TIDMSOI
RNS Number : 0183S
Schroder Oriental Income Fund Ltd
11 November 2021
ANNUAL REPORT AND ACCOUNTS
Schroder Oriental Income Fund Limited (the "Company") hereby
submits its Annual Report and Accounts for the year ended 31 August
2021, as required by the Financial Conduct Authority's Disclosure
Guidance and Transparency Rule 4.1.
The Company's Annual Report and Accounts for the year ended 31
August 2021 are also being published in hard copy format and an
electronic copy will shortly be available to download from the
Company's webpages www.schroders.co.uk/orientalincome . Please
click on the following link to view the document:
http://www.rns-pdf.londonstockexchange.com/rns/0183S_1-2021-11-10.pdf
The Company has submitted its Annual Report and Accounts to the
National Storage Mechanism, and it will shortly be available for
inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
Enquiries:
Matthew Riley
Schroder Investment Management Limited
Tel: 020 7658 6596
________________________________________________________________________________________________________________________
Chairman's Statement
Dear Shareholder
It is with pleasure that I present my report for the financial
year to 31st August 2021.
The year saw strong performance, both in absolute terms and
relative to the reference index. However, it was very much a year
of two halves. The first six months saw strong gains in equity
markets across the globe and Asia was no exception. Immense fiscal
and monetary stimulus combined last autumn with the roll out of
vaccines to drive strong reflationary gains in equities. The
Company's net asset value (NAV) total return for the first six
months was 20.6%. The second six months saw NAV total return gains
of 1.2% which brought the total return for the year to 21.9%. This
more muted return in the second half reflected growing unease in
markets regarding Chinese social and economic policy, Asia's slower
vaccine programmes and some tempering of economic growth as
lockdowns persisted in the region.
Equity markets may have risen on a tide that floated all boats
but, encouragingly, the Investment Manager's approach saw
significant outperformance of the reference index: the MSCI Pacific
ex Japan total return index in Sterling terms rose by 12.3% during
the financial year; and the Company's NAV grew by 17.4%. This
outperformance was derived from a number of factors including the
notable underweight to the Chinese market and the absence from the
portfolio of the once highly rated Chinese internet names. However,
I believe that it is primarily a reflection of the inherent
strengths of the Manager's approach, where the paramount concern is
to invest in quality companies with sustainable and growing
earnings. This approach has served shareholders well for the last
sixteen years, continued to do so through the choppy waters of the
pandemic and is likely to remain as valid as ever in the
future.
Whilst Asian economic growth may have slowed since the spring,
the long term outlook and growth themes for the region remain
intact. However, the change in "tone" from the Chinese authorities
suggests that some of the best opportunities may well, in the
near-term, lie elsewhere in the region. The Company's mandate
allows for flexibility to invest across a wide range of markets and
companies of all sizes. It does seem likely that some of the
smaller Asian markets may benefit from policy shifts in China. The
Company and Schroders investment team are well placed to grasp
those opportunities.
The initial reaction from many companies to the economic
uncertainty created by the pandemic was to cut or even cease
dividend payments. Furthermore, in some sectors, such as banking or
insurance, this was mandated by regulators. Subsequently, as
confidence has returned and economies stabilised, so dividend
payments have gradually resumed. That said, many companies have
sought to ensure that they have a bird in the hand, in the form of
earnings growth, before they have had the confidence to increase
investor payouts significantly. So there are lags in the system and
that, last year, was why your Board was willing to use a small
amount of the Company's reserves to maintain the dividend that we
pay to our Shareholders. This year, earnings growth is back in most
sectors and the outlook continues to improve. So we are delighted
to have been able to increase our dividend to our Shareholders to
10.50 pence per share, the 16th year of dividend growth for
Shareholders, funded both by earnings, and a small contribution
from the revenue reserve. That the dividend has grown for such a
prolonged period, accompanied by strong capital growth (in excess
of the index returns from the region) is testament to Schroders'
approach and capabilities.
Our performance has been strong in absolute terms, relative to
the reference index and against our peers. However, the sector has
generally traded at a discount to NAV and SOIF is no exception. As
buy-backs at a discount are accretive to Shareholder value, we have
been more than willing to repurchase shares when there is a clear
imbalance in the market. During the year the Company repurchased
2,800,000 shares at an average discount of 5.0%, and a further
2,325,000 shares at an average discount of 4.2% have been
repurchased since the financial year end.
Earlier in my statement, I referred to the fact that the
Manager's approach is to identify companies with sustainable and
growing earnings. Unsurprisingly, to gain confidence that any
company has earnings that are sustainable requires consideration of
a wide range of factors, including those related to governance,
social impact and environment. Thus "ESG" has been an inherent part
of the Company's DNA since long before the recent trend towards
"sustainable investment". This Company does not set out its stall
as a "sustainable fund" but these factors are hugely important in
the construction of our portfolio and I would encourage you to read
the report on page 13 of the 2021 Annual Report which addresses how
the Manager's investment philosophy and process integrates ESG
factors. In this, our direct portfolio management team of Richard
Sennitt and Abbas Barkhordar explain how the wider Schroders team
supports their specific investment decision making for this
Company.
The transition to Richard and Abbas from Matthew Dobbs at the
turn of the year has been very successful and it is evident to the
Board that we have the full benefits of continuity alongside fresh
eyes.
I am also delighted to welcome Isabel Liu as a director. Isabel
brings a wealth of experience and a different perspective to the
Board and we very much look forward to her contribution over the
coming years.
