Final Results

RNS Number : 4029A

Schroder Asian Total Retn InvCo PLC

24 March 2017

 

ANNUAL REPORT AND ACCOUNTS

Schroder Asian Total Return Investment Company plc (the "Company") hereby submits its annual financial report for the year ended 31 December 2016 as required by the UK Listing Authority's Disclosure Guidance and Transparency Rule 4.1. 

The Company's Annual Report and Accounts for the year ended 31 December 2016 are also being published in hard copy format and an electronic copy will shortly be available to download from the Company's webpage http://www.schroders.co.uk/satric. Please click on the following link to view the document: 

http://www.rns-pdf.londonstockexchange.com/rns/4029A_-2017-3-23.pdf

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

Enquiries:

Louise Richard

Schroder Investment Management Limited             

Tel: [phone]

Chairman's Statement

Performance

2016 was an excellent year for sterling-based investors in Asian equities. The markets made a reasonable return - a total return from the Reference Index of 7.4% in local currency terms. However the weakness of the pound in the second half of the year led to exceptional returns when translated into sterling.

During the year ended 31 December 2016, the Company produced a net asset value ("NAV") total return of 28.0%, outperforming the total return of 27.3% from the Reference Index and a total return of 27.0% from the average peer group NAV. The share price fared even better, producing a total return of 37.0%, as the discount narrowed from 10.1% to 4.3%.

The Board was delighted that the excellent performance over the past few years and the integrity of the investment process led to Morningstar, the ratings agency, awarding the Company a Gold rating - its highest level.

Further comment on performance and investment policy may be found in the Portfolio Managers' Review.

Dividend

The revenue return from the portfolio for the year increased when compared to the previous year, from 4.43p per share in 2015, to 5.40p per share for the year under review.

The Board has recommended a final dividend of 4.50p per share for the year ended 31 December 2016, an increase of 18.4% over the final dividend of 3.80p per share paid in respect of the previous financial year.

In order to provide shareholders with the opportunity to vote on the quantum of the dividend, the Board is again proposing that it will be payable as a final dividend, subject to shareholder approval at the Annual General Meeting. The dividend will be paid on 3 May 2017 to shareholders on the register on 7 April 2017.

Name change

As noted in my half year statement, the Company's name was changed to Schroder Asian Total Return Investment Company plc on 21 September 2016 to allow it to benefit from market awareness of the Schroders brand.

Promotion and discount management

The Company has continued to be promoted through marketing to discretionary wealth managers, private investors, financial advisers and institutions. The Board, Manager and corporate broker have been in regular contact with current and potential shareholders and continue to develop relationships with adviser and execution-only platforms, along with advertising in the trade press and provision of information on the Company's website. The promotional work remains focused on the Company's distinctive characteristics and differentiators from its peer group, including the focus on total return, with a bias towards small and medium-sized companies and a degree of downside protection through derivatives.

The promotional activity is supported by a discount management policy, which continues to target a discount to NAV of no more than 5% in normal market conditions, though the Board believes that overall liquidity and the relative discount to the Company's peers has also to be considered. During the year under review, the Company saw steady demand for its shares. The Company's average discount during the year of 7.4% was significantly narrower than the peer group average of 10.8% and 200,000 shares were purchased by the Company to be held in treasury in support of the discount policy.

At the General Meeting held on 15 November 2016 the Board was granted authority to reissue ordinary shares from treasury at a discount of no greater than 4% to the net asset value per ordinary share. Since that date, the Board has utilised this authority to issue 100,000 ordinary shares at a discount to NAV. A resolution to renew this authority will be proposed at the AGM, the details of which can be found on page 57 of the 2016 Annual Report.

Gearing and the use of derivatives

The Company may use gearing to enhance performance but net gearing will not exceed 30% of NAV. The Board has agreed a disciplined framework for gearing to increase market exposure, based on a number of valuation indicators. Gearing may also be used in other circumstances and the net gearing stood at 7.0% at the end of the year, up from 1.0% at the beginning of the year. The gearing was increased with the aim of purchasing attractive stocks while simultaneously hedging out some underlying market exposure through the use of derivatives.

