Annual Financial Report

RNS Number : 3623C

Asian Total Return Invest Co PLC

14 March 2014

 



14 March 2014

ANNUAL REPORT AND ACCOUNTS

Asian Total Return Investment Company plc (the "Company") hereby submits its annual financial report for the year ended 31 December 2013 as required by the UK Listing Authority's Disclosure and Transparency Rule 4.1. 

The Company's Annual Report and Accounts for the year ended 31 December 2013 are also being published in hard copy format and an electronic copy will shortly be available to download from the Company's website http://www.asiantotalreturninvestmentcompany.com. Please click on the following link to view the document:

The Company has submitted its Annual Report and Accounts to the National Storage Mechanism and it will shortly be available for inspection at www.hemscott.com/nsm.do.

Enquiries:

John Spedding

Schroder Investment Management Limited               

Tel: [phone]

Chairman's Statement

The change in your Company's Investment Manager at the end of the first quarter of 2013 was largely predicated on the strategy followed by the chosen Portfolio Managers, which is focused on absolute return. This should, in normal market conditions, lead to a protection of capital in falling markets, and may result in underperformance in rapidly rising markets.

Thus, it is disappointing to report that your Company's share price total return fell by 3.4%, and the NAV total return by 8.4% in 2013, whilst the Reference Index (sterling adjusted) fell by 1.6% and the peer group returned on average 1.7%.

Performance

The underperformance was largely the result of a confluence of factors impacting markets, stock selection and the hedging strategy, as well as the adjustment of the portfolio during the transition.

These factors are explained in more detail in the Portfolio Managers' Review.

Despite the disappointing overall performance of the portfolio since the middle of the year, your Board remains satisfied that the investment strategy employed by your Portfolio Managers is unique in the sector. The strategy is well defined, supported by a research network and infrastructure across the region, and is understood by both investors and analysts alike. It is your Board's contention that this strategy will pay off for investors in the Company over the longer term.

Indeed, partly as a reflection of the excellent long term track record of the open ended vehicle managed by your Portfolio Managers, and partly due to the marketability of your Company's amended investment strategy, the year under review actually saw a re-rating of the Company's share price. As a result, the net asset value (NAV) discount narrowed from 8.1% at the start of the year to 3.2% by the year end.

Share issuance and buy-backs

This narrowing of the discount meant that your Company's shares remain amongst the best rated shares in the peer group. Earlier in the year, a total of 290,000 shares were issued from Treasury as the shares traded at a premium to net asset value.

The Board agreed at the time of the tender to target a discount of no more than 9% over the long term, but, in view of the re-rating of the share price since March, it was subsequently decided to target a much tighter discount level nearer 5% during the year. The average discount since the change in Investment Manager has been 1.6% and the Board continues to be committed to active management of the discount and/or premium.

Since the share price moved back from a premium to a discount in the second half of the year, a total of 250,000 shares were purchased by the Company after the year end, to be held in Treasury. Further details of the discount policy may be found in the Strategic Report.

Dividend

The Board indicated earlier in the year that, whilst total return remained the focus for the new investment strategy, the yield to be generated by the strategy was less certain and would, in all likelihood, represent a lower contributor to total return than in the past. Indeed, the revenue generated during the year decreased from 2.92p per share to 1.98p per share. Notwithstanding this, the Board has decided to declare an unchanged dividend of 3.25p per share, utilising revenue reserves brought forward, to fund the uncovered portion of the payment. This will be payable as an interim dividend on 4 April 2014 to shareholders on the register on 21 March 2014.

Shareholders should note that this level of dividend does not necessarily provide an indication of future dividend payments.

Fees and expenses

As a result of the six month management fee holiday following the change of Investment Manager, along with the reduction in size of the Company, management fees for the year totalled £835,000 compared with £1.84m in 2012. Accordingly, Ongoing Charges represented only 0.7% of funds under management compared with an average for the peer group of 1.1%.

Whilst, traditionally, investment trusts have had a cost advantage over open ended vehicles, following implementation of the Retail Distribution Review last year, open ended management fees are being reduced significantly, thereby eroding investment trusts' advantage. This is something that the Board will keep under review, particularly as the Company's Ongoing Charges will rise in 2014 following the fee holiday in 2013.