In my last report, in the late spring, I wondered whether
markets might benefit from "a pause that refreshes". Asian markets
have most certainly paused in the subsequent months. Of course, we
are always subject to short term vagaries: investor sentiment,
markets and politics to name just a few. However, the fundamental
premise of the Company remains as sound today as it was when
Matthew Dobbs pioneered the idea in 2005. The Board remains
confident that shareholders will see further growing income
alongside capital growth over the medium to long term.
In closing, it is clear that business is now finally getting
back to face-to-face meetings. I hope to meet as many of you as
possible over the coming year. Accordingly, I would encourage you
to attend the Company's Annual General Meeting. This is being held
at 2pm on 15th December at Schroders' offices in London where my
board colleagues, the Investment Manager and I would be delighted
to meet you and
answer any questions that you may have. In addition, a
shareholder focused webinar will be presented by the portfolio
manager on 1 December 2021 at 11.30 am. To register please visit
https://www.schroders.co.uk/orientalincome.
Manager's Review
The net asset value per share of the company recorded a total
return of +21.9% over the twelve months to end August 2021. Four
interim dividends have been declared totalling 10.50 pence (10.30
pence last year).
As the chart in the 2021 Annual Report illustrates, equity
markets made strong progress through the latter part of last year
and the start of 2021, buoyed by improving earnings revisions,
expectations of greater fiscal stimulus following the US elections,
strong liquidity, a weakening dollar and progress on the
development of a number of vaccines for COVID-19. However, in the
second half of the period Asian markets lagged global markets. This
was in large part due to a significant increase in regulatory
announcements coming out of China. Although the biggest market
impact was felt amongst the 'internet' names, regulations also
impacted a number of other sectors with the authorities becoming
much more vocal with regard to 'common prosperity'. Further
outbreaks of COVID across the region added to volatility given the
relatively low levels of vaccinations compared to some Western
economies.
The divergence of returns across the regional markets continued
to be high with technology-heavy Korea and Taiwan both up strongly
over the period, benefiting from upward earnings revisions driven
by ongoing strong export demand for semiconductors and technology
products. Australia and Singapore also performed well, aided by a
strong recovery in the financials and materials sectors. Of the
larger markets, China was the clear underperformer. It started the
period robustly as growth names did well, but a marked increase in
regulation across a number of sectors impacted the market. Although
bouts of regulation in China are not unusual, and areas such as
financial stability and national security have always been heavily
regulated, there was a significant increase in policy announcements
associated with promoting the government's 'common prosperity'
agenda. This led to a broad-based sell-off. Smaller ASEAN markets
continued to lag, in part hampered by concerns over their
relatively low vaccination rates combined with further
outbreaks of COVID.
Sector returns across the region also saw a large spread of
returns, in part reflecting the recovery in growth seen globally.
More economically sensitive sectors such as information technology,
materials and industrials as well as some financials did well.
Although some of the defensive long duration names in sectors such
as healthcare and staples did lag, towards the end of the period we
did see some of the more thematic growth names do well as people
questioned whether global growth had peaked. The consumer
discretionary sector was the worst performing sector in large part
due to its heavy weighting in some of the low yielding Chinese
e-commerce names which were at the forefront of new regulatory
announcements.
Although the broad backdrop points to a recovery in earnings
this year, the dividend payment picture across the period was more
mixed given its tendency to lag that of earnings. In general, North
Asian payments were relatively more robust reflecting the better
economic backdrop and exposure to sectors that had not been hit as
hard by COVID, such as technology stocks. Financials generally
through 2020 were impacted by falling interest rates and
uncertainty over credit costs relating to COVID, which, together
with regulatory limits imposed on shareholder returns in some
countries, saw the sector under pressure from a dividend
perspective. This resulted in dividend cuts for financials in a
number of markets including Singapore and Australia, although as
growth has started to recover these restrictions have started to be
lifted and dividends raised. The other headwind for dividends has
been the uncertainty over the pace of any recovery given second and
third waves of COVID globally, as well as flare-ups regionally,
which have resulted in sporadic localised lockdowns, all of which
unsurprisingly has prioritised caution. In Taiwan for instance an
outbreak did see a number of AGMs being postponed resulting in a
delay to some companies' payments of dividends.
Positioning and Performance
The Company's positive NAV total return of 21.9% over the period
compared favourably with that of the reference benchmark which rose
12.3% over the period. The increased expectations for a global
recovery benefitted the fund as it saw earnings revisions broaden
out from a narrow set of growth names. This saw our stock selection
in and allocations to Korea and Taiwan adding value, helped by our
overweight positions in information technology. Stock selection in
Australia and New Zealand contributed positively thanks to
overweights in the diversified resource and other materials
companies. The other major contributor to relative performance was
the significant underweight to China where the regulatory clampdown
impacted returns. Here the internet names (where we don't have any
exposure as they pay little or no dividend) bore the brunt of this.
In Singapore, stock selection was a headwind with many of the Real
Estate Investment Trust ("REIT") names lagging as rate expectations
ticked up and ongoing impacts of COVID delayed 'normalisation',
which was also the case with Macau gaming which detracted given the
delays to the opening up of international travel. The underweights
to the smaller markets of Malaysia, Indonesia and the Philippines
as well as overweight Singapore were positive.
