Half-year Report

RNS Number : 2866O

Schroder Oriental Income Fund Ltd

29 May 2020

 

29 May 2020

Half Year Report

Schroder Oriental Income Fund Limited (the "Company") hereby submits its half year report for the period ended 29 February 2020 as required by the UK Listing Authority's Disclosure Guidance and Transparency Rule 4.2. 

The half year report is also being published in hard copy format and an electronic copy of that document will shortly be available to download from the Company's website www.schroders.co.uk/orientalincome . Please click on the following link to view the document:

http://www.rns-pdf.londonstockexchange.com/rns/2866O_1-2020-5-28.pdf

The Company has submitted a pdf of the hard copy format of its half year report to the National Storage Mechanism. It will shortly be available for inspection at  https://data.fca.org.uk/#/nsm/nationalstoragemechanism .

Enquiries:

Matthew Riley

Schroder Investment Management Limited 

Tel: [phone]

Half Year Report and Accounts for the six months ended 29 February 2020

Chairman's Statement

At the beginning of the six-month period under review, on 17 September 2019, we celebrated the inclusion of your Company in the FTSE 250 index. Since the beginning of 2020 though, markets have changed beyond recognition, with the COVID-19 pandemic having had a profound impact on many of the countries in which the Company invests.

Performance

For the six month period ended 29 February 2020, the Company's net asset value ("NAV") of 232.32 pence and share price of 213 pence on 29 February produced total returns of -5.4% and -13.7%, respectively. Almost all of the decline in the NAV was from sterling rising against the region's currencies. However, shareholders will be aware that during February there was a sharp drop in markets due to the COVID-19 pandemic and, although there has been some rebound, its effects are still being seen. For the period from 29 February to 26 May 2020, the Company's NAV returned -4.9% and its share price -3.9%. The short-term outlook for markets remains uncertain.

Further analysis of performance may be found in the Manager's Review.

Revenue and dividends

We are closely monitoring the dividends paid by companies in the portfolio. While the revenue return for the six months ended 29 February was broadly unchanged from the first two quarters of the prior year, your board is conscious that dividend receipts by the Company may be under significant pressure in the coming quarters as a result of the COVID-19 pandemic. Your Manager believes that although Asian dividends will fare better than many regions, the impact of COVID-19 could still be significant.

The Company has declared two interim dividends in respect of the first two quarters of the financial year amounting to 3.8 pence per share (H1 2019: 3.6 pence per share).

The board is receiving regular information from the Manager on the portfolio, and the income that it is expected to generate, over the next few quarters. We take comfort from the fact that the Company's revenue reserves are equivalent to nearly nine months' dividends. This could enable us to weather any medium term shortfall in dividends received without jeopardising our payments to shareholders.

Discount management and share issues

The difference between the share price and NAV changed from a premium of 0.4% at the start of the period to a discount of 8.3% as at 29 February 2020. Market-wide increases in share price volatility and reduced volumes traded in reaction to COVID-19 have meant that premiums and discounts have varied considerably, often intra day. The board is alert to this change and we continue to monitor the situation closely. As demonstrated below, we have acted and may continue to act should we believe that a discount may become persistent in more settled market conditions.

Despite the volatility, 7,550,000 shares at an average premium to NAV of 1.2% were issued during the period. Since the period end to 26 May 2020 the discount volatility has continued and a further 750,000  shares were issued at an average premium to NAV of 2.1% whilst 100,000 shares were bought back at an average discount of 8.1%.

Gearing

The Company's gearing was 5.3% at the beginning of the period, and as at 29 February 2020 the gearing was 7.5% largely as a result of the changes to NAV. As at 26 May gearing was 8.3%. The level of gearing continues to operate within pre-agreed levels so that net gearing does not represent more than 25% of shareholders' funds.

After the period end, on 22 April 2020, the Company extended its revolving credit facility for a further period of two months to permit the documentation of a new longer-term facility. The facility size is £100 million, and the Manager has the flexibility to draw down as much or as little as he believes is appropriate in the market conditions.

Board composition

Nick Winsor was appointed as a new non-executive director of the Company on 23 March 2020 following a search led by the Company's Nomination Committee and supported by Fletcher Jones, an independent non-executive director search firm. We welcome Nick to the board and have already benefited from his extensive experience of Asian companies.