Board refreshment

The Board continues to consider its composition, balance and diversity alongside its longer term refreshment and succession policy. As a result of recent discussions, and in the light of the reduction in the size of the Company, your Board considers that it would be more appropriate for the Board to comprise five non executive Directors rather than six. The Board has, therefore, agreed that Struan Robertson will retire at the Annual General Meeting and will not seek re-election as a Director of your Company.

I would like to take this opportunity, on behalf of the Board, to thank Mr Robertson for his invaluable contribution, in particular for his dedication to the discussions and negotiations in the run up to the change in Investment Manager last year. Mr Robertson's role as Senior Independent Director will be taken by Christopher Keljik after the Annual General Meeting.

In addition, at least one additional long-serving Director will retire at the 2015 Annual General Meeting. The process to identify new Directors has commenced and an external agency has been engaged for this purpose.

Regulatory environment

The Alternative Investment Fund Manager Directive (AIFMD) is a European Union Directive which creates a European wide framework for the regulation of all 'alternative Investment Managers'. We have a one year transitional period in which to comply with the Directive. Following considerable debate amongst the Board as to whether the Company should be the AIFM, it has been agreed that a Schroders Group company will act as the Company's AIFM at no additional cost to the Company. However, the Directive also requires that the Company, in conjunction with the AIFM, appoints a depositary. HSBC will be appointed in this role, but the provision of depositary services will come at an additional cost to those incurred for HSBC's custodian services.

Annual General Meeting

The Annual General Meeting will be held at 12.30 p.m. on Wednesday 30 April, 2014 at 31 Gresham Street, London, EC2V 7QA, the offices of Schroders. One of the Portfolio Managers will attend to give a presentation on the prospects for Asia and the Company's investment strategy. The Annual General Meeting will be followed by a buffet lunch.

Outlook

Whilst there are signs that economic growth in the developed economies is set to be stronger in 2014 than in 2013, there are still significant risks to growth and to the outlook for stock markets. There is little evidence that the experiment of quantitative easing by the major economies has done anything much more than provide a boost to asset prices, whilst fiscal austerity programmes in a number of countries, particularly the EU periphery, have resulted in extremely high levels of unemployment. Government debt levels in the US, Japan, the EU and UK have hardly been impacted, and the banking system in Europe remains fragile.

Equity markets in the developed countries performed extremely well last year, but this was largely as a result of multiple expansion and if earnings do not grow in the coming year, there is significant scope for disappointment. Any setback in this respect, particularly in the US, will almost certainly affect markets in the Asian region.

Meanwhile, concerns over the outlook for emerging economies, particularly those with weak external balances, are probably well placed. But with the exception of India and Indonesia, there seems little reason for countries in the region to be impacted. Nevertheless, sentiment towards emerging markets as an asset class has waned as investors worry about the impact of tapering in the US, whilst worries also remain about issues of economic adjustment and lower growth in China.

However, your Portfolio Managers are actually becoming more positive on the outlook for China, given the commitment of China's new political regime to structural reform. The indiscriminate sell off across all markets in the region has thrown up some interesting opportunities to pick up quality stocks at depressed levels. All in all, your Board expects that whilst there may continue to be volatile periods in markets this year, the prospects are in place for better performance from Asian markets than in 2013.

David Robins

Chairman

13 March 2014

Portfolio Managers' Review

Market background

Global markets started 2013 on a positive note, rallying after US lawmakers decided not to push the US economy over the fiscal cliff. Optimism remained buoyant over the first quarter as upbeat economic data and supportive central bank policies boosted investor confidence. Much of that optimism, however, started to dissipate as concerns over US monetary and fiscal policy resurfaced, exacerbated by an inconclusive Italian election and a bailout for Cyprus. Worries over China and global growth further weighed on sentiment. As a result, Asian markets were mostly directionless over the first few months of 2013 with the more cyclical North Asian markets (China, Hong Kong, Korea and Taiwan) drifting lower on thin volumes whilst the more domestically focused ASEAN markets outperformed.

An early second quarter rally in Asian markets was short-lived as fears over the likely effect of scaling back of US quantitative easing sparked a sharp sell-off in June. The realisation that Abenomics was unlikely instantly to energise Japan, coupled with tighter liquidity conditions and weak data from China, further dampened investor sentiment.