Fees and expenses

Ongoing Charges represented 1.0% of net assets in 2016 (2015: 1.0%), in line with the average for the Company's peer group. The strong performance during the year triggered the payment of a performance fee amounting to £2.65 million. The total management fees, including the performance fee, payable for the year were capped at 2.0% of net assets, in accordance with the fee arrangements with the Manager.

Corporate governance

The Board has adopted a new policy on succession and refreshment. This policy has been designed to ensure that the Board achieves a diverse balance of skills, experience, background and gender which is appropriately refreshed over time and remains capable of overseeing the Company's strategic direction and adopted business model.

The Board believes that it is important for appropriate new skills to be brought to the Board and, for future appointments, Directors, including the Chairman, will not normally be expected to serve for more than nine years, unless exceptional circumstances such as change of Manager require a transitional period, or in the circumstances discussed below.

With regards to the position of Chairman, the Board is of the view that, whilst experience of the Company, its Manager and investors are key requirements, it would not be beneficial to the Company for the Chairman to serve for extended periods. Therefore, should a serving Director be subsequently appointed as Chairman, such appointment would take effect for an initial term of five years. Any further term would be considered on a case-by-case basis and would depend on overall length of service and the prevailing circumstances of the Company at that time.

The Board will look to refresh one Director every two to three years. To ensure that the Board has access to the widest choice of candidates, it will engage third party recruitment agencies for each new appointment. This is a formalisation of a policy which has been in operation for a number of years.

All Directors will be subject to re-election by shareholders every year at the Annual General Meeting.

The Board will also engage an external firm to undertake an evaluation of the Board and its Committees every few years. The internal process will continue to operate in the intervening periods.

Annual General Meeting

The Annual General Meeting will be held at 12.00 noon on Wednesday, 26 April 2017 at 31 Gresham Street, London EC2V 7QA, the offices of Schroders, and shareholders are encouraged to attend. One of the Portfolio Managers will attend to give a presentation on the Company's investment strategy and prospects for Asia. The Annual General Meeting will be followed by a buffet lunch.

Outlook

The year under review provided exceptional returns for sterling investors. 2017 has started on a strong note though the potential impact of the US president's trade policy on Asia is a new uncertainty. With sterling at a low point, returns from Asian markets are unlikely to be as good this year but through careful stock selection and a tested investment process we are confident that the portfolio will continue to provide attractive returns in the medium term with less volatility than the overall market.

David Brief

Chairman

23 March 2017

Portfolio Managers' Review

Market background

Asian equities delivered positive returns for the year 2016 as accommodative monetary policies by central banks continued to support investor risk appetite against a backdrop of heightened political uncertainties. Stock markets however gave back some gains in the last quarter following Donald Trump's unexpected victory in the US presidential elections, which raised expectations for a faster pace of interest rate hikes and hence a stronger US dollar.

Across the region, Thailand and Indonesia were among the best performing markets as the smaller ASEAN countries rebounded strongly at the start of the year on the back of stabilising currencies and expectations of government stimulus. The Philippines market however came under pressure following the election of new President Rodrigo Duterte, which triggered a wave of foreign outflow on concerns over his unpredictable policies and impact of his anti-US rhetoric on business relations with its key trading partners.

The China stock market saw heightened volatility over the year as worries over the devaluation in the Chinese currency and capital outflows led to a sharp sell-off in the first quarter. The market subsequently regained ground as expectations of continued government support helped boost investor sentiment, driving a share price recovery in the more cyclical sectors across financials, materials and commodity-related industries.

Returns for the Indian market were also relatively sluggish amid weak earnings results and disappointment over the lack of progress on reforms. The introduction of the demonetisation policy in November further dragged on returns with the market selling off on worries over the impact of the liquidity squeeze on near-term economic activity.

Overall, macro events and political headwinds continued to weigh on sentiment towards emerging markets, with Asian equities paring earlier gains to end the year up 7.4% in local currency terms. This translates to a strong gain of 27.3% in sterling terms, due to the sharp fall in sterling following the UK's EU referendum.

Performance Analysis

The NAV gained 28.0% over the year, compared to the Reference Index which returned 27.3%.

Performance was driven largely by positive contributions from holdings in China, Taiwan and Australia, with strong gains across technology stocks and resources names. Exporters were the laggards due mainly to concerns over a slowing global demand backdrop and the negative impact from Trump's potential protectionism measures.