Proposed change of tax domicile

Following extensive discussion and advice taken from the Company's specialist advisers, after 15 years as a Guernsey tax exempt company, your board propose that the Company's tax domicile be changed from Guernsey to the United Kingdom. This will result in greater flexibility, increased engagement with service providers, and operational savings due to a reduction in irrecoverable withholding taxes, as a result of the United Kingdom's double taxation treaties with certain Asian countries.

The Company's articles of incorporation were amended on 12 December 2019 to remove any restrictions on board or general meetings being held outside of Guernsey and to remove restrictions on the tax domiciles of the board members to permit a majority of directors to be UK tax resident. Further to this, the board will be convening an extraordinary general meeting of the Company on 1 July 2020 to seek shareholder authority for changing the Company's tax residency from Guernsey to the United Kingdom and applying for investment trust status. We will recommend that shareholders vote in favour of these proposals, as all of your board intend to do in respect of their own holdings. Further information about this is contained in the Company's circular due to be published on 29 May 2020.

Outlook

The COVID-19 lockdowns have adversely affected the operations of many of the companies in the portfolio. While almost none can tell when they will be fully back to normal, in some cases this will lead to cuts in their dividends. That in itself should not be a problem this year for your Company's own dividends - investment income has fallen before, and it is why the board has built up the revenue reserves to nearly nine months of the current level of dividends. The key question is how long it takes for the companies to return to growth.

The visibility of the Company's income prospects will remain hindered for a while, but at this stage I do not want to be too cautious. Asia was hit by the virus first, so parts of it will be among the first to unwind the lockdowns. The region's prior experiences of SARS and MERS viruses and the everyday familiarity with hygiene measures such as face masks means that the measures taken to date appear to have been effective. The portfolio has an emphasis on businesses that generate strong cash flows, with balance sheets that should be able to withstand short-term dislocation. Asia has a well-justified reputation for reacting to adversity and many of the companies in the portfolio came out of both the 1997/8 Asian crisis and the 2008/9 Global Financial Crisis very well, while most governments in the region have maintained a conservative approach to borrowing and thus have retained the firepower to help. So, while

COVID-19 is a serious challenge, I am optimistic that, for the present, we are well-positioned to maintain our approach to payment of dividends and return to generating long term capital gains in due course.

Peter Rigg

Chairman

28 May 2020

Manager's Review

The net asset value per share of the company recorded a total return of -5.4% over the six months to end February 2020. Two interim dividends have been declared totalling 3.80p (3.60p last year).

As the chart on page 5 of the 2020 half year report illustrates, in the seemingly now- distant pre-COVID-19 months of the financial year, regional markets made steady, if unspectacular, upward progress, although partly offset for sterling-based investors by a recovery in the pound. While consensus profits expectations for 2019 continued to fall, relatively loose global monetary conditions and some, admittedly fragmentary, signs of a stabilisation in economic indicators provided support to regional equities. More specifically, there seemed some genuinely valid grounds for a recovery in the crucial information technology sector based on a recovery in demand for data centres and Chinese ramping-up of investment in 5G mobile infrastructure.

It took a while for investors, us included, to register the true implications of the COVID-19 virus that emerged from the wet markets of Wuhan. A measure of complacency (partly engendered by the brevity of the far more lethal but less contagious SARS in 2003) soon changed from late February, although the most severe freefall took place when the waves lapped firmly at the shores of Europe, and subsequently the United States. This could no longer be considered a peculiarly Asian problem; indeed it is a measure of the speed and decisiveness of action taken by many Asian governments that markets such as China, Korea and Taiwan have outperformed many Western counterparts. This is also true of Hong Kong which had its own domestic issues to contend with in the latter part of 2019.

Already facing a number of longer-term structural issues, and in some cases a fair measure of domestic political turmoil (Indonesia, the Philippines, Thailand, Malaysia), the approach to the virus outbreak did not help emerging ASEAN markets, which have been notable underperformers. Relative illiquidity has also undoubtedly been a factor, as even Vietnam (which has so far shown a degree of competence in addressing the COVID-19 challenges) has been equally hard hit.