Following the sell-off, Asian markets staged a rebound in the third quarter as confidence in the recovery of the US economy rose, and as worries of a hard landing in China eased. Notably, cyclical markets and stocks staged the sharpest rebound, with China, Korea and Australia leading gains. ASEAN and more domestically focused stocks lagged, with India and Indonesia being the worst performers in US dollar terms as their currencies depreciated.

Performance Analysis

Schroders started managing the portfolio on 15 March 2013, using the subsequent two weeks to sell assets to fund the tender and to change the remaining holdings onto the new mandate.

The dispersion in performance between Developed Asia and Emerging Asian markets widened in the fourth quarter as investors rotated into North Asia on hopes of a cyclical recovery in global growth. China outperformed on the back of improving macroeconomic data, while export-dependent economies (Korea and Taiwan) rose on optimism over a pick-up in exports. In contrast, Indonesia, Thailand and the Philippines all witnessed sell-offs as currency weakness, coupled with domestic growth and political concerns, fuelled capital outflows. Worries over capital flight then triggered a mini-panic as parallels with the Asian financial crisis of 1997/98 were drawn.

Overall, the Reference Index fell 1.6% in Sterling terms over the year. The contrast between developed markets and underperforming emerging markets was sharp, as was the performance within Asia with Australia, Taiwan and Korea sharply outperforming the weaker ASEAN markets.

Performance

The NAV fell 8.4% over the year, compared to a decline in the chain-linked Reference Index of 1.6%.

From the end of March, following Schroders' appointment as Investment Manager, the NAV declined 11.4% to the end of December 2013, underperforming the Reference Index which fell 7.0% over the same period. Holdings in Hong Kong, Thailand and Indonesia were the main contributors to the negative performance. By comparison selection in Chinese securities was supportive.

Performance in Hong Kong was largely weighed down by the exposure to the Jardines group, namely Jardine Matheson, Jardine Strategic and Hongkong Land, which declined on concerns over Indonesian Rupiah weakness and a slower earnings growth outlook. Interest rate sensitive stocks, including Swire Properties and Sun Hung Kai Properties, also came under pressure due to concerns over interest rate volatility and a softer outlook for the Hong Kong property market.

In Thailand and Indonesia, much of the negative performance was driven by the sell-off in ASEAN stocks on fears of a looming crisis. Political unrest in Thailand exacerbated the negative sentiment and stock selection across ASEAN detracted from the Company's performance. In Thailand, Kasikornbank was the largest detractor as concerns over a weak loan growth outlook amidst slowing economic momentum and potential delays in infrastructure investment weighed on the stock. In Indonesia, Bank Mandiri came under pressure as slowing growth and macroeconomic headwinds led to a sharp sell off.

Stock selection in China helped to offset some of the negative returns. Healthcare stocks such as Wuxi Pharmaceutical and Sino Biopharmaceutical were helped by strong corporate results. China Lodging Group, a budget hotel chain, was another consistent outperformer on the back of improving margins and the continued rapid roll out of its budget hotel brands.

Our capital protection policies did not work as well as hoped. The Company held put options to provide protection against global macro risks. These puts were mostly on the liquid North Asian markets and Australia. With the second half market falls mostly in the smaller ASEAN markets and India, where no liquid puts are available, it was impossible to hedge against market weakness. On a more positive note, the Australian dollar hedge was profitable and, with put prices relatively low, there was only a small drag on performance from the hedging strategies.

Portfolio positioning and key transactions

Transactions during the year were dominated by the sales in March to fund the tender, and changing the portfolio to fit the new mandate. The initial positioning focused on pockets of opportunities in Hong Kong and Singapore property stocks as well as banks, retail, construction and conglomerates in ASEAN. It also favoured cash flow-generative industrial companies listed in Singapore, Hong Kong and Australia.

Apart from the new holdings, there were two structural changes to the portfolio, in line with the new policy agreed at the Company's General Meeting in March 2013.

The first was the inclusion of a number of Asian small and midcap companies, such as Zee Entertainment (media company), International Housewares (household goods retailer), Ace Hardware (commercial and industrial supplies), Semen Indonesia (cement), Emperador (beverages), Thai Stanley Electric Public (automotive bulbs) and Phoenix Mills (property developer) which was retained from the inherited portfolio.