Stock selection was a key driver to returns with strong contribution from technology holdings. Taiwan-based Apple supply chain stocks were the biggest outperformers, with Largan Precision and Taiwan Semiconductor Manufacturing rising on hopes of strong iPhone 7 demand. Korean IT conglomerate Samsung Electronics added to gains on the back of solid earnings momentum, with its share price further boosted by announcement of its shareholder return policy with guidance for higher dividend payouts and share buy backs.

Positive contribution also came from Chinese internet stocks Tencent and Alibaba which extended their rally driven by solid earnings outlook and robust top-line growth. The holding in China Lodging, a mid-tier budget hotel chain, was up strongly on continued acceleration in its revenue growth recovery, with margins supported by gradual consolidation of the economy hotel market.

Across other markets, Australian stocks were some of the top gainers with resources and materials names rebounding on the back of higher commodity prices. ASEAN holdings also delivered gains with positive contribution from laggard names across the consumer, banks and property sectors.

The hedges (put options on the Australian, Hong Kong, Korean and Taiwan markets) provided some downside protection against falling markets during the first and last quarter, although the currency hedge on the Australian dollar gave back some of the recent gains amid a modest appreciation of the currency relative to the US dollar over the period.

Portfolio positioning and key transactions

We continued to view ASEAN markets as expensive and have continued to trim our exposures there on strength, particularly in Thailand where we exited positions in power supply components manufacturer Delta Electronics, automotive bulb maker Thai Stanley Electric and property stock Land & Houses. We also trimmed existing exposures in Kasikornbank and Hana Microelectronics to lock in profits.

Transactions in Taiwan were also used to reduce exposures as we took profits on camera lens module manufacturer Largan Precision following its stellar performance, as well as on Taiwan Mobile. In Hong Kong, we consolidated our real estate holdings in commercial property investors and developers Hongkong Land and Swire Properties after selling out of Hysan Development and Cheung Kong Property, the latter due to a relatively uncertain long term outlook for its property development business.

Proceeds were redeployed in Australia and Korea, as well as in China including in its onshore 'A' share market. In Australia, new positions were initiated in the country's stock exchange ASX, as well as mining services company Incitec Pivot. We also sold out of mining giant Rio Tinto to rotate into BHP Billiton on more attractive relative valuations.

In China, in spite of a challenged macroeconomic backdrop and our concerns over the sustainability and risks brought about by its credit-fuelled economic growth model, we are however constructive on the new economy and services sectors, where we have added new positions in e-commerce and social media companies Alibaba Group and Sina Corporation, as well as in private educational services provider New Oriental Education & Technology Group. In a broadly expensive onshore 'A' share market, we also found selected attractive bottom-up opportunities, initiating new positions in electric appliance manufacturer Midea, as well as video surveillance solutions provider Hangzhou Hikvision Digital.

Starting the year with no exposures in Korea, we added to the exposure in technology stocks with a new position in Samsung Electronics, taking a favourable view on its component businesses including OLED display and advanced memory chips (3D Nand), where it has a significant lead. A new position was also initiated in internet company Naver Corp, as well as automotive equipment supplier Mando Corp, where we see opportunities for the firm amidst the growing demand for, and sophistication around, Advanced Driver Assistance Systems (ADAS).

Our preferred areas of investment and where we see opportunities to invest with a structural, longer term view, have not changed materially, as we expect headwinds from demographics, deleveraging and disruption to slow Asian economic growth in the medium term. Disruption is however having a revolutionary impact on some sectors, and we see opportunities in disruptive innovators, healthcare as well as efficient, low cost and high value-add manufacturers.

As at 31 December 2016, 24.7% of the portfolio was held in companies with a market capitalisation of less than US$3 billion (2015: 34.2%). The decrease was due to sales of small cap positions in ASEAN and Hong Kong.

Investment trends and outlook

We are cautious on the global backdrop, with our quant models signalling caution and forecasting limited upside to markets. Qualitatively we view the US stock market as fully valued and at the current point do not see the new US administration's policies as likely to be stock market friendly in the long term, especially for Asian stock markets if the policies result in higher US interest rates, a stronger dollar and de-globalisation. Our central scenario is that reflation is likely to prove temporary and long term structural factors (particularly high debt levels) mean that the global economy remains ultimately deflationary. Given this backdrop we expect a difficult year for markets and if valuations remain elevated and put options cheap, the portfolio is likely to hold a material position in put options and potentially cash.