Although recent developments suggest that Australia and New Zealand have handled the COVID-19 pandemic quite successfully, its emergence undoubtedly depressed returns. In Australia, this came on top of a notable slowing in key housing markets (particularly in Sydney where overseas demand has faded) and related concerns on banking profitability and possible credit losses. Fears over commodity prices and interest rate cuts by the reserve bank of Australia undermined the currency.

Positioning and Performance

The Company's negative total return of 5.4% was behind the reference benchmark which fell 0.7%. The key performance issues have been in Hong Kong and China. The underweighting in China has been the biggest single factor, compounded by the outperformance of the large-cap internet names which, with minimal or no dividends, are not held in the portfolio. Meanwhile, the overweight in Hong Kong hampered returns, with many of the financial and real estate holdings suffering both due to the local political unrest and subsequently the COVID-19 outbreak. Stock selection also detracted in Australia. Positive factors included stock selection in Taiwan, the Japanese holdings, stock selection in Thailand, and a minimal exposure to other emerging ASEAN markets.

Main country exposures remain Hong Kong, Australia, Singapore and Taiwan, with lesser but still sizeable positions in Korea and China. Exposure in China and Hong Kong was reduced in favour of Singapore and Taiwan, with smaller additions to Korea and Australia. In sector terms the positions in materials, specialist financials and information technology were added to at the expense of real estate (but where the portfolio remains remain overweight), telecoms, consumer discretionary and energy. Net gearing rose marginally from 5.3% to 7.5%.

Investment Outlook

It would have been difficult to imagine events that could leave the Global Financial Crisis of a decade ago (the "GFC") looking like a mild inconvenience to markets and economic activity. The key difference between then and now is, of course, the fundamental risk to human life that COVID-19 presents, necessitating actions that threaten to cause economic paralysis across the globe. We are seeing virtually unprecedented degrees of government control and targeted support for the most vulnerable; certainly measures difficult to imagine in peacetime. It is unsurprising that a wartime analogy is widely drawn, and depending on how long the current situation persists, the stock of public debt in many developed economies is likely to end up at levels akin to post-war levels.

The speed, and extent, of the market correction as the crisis has escalated has reflected both the scale of the perceived economic shock, but also equity valuations being generally towards the expensive end of historic ranges. In Asia's case, valuations were not excessive at the end of 2019, but did reflect a measure of hope that there would be a meaningful recovery in regional earnings in 2020. Such hopes have been utterly extinguished.

Given the unique circumstances, current levels of volatility should be of little surprise and there will undoubtedly continue to be significant market movements in both directions over coming months. Recent market lows reflected the fear of the unknown as much as the deterioration in the economic environment which had seen the sharpest eight-week decline in growth expectations since the GFC. As a consequence, unprecedented monetary and fiscal stimulus is now being brought to bear to support economic activity. Besides concerted action by central banks, we are seeing fiscal packages in major economies ranging between 3-6% of GDP. This has included a number of Asian countries, particularly those with enviable room to manoeuvre given years of relative fiscal conservatism such as Korea, Hong Kong and Singapore. Perhaps of note, China's response has thus far been more measured, including suspension of social security payments, reductions in VAT and support for lending to small and medium sized companies.

If the impacts of the virus can be 'successfully' managed, or are less profound than some of the more extreme scenarios envisaged by some, global equity markets could see sharp recovery over coming months, more realistically towards the latter half of the year. If not, we will likely see a different path of recovery. One complication is that a number of countries/governments appear to be somewhat in denial as to the measures required, primarily among emerging markets. It is also evident that recovery is likely to be erratic at best, as governments gradually relax and then tighten controls in response to case progression, while sentiment will be subject to traumatic headlines from the emerging countries that are inevitably less able to manage the crisis or afford the dramatic economic cost of lockdowns. So far the experience in India and populous emerging ASEAN has been fairly benign, but that could well change.

It is clearly positive that numbers of new cases in China have fallen to relatively low levels and industrial activity is almost back to pre-crisis capacity. We would expect a gradual pick-up in domestic consumption as day-to-day life is slowly normalised. With China taking the pain of its own lockdown ahead of the rest of the world, this leaves the country (and to a lesser extent the region) slightly 'ahead of the curve'; however, the recovery is expected to remain patchy as some sectors, such as travel, tourism and leisure, are likely to take much longer to recover fully. Furthermore, there are still real risks of a secondary spike in infections if the lockdown is eased too quickly, as recent experience in Singapore has shown. The export sector across the region also faces a secondary demand shock given the collapse in demand as Western countries moved into their own lockdowns, and this will have an impact on employment, income and investment spending if the downturn lasts for more than a few months.

