zero COVID' policy remains, their impact for the large part is likely to resemble pushing on a string. Nevertheless, given how poorly the market has performed, together with the move to an easing bias there (whilst most of the rest of the world are tightening), as well as a tentative easing of the severity of lockdowns, there is potential for the market to experience better periods of performance. From our positioning perspective we have been very underweight China for some time and although we continue to look for new opportunities given the falls, we remain so and believe that the challenges that were there for the market remain.

Longer term - although Xi's confirmation at the Congress as the Party's General Secretary for his third five year term was not a surprise, the make up of the Politburo Standing Committee (and Politburo) was decidedly one-sided being dominated by Xi loyalists, further cementing his power within the Party. The lack of countervailing voices within the new PSC potentially heightens policy risk and likely means that many of the challenges brought about by increased regulation will persist, with the narrative around areas such as 'common prosperity' continuing to weigh on the potential returns of parts of the private sector. All this means one should not necessarily use a mean reversion argument alone when it comes to valuation.

Nearer term, although we are likely to see a stabilisation of the economy, it is hard for it to recover to pre-pandemic growth rates whilst the strict 'zero COVID' policy remains in place. The infectious nature of the Omicron variant means it is still likely we will see ongoing rolling restrictions. However, we could start to see a relaxation of some of the 'zero COVID' measures after the party congress but these are likely, in our view, to be incremental rather than wholesale. All this continues to mean we look for bottom up stock opportunities in China, consistent with our process, rather than move money into the market on a macro, top-down driven allocation.

India has been one of the best performing markets over the period, due not only to the economy benefiting from a post-COVID recovery, but also to domestic flows into the market in part on optimism about economic prospects following progress on reforms. Whilst on a long term basis the market continues to look attractive, valuations are now at extremes versus the rest of the region, which has led us to temper our position in some of the more domestic orientated names. Historically, the relatively weak external accounts have seen India suffer in a strong US dollar, strong commodity price environment and this could yet see domestic interest rates rise faster than expected, impacting valuations. Given the long term attractions of the market, we would likely use any correction in favoured names to increase positions.

Sector-wise, aside from information technology, financials remain an important overweight. Here banks, in our view, still remain attractive in aggregate on the back of benefits from rising rates and low valuations. However, given the backdrop of rising rates in most markets combined with slowing growth there is a risk that if rates move up faster than expected it could start to impact asset quality, offsetting the benefit of expanding margins, so we remain selective. Underweights are largely found in some of the more 'defensive' areas such as utilities, consumer staples and healthcare where valuations are generally, in our view, quite full.

While recent events described above do not paint a particularly optimistic picture, this has in part been reflected in market action with valuations today looking much less frothy than they did a year ago. Nevertheless, the US Federal Reserve being more aggressive on rates near term is clearly a headwind, given its near term impact on growth and earnings. However, this in turn should start to cap long-term inflationary expectations which will pave the way for lower rates at some point in the future. Until then, it is likely that we see further downward revisions to earnings and a period of inventory adjustment amongst companies to reflect the slower growth and hopefully put them in a position to start to grow earnings once more. Given overall aggregate valuations for the region are now trading at or below long-term averages, this does set up a more constructive backdrop for Asian markets next year, barring a global hard landing or a more extreme geopolitical risk event.

To conclude, it is worth remembering that as investors we buy companies not countries. We are mindful of the impact political and macroeconomic factors can have on equities and returns, but we are bottom-up stock-pickers first and foremost, focusing on the company's return prospects and valuation. We do not try to pick companies which will do well based purely on a particular macro environment which we have forecast; rather we try to pick well-managed companies which have structural advantages allowing them to survive (and hopefully thrive!) in as wide a range of external conditions as possible. Therefore, a focus on attractive bottom up ideas, in our view, remains essential.