Secondly, equity market derivatives and exchange rate forwards were used, with the goal of protecting part of the portfolio's value. Put options were bought on the S&P ASX 200 Index, Hang Seng Index, KOSPI 200 and Taiwan Stock Exchange Index to hedge cyclical risks in the portfolio as the costs of capital protection were also cheap. We also hedged most of the Australian dollar exposure as we were cautious on the outlook for the Australian economy.

After the initial transition of the portfolio, we took the opportunity to add to ASEAN domestic stocks, property securities in Hong Kong and Singapore, and cash flow-generating industrials on weakness. In Hong Kong, we added to real estate developer Hysan Development and industrial stock Hutchison Whampoa. We also bought power tool manufacturer Techtronic Industries as well as selected healthcare stocks. We built positions in Apollo Hospital in India along with China Shineway Pharmaceutical and Mindray Medical in China.

Investment trends and outlook

Whilst we are not negative on the global growth outlook, we think recovery expectations are too high, especially in Europe and Japan. The US economy looks in better shape but market valuations are excessive and are being artificially boosted by share buybacks. Given relative valuations and stock market performance, we think the consensus view that developed markets are a buy and Asian markets a sell is wrong. We anticipate that tapering and inflation worries are at a crescendo and will dissipate this year.

Asian economies are financially in good shape, such that a financial crisis resulting from interest rate normalisation is unlikely, unless policy mistakes are made. We also think the world is profoundly deflationary and thus interest rate normalisation is likely to be gradual. Asian markets overall, however, are not cheap. North Asian markets in particular offer little value, with low headline market multiples masking the fact that those companies with sound long term prospects are in the main expensive.

We currently find better value in individual Thai, Philippine, Hong Kong, Indian, Taiwanese and Australian stocks. Within ASEAN, we favour Thailand and the Philippines for structural reasons. In Thailand we can find relatively high quality companies, and geographically Thailand is at the centre of what we consider is probably the most interesting region in Asia (Laos, Vietnam, Myanmar and Cambodia - or LVMC).

For the Philippines the story is simpler and now perhaps better understood and we would admit increasingly reflected in stockmarket valuations. The Philippines has lagged the rest of the region for most of the last 30 years, basically surviving on overseas workers' remittances. Cleaner government and a huge boom in call centres and relatively low end business processing and services, however, are now invigorating the economy. Investment is finally taking off from a low base and a whole new lower middle class is being generated by the BPO industry and the continuing boom in overseas remittances. The Philippines has significant potential and we think we are only at the beginning of a catch up phase. We are not adding to Philippine positions at current levels but would use pull backs to accumulate favoured names exposed to the domestic economy.

Elsewhere, we continue to like healthcare stocks in China, India and Thailand given ageing populations and increased government healthcare funding in China and Thailand. In Australia, we hold overseas focused companies in niche sectors with strong secular growth. We selectively like Information Technology companies in Taiwan and India that have exposure to the trends of data mobility, automation, control equipment, connectivity, software design and implementation. In Hong Kong, we continue to favour selected property stocks, which at 50% discounts to NAVs are at stressed valuation levels. We continue to avoid state owned enterprises and low-end manufacturers of generic products like PCs and handsets. We remain cautious about Asian consumer staples, utilities and telecom stocks due to high valuations and Australian banks, consumer and property stocks due to concerns about the Australian domestic economy.

We maintain hedges (via put options) on the portfolio due to the material risks, with the outlook for China the key to our decision on hedging policies and whether to turn more bullish. A panic sell off in Asian stockmarkets resulting from the announcement of large scale bad debts and slower GDP growth in China, both of which could be an inevitable consequence of the Chinese authorities genuinely undertaking reforms to rebalance the economy, would be likely to turn us bullish. Rebalancing in China should ultimately lead to better stockmarket returns both in China and the Asian region generally.

Robin Parbrook, King Fuei Lee

Schroder Investment Management Limited

13 March 2014

Principal risks and uncertainties

The Board has established a process for identifying, evaluating and managing any major risks faced by the Company in a detailed risk map. It reviews these risks and the controls to mitigate these risks, including whistleblowing policies where appropriate, on a regular basis. The process is subject to regular review by the Board and accords with the Internal Control Guidance for Directors on the Combined Code published in September 1999 and revised in October 2005 and June 2006 ("the Turnbull Guidance").