In the shorter-term attempting to navigate recent volatility has been challenging both due to the speed and quantum of the share price movements over the past few weeks, and the degree of uncertainty regarding the near term growth outlook. But as long-term investors we have sought to take advantage of this volatility. We must work on the assumption that it is a matter of "when" not "if", a degree of normality will be achieved, but the uncertainty is timing. Consequently, while we are prepared to take a degree of operational risk at a holding level (we believe it is too late to be extremely defensive), balance sheet, cost flexibility and the ability to weather an extended downturn is key.

It seems likely that the tide against globalisation (trade, supply chains, people movement) will also draw strength from this epidemic. The portfolio does have exposure to a number of export-oriented companies, but our focus has always been on market leaders and higher value-added businesses. These are not easily substitutable, and have already been subject to rigorous audit by their mainly blue-chip Western customers, themselves under increased scrutiny by regulators, consumers, NGOs and media. Furthermore, in general our investee companies, fully aware of the cyclicality of their operations, have been conservative in terms of balance sheet structure. In general, many of the information technology holdings continue to benefit from the increased need for data storage and connectivity.

Greater tensions over trade are part of a broader pattern of rising geo-political rivalries. These include the political tensions in Hong Kong which had been at least temporarily smothered by the COVID-19 lockdown, potential instability on the Korean peninsula, scrutiny of illicit technology transfer, and a greater focus on the strategic risks of complex supply chains. These need continual monitoring, but also validate the maintenance of a well-diversified portfolio by both sector and geography.

Strong management, sustainable business models and resilient balance sheets seem more than ever crucial, along with retaining a focus on longer-term underlying fundamentals. Asia is generally in good shape to face the subdued medium term prospects, partly thanks to (in most cases) vigorous and timely government responses to COVID-19, along with strong national balance sheets, and a publically listed corporate sector with amongst the lowest debt to equity ratios in the world. Furthermore, dividend pay-out ratios immediately pre-pandemic were not excessive relative to historic averages. Thus far, dividend cuts have been relatively muted, and largely confined to banking and property sectors. However, at time of writing realistic assessment of the length and depth of the COVID-19 recession is impossible to determine.

Schroder Investment Management Limited

28 May 2020

Principal risks and uncertainties

The principal risks and uncertainties with the Company's business fall into the following risk categories: strategic; investment management; financial and currency; political; custody; gearing and leverage; accounting, legal and regulatory; service provider and cyber.

A detailed explanation of the risks and uncertainties in each of these categories can be found on pages 14 and 15 of the Company's published annual report and accounts for the year ended 31 August 2019.

These risks and uncertainties have not materially changed during the six months ended 29 February 2020.

However the board has reviewed the risks related to the COVID-19 pandemic and considers it to be a major event with an ongoing impact on the likelihood and severity of the Company's principal risks. COVID-19 will continue to affect the value of the Company's investments due to the disruption of supply chains and demand for products and services, increased costs and cash flow problems, and changed legal and regulatory requirements for companies. The pandemic is forecast to have a significant impact on prospects for global growth as measured by GDP. As a result, the pandemic has triggered a sharp fall in global stock markets and created uncertainty around future dividend income.

The board notes the Manager's investment process is unaffected by the COVID-19 pandemic. The Manager continues to focus on long-term company fundamentals and detailed analysis of current and future investments. COVID-19 also affected the Company's service providers, who have implemented business continuity plans and are working almost entirely remotely. The board continues to receive regular reporting on operations from the Company's major service providers and does not anticipate a fall in the level of service.

Going concern

The board has assessed the principal risks and uncertainties, along with the Company's current financial position, its cash flows and its liquidity. The board notes that the Company's portfolio is comprised of mainly large cap equities in liquid markets, that the Company has low levels of gearing, which are kept under review by the board, and that the Company has a low level of, mostly, variable costs. The board has reviewed the impact on the risks as a result of COVID-19, and where appropriate, action taken by the Company's service providers in relation to those risks and the directors consider it appropriate to adopt the going concern basis in preparing the accounts.

Related party transactions

There have been no transactions with related parties that have materially affected the financial position or the performance of the Company during the six months ended 29 February 2020.