Market Weights - Schroder AsiaPacific Fund versus MSCI AC Asia ex Japan Index

	Net Asset Value Weight (%)			Benchmark
				Weight %
		30 Sep 2022	30 Sep 2021		30 Sep 2022
Mainland China		18.7	18.3		35.8
India		17.0	15.2		17.5
Taiwan		15.0	16.2		15.8
Hong Kong (SAR)		12.9	12.4		7.4
South Korea		12.4	16.7		12.2
Singapore		8.4	7.3		3.9
Australia		3.8	2.9		-
Indonesia		2.6	1.4		2.5
Thailand		2.2	1.6		2.4
Philippines		0.9	0.1		0.8
Malaysia		-	-		1.7
Other equities*		6.3	8.5		-
Gearing		(0.2)	(0.6)		-
Total		100.0	100.0		100.0

* Vietnam, Italy, Germany, Netherlands and a unit trust predominantly invested in Asia.

Source: Schroders, MSCI, 30 September 2022.

Schroder Investment Management Limited

6 December 2022

Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested.

Principal and emerging risks

The Board is responsible for the Company's system of risk management and internal control and for reviewing its effectiveness. The Board has adopted a detailed matrix of principal risks affecting the Company's business as an investment 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. Both the principal risks and the monitoring system are also subject to robust review at least annually. The last review took place in November 2022.

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.

The AIC Code of Corporate Governance requires the audit and risk committee to also put in place procedures to identify emerging risks. The actions taken by the Board and, where appropriate, its committees, to manage and mitigate the Company's principal and emerging risks are set out in the table below:

Risk	Mitigation and management
Strategic The requirements of investors change or develop in such a way as to diverge from the Company's investment objectives, resulting in a wide discount of the share price to NAV per share.	The appropriateness of the Company's investment remit is periodically reviewed and the success of the Company in meeting its stated objectives is monitored. The share price relative to NAV per share is monitored and the use of buy back authorities is considered on a regular basis. The marketing and distribution activity is regularly reviewed. The Company engages proactively with investors.
The Company's cost base could become uncompetitive, particularly in light of open ended alternatives.	The ongoing competitiveness of all service provider fees is subject to periodic benchmarking against their competitors. Annual consideration of management fee levels is undertaken.
Investment management and performance The Manager's investment strategy, if inappropriate, may result in the Company underperforming the market and/or peer group companies, leading to the Company and its objectives becoming unattractive to investors.	Review of the Manager's compliance with its agreed investment restrictions, investment performance and risk against investment objectives and strategy; relative performance; the portfolio's risk profile; and whether appropriate strategies are employed to mitigate any negative impact of substantial changes in markets. The Manager reports on macro-economic events, including regional policies, quarterly. Annual review of the ongoing suitability of the Manager. Regular meetings with major shareholders to seek their views with respect to Company matters.
Financial and currency The Company is exposed to the effect of market fluctuations due to the nature of its business. A significant fall in regional equity markets or a substantial currency fluctuation could have an adverse impact on the market value of the Company's investments.	The risk profile of the portfolio is considered and appropriate strategies to mitigate any negative impact of substantial changes in markets or currency are discussed with the Manager. The Company has no formal policy of hedging currency risk but may use foreign currency borrowings or forward foreign currency contracts to limit exposure.
Political Political risk includes the impact of geopolitical risk, regional tensions, trade wars and sanctions against companies, in areas in which the Company invests or may invest, that might have consequences for the Company including an adverse effect on the value of the Company's assets.	The Board monitors global developments and regularly has discussions with the Investment Manager and other interested parties. It will continue to do so as matters develop in respect of Russia's invasion of Ukraine, tensions between US and China, developments within China, increasing energy and food prices, global economic growth and the potential for further geopolitical unrest. Subject to shareholder consent, the Board can amend the investment policy and objective of the Company to mitigate these risks.
Custody Safe custody of the Company's assets may be compromised through control failures by the depositary.	The depositary reports on the safe custody of the Company's assets, including cash and portfolio holdings which are independently reconciled with the Manager's records. The review of audited internal controls reports covering custodial arrangements is undertaken. An annual report from the depositary on its activities, including matters arising from custody operations is received.
Gearing and leverage The Company utilises credit facilities. These arrangements increase the funds available for investment through borrowing. While this has the potential to enhance investment returns in rising markets, in falling markets the impact could be detrimental to performance.	Gearing is monitored and strict restrictions on borrowings are imposed: gearing continues to operate within pre-agreed limits so as not to exceed 20% of shareholders' funds.
Accounting, legal and regulatory change In order to continue to qualify as an investment trust, the Company must comply with the requirements of Section 1158 of the Corporation Tax Act 2010. Breaches of the UK Listing Rules, the Companies Act or other regulations with which the Company is required to comply, could lead to a number of detrimental outcomes.	The Board intends to continue to operate the Company in full compliance with the requirements of Section 1158 of the Corporation Tax Act 2010. The confirmation of compliance with relevant laws and regulations by key service providers is reviewed. Shareholder documents and announcements, including the annual report, are subject to stringent review processes. Procedures are established to safeguard against the disclosure of inside information.
Service provider The Company has no employees and has delegated certain functions to a number of service providers. Failure of controls and poor performance of any service provider, could lead to disruption, reputational damage or loss.	Service providers are appointed subject to due diligence processes and with clearly documented contractual arrangements detailing service expectations. Regular reporting is provided by key service providers and monitoring of the quality of their services provided. The Directors also receive presentations from the Manager, depositary and custodian, and the registrar on an annual basis. Review of annual audited internal controls reports from key service providers, including confirmation of business continuity arrangements and IT controls is undertaken.
Cyber The Company's service providers are all exposed to the risk of cyber attacks. Cyber attacks could lead to loss of personal or confidential information or disrupt operations.	Service providers report on cyber risk mitigation and management at least annually, which includes confirmation of business continuity capability in the event of a cyber attack. In addition, the Board received presentations from the Manager, depositary and custodian, and the registrar on cyber risk. The Board noted that following the invasion of Ukraine by Russia, cyber risk was assessed to be higher, and the Board sought assurances from its service providers that they were as ready as they could be to manage the increased risk.
Climate change Climate change and climate-related risks could impact the Company's business and affect revenue, expenses, asset values and the cost or availability of capital.	The consideration of climate change risks and opportunities and of environmental, social and governance factors is integrated into the Investment Manager's investment process. The Investment Manager also considers and evaluates the approach investee companies take to recognise and mitigate climate change risks.