The Board, assisted by the Manager, has undertaken an annual review of the effectiveness of the Company's system of internal control, for which it relies upon Schroders, by on-site visits and questioning staff. No significant failings or weaknesses in respect of the Company were identified in the year under review or up to the date of this Report. The Board receives a report on controls within the custody and funds product lines of HSBC to whom services are delegated. The Board also receives a letter of comfort from Schroders on its internal controls report currently being completed.

The Board is responsible for overseeing the system of internal controls implemented by Schroders and for reviewing its effectiveness on an ongoing basis. These controls aim to ensure that assets of the Company are safeguarded, proper accounting records are maintained and the financial information used within the business and for publication is reliable. Control of the risks identified is embedded in the controls of the Company. However, such a system is designed to manage rather than eliminate risks of failure to achieve the Company's business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss.

The Board has put in place a schedule of investment limits and restrictions, appropriate to the Company's investment objective and policy, in order to mitigate identified risks as far as practicable. The principal risks which have been identified and the steps taken by the Board to mitigate these are as follows:

Portfolio and market

Although the Company invests entirely in securities that are quoted on recognised markets, share prices may move sharply. The companies in which investments are made may operate unsuccessfully, or fail entirely. A fall in the market value of the Company's portfolio would have an adverse impact on shareholders' funds. Details of the Company's policy for managing portfolio and market risk are given in note 20(iii) on page 45 of the Annual Report and Accounts.

Investment activity and performance

An inappropriate investment strategy (for example in terms of asset allocation or the level of gearing) may result in underperformance against the market and the companies in its peer group. The Board monitors at each Board meeting the Manager's compliance with the Company's objectives.

Tax and regulatory risks

A breach of Section 1158 of the Corporation Tax Act 2010 could lead to a loss of investment trust status, resulting in capital gains realised within the portfolio being subject to corporation tax. A breach of the UKLA Listing Rules could result in suspension of the Company's shares, while a breach of the Companies Act 2006 could lead to criminal proceedings, or financial or reputational damage. The Company must also ensure compliance with the listing rules of the New Zealand Stock Exchange, as it has a listing in that country.

Financial

By its nature as an investment trust, the Company's business activities are exposed to market risk (including currency risk, interest rate risk and market price risk), liquidity risk, and credit and counterparty risk. Details of these risks, how they are managed and the exposures to these risks are given in this note and in note 20 to the Financial Statements on pages 43 to 46 of the Annual Report and Accounts.

Corporate, social and environmental policy

The Company's primary investment objective is to achieve optimal financial returns for shareholders, within established risk parameters and regulatory constraints. Providing that this objective is not compromised in the process, the Board believes that it is also possible to develop a framework that, in the interests of the Company's shareholders, allows a broader range of considerations, including environmental and social issues (including those relating to human rights), to be taken into account when selecting and retaining investments.

Going concern

The assets of the Company consist mainly of securities which are readily realisable and the Company has adequate financial resources to continue in operational existence for the foreseeable future. For these reasons the Directors believe that it is appropriate to continue to adopt the going concern basis in preparing the financial statements. In reviewing the position as at the date of this report, the Board has considered the guidance on this matter issued by the Financial Reporting Council in October 2009.

Statement of Directors' responsibilities

The Directors are responsible for preparing the Annual Report, the Remuneration 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 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 judgments and accounting estimates that are reasonable and prudent; and

•     state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements.

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 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 Directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The Directors consider that the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy.

Each of the Directors, whose names and functions are listed on page 18 of the Annual Report and Accounts, 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 loss of the Company; and

·      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 risks and uncertainties that it faces.

Income Statement

for the year ended 31 December 2013

		2013			2012
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
(Losses)/gains on investments held at fair value through profit or loss	-	(5,141)	(5,141)	-	50,996	50,996
Net losses on derivative contracts	-	(2,755)	(2,755)	-	-	-
Net foreign currency (losses)/gains	-	(71)	(71)	-	1,107	1,107
Income from investments	2,741	-	2,741	6,198	-	6,198
Other interest receivable and similar income	33	-	33	414	-	414
Gross return/(loss)	2,774	(7,967)	(5,193)	6,612	52,103	58,715
Investment management fee	(266)	(569)	(835)	(647)	(1,193)	(1,840)
Administrative expenses	(581)	-	(581)	(751)	-	(751)
Net return/(loss) before finance costs and taxation	1,927	(8,536)	(6,609)	5,214	50,910	56,124
Finance costs	(1)	(2)	(3)	(71)	(214)	(285)
Net return/(loss) on ordinary activities before taxation	1,926	(8,538)	(6,612)	5,143	50,696	55,839
Taxation on ordinary activities	(133)	(103)	(236)	(617)	-	(617)
Net return/(loss) on ordinary activities after taxation	1,793	(8,641)	(6,848)	4,526	50,696	55,222
Return/(loss) per share	1.98p	(9.55)p	(7.57)p	2.92p	32.68p	35.60p