The geographic exposure in the Company's portfolio continues to
be mainly spread between Taiwan, Hong Kong, Australia, Korea, China
and Singapore. China remains a substantial underweight but is, in
part, offset by the overweight to Hong Kong. Moves over the period
have tended to take advantage of the increased valuation spread
that we saw through last year, reducing those stocks that performed
particularly strongly and now look more fully valued in favour of
those names that have lagged and look more attractive from a
valuation perspective. This involved adding to financials,
including in some of the South East Asian markets such as Thailand
and Indonesia, and taking profits on some of the more growth
orientated names in North Asia that had done particularly well,
including some of the information technology names. However,
increased volatility during the latter part of the period, in part
due to ongoing COVID disruptions, did provide some opportunity to
add back to attractive names in the sector. Information technology
remains the biggest sectoral exposure in the fund. Real estate also
remains an important exposure, but we have taken a very selective
approach both in terms of the nature of the underlying asset and
also balance sheet strength. For instance, our Hong Kong exposure
is predominantly to the commercial property companies who are
growing their China portfolios, rather than the residential
developers. During the period we took some profits in property
names that had outperformed, rotating into some financials that had
lagged.
Investment Outlook
Asian markets have lagged global ones over the last year. In
part this has been driven by what's going on in China both from a
regulatory and economic perspective. Regulatory announcements have
accelerated to encompass more and more areas of the economy with
the mention of 'common prosperity' becoming increasingly common in
speeches and the press. This is being driven by concerns over
growing inequality being seen across China, where growth may have
all but eliminated 'extreme poverty', but the spoils of that growth
are not being shared equally. Many of the measures that have been
announced are looking to address this and in particular rebalance
the benefits of growth towards labour and SMEs and reduce the
'costs' of property, education and healthcare for ordinary people.
Although many of these objectives are laudable, for us as
investors, the increased regulatory uncertainty makes it harder to
assess the future returns that a business can potentially make and,
therefore, what valuation we should attach to it. Thus far the
direct impact has been mainly on areas of the market where little
is available in the way of income such as the internet and
education sectors but more recently concerns have arisen in areas
including Macau gaming (which saw us selling our Macau name post
Company year end) and property stocks. Although we don't believe
that the authorities are seeking to eliminate the profitability of
the private sector or indeed stop foreign investment into China, it
does leave us circumspect in our approach there until we get
greater clarity. We are of course still looking for new
opportunities that are relatively unaffected by the regulatory
changes but have been unfairly caught up in its fallout.
Outside of regulation in China there continue to be concerns
over the indebtedness of some property companies, especially the
residential developer Evergrande. Given the closed capital account
and that the state effectively controls the banks and state owned
developers, we believe the issue is manageable. However, policy
error remains a risk given the importance of property to GDP and
that, unlike many other countries, China has been deliberately
keeping policy relatively tight post the COVID crisis. Therefore,
given China's economy is slowing, we would expect to see some
easing going forward.
Elsewhere in the region there continue to be signs of shortages
and rising costs, so a company's ability to pass through cost
pressures is key. With price rises being seen globally in many
areas, the question of whether inflation will be transitory or more
structural remains and it is likely that we will see renewed
concerns over tightening and tapering going forward. Although most
economies in Asia remain better placed than in 2013 when we last
saw a prolonged tapering episode, valuations in some 'high growth'
areas may come under scrutiny. Perhaps the biggest risk of rising
prices, especially energy costs, is that they have a greater impact
on consumer spending than currently expected thus reducing demand
for Asian products. In the information technology sector we
continue to see some strong long term drivers for growth around
digitisation and the roll out of 5G and the 'Internet of Things'
but in the near term some areas have disproportionately benefitted
from increased demand for product in areas such as work from
home.
Whilst vaccination rates for many Asian countries have lagged
those of the likes of the UK, we have more recently seen rates
increase materially and in some cases surpass that of the UK.
Hopefully, this will allow economies to increasingly open up as we
go into next year which, aside from the humanitarian benefit,
should reduce the number of lockdowns and lost output as well as
bringing benefits to countries more dependent on tourism, such as
Thailand.
Looking at dividends more broadly, although earnings are
recovering there is still some uncertainty as to where near term
payments will go given the path of COVID, especially for companies
that benefit from increased mobility. However, we still believe
that in most cases this is more a matter of timing rather than
these companies' ability to pay. Where dividends had been squeezed
in places such as Australia, we have seen payments resume or tick
up and in Singapore the banks that had been previously restricted
have been allowed to raise their dividends from last year's levels.
From an overall fund distribution perspective, the other dynamic to
be cognisant of is Sterling whose direction will obviously impact
the size of translated dividends, with a stronger Sterling acting
as a headwind. Still, it should not be forgotten that overall
payout ratios in Asia do not look extended versus some other
markets and corporates in Asia remain relatively lowly geared.
Furthermore, it should also be remembered that whilst inflation
rising faster than expected is not great for equities in the
short-term, longer term real asset income sources should look
attractive versus the 'return-free risk' that is fixed income.
To conclude, markets have recovered materially from their COVID
lows in part due to the recovery that has been seen in global
growth. So although markets are trading above their long term
average aggregate historic valuations, this reflects the fact that
earnings have been revised up significantly during the course of
2021. In the near term we believe further upside to the market is
relatively limited given the ongoing regulatory overhang, where
valuations sit and given we are at or close to maximum monetary and
fiscal accommodation. However, this remains at an aggregate level
and when we look across the different industries and sectors there
is a much wider range of valuations on offer, as well as a number
of companies with attractive and growing distributions. Therefore,
a focus on attractive bottom up ideas, in our view, remains
essential.
Schroder Investment Management Limited
10 November 2021
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 and Risk Committee on an ongoing basis. This
system assists the Board in determining the nature and extent of
the risks it is willing to take in achieving the Company's
strategic objectives. Both the principal risks and the monitoring
system are also subject to robust review at least annually. The
last assessment took place in November 2021.
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.
Actions taken by the Board and, where appropriate, its
committees, to manage and mitigate the Company's principal risks
and uncertainties are set out in the table below. The arrows in the
Change column indicate if the Board thinks the risk has increased,
decreased or stayed the same during the year.