Our base case is that 2017 is not the year that China changes policy and thus we think it may well end up being a very similar year to 2016 for both the economy and stock market. In practice this is likely to mean lots of rhetoric on reform and reining in the financial bubble, whilst the authorities do very little in any material way to change policy as this would inevitably lead to a sharp slowdown and major bad debt cycle. Our best guess is that as the shadow banking sector grows larger this will finally trigger a proper bad debt cycle as the ability of the central authorities to use the large commercial banks to bail out the growing toxic parts of the financial system are reduced. We expect the better (i.e. cashed-up) State Owned Enterprises (SOEs) to be called in to do national service, and commodity and cyclical stocks globally to be very vulnerable given the prime driver of commodity demand remains Chinese fixed asset investment. We continue to avoid investing in all financials, materials and commodity, SOE and related names in China.

For the rest of the region, we think India remains the best domestic story in Asia at the moment, with current reforms and positive demographics in its favour. The key for the stock market is that Modi continues with his plans to cut red tape, root out corruption, improve infrastructure and improve the fiscal position so that we finally see a pick-up in investment. The frustration remains that share valuations are high so that we struggle to justify the prices being asked for the better domestic names. We will continue to look for dips and disappointments to add to positions.

We are more cautious on the other emerging Asian economies as we worry that the combined effects of border taxes in the USA (and the likely strong dollar that would go with it), industrial disruption and lack of policy leadership in much of emerging Asia is likely to mean that, with the exception of India and possibly Indonesia and Philippines, we are set to see a much slower and challenging period for growth. Stock picking will become more important than ever in this environment and investors need to moderate their return expectations.

In terms of our investment positioning, we are sticking with the internet holdings despite relatively high valuations. We see the digital disruption continuing across the retail industry with little sign of relief for many bricks-and-mortar retailers while the amount of time spent on digital media continues to grow. We also like healthcare stocks in Australia and selected Australian financials.

The largest individual exposure remains the technology holdings. This is the key risk for the coming year. If Trump gets serious on his border taxes these stocks will likely face weakened demand and in some cases the need to onshore production back to the US. The portfolio's exposure is mostly to high value added companies like Taiwan Semiconductor Manufacturing, Largan Precision, Samsung Electronics and Hangzhou Hikvision where the threat of US-based competition is minimal and margins relatively higher. Clearly for commoditised manufacturers and assemblers operating on thin margins, the risks are more serious.

Although so many Asian companies operate in "challenged" sectors, we believe that, through careful stock selection and management of the market cycle, we should be able to deliver reasonable returns.

Robin Parbrook, King Fuei Lee

For Schroder Investment Management Limited

23 March 2017

Principal risks and uncertainties

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 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 its 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 February 2017.

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.

A summary of the principal risks and uncertainties faced by the Company, which have remained unchanged throughout the year, is set out below. This includes actions taken by the Board and, where appropriate, its Committees, to manage and mitigate these risks and uncertainties.