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 included in the results above and therefore no separate statement of total recognised gains and losses has been presented.

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

Reconciliation of Movements in Shareholders' Funds

for the year ended 31 December 2013

	Called-up		Capital
	share	Share	redemption	Special	Capital	Revenue
	capital	premium	reserve	reserve	reserves	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 31 December 2011	8,044	-	7,862	50,616	189,016	13,879	269,417
Repurchase and cancellation of the Company's own shares	(635)	-	635	(21,434)	-	-	(21,434)
Net return on ordinary activities	-	-	-	-	50,696	4,526	55,222
Dividend paid in the year	-	-	-	-	-	(5,129)	(5,129)
At 31 December 2012	7,409	-	8,497	29,182	239,712	13,276	298,076
Repurchase and cancellation of the Company's own shares following a Tender Offer	(3,149)	-	3,149	-	(129,184)	-	(129,184)
Repurchase of the Company's own shares into Treasury following a Tender Offer	-	-	-	-	(22,574)	-	(22,574)
Reissue of shares from Treasury	-	5	-	-	581	-	586
Net (loss)/return on ordinary activities	-	-	-	-	(8,641)	1,793	(6,848)
Dividend paid in the year	-	-	-	-	-	(4,816)	(4,816)
At 31 December 2013	4,260	5	11,646	29,182	79,894	10,253	135,240

Balance Sheet

at 31 December 2013

	2013	2012
	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss	132,609	298,003
Current assets
Debtors	922	395
Cash at bank and in hand	1,824	451
Derivative financial instruments held at fair value through profit or loss	310	-
	3,056	846
Current liabilities
Creditors: amounts falling due within one year	(394)	(773)
Derivative financial instruments held at fair value through profit or loss	(31)	-
	(425)	(773)
Net current assets	2,631	73
Total assets less current liabilities	135,240	298,076
Net assets	135,240	298,076
Capital and reserves
Called-up share capital	4,260	7,409
Share premium	5	-
Capital redemption reserve	11,646	8,497
Special reserve	29,182	29,182
Capital reserves	79,894	239,712
Revenue reserve	10,253	13,276
Total equity shareholders' funds	135,240	298,076
Net asset value per share	181.82p	201.15p

Cash Flow Statement

For the year ended 31 December 2013

	2013	2012
	£'000	£'000
Net cash inflow from operating activities	1,008	3,696
Servicing of finance Interest paid	(20)	(288)
Net cash outflow from servicing of finance	(20)	(288)
Investment activities
Purchases of investments	(201,690)	(120,851)
Sales of investments	361,168	154,420
Cash flows on derivative instruments	(3,034)	-
Net cash inflow from investment activities	156,444	33,569
Dividend paid	(4,816)	(5,129)
Net cash inflow before financing	152,616	31,848
Financing
Repurchase and cancellation of the Company's own shares following a Tender Offer	(129,184)	-
Repurchase of the Company's own shares into Treasury following a Tender Offer	(22,574)	-
Reissue of shares from Treasury	586	-
Repurchase and cancellation of the Company's own shares	-	(21,434)
Net cash outflow from financing	(151,172)	(21,434)
Net cash inflow in the year	1,444	10,414

Notes to the Accounts

1. Accounting policies

The accounts are prepared in accordance with the Companies Act 2006, 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" ("the SORP") issued by the Association of Investment Companies in January 2009. All of the Company's operations are of a continuing nature.

The accounts have been prepared on a going concern basis under the historical cost convention, as modified by the revaluation of investments and financial assets and financial liabilities (including derivative financial instruments) held at fair value through profit or loss.

The policies applied in these accounts are consistent with those applied in the preceding year.