Emerging risks and uncertainties
During the year, the Board also discussed and monitored a number
of risks that could potentially impact the Company's ability to
meet its strategic objectives. The most significant was climate
change risk. The Board has determined that this risk is worthy of
close monitoring.
Climate change risk includes how climate change could affect the
Company's investments, and potentially shareholder returns. The
Board notes the Manager has integrated ESG considerations,
including climate change, into the investment process. The Board
will continue to monitor this as an emerging risk.
*The "Change" column on the right highlights at a glance the
Board's assessment of any increases or decreases in risk during the
year after mitigation and management. The arrows show the risks as
increased or decreased, and dashes show risks as stable.
Risk Mitigation and management Change (post
mitigation
and management)*
Investment management
The Manager's investment strategy Review of the Manager's compliance -
and levels of resourcing, with agreed investment restrictions,
if inappropriate, may result investment performance and
in the Company underperforming risk against investment objectives
the market and/or peer group and strategy; relative performance;
companies, leading to the the portfolio's risk profile;
Company and its objectives and whether appropriate strategies
becoming unattractive to investors. are employed to mitigate any
negative impact of substantial
changes in markets. The Manager
also reported on the impact
of COVID-19 on the Company's
portfolio, and the market
generally.
Annual review of the ongoing
suitability of the Manager,
including resources and key
personnel risk.
Regular review of NAV and
share price performance including
discount against the peer
group. The Manager and Corporate
Broker monitor discount/premium
and Board considers this at
each meeting.
Environmental, social and
governance ("ESG")
Underestimating the increasing The Manager has implemented é
impact of ESG factors on investment a comprehensive ESG policy
performance, and potentially which is outlined in detail Scrutiny of
demand for the Company's shares. on pages 13 to 16 of the 2021 ESG issues
Annual Report . The Manager has increased,
reports on its ESG engagement together with
at regular board meetings. the potential
The Board ensures that ESG for these to
factors are incorporated into affect the
reports to shareholders. value of invested
companies.
Strategic
The Company's investment objectives The appropriateness of the -
may become out of line with Company's investment mandate
the requirements of investors, and the long-term investment
resulting in a wide discount strategy is periodically reviewed
of the share price to underlying and the success of the Company
NAV per share. in meeting its stated objectives
is monitored.
Share price relative to NAV
per share is monitored by
the Board as a key performance
indicator and is reviewed
against the Company's peers
on a regular basis. The use
of buy back authorities is
considered on a regular basis.
The Manager and Corporate
Broker monitor market feedback
and the Board considers this
at each quarterly meeting.
Marketing and distribution
activity is actively reviewed.
Proactive engagement with
shareholders.
The Company's cost base could The Board reviews income forecast -
become uncompetitive against at each meeting.
its peer group and against
open-ended alternatives The Board approves significant
non-routine expenses.
The Management Engagement
Committee reviews fees paid
to the Manager at least annually.
Ongoing monitoring of fees
charged by other service providers
takes place alongside an annual
review of the Company's Ongoing
Charges figure*.
Political
Political developments globally The Board monitored key political é
might materially affect the developments, including the
ability of the Company to potential impact of Brexit Political developments,
achieve its investment objective. and noted that the portfolio's including in
investments in the Asia Pacific China prompted
region limited the direct an increase
impact from Brexit other than in the level
through shareholders' exposure of this risk.
principally to exchange rate
fluctuations against sterling.
The Board also monitored key
political developments in
the Asia Pacific region including
US/China tension, the political
situation in Hong Kong, Taiwan
and Singapore, and political
developments in mainland China.
The Board and the portfolio
manager periodically meet
with the Manager's economists
to gauge the likelihood and
impact of certain political
changes.
Financial and currency
The Company is exposed to The risk profile of the portfolio Ü
the effect of market and currency is considered and appropriate
fluctuations due to the nature strategies to mitigate any The extreme
of its business. A significant negative impact of substantial market volatility
fall in underlying corporate changes in markets or currency seen during
earnings and/or equity markets are discussed with the Manager. the early stages
could have an adverse impact of the Covid-19
on the market value of the The Manager seeks to invest pandemic has
Company's underlying investments in companies with strong balance subsided, prompting
and, as the Company invests sheets. a reduction
predominantly in assets which in this the
are denominated in a range The Company has no formal level of this
of currencies, its exposure policy of hedging currency risk.
to changes in the exchange risk but may use foreign currency
rate between sterling and borrowings or forward foreign
other currencies has the potential currency contracts to limit
to have a significant impact exposure.
on returns and the sterling
value of dividend income from
underlying investments.
Gearing and leverage
The Company utilises credit Gearing is monitored and strict -
facilities. These arrangements restrictions on borrowings
increase the funds available are imposed: gearing continues
for investment through borrowing. to operate within pre-agreed
While this has the potential limits so as not to exceed
to enhance investment returns 25% of the Company's net assets.
in rising markets, in falling
markets the impact could be
detrimental to performance.
Service provider
The Company has no employees Service providers appointed -
and has delegated certain subject to due diligence processes
functions to a number of service and with clearly-documented
providers. Failure of controls, contractual arrangements detailing
including as a result of fraud, service expectations.
and poor performance of any
service provider, could lead Regular reports are provided
to disruption, reputational by key service providers and
damage or loss. the quality of their services
is monitored, including an
annual presentation to the
Audit and Risk Committee chair
and other directors from key
risk and internal controls
personnel at the Company's
main service providers.