Statement of Directors' Responsibilities in respect of the Annual Report and Accounts

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 webpage dedicated to the Company. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Each of the Directors, whose names and functions are listed on pages 24 and 25 of the published annual report and accounts for the year ended 30 September 2022, 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 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

James Williams

Chairman

6 December 2022

Income Statement

for the year ended 30 September 2022

		2022			2021
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
(Losses)/gains on investments held at fair
value through profit or loss	-	(154,731)	(154,731)	-	132,242	132,242
Net foreign currency losses	-	(2,936)	(2,936)	-	(1,028)	(1,028)
Income from investments	24,673	-	24,673	20,783	1,615	22,398
Other interest receivable and similar income	12	-	12	-	-	-
Gross return/(loss)	24,685	(157,667)	(132,982)	20,783	132,829	153,612
Investment management fee	(1,728)	(5,185)	(6,913)	(2,026)	(6,078)	(8,104)
Administrative expenses	(1,437)	-	(1,437)	(1,282)	(1)	(1,283)
Net return/(loss) before finance costs and taxation	21,520	(162,852)	(141,332)	17,475	126,750	144,225
Finance costs	(48)	(145)	(193)	(22)	(66)	(88)
Net return/(loss) before taxation	21,472	(162,997)	(141,525)	17,453	126,684	144,137
Taxation	(1,799)	1,145	(654)	(1,373)	(5,787)	(7,160)
Net return/(loss) after taxation	19,673	(161,852)	(142,179)	16,080	120,897	136,977
Return/(loss) per share	12.04p	(99.08)p	(87.04)p	9.66p	72.61p	82.27p

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 other items of other comprehensive income, and therefore the net return after taxation is also the total comprehensive income for the year.

All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the year.