2. Income

	2013	2012
	£'000	£'000
Income from investments
Overseas dividends	2,737	5,626
Stock dividends	4	572
	2,741	6,198
Other interest receivable and similar income
Stock lending fees	30	414
Deposit interest	3	-
	33	414
	2,774	6,612

3. Investment management fee

		2013			2012
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Investment management fee payable to Henderson	126	378	504	397	1,193	1,590
Accounting, secretarial and administration costs payable to Henderson	76	-	76	250	-	250
Investment management fee payable to Schroders	64	191	255	-	-	-
	266	569	835	647	1,193	1,840

No performance fee is payable for the year and no provision is required at 31 December 2013 (2012: nil). Schroders agreed to waive its investment management fee and any performance fee, for a period of six months following its appointment on 15 March 2013.

The bases for calculating the investment management and performance fees are set out in the Strategic Report on page 15 of the Annual Report and Accounts.

4. Dividends

(a) Dividends paid and declared

	2013	2012
	£'000	£'000
2012 interim dividend paid of 3.25p (2011: 3.25p)	4,816	5,129
	2013	2012
	£'000	£'000
2013 interim dividend proposed of 3.25p (2012: 3.25p)	2,417	4,816

(b) Dividends for the purposes of Section 1158 of the Corporation Tax Act 2010 ("Section 1158")

The requirements of Section 1158 are considered on the basis of dividends declared in respect of the financial year as shown below. The revenue available for distribution by way of dividend for the year is £1,793,000 (2012: £4,526,000).

	2013	2012
	£'000	£'000
2013 interim dividend proposed of 3.25p (2012: 3.25p)	2,417	4,816

5. Return/(loss) per share

	2013	2012
	£'000	£'000
Revenue return	1,793	4,526
Capital (loss)/return	(8,641)	50,696
Total (loss)/return	(6,848)	55,222
Weighted average number of shares in issue during the year1	90,510,583	155,131,153
Revenue return per share	1.98p	2.92p
Capital (loss)/return per share	(9.55)p	32.68p
Total (loss)/return per share	(7.57)p	35.60p

¹ The weighted average calculation takes into consideration the proportion of the year that the number of issued shares remains unchanged.

6. Net asset value per share

	2013	2012
Total equity shareholders' funds (£'000)	135,240	298,076
Shares in issue at the year end	74,381,141	148,182,281
Net asset value per share	181.82p	201.15p

7. Transactions with the Manager

During the year, notice was given to Henderson Global Investors ("Henderson") who had provided investment management, accounting, secretarial and administration services to the Company. A termination fee amounting to £580,000 was paid to Henderson in lieu of these services to the end of the notice period on 25 March 2013. No performance fee was payable for this period (year ended 31 December 2012: nil). The total fees payable to Henderson for the year ended 31 December 2012 amounted to £1,904,000, which included £250,000 for accounting and secretarial costs and £64,000 for marketing services.

The Company appointed Schroder Investment Management Limited ("Schroders"), a wholly owned subsidiary of Schroders plc, to provide investment management services, including accounting, company secretarial and administration services, with effect from 15 March 2013. There are also performance fee arrangements in place. Details of the management and performance fee calculations are given in the Strategic Report on page 15 of the Annual Report and Accounts. If the Company invests in funds managed or advised by Schroders or any of its associated companies, those funds are excluded from the assets used for the purpose of the management fee calculation and therefore attract no fee. Schroders agreed to waive its management and performance fees for six months from the date of appointment. Thus the management fee payable to Schroders in respect of the year ended 31 December 2013 is based on the chargeable period from 15 September to 31 December 2013 and amounts to £255,000. The whole of this amount is outstanding at the year end. No performance fee is payable for the period and no provision is required at 31 December 2013.

No Director of the Company served as a Director of Schroder Investment Management Limited, or any member of the Schroders plc group, at any time during the year.

8. Status of announcement

2012 Financial Information

The figures and financial information for 2012 are extracted from the published Annual Report and Accounts for the year ended 31 December 2012 and do not constitute the statutory accounts for that year. The 2012 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.

2013 Financial Information

The figures and financial information for 2013 are extracted from the Annual Report and Accounts for the year ended 31 December 2013 and do not constitute the statutory accounts for the year. The 2013 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 2013 Annual Report and Accounts will be delivered to the Registrar of Companies in due course.

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

 

END

 

 

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