Review of annual audited internal
controls reports from key
service providers, including
confirmation of business continuity
arrangements and IT controls,
is undertaken. Service providers
internal controls reports
continue to be robust, as
businesses gradually return
to physical workplaces.
Cyber
The Company's service providers Service providers report on -
are all exposed to the risk cyber risk mitigation and
of cyber attacks. Cyber attacks management at least annually,
could lead to loss of personal which includes confirmation
or confidential information, of business continuity capability
unauthorised payments or inability in the event of a cyber attack.
to carry out operations in
a timely manner. In addition, the Board received
presentations from the Manager,
the registrar, and the safekeeping
agent and custodian on cyber
risk.
Risk assessment and internal controls review by the Board
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 and Risk 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 and Risk Committee's ongoing risk assessment which
has been in place throughout the financial year and up to the date
of this report. The Board is satisfied that it has undertaken a
detailed review of the risks facing the Company.
A full analysis of the financial risks facing the Company is set
out in note 20 to the accounts on pages 57 to 62 of the 2021 Annual
Report .
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
August 2021 and the potential impact of the principal risks and
uncertainties it faces for the review period. They have also
reviewed the impact of the COVID-19 pandemic on the Company as
further detailed in the Chairman's Statement, and Manager's Review
sections of this report. The directors have assessed the Company's
operational resilience and they are satisfied that the Company's
outsourced service providers will continue to operate effectively,
following the implementation of their business continuity
plans.
A period of five years has been chosen as the Board believes
that 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.
In its assessment of the viability of the Company, the directors
have considered each of the Company's principal risks and
uncertainties detailed on pages 20 to 22 of the 2021 Annual Report
and in particular the impact of a significant fall in regional
equity markets on the value of the Company's investment portfolio.
The directors have also considered the Company's income and
expenditure projections and the fact that the Company's investments
comprise readily realisable securities which can be sold to meet
funding requirements if necessary.
The directors have also considered a stress test which
represents a severe but plausible scenario along with movement in
foreign exchange rates. This scenario assumes a severe stock market
collapse and/or exchange rate movements at the beginning of the
five year period, resulting in a 50% fall in the value of the
Company's investments and investment income and no subsequent
recovery in either prices or income in the following five years. It
is assumed that the Company continues to pay an annual dividend in
line with current levels and that the borrowing facility remains
available and remains drawn, subject to the gearing limit.
The Company's investments comprise highly liquid, large, listed
companies and so its assets are readily realisable securities and
could be sold to meet funding requirements or the repayment of the
gearing facility should the need arise. There is no expectation
that the nature of the investments held within the portfolio will
be materially different in the future.
The operating costs of the Company are predictable and modest in
comparison with the assets and there are no capital commitments
foreseen which would alter that position. Furthermore, the Company
has no employees and consequently no redundancy or other employment
related liabilities.
The Board reviews the performance of the Company's service
providers regularly, including the Manager, along with internal
controls reports to provide assurance regarding the effective
operation of internal controls as reported on by their reporting
accountants. The Board also considers the business continuity
arrangements of the Company's key service providers.
The Board monitors the portfolio risk profile, limits imposed on
gearing, counterparty exposure, liquidity risk and financial
controls at its quarterly meetings.
Although there continue to be regulatory changes which could
increase costs or impact revenue, the directors do not believe that
this would be sufficient to affect its viability.
The Board has assumed that the business model of a closed ended
investment company, as well as the Company's investment objective,
will continue to be attractive to investors. The directors also
considered the beneficial tax treatment the Company is eligible for
as an investment trust. If changes to these taxation arrangements
were to be made it would affect the viability of the Company to act
as an effective investment vehicle.
Based on the above the directors have 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 five
year period of their assessment.
Going concern
The directors have assessed the principal risks, the impact of
the emerging risks and uncertainties and the matters referred to in
the viability statement. Based on the work the Directors have
performed, they have not identified any material uncertainties
relating to events or conditions that, individually or
collectively, may cast significant doubt on the Company's ability
to continue as a going concern for the period assessed by the
Directors, being the period to 10 November 2022 which is at least
12 months from the date the financial statements were authorised
for issue.
By order of the Board
Schroder Investment Management Limited
Company Secretary
10 November 2021
Statement of Directors' Responsibilities
in respect of the Annual Report and Accounts
The directors are responsible for preparing the financial
statements in accordance with applicable Guernsey law and generally
accepted accounting principles.
Guernsey company law requires the directors to prepare financial
statements for each financial year which give a true and fair view
of the state of affairs of the Company and of the profit or loss of
the Company for that period. In preparing these financial
statements, the directors should:
- select suitable accounting policies, and apply them consistently;
- present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
- provide additional disclosures when compliance with the
specific requirements in International Financial Reporting
Standards ("IFRS") is insufficient to enable users to understand
the impact of particular transactions, other events and conditions
on the entity's financial position and financial performance;
- state that the Company has complied with IFRS, subject to any
material departures disclosed and explained in the financial
statements;
- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business; and
- make judgements and estimates that are reasonable and prudent.
The directors are responsible for keeping proper accounting
records that disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements comply with The Companies (Guernsey) Law,
2008 (as amended). 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.
Each of the directors, whose names and functions are listed on
pages 24 and 25 of the 2021 Annual Report , confirms that, to the
best of their knowledge:
- the financial statements, which have been prepared in
accordance with IFRS as adopted by the European Union and with The
Companies (Guernsey) Law, 2008 (as amended) and in accordance with
the requirements set out above, and give a true and fair view of
the assets, liabilities, financial position and the net return of
the Company;
- the Strategic Review 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, are fair,
balanced and understandable and provide the information necessary
for shareholders to assess the Company's position and performance,
business model and strategy.