Risk	Mitigation and management
Strategic risk
The Company's investment objectives may become out of line with the requirements of investors, resulting in a wide discount of the share price to underlying net asset value.	Appropriateness of the Company's investment remit periodically reviewed and success of the Company in meeting its stated objectives is monitored.     Share price relative to net asset value monitored and use of buy back authorities considered on a regular basis.    Marketing and distribution activity is actively reviewed.
Investment management risk
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 the agreed investment restrictions, investment performance and risk against investment objectives and strategy; relative performance; the portfolio's risk profile; and appropriate strategies employed to mitigate any negative impact of substantial changes in markets.      Annual review of the ongoing suitability of the Manager.
Financial and currency risk
The Company is exposed to the effect of market and currency fluctuations due to the nature of its business. A significant fall in regional equity markets or substantial currency fluctuation could have an adverse impact on the market value of the Company's underlying investments.	Risk profile of the portfolio considered and appropriate strategies to mitigate any negative impact of substantial changes in markets discussed with the Manager.       Derivative strategy employed by the Manager subject to review by the Board.       Board considers overall hedging policy on a regular basis.
The Company's cost base could become uncompetitive, particularly in light of open ended alternatives.	Ongoing competitiveness of all service provider fees subject to periodic benchmarking against competitors.  Annual consideration of management fee levels.
Custody risk
Safe custody of the Company's assets may be compromised through control failures by the Depositary, including cyber hacking.	Depositary reports on safe custody of the Company's assets, including cash, and portfolio holdings are independently reconciled with the Manager's records.   Review of audited internal controls reports covering custodial arrangements.         Annual report from the Depositary on its activities, including matters arising from custody operations.
Gearing and leverage risk
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 monitored and strict restrictions on borrowings imposed: gearing continues to operate within pre-agreed limits so as not to exceed 30% of net asset value. Board oversight of the Manager's use of derivatives.
Accounting, legal and regulatory risk
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.	Confirmation of compliance with relevant laws and regulations by key service providers.       Shareholder documents and announcements, including the Company's published Annual Report, are subject to stringent review processes.        Procedures have been established to safeguard against disclosure of inside information.
Service provider risk
The Company has no employees and has delegated certain functions to a number of service providers, principally the Manager, Depositary and Registrar. Failure of controls and poor performance of any service provider could lead to disruption, reputational damage or loss.	Service providers appointed subject to due diligence processes and with clearly-documented contractual arrangements detailing service expectations.        Regular reporting by key service providers and monitoring of the quality of services provided.    Review of annual audited internal controls reports from key service providers, including confirmation of business continuity arrangements and follow up of remedial actions as required.

Risk assessment and internal controls

Risk assessment includes consideration of the scope and quality of the systems of internal control operating within key service providers, and ensures regular communication of the results of monitoring by such providers to the Audit Committee, including the incidence of significant control failings or weaknesses that have been identified at any time and the extent to which they have resulted in unforeseen outcomes or contingencies that may have a material impact on the Company's performance or condition.

No significant control failings or weaknesses were identified from the Audit Committee's ongoing risk assessment which has been in place throughout the financial year and up to the date of this Report.

A full analysis of the financial risks facing the Company is set out in note 21 to the accounts on pages 52 to 56.

Viability statement

The Directors have assessed the viability of the Company over a five year period, taking into account the Company's position at 31 December 2016 and the potential impacts of the principal risks and uncertainties it faces for the review period.

A period of five years has been chosen for the purposes of the assessment of viability as this reflects a suitable time horizon for strategic planning, taking into account the investment policy, liquidity of investments, potential impact of economic cycles, nature of operating costs, dividends and availability of funding.

The Board believes that the Manager has the skills and depth of resource to achieve superior returns in the longer-term and that the portfolio risk profile, limits on gearing, counter-party exposures, liquidity risk and financial controls are robust. In addition, the Company's business model and investment policy provide some resilience to adverse economic cycles. The Directors have therefore concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period to 31 December 2021.

Going concern statement

Having assessed the principal risks and the other matters discussed in connection with the viability statement set out above, and the "Guidance on Risk Management, Internal Control and Related Financial and Business Reporting" published by the FRC in 2014, the Directors consider it appropriate to adopt the going concern basis in preparing the accounts.

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Annual Report, Strategic Report, the Report of the Directors, the Corporate Governance Statement, 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, 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 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 Company's website. 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 21 and 22 of the 2016 Annual Report, 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 risks and uncertainties that it faces; and

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

Income Statement

for the year ended 31 December 2016

		Revenue	2016 Capital	Total	Revenue	2015 Capital	Total
		£'000	£'000	£'000	£'000	£'000	£'000
Gains on investments held at
fair value through profit or loss		-	46,666	46,666	-	2,704	2,704
Net (losses)/gains on derivative contracts		-	(485)	(485)	-	596	596
Net foreign currency losses		-	(2,289)	(2,289)	-	(940)	(940)
Income from investments		4,765	-	4,765	4,117	-	4,117
Other interest receivable and similar income		34	-	34	96	-	96
Gross return		4,799	43,892	48,691	4,213	2,360	6,573
Investment management fee		(317)	(950)	(1,267)	(259)	(777)	(1,036)
Performance fee		-	(2,650)	(2,650)	-	-	-
Administrative expenses		(564)	-	(564)	(520)	-	(520)
Net return before finance costs
and taxation		3,918	40,292	44,210	3,434	1,583	5,017
Finance costs		(42)	(126)	(168)	(33)	(100)	(133)
Net return on ordinary activities
before taxation		3,876	40,166	44,042	3,401	1,483	4,884
Taxation on ordinary activities		64	-	64	(165)	-	(165)
Net return on ordinary activities
after taxation		3,940	40,166	44,106	3,236	1,483	4,719
Return per share - basic and diluted		5.40p	55.07p	60.47p	4.43p	2.03p	6.46p