Directors' responsibility statement

The directors confirm that, to the best of their knowledge, this set of condensed financial statements has been prepared in accordance with the Companies (Guernsey) Law, 2008, International Financial Reporting Standards and with the Statement of Recommended Practice, "Financial Statements of Investment Companies and Venture Capital Trusts" issued in October 2019 and that this Interim Management Report includes a fair review of the information required by 4.2.7R and 4.2.8R of the Financial Conduct Authority's Disclosure Guidance and Transparency Rules.

Statement of Comprehensive Income

	(Unaudited) For the six months ended 29 February 2020			(Unaudited) For the six months ended 28 February 2019			(Audited) For the year ended 31 August 2019
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Losses/(gains) on investments held at fair value through profit or loss	-	(42,903)	(42,903)	-	(18,146)	(18,146)	-	1,538	1,538
Net foreign currency gains/(losses)	-	711	711	-	238	238	-	(2,414)	(2,414)
Income from investments	10,031	62	10,093	10,803	1,050	11,853	32,294	1,076	33,370
Other income	11	-	11	34	-	34	64	-	64
Total income/(loss)	10,042	(42,130)	(32,088)	10,837	(16,858)	(6,021)	32,358	200	32,558
Management fee	(687)	(1,604)	(2,291)	(653)	(1,524)	(2,177)	(1,352)	(3,155)	(4,507)
Administrative expenses	(483)	(2)	(485)	(471)	(2)	(473)	(950)	(6)	(956)
Profit/(loss) before finance costs and taxation	8,872	(43,736)	(34,864)	9,713	(18,384)	(8,671)	30,056	(2,961)	27,095
Finance costs	(125)	(290)	(415)	(163)	(378)	(541)	(332)	(768)	(1,100)
Profit/(loss) before taxation	8,747	(44,026)	(35,279)	9,550	(18,762)	(9,212)	29,724	(3,729)	25,995
Taxation (note 4)	(707)	-	(707)	(688)	-	(688)	(2,348)	-	(2,348)
Net profit/(loss) and total comprehensive income	8,040	(44,026)	(35,986)	8,862	(18,762)	(9,900)	27,376	(3,729)	23,647
Earnings/(losses) per share (note 5)	3.00p	(16.44)p	(13.44)p	3.46p	(7.33)p	(3.87)p	10.60p	(1.44)p	9.16p

The "Total" column of this statement represents the Company's Statement of Comprehensive Income, prepared in accordance with International Financial Reporting Standards. The "Revenue" and "Capital" columns represent supplementary information prepared under guidance issued by the Association of Investment Companies. The Company has no other items of other comprehensive income, and therefore the net profit/(loss) for the period is also the total comprehensive income for the period.

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

Statement of Changes in Equity

For the   six months ended 29 February 2020 (unaudited)

		Capital
	Share	redemption	Special	Capital	Revenue
	capital	reserve	reserve	reserves	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
At 31 August 2019	212,786	39	150,374	267,230	31,375	661,804
Issue of shares	19,397	-	-	-	-	19,397
Net (loss)/profit	-	-	-	(44,026)	8,040	(35,986)
Dividends paid in the period (note 6)	-	-	-	-	(17,401)	(17,401)
At 29 February 2020	232,183	39	150,374	223,204	22,014	627,814

For the six months ended 28 February 2019 (unaudited)

		Capital
	Share	redemption	Special	Capital	Revenue
	capital	reserve	reserve	reserves	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
At 31 August 2018	191,538	39	150,374	270,959	29,801	642,711
Issue of shares	12,301	-	-	-	-	12,301
Net (loss)/profit	-	-	-	(18,762)	8,862	(9,900)
Dividends paid in the period (note 6)	-	-	-	-	(16,158)	(16,158)
At 28 February 2019	203,839	39	150,374	252,197	22,505	628,954

For the year ended 31 August 2019 (audited)

		Capital
	Share	redemption	Special	Capital	Revenue
	capital	reserve	reserve	reserves	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
At 31 August 2018	191,538	39	150,374	270,959	29,801	642,711
Issue of shares	21,248	-	-	-	-	21,248
Net (loss)/profit	-	-	-	(3,729)	27,376	23,647
Dividends paid in the year (note 6)	-	-	-	-	(25,802)	(25,802)
At 31 August 2019	212,786	39	150,374	267,230	31,375	661,804