So far as each of the directors are aware, there is no relevant
audit information of which the Company's auditor is unaware, and
each director has taken all the steps that he or she ought to have
taken as a director in order to make himself or herself aware of
any relevant audit information and to establish that the Company's
auditor is aware of that information.
By order of the Board
Paul Meader
Chairman
10 November 2021
Statement of Comprehensive Income
for the year ended 31 August 2021
2021 2020
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Gains/(losses) on investments
at fair value
through profit or loss - 121,017 121,017 - (33,379) (33,379)
Net foreign currency gains - 395 395 - 3,536 3,536
Income from investments 32,394 219 32,613 31,421 164 31,585
Other income 1 - 1 12 - 12
------------------------------ -------- -------- -------- -------- --------- ---------
Total income/(loss) 32,395 121,631 154,026 31,433 (29,679) 1,754
Management fee (1,584) (3,697) (5,281) (1,355) (3,163) (4,518)
Performance fee - (5,636) (5,636) - - -
Other administrative expenses (1,033) (5) (1,038) (1,051) (4) (1,055)
------------------------------ -------- -------- -------- -------- --------- ---------
Profit/(loss) before finance
costs and taxation 29,778 112,293 142,071 29,027 (32,846) (3,819)
Finance costs (94) (220) (314) (235) (528) (763)
------------------------------ -------- -------- -------- -------- --------- ---------
Profit/(loss) before taxation 29,684 112,073 141,757 28,792 (33,374) (4,582)
Taxation (2,002) - (2,002) (2,255) - (2,255)
------------------------------ -------- -------- -------- -------- --------- ---------
Net profit/(loss) and
total comprehensive income 27,682 112,073 139,755 26,537 (33,374) (6,837)
------------------------------ -------- -------- -------- -------- --------- ---------
Earnings/(losses) per
share 10.30p 41.70p 52.00p 9.86p (12.40)p (2.54)p
The "Total" column of this statement represents the Company's
Statement of Comprehensive Income, prepared in accordance with
IFRS. The "Revenue and Capital" columns represent supplementary
information prepared under guidance issued by the Association of
Investment Companies.
The Company does not have any income or expense that is not
included in net profit for the year. Accordingly the "Net profit"
for the year 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 August 2021
Treasury Capital
Share share redemption Special Capital Revenue
capital reserve reserve reserve reserves reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 31 August 2019 212,786 - 39 150,374 267,230 31,375 661,804
Issue of ordinary shares 21,561 - - - - - 21,561
Repurchase of ordinary shares
into treasury - (2,155) - - - - (2,155)
Net (loss)/profit - - - - (33,374) 26,537 (6,837)
Dividends paid in the year - - - - - (27,674) (27,674)
------------------------------ -------- -------- ---------- -------- --------- --------- ---------
At 31 August 2020 234,347 (2,155) 39 150,374 233,856 30,238 646,699
Repurchase of ordinary shares
into treasury - (7,345) - - - - (7,345)
Net profit - - - - 112,073 27,682 139,755
Dividends paid in the year - - - - - (27,690) (27,690)
------------------------------ -------- -------- ---------- -------- --------- --------- ---------
At 31 August 2021 234,347 (9,500) 39 150,374 345,929 30,230 751,419
------------------------------ -------- -------- ---------- -------- --------- --------- ---------
Balance Sheet
at 31 August 2021
2021 2020
GBP'000 GBP'000
Non current assets
Investments at fair value through profit or loss 774,425 672,184
Current assets
Receivables 6,881 5,234
Cash and cash equivalents 16,147 17,028
------------------------------------------------- --------- ---------
23,028 22,262
------------------------------------------------- --------- ---------
Total assets 797,453 694,446
Current liabilities
Payables (46,034) (47,747)
------------------------------------------------- --------- ---------
Net assets 751,419 646,699
------------------------------------------------- --------- ---------
Equity attributable to equity holders
Share capital 234,347 234,347
Treasury share reserve (9,500) (2,155)
Capital redemption reserve 39 39
Special reserve 150,374 150,374
Capital reserves 345,929 233,856
Revenue reserve 30,230 30,238
------------------------------------------------- --------- ---------
Total equity shareholders' funds 751,419 646,699
------------------------------------------------- --------- ---------
Net asset value per share 280.94p 239.28p
These accounts were approved and authorised for issue by the
Board of Directors on 10 November 2021 and signed on its behalf
by:
Paul Meader
Director
Registered in Guernsey as a company limited by shares
Company registration number: 43298
Cash Flow Statement
for the year ended 31 August 2021
2021 2020
GBP'000 GBP'000
Operating activities
Profit/(loss) before finance costs and taxation 142,071 (3,819)
Add back net foreign currency gains (395) (3,536)
(Gains)/losses on investments at fair value through
profit or loss (121,017) 33,379
Net sales/(purchases) of investments at fair value
through profit or loss 16,858 (9,030)
Increase in receivables (1,719) (194)
Increase in payables 5,753 70
Overseas taxation paid (2,131) (2,143)
---------------------------------------------------- --------- --------
Net cash inflow from operating activities before
interest 39,420 14,727
---------------------------------------------------- --------- --------
Interest paid (310) (767)
---------------------------------------------------- --------- --------
Net cash inflow from operating activities 39,110 13,960
---------------------------------------------------- --------- --------
Financing activities
Bank loans drawn down - 87,067
Bank loans repaid (5,304) (80,351)
Issue of ordinary shares - 21,561
Repurchase of ordinary shares into treasury (6,402) (2,155)
Dividends paid (27,690) (27,674)
---------------------------------------------------- --------- --------
Net cash outflow from financing activities (39,396) (1,552)
---------------------------------------------------- --------- --------
(Decrease)/increase in cash and cash equivalents (286) 12,408
Cash and cash equivalents at the start of the year 17,028 5,043
Effect of foreign exchange rates on cash and cash
equivalents (595) (423)
---------------------------------------------------- --------- --------
Cash and cash equivalents at the end of the year 16,147 17,028
---------------------------------------------------- --------- --------
Dividends received during the year amounted to GBP30,823,000
(2020: GBP30,561,000) and bond and deposit interest receipts
amounted to GBP1,000 (2020: GBP14,000).
