Final Results
Schroder AsiaPacific Fund PLC
16 November 2007
SCHRODER ASIAPACIFIC FUND plc
Unaudited Results for the year to 30 September 2007
This preliminary announcement of unaudited results was approved by the Board of
Directors on 16 November 2007.
Chairman's Statement
Investment Performance
It has been a good year for equity markets in Asia. I am pleased to report that
during the year ended 30 September 2007 the Company's net asset value per share
produced a total return of 46.3%. The Company's benchmark, the Morgan Stanley
All Countries Far East (Free) excluding Japan Index, produced a total return of
47.7% over the same period and the reasons for the slight under-performance of
the benchmark Index are outlined in the Investment Manager's Report. This is
now the sixth successive year in which the net assets of the Company have
increased and performance remains well ahead of the benchmark index over the
longer term.
Final Dividend
The Directors recommend the payment of a final dividend of 1.50 pence per share
for the year ended 30 September 2007, a reduction of 11.7% from the 1.70 pence
per share paid in respect of the previous financial year. Income for the year
was reduced when compared to the previous year (2007: £2,497,000- 2006:
£2,760,000) largely because the growth in income did not match the growth in
capital produced by the portfolio. Shareholders should remember that the
Company's investment objective is to achieve capital growth and income
generation plays a secondary role. If the resolution proposed at the Annual
General Meeting to pay a final dividend is passed, the dividend will be paid on
5 February 2008 to shareholders on the Register on 4 January 2008.
Gearing
During the year, the amount of the Company's gearing facility was increased from
US$60 million to US$100 million and drawings were increased from US$40 million
to $70 million. Net gearing at the beginning of the year was 4.4% and by the end
of the year had increased to 7.4%. The Board continues to review the gearing
position on a regular basis.
Purchase of Shares for Cancellation
At the Company's last Annual General Meeting on 7 February 2007, the Company was
given the authority to purchase up to 14.99% of its issued share capital for
cancellation. The share buy-back facility is one of a number of tools that may
be used to enhance shareholder value and to reduce the discount volatility.
During the year ended 30 September 2007, the Directors did not utilise the
authority given to them and no purchases were made for cancellation.
However, the Board continues to consider whether purchases should be made on a
regular basis, and therefore proposes that the authority be renewed at the
forthcoming Annual General Meeting.
Electronic Communications and Amendment to the Articles of Association
There have been a number of recent changes to company law and practice
permitting the use of electronic communications as an alternative to traditional
means of communication. We are therefore proposing to adopt revised Articles of
Association which will allow the Company, where a shareholder does not object,
to send certain Company information (e.g. notices, proxy forms and accounts) by
electronic means or by placing it on a website, rather than sending it in
printed form. Shareholders will be able to elect to continue to receive all
documents in printed form.
Annual General Meeting
The Annual General Meeting will be held on 31 January 2008 and shareholders are
encouraged to attend. As in previous years, Matthew Dobbs, on behalf of the
Investment Manager, will give a presentation on the prospects for Asia and the
Company's investment strategy.
The Hon Rupert Carington
Chairman
Investment Manager's Review
It has been another strong period for the regional markets with the Benchmark
Index recording a total return of 47.7% over the year. The total return for the
Company's portfolio has been 46.3%, slightly less than the benchmark.
The strong market rises of the first half have been extended in the second
despite a sharp correction in July and August prompted by the problems in
Western credit markets. Overall, economic and financial conditions have remained
supportive for regional equity markets. External demand has been robust even as
growth in the United States has slowed thanks to the increasingly diverse
sources of demand for regional exports. Trade within the region has continued to
grow strongly, while other emerging markets and Europe have become more
significant end markets, the latter aided by the strength of the euro.
Domestically generated growth has been fuelled by strong local real estate
markets, ample liquidity, consumer confidence and strong household income
growth. There have been increasing signs that the capital spending strength
which has hitherto been largely confined to India and China is spreading to
other Asian countries driven by residential construction activity, and a long
awaited recovery in infrastructure spending.
In this environment, it is unsurprising that interest rates have been rising in
many countries. Notable policy tightening has been evident in China, India,
Korea, and, more recently, Singapore through a combination of increased interest
rates, higher reserve requirements for the banks and stronger currencies. In
contrast, interest rates have continued to fall in those countries which have
historically suffered from high interest rates such as Indonesia and the
Philippines.
While all markets have offered attractive returns, it has been China that has
dominated market sentiment. The economy has continued to perform remarkably
well. Strong export growth remains an important component, but with high
productivity growth supporting household incomes, consumer spending is providing
increased balance to the economy. Liquidity remains ample, and tightening
monetary policy has made little impact thus far.