Balance Sheet

at 29 February 2020 (unaudited)

	(Unaudited)	(Unaudited)	(Audited)
	29 February	28 February	31 August
	2020	2019	2019
	£'000	£'000	£'000
Non current assets
Investments at fair value through profit or loss	669,838	661,969	694,569
Current assets
Receivables	6,518	4,056	2,553
Cash and cash equivalents	14,326	12,684	5,043
Derivative financial instrument held at fair value through profit or loss	-	-	836
	20,844	16,740	8,432
Total assets	690,682	678,709	703,001
Current liabilities
Bank loans	(61,205)	(47,472)	(39,868)
Payables	(1,302)	(1,294)	(1,329)
Derivative financial instruments held at fair value through profit or loss	(361)	(989)	-
	(62,868)	(49,755)	(41,197)
Net assets	627,814	628,954	661,804
Equity attributable to equity holders
Share capital (note 7)	232,183	203,839	212,786
Capital redemption reserve	39	39	39
Special reserve	150,374	150,374	150,374
Capital reserves	223,204	252,197	267,230
Revenue reserve	22,014	22,505	31,375
Total equity shareholders' funds	627,814	628,954	661,804
Net asset value per share (note 8)	232.32p	242.62p	251.94p

Registered in Guernsey

Company registration number: 43298

Cash Flow Statement

	(Unaudited) For the six months ended 29 February 2020 £'000	(Unaudited) For the six months ended 28 February 2019 £'000	(Audited) For the year ended 31 August 2019 £'000
Operating activities
(Loss)/profit before finance costs and taxation	(34,864)	(8,671)	27,095
Deduct/add back net foreign currency gains/losses	(711)	(238)	2,414
Losses/(gains) on investments at fair value through profit or loss	42,903	18,146	(1,538)
Net purchases of investments at fair value through profit or loss	(22,880)	(10,439)	(22,755)
Decrease/(increase) in receivables	1,449	(1,285)	(1,002)
Increase/(decrease) in payables	338	(27)	2
Overseas taxation paid	(578)	(355)	(2,232)
Net cash (outflow)/inflow from operating activities before interest	(14,343)	(2,869)	1,984
Interest paid	(420)	(552)	(1,104)
Net cash (outflow)/inflow from operating activities	(14,763)	(3,421)	880
Bank loans drawn down	23,244	-	11,460
Bank loans repaid	-	(19,406)	(44,063)
Issue of ordinary shares	19,397	12,301	21,248
Dividends paid	(17,401)	(16,158)	(25,802)
Net cash inflow/(outflow) from financing activities	25,240	(23,263)	(37,157)
Increase/(decrease) in cash and cash equivalents	10,477	(26,684)	(36,277)
Cash and cash equivalents at the start of the period	5,043	39,165	39,165
Effect of foreign exchange rate changes on cash and cash equivalents	(1,194)	203	2,155
Cash and cash equivalents at the end of the period	14,326	12,684	5,043

Dividends received during the period amounted to £10,726,000 (period ended 28 February 2019: £10,552,000 and year ended 31 August 2019: £33,184,000) and bond and deposit interest receipts amounted to £10,000 (period ended 28 February 2019: £37,000 and year ended 31 August 2019: £68,000).

Notes to the Accounts

1.  Principal activity

The Company carries on business as a Guernsey closed-ended investment company.

2.  Financial statements

The financial information for the six months ended 29 February 2020 and 28 February 2019 has not been audited or reviewed by the Company's auditor. These financial statements do not include all of the information required to be included in annual financial statements and should be read in conjunction with the financial statements of the Company for the year ended 31 August 2019.

3.  Accounting policies

The accounts have been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" and the accounting policies set out in the statutory accounts of the Company for the year ended 31 August 2019. Where presentational guidance set out in the Statement of Recommended Practice (the "SORP") for investment trusts issued by the Association of Investment Companies in October 2019, is consistent with the requirements of International Financial Reporting Standards, the accounts have been prepared on a basis compliant with the recommendations of the SORP.

4.  Taxation

The Company has been granted an exemption from Guernsey taxation, under the Income Tax (Exempt Bodies) Guernsey Ordinance for which it is charged an annual exemption fee of £1,200 (2019: same). Taxation comprises irrecoverable overseas withholding tax deducted from dividends receivable.