The "Total" column of this statement is the profit and loss account of the Company. The "Revenue" and "Capital" columns represent supplementary information prepared under guidance issued by The Association of Investment Companies. The Company has no items of other comprehensive income, and therefore the net return on ordinary activities 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 31 December 2016

	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 2014	4,260	5	11,646	29,182	97,133	10,116	152,342
Repurchase of the Company's own shares into Treasury	-	-	-	-	(496)	-	(496)
Net return on ordinary activities	-	-	-	-	1,483	3,236	4,719
Dividend paid in the year	-	-	-	-	-	(2,379)	(2,379)
At 31 December 2015	4,260	5	11,646	29,182	98,120	10,973	154,186
Repurchase of the Company's own shares into Treasury	-	-	-	-	(503)	-	(503)
Net return on ordinary activities	-	-	-	-	40,166	3,940	44,106
Dividend paid in the year	-	-	-	-	-	(2,772)	(2,772)
At 31 December 2016	4,260	5	11,646	29,182	137,783	12,141	195,017

Statement of Financial Position

at 31 December 2016

		2016	2015
		£'000	£'000
Fixed assets
Investments held at fair value through profit or loss		207,947	155,403
Current assets
Debtors		1,255	409
Cash at bank and in hand		7,310	6,101
Derivative financial instruments held at fair value through profit or loss		2,681	403
		11,246	6,913
Current liabilities
Creditors: amounts falling due within one year		(24,176)	(8,055)
Derivative financial instruments held at fair value through profit or loss		-	(75)
		(24,176)	(8,130)
Net current liabilities		(12,930)	(1,217)
Total assets less current liabilities		195,017	154,186
Net assets		195,017	154,186
Capital and reserves
Called-up share capital		4,260	4,260
Share premium		5	5
Capital redemption reserve		11,646	11,646
Special reserve		29,182	29,182
Capital reserves		137,783	98,120
Revenue reserve		12,141	10,973
Total equity shareholders' funds		195,017	154,186
Net asset value per share
Undiluted		268.07p	211.36p
Diluted		267.09p	N/a

Cash Flow Statement

for the year ended 31 December 2016

		2016	2015
		£'000	£'000
Net cash inflow from operating activities		3,037	2,201
Servicing of finance
Interest paid		(161)	(131)
Net cash outflow from servicing of finance		(161)	(131)
Investment activities
Purchases of investments		(61,360)	(61,996)
Sales of investments		54,721	59,787
Cash flows on derivative instruments		(2,839)	405
Net cash outflow from investment activities		(9,478)	(1,804)
Dividend paid		(2,772)	(2,379)
Net cash outflow before financing		(9,374)	(2,113)
Financing
Bank loan drawn down		10,776	6,775
Repurchase of the Company's own shares into treasury		(503)	(496)
Net cash inflow from financing		10,273	6,279
Net cash inflow in the year		899	4,166

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"), 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 November 2014. All of the Company's operations are of a continuing nature.

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

The accounts are presented in sterling and amounts have been rounded to the nearest thousand.

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

2.      Income

	2016	2015
	£'000	£'000
Income from investments:
Overseas dividends	4,712	4,101
Stock dividends	53	16
	4,765	4,117
Other interest receivable and similar income
Stock lending fees	30	73
Deposit interest	4	5
Other income	-	18
	34	96
	4,799	4,213

3.      Investment management and performance fees

		2016			2015
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Investment management fee	317	950	1,267	259	777	1,036
Performance fee	-	2,650	2,650	-	-	-
	317	3,600	3,917	259	777	1,036

The bases for calculating the investment management and performance fees are set out in the Report of the Directors on page 24 of the 2016 Annual Report and details of all amounts payable to the Manager are given in note 18 on page 50 of the 2016 Annual Report.