Statement of Changes in Equity

for the year ended 30 September 2022

	Called-up		Capital	Warrant	Share
	share	Share	redemption	exercise	purchase	Capital	Revenue
	capital	premium	reserve	reserve	reserve	reserves	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 30 September 2020	16,682	100,956	3,462	8,704	27,946	773,466	14,930	946,146
Repurchase and cancellation
of the Company's own shares	(196)	-	196	-	(11,836)	-	-	(11,836)
Net return after taxation	-	-	-	-	-	120,897	16,080	136,977
Dividend paid in the year	-	-	-	-	-	-	(13,346)	(13,346)
At 30 September 2021	16,486	100,956	3,658	8,704	16,110	894,363	17,664	1,057,941
Repurchase and cancellation of
the Company's own shares	(406)	-	406	-	(16,110)	(5,543)	-	(21,653)
Net (loss)/return after taxation	-	-	-	-	-	(161,852)	19,673	(142,179)
Dividend paid in the year	-	-	-	-	-	-	(15,922)	(15,922)
At 30 September 2022	16,080	100,956	4,064	8,704	-	726,968	21,415	878,187

Statement of Financial Position

at 30 September 2022

	2022	2021
	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	882,801	1,068,988
Current assets
Debtors	7,920	8,499
Cash at bank and in hand	11,343	7,504
	19,263	16,003
Current liabilities
Creditors: amounts falling due within one year	(19,964)	(21,162)
Net current liabilities	(701)	(5,159)
Total assets less current liabilities	882,100	1,063,829
Non current liabilities
Deferred taxation	(3,913)	(5,888)
Net assets	878,187	1,057,941
Capital and reserves
Called-up share capital	16,080	16,486
Share premium	100,956	100,956
Capital redemption reserve	4,064	3,658
Warrant exercise reserve	8,704	8,704
Share purchase reserve	-	16,110
Capital reserves	726,968	894,363
Revenue reserve	21,415	17,664
Total equity shareholders' funds	878,187	1,057,941
Net asset value per share	546.13p	641.72p

These accounts were approved and authorised for issue by the Board of Directors on 6 December 2022 and signed on its behalf by:

James Williams

Chairman

Registered in England and Wales as a public company limited by shares

Company registration number: 03104981

Notes to the Accounts

1.   Accounting Policies

(a)  Basis of accounting

Schroder AsiaPacific Fund 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 October 2019. 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 held at fair value through profit or loss. The Directors believe that the Company has adequate resources to continue operating to 31 December 2023, 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 details of Directors' considerations regarding this are given in the Chairman's Statement, Investment Managers' Review, Going Concern Statement, Viability Statement and under the Principal and Emerging Risks heading on page 21 of the published annual report and accounts for the year ended 30 September 2022.

In preparing these financial statements the Directors have considered the impact of climate change on the value of the Company's investments. The Board has concluded that, as the investments are all valued using quoted bid prices in active markets, the fair value reflects market participants' view of climate change risk.

The Company has not presented a statement of cash flows, as it is not required for an investment trust which meets certain conditions; in particular that substantially all of the Company's investments are highly liquid and carried at market value.

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 30 September 2021.

No significant judgements, estimates or assumptions have been required in the preparation of the accounts for the current or preceding financial year.

2.  Income

	2022	2021
	£'000	£'000
Income from investments:
Overseas dividends	24,091	17,892
UK dividends	582	2,711
Scrip dividends	-	180
	24,673	20,783
Other interest receivable and similar income:
Deposit interest	12	-
	24,685	20,783
Capital:
Special dividend allocated to capital	-	1,615

3.  Investment management fee

		2022			2021
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Management fee	1,728	5,185	6,913	2,026	6,078	8,104

The basis for calculating the investment management fee is set out in the Report of the Directors on page 26 of the published annual report and accounts for the year ended 30 September 2022.

4.  Taxation

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

5.  Return/(loss) per share

	2022	2021
	£'000	£'000
Revenue return	19,673	16,080
Capital (loss)/return	(161,852)	120,897
Total (loss)/return	(142,179)	136,977
Weighted average number of shares in issue during the year	163,346,606	166,499,784
Revenue return per share	12.04p	9.66p
Capital (loss)/return per share	(99.08)p	72.61p
Total (loss)/return per share	(87.04)p	82.27p

6.  Dividends

Dividends paid and proposed

	2022	2021
	£'000	£'000
2021 final dividend of 9.70p (2020: 8.00p) paid out of revenue profits	15,922	13,346
	2022	2021
	£'000	£'000
2022 final dividend proposed of 12.00p (2021: 9.70p) to be paid out of revenue profits	19,296	15,991

The 2021 final dividend amounted to £15,991,000. However the amount actually paid was £15,922,000, as shares were repurchased and cancelled after the accounting date, but prior to the dividend record date.