5.  Earnings/(losses) per share

	(Unaudited)	(Unaudited)
	Six months	Six months	(Audited)
	ended	ended	Year ended
	29 February	28 February	31 August
	2020	2019	2019
	£'000	£'000	£'000
Net revenue profit	8,040	8,862	27,376
Net capital loss	(44,026)	(18,762)	(3,729)
Net total (loss)/profit	(35,986)	(9,900)	23,647
Weighted average number of shares in issue during the period	267,734,123	256,014,875	258,190,873
Revenue earnings per share	3.00p	3.46p	10.60p
Capital loss per share	(16.44)p	(7.33)p	(1.44)p
Total (losses)/earnings per share	(13.44)p	(3.87)p	9.16p

6.  Dividends paid

	(Unaudited)	(Unaudited)
	Six months	Six months	(Audited)
	ended	ended	Year ended
	29 February	28 February	31 August
	2020	2019	2019
	£'000	£'000	£'000
2019 fourth interim dividend of 4.60p (2018: 4.50p)	12,274	11,505	11,505
First interim dividend of 1.90p (2018: 1.80p)	5,127	4,653	4,653
Second interim dividend of 1.80p	-	-	4,672
Third interim dividend of 1.90p	-	-	4,972
	17,401	16,158	25,802

A second interim dividend of 1.90p (2019: 1.80p) per share, amounting to £5,134,000 (2019: £4,672,000) has been declared payable in respect of the year ending 31 August 2020.

7.  Share capital

Changes in the number of shares in issue during the period were as follows:

	(Unaudited)	(Unaudited)
	Six months	Six months	(Audited)
	ended	ended	Year ended
	29 February	28 February	31 August
	2020	2019	2019
Ordinary shares of 1p each, allotted, called-up and fully paid
Opening balance of shares in issue	262,683,024	254,098,024	254,098,024
Issue of shares	7,550,000	5,135,000	8,585,000
Closing balance of shares in issue	270,233,024	259,233,024	262,683,024

8.  Net asset value per share

	(Unaudited)	(Unaudited)	(Audited)
	29 February	28 February	31 August
	2020	2019	2019
Net assets attributable to shareholders (£'000)	627,814	628,954	661,804
Shares in issue at the period end	270,233,024	259,233,024	262,683,024
Net asset value per share	232.32p	242.62p	251.94p

9.  Disclosures regarding financial instruments measured at fair value

The Company's portfolio of investments, comprising investments in companies and any derivatives, are carried in the balance sheet at fair value. Other financial instruments held by the Company comprise amounts due to or from brokers, dividends and interest receivable, accruals, cash and drawings on the credit facility. For these instruments, the balance sheet amount is a reasonable approximation of fair value. The recognition and measurement policies for financial instruments measured at fair value have not changed from those set out in the statutory accounts of the Company for the year ended 31 August 2019.

The investments in the Company's portfolio are categorised into a hierarchy comprising the following three levels:

Level 1 - valued using quoted prices in active markets.

Level 2 - valued by reference to valuation techniques using observable inputs other than quoted market prices included within Level 1.

Level 3 - valued by reference to valuation techniques using inputs that are not based on observable market data.

Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset.

At 29 February 2020, the Company's investment portfolio and derivative financial instrument were categorised as follows:

	(Unaudited)	(Unaudited)	(Audited)
	29 February	28 February	31 August
	2020	2019	2019
	£'000	£'000	£'000
Level 1	669,838	661,969	694,569
Level 2	(361)	(989)	836
Level 3	-	-	-
Total	669,477	660,980	695,405

There have been no transfers between Levels 1, 2 or 3 during the period (period ended 28 February 2019 and year ended 31 August 2019: nil).

10.  Events after the interim period that have not been reflected in the financial statements for the interim period

The directors have evaluated the period since the interim date and note particularly the continuation of the COVID-19 pandemic. The worldwide economic impact is likely to be very significant and the duration of the pandemic is indeterminate. It is likely to impact the Company's investee companies and service providers as well as financial markets more generally. The directors will continue to monitor all of these developments closely. The directors have not noted any other events which have not been reflected in the financial statements.

 

END

 

 

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