Notes to the Accounts
1. Accounting Policies
(a) Basis of accounting
The accounts have been prepared in accordance with the Companies
Guernsey Law 2008 and International Financial Reporting Standards
("IFRS"), which comprise standards and interpretations approved by
the International Accounting Standards Board ("IASB"), together
with interpretations of the International Accounting Standards and
Standing Interpretations Committee approved by the International
Accounting Standards Committee ("IASC"), that remain in effect and
to the extent that they have been adopted by the European
Union.
Where consistent with the requirements of IFRS, the Directors
have sought to prepare the accounts on a basis compliant with
presentational guidance set out in the statement of recommended
practice for investment trust companies (the "SORP") issued by the
Association of Investment Companies in October 2019.
The policies applied in these accounts are consistent with those
applied in the preceding year.
The Company's share capital is denominated in sterling and this
is the currency in which its shareholders operate and expenses are
generally paid. The Board has therefore determined that sterling is
the functional currency and the currency in which the accounts are
presented. Amounts have been rounded to the nearest thousand.
The accounts have been prepared on a going concern basis under
the historical cost convention, as modified by the revaluation
investments and derivative financial instruments held at fair value
through profit or loss. The directors believe that the Company has
adequate resources to continue operating for at least 12 months
from the date of approval of these accounts. In forming this
opinion, the directors have taken into consideration: the controls
and monitoring processes in place; the Company's level of debt and
other payables; the low level of operating expenses, comprising
largely variable costs which would reduce pro rata in the event of
a market downturn; and that the Company's assets comprise cash and
readily realisable securities quoted in active markets. The
principal accounting policies adopted are set out below.
2. Taxation
(a) Analysis of tax charge for the year
2021 2020
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Irrecoverable overseas
tax 2,002 - 2,002 2,255 - 2,255
----------------------- ------- ------- ------- ------- ------- -------
Taxation for the year 2,002 - 2,002 2,255 - 2,255
----------------------- ------- ------- ------- ------- ------- -------
The Company became resident in the United Kingdom for tax
taxation purposes, with effect from 1 September 2020. The Company
has no corporation tax liability for the year ended 31 August 2021.
For the year ended 31 August 2020 and prior years, the Company was
resident in Guernsey for taxation, but was granted an exemption
from Guernsey taxation, under the Income Tax (Exempt Bodies)
Guernsey Ordinance 1989, for which it was charged an annual
exemption fee of GBP1,200.
(b) Factors affecting tax charge for the year
The tax assessed for the year ended 31 August 2021 is lower than
the Company's applicable rate of corporation tax for that year of
19.0%. The factors affecting the tax charge for the year are as
follows:
2021
Revenue Capital Total
GBP'000 GBP'000 GBP'000
Net return before taxation 29,684 112,073 141,757
---------------------------------------------- ------- -------- --------
Net return before taxation multiplied by
the Company's applicable rate of corporation
tax for the year of 19.0% 5,640 21,294 26,934
Effects of:
Capital returns on investments - (23,068) (23,068)
Revenue not chargeable to corporation tax (5,568) (42) (5,610)
Tax relief on overseas tax suffered - - -
Expenses disallowed - 1 1
Unrelieved expenses - 1,772 1,772
Double Tax Relief (72) 43 (29)
Irrecoverable overseas tax 2,002 - 2,002
---------------------------------------------- ------- -------- --------
Taxation for the year 2,002 - 2,002
---------------------------------------------- ------- -------- --------
(c) Deferred taxation
The Company has an unrecognised deferred tax asset of
GBP2,332,000 (2020: nil) based on a main rate of corporation tax of
25%. In its 2021 budget, the UK government announced that the main
rate of corporation tax would increase to 25% for the fiscal year
beginning on 1 April 2023.
The deferred tax asset has arisen due to the excess of
deductible expenses over taxable income. Given the composition of
the Company's portfolio, it is not likely that this asset will be
utilised in the foreseeable future and therefore no asset has been
recognised in the accounts.
The Company was granted status as an investment trust company by
HMRC effective from 1 September 2020, and intends to continue to
meet the conditions required to retain that status. Therefore, no
provision has been made for deferred UK capital gains tax on any
capital gains or losses arising on the revaluation or disposal of
investments.
3. Dividends
Dividends paid and declared
2021 2020
GBP'000 GBP'000
2020 fourth interim dividend of 4.60p (2019: 4.60p) 12,404 12,274
First interim dividend of 1.90p (2020: 1.90p) 5,100 5,127
Second interim dividend of 1.90p (2020: 1.90p) 5,097 5,138
Third interim dividend of 1.90p (2020: 1.90p) 5,089 5,135
---------------------------------------------------- ------- -------
Total dividends paid in the year 27,690 27,674
---------------------------------------------------- ------- -------
2021 2020
GBP'000 GBP'000
Fourth interim dividend declared of 4.80p (2020:
4.60p) 12,838 12,432
---------------------------------------------------- ------- -------
Under the Companies (Guernsey) Law 2008, the Company may pay
dividends out of both capital and revenue reserves, subject to
passing a solvency test. However all dividends paid and declared to
date have been paid, or will be paid, out of revenue profits. The
Company has passed the solvency test for all dividends paid to
date.