The proposed final dividend amounting to £19,296,000 (2021: £15,991,000) is the amount used for the basis of determining whether the Company has satisfied the distribution requirements of section 1158 of the Corporation Tax Act 2010. The revenue available for distribution for the year is £19,673,000 (2021: £16,080,000).

7.  Called-up share capital

	2022	2021
	£'000	£'000
Ordinary shares allotted, called-up and fully paid:
Ordinary shares of 10p each:
Opening balance of 164,860,716 (2021: 166,820,716) shares	16,486	16,682
Repurchase and cancellation of 4,060,000 (2021: 1,960,000) shares	(406)	(196)
Closing balance of 160,800,716 (2021: 164,860,716) shares	16,080	16,486

During the year, the Company made market purchases of 4,060,000 of its own shares, nominal value £406,000, for cancellation, representing 2.46% of the shares outstanding at the beginning of the year. The total consideration paid for these shares amounted to £21,653,000. The reason for these purchases was to seek to manage the volatility of the share price discount to NAV per share and to provide liquidity to the market.

8.  Net asset value per share

	2022	2021
Net assets attributable to shareholders (£'000)	878,187	1,057,941
Shares in issue at the year end	160,800,716	164,860,716
Net asset value per share	546.13p	641.72p

9.  Transactions with the Manager

Under the terms of the AIFM Agreement, the Manager is entitled to receive a management fee and a company secretarial fee. Details of the basis of the management fee calculation are given in the Directors' Report on page 26 of the published annual report and accounts for the year ended 30 September 2022. Any investments in funds managed or advised by the Manager or any of its associated companies, are excluded from the assets used for the purpose of the calculation and therefore incur no fee.

The management fee payable in respect of the year ended 30 September 2022 amounted to £6,913,000 (2021: £8,104,000), of which £1,593,000 (2021: £1,907,000) was outstanding at the year end. The company secretarial fee payable in respect of the year ended 30 September 2022 amounted to £150,000 (2021: £130,000), of which £38,000 (2021: £38,000) was outstanding at the year end.

No Director of the Company served as a director of any member of the Schroder Group, at any time during the year, or prior year.

10.  Related party transactions

Details of the remuneration payable to Directors are given in the Directors' Remuneration Report on page 35 of the published annual report and accounts for the year ended 30 September 2022 and details of Directors' shareholdings are given in the Directors' Remuneration Report on page 36 of the published annual report and accounts for the year ended 30 September 2022. Details of transactions with the Manager are given in the above note. There have been no other transactions with related parties during the year (2021: nil).

11.   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 comprise its investment portfolio and any derivative financial instruments.

FRS 102 requires that financial instruments held at fair value are categorised into a hierarchy consisting of the three levels below. A fair value measurement is categorised in its entirety on the basis of the lowest level input that is significant to the fair value measurement.

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 46 and 1(g) on page 47 of the published annual report and accounts for the year ended 30 September 2022.

At 30 September 2022, the Company's investment portfolio was categorised as follows:

		2022
	Level 1	Level 2	Level 3	Total
	£'000	£'000	£'000	£'000
Investments in equities and equity linked securities	882,801	-	-	882,801
Total	882,801	-	-	882,801
		2021
	Level 1	Level 2	Level 3	Total
	£'000	£'000	£'000	£'000
Investments in equities and equity linked securities	1,068,988	-	-	1,068,988
Total	1,068,988	-	-	1,068,988

There have been no transfers between Levels 1, 2 or 3 during the year (2021: nil).

Status of announcement

2021 Financial Information

The figures and financial information for 2021 are extracted from the published annual report and accounts for the year ended 30 September 2021 and do not constitute the statutory accounts for that year. The 2021 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.

2022 Financial Information

The figures and financial information for 2022 are extracted from the annual report and accounts for the year ended 30 September 2022 and do not constitute the statutory accounts for the year. The 2022 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 2022 annual report and accounts will be delivered to the Registrar of Companies in due course.

Neither the contents of the Company's webpages nor the contents of any website accessible from hyperlinks on the Company's webpages (or any other website) is incorporated into, or forms part of, this announcement.

 

END

 

 

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