4.      Dividends

Dividends paid and declared	2016	2015
	£'000	£'000
2015 final dividend of 3.80p (2014: 3.25p), paid out of revenue profits	2,772	2,379
	2016	2015
	£'000	£'000
2016 final dividend proposed of 4.50p (2015: 3.80p), to be paid out of revenue profits1	3,274	2,772

¹The proposed final dividend amounting to £3,274,000 (2015: £2,772,000) 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 by way of dividend for the year is £3,947,000 (2015: £3,236,000).

5.      Return per share

	2016	2015
	£'000	£'000
Revenue return	3,940	3,236
Capital return	40,166	1,483
Total return	44,106	4,719
Weighted average number of shares in issue during the year	72,931,791	73,104,209
Revenue return per share	5.40p	4.43p
Capital return per share	55.07p	2.03p
Total return per share	60.47p	6.46p

There is no dilution to the above returns per share when the diluted returns are calculated in accordance with the requirements of IAS 33, as is required by FRS 102.

Details of the potentially dilutive treasury shares in issue are given in note 15 on page 50 of the 2016 Annual Report.

6.      Net asset value per share

	2016	2015
Undiluted
Total equity shareholders' funds (£'000)	195,017	154,186
Shares in issue at the year end	72,749,141	72,949,141
Net asset value per share	268.07p	211.36p
Diluted
Total equity shareholders' funds assuming reissue of any dilutive treasury shares (£'000)	213,790	N/A
Potential shares in issue at the year end	80,044,055	N/A
Net asset value per share	267.09p	N/A

The diluted net asset value per share assumes that 7,294,914 treasury shares were reissued at a discount of 4% to the net asset value per share at the year end. At a General Meeting on 15 November 2016, the Company was granted authority to reissue up to 7,294,914 ordinary shares from treasury (representing approximately 10% of the shares in issue as at 15 November 2016), at a discount of no greater than 4% to the net asset value per ordinary share at the time of sale. Prior to this, the Company's policy was that treasury shares would only be reissued at a premium to net asset value. Since the year end, 100,000 ordinary shares have been issued at a discount to net asset value under this new authority.

7.      Transactions with the Manager

Under the terms of the Alternative Investment Fund Manager Agreement, the Manager is entitled to receive management, secretarial and performance fees. Details of the basis of these calculations are given in the Report of the Directors on page 24 of the 2016 Annual Report. If the Company invests in funds managed or advised by the Manager, any fees earned by the Manager from those investments are rebated to the Company. The management fee payable in respect of the year ended 31 December 2016 amounted to £1,267,000 (2015: £1,036,000) of which £358,000 (2015: £247,000) was outstanding at the year end.

The secretarial fee payable for the year amounted to £75,000 (2015: £75,000) of which £19,000 (2015: £19,000) was outstanding at the year end. A performance fee amounting to £2,650,000 (2015: nil) is payable for the year, and the whole of this amount was outstanding at the year end.

No Director of the Company served as a director of any company within the Schroder Group at any time during the year.

8.      Called-up share capital

	2016	2015
	£'000	£'000
Allotted, called-up and fully paid:
Ordinary shares of 5p each:
Opening balance of 72,949,141 (2015: 73,199,141) shares	3,647	3,660
Repurchase of 200,000 (2015: 250,000) shares into treasury	(10)	(13)
Subtotal of 72,749,141 (2015: 72,949,141) shares	3,637	3,647
12,455,671 (2015: 12,255,671) shares held in treasury	623	613
Closing balance1	4,260	4,260

¹Represents 85,204,812 (2015: 85,204,812) shares of 5p each, including 12,455,671 (2015: 12,255,671) held in treasury. During the year, the Company purchased 200,000 of its own shares, nominal value £10,000, to hold in treasury for a total consideration of £503,000, representing 0.27% of the shares outstanding at the beginning of the year. The reason for these share purchases was to seek to manage the volatility of the share price discount to net asset value per share.

9.      Status of announcement

2015 Financial Information

The figures and financial information for 2015 are extracted from the published Annual Report and Accounts for the year ended 31 December 2015 and do not constitute the statutory accounts for that year. The 2015 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.

2016 Financial Information

The figures and financial information for 2016 are extracted from the Annual Report and Accounts for the year ended 31 December 2016 and do not constitute the statutory accounts for the year. The 2016 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 2016 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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