The fourth interim dividend declared in respect of the year
ended 31 August 2020 differs from the amount actually paid due to
shares repurchased and cancelled after the balance sheet date but
prior to the share register record date.
Dividends for the purposes of Section 1158 of the Corporation
Tax Act 2010 ("Section 1158")
The Company was granted status as an investment trust company by
HMRC effective from 1 September 2020, and intends to continue to
meet the minimum distribution requirements of Section 1158, in
order to retain that status. Those requirements 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 GBP27,682,000.
2021
GBP'000
First interim dividend
of 1.90p 5,100
Second interim dividend
of 1.90p 5,097
Third interim dividend
of 1.90p 5,089
Fourth interim dividend
of 4.80p 12,838
-------------------------- -------
Total dividends of 10.50p 28,124
-------------------------- -------
4. Earnings/(losses) per share
2021 2020
GBP'000 GBP'000
Revenue profit 27,682 26,537
Capital profit/(loss) 112,073 (33,374)
---------------------------------------------- ----------- -----------
Total profit/(loss) 139,755 (6,837)
---------------------------------------------- ----------- -----------
Weighted average number of Ordinary shares in
issue during the year 268,751,860 269,200,852
Revenue earnings per share 10.30p 9.86p
Capital earning/(loss) per share 41.70p (12.40)p
---------------------------------------------- ----------- -----------
Total earning/(loss) per share 52.00p (2.54)p
---------------------------------------------- ----------- -----------
5. Share capital
2021 2020
GBP'000 GBP'000
Ordinary shares of 1p each, allotted, called-up and
fully paid:
Opening balance of 270,268,024 (2020: 262,683,024)
shares, excluding shares held in treasury 232,192 212,786
Repurchase of 2,800,000 (2020: 965,000) shares into
treasury (7,345) (2,155)
Issue of nil (2020: 8,550,000) shares - 21,561
---------------------------------------------------- ------- -------
Subtotal of 267,468,024 (2020: 270,268,024) shares,
excluding shares held in treasury 224,847 232,192
3,765,000 (2020: 965,000) shares held in treasury 9,500 2,155
---------------------------------------------------- ------- -------
Closing balance of 271,233,024 (2020: 271,233,024)
shares 234,347 234,347
---------------------------------------------------- ------- -------
The ordinary shares rank pari passu, and each share carries one
vote in the event of a poll at a general meeting. The Company has
authority to issue an unlimited number of ordinary shares.
During the year, the Company purchased 2,800,000 of its own
shares, nominal value GBP28,000. to hold in treasury for a total
consideration of GBP7,345,000 representing 1.0% 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.
6. Net asset value per share
2021 2020
Net assets attributable to shareholders (GBP'000) 751,419 646,699
Shares in issue at the year end 267,468,024 270,268,024
-------------------------------------------------- ----------- -----------
Net asset value per share 280.94p 239.28p
-------------------------------------------------- ----------- -----------
7. Disclosures regarding financial instruments measured at fair value
The Company's portfolio of investments, which may comprise
investments in equities, equity linked securities, government bonds
and derivatives, are carried in the balance sheet at fair value.
Other financial instruments held by the Company may comprise
amounts due to or from brokers, dividends and interest receivable,
accruals, cash at bank and drawings on the credit facility.
For these instruments, the balance sheet amount is a reasonable
approximation of fair value.
The investments 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.
Details of the valuation techniques used by the Company are
given in note 1(c) on page 48 of the 2021 Annual Report, and note
1(j) on page 49 of the 2021 Annual Report.
At 31 August 2021, the Company's investment portfolio was
categorised as follows:
2021
Level 1 Level 2 Level 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
Investments in equities and equity
linked securities 769,397 - 5,028 774,425
----------------------------------- ------- ------- ------- -------
Total 769,397 - 5,028 774,425
----------------------------------- ------- ------- ------- -------
Level 3 investments comprise one holding. in global depositary
receipts which delisted during the year. There were no other
transfers between Levels 1, 2 or 3 during the year.
2020
Level 1 Level 2 Level 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
Investments in equities and equity
linked securities 672,184 - - 672,184
----------------------------------- ------- ------- ------- -------
Total 672,184 - - 672,184
----------------------------------- ------- ------- ------- -------
There were no transfers between Levels 1, 2 or 3 during the year
ended 31 August 2020.
Status of announcement
2021 Financial Information
The figures and financial information for 2021 are extracted
from the Annual Report and Accounts for the year ended 31 August
2021 and do not constitute the statutory accounts for the year. The
2021 Annual Report and Accounts include the Report of the
Independent Auditors which is unqualified.
Neither the contents of the Company's webpages nor the contents
of any website accessible from hyperlinks on the Company's webpages
(or any other website) is incorporated into, or forms part of, this
announcement.
, the news service of the London Stock Exchange. RNS is approved by
the Financial Conduct Authority to act as a Primary Information
Provider in the United Kingdom. Terms and conditions relating to
the use and distribution of this information may apply. For further
information, please contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
FR FFDESSEFSELF
(END) Dow Jones Newswires
November 11, 2021 02:00 ET (07:00 GMT)
Schroder Oriental Income (LSE:SOI)
Historical Stock Chart
From Jun 2024 to Jul 2024
Schroder Oriental Income (LSE:SOI)
Historical Stock Chart
From Jul 2023 to Jul 2024