With massive domestic liquidity looking for a home, domestic A shares have been
the major beneficiaries, perhaps encouraged by the authorities fruitless
attempts to cool the property market. This has resulted in even stronger returns
in the Hong Kong listed H shares which trade at a discount to the A shares, and
which the Chinese authorities intend making available to domestic investors on a
limited basis. This has encouraged arbitrage buying, taking all Chinese shares
to demanding valuations. The bull market has been given a further boost by the
US decision to cut interest rates in response to the sub prime and credit
problems.
The range of returns in other markets has been rather narrower. Taiwan and Korea
have been hampered by high export reliance (particularly in the key information
technology sector) where sentiment has been impacted by slowing US growth and
currency pressures. Political uncertainty has continued to weigh on sentiment in
Thailand.
Performance and Portfolio Activity
The Company's performance has been strong in absolute terms, although it has
been slightly under the Index. All the underperformance has come in the second
half of the year, and has co-incided with a market which has been focused on
China to the exclusion of almost everything else. The concentration on a narrow
group of large cap China stocks (primarily H shares) has long taken valuations
beyond levels that can be rationalised. It is a tribute to the power of regional
liquidity, but our valuation discipline, which has served the Company well over
the longer-term, has hampered our relative performance due to the underweight
exposure to these highly valued stocks.
The impact of the underweighting in China stocks has been mitigated by the
gearing and strong stock selection in other markets, with notably strong
selection in Hong Kong, Indonesia, Korea, the Philippines and Thailand.
In terms of portfolio adjustments, we have added to Hong Kong/China aggressively
through the year. The prime funding sources have been Korea, Taiwan and
Thailand. Sectoral positioning has continued to emphasise domestically sensitive
sectors such as consumer cyclicals, industrials and financials. We have been
underweight in information technology, materials and energy.
Outlook and Policy
Since the summer, regional markets have made an impressive attempt at
decoupling. Amid the growing evidence of slowing growth in the United States,
Europe and Japan, the benchmark index has risen well above pre-credit crisis
peaks. However, the focus has continued to be narrow, intent primarily on China,
Hong Kong and India.
We continue to have every confidence in the long-term investment case for the
region, but the shorter-term outlook is less clearcut. While our central
expectation is that United States growth will undoubtedly slow, we believe that
severe recession can be avoided. However, we would acknowledge that the risks to
economic activity in 2008 are rising, and that the external sector remains an
important contributor to regional activity.
Nevertheless, a combination of moderate global growth (allowing steady if not
spectacular expansion in Asian exports) and the prospect of flat, and possibly
declining, US dollar interest rates is a potentially powerful support to Asian
asset and equity prices. Corporate profits should continue to expand, while
domestic liquidity and consumption are likely to remain strong. There is also
ample evidence that domestic capital spending across Asia (i.e. not just in
China and India) is set to recover given strong corporate and national balance
sheets. This should help address capacity constraints which, in some cases, have
either been absent or ignored since the Asian crisis of the mid 1990s.
One corollary of this view is that domestically oriented sectors and companies
are likely to be favoured in this environment, while exporters may suffer
pressures from slowing external growth and rising exchange rates. The Company's
portfolio is heavily oriented towards domestic sectors such as financials, real
estate, and consumer cyclicals.
Schroder Investment Management Limited
9 November 2007
Income Statement (Unaudited)
For the year ended
30 September 2007
Revenue Capital Total
Return Return
£'000 £'000 £'000
Gains on investments held at fair value - 99,841 99,841
Other currency gains - 1,977 1,977
Income (Note 2) 8,704 1,309 10,013
Investment management fee (2,943) - (2,943)
Administrative expenses (556) - (556)
________ ________ ________
Net return before finance costs and taxation 5,205 103,127 108,332
Interest payable and similar charges (1,473) - (1,473)
________ ________ ________
Net return on Ordinary Activities before Taxation 3,732 103,127 106,859
Taxation on ordinary activities (1,235) (391) (1,626)
_______ ________ ________
Net return after taxation attributable to equity shareholders 2,497 102,736 105,233
====== ====== =====
Net return per ordinary share (pence) (Note 3) 1.49 61.45 62.94
===== ====== ======
Income Statement (Comparative)
For the year ended
30 September 2006
Revenue Capital Total
Return Return
£'000 £'000 £'000
Gains on investments held at fair value - 32,739 32,739
Other currency gains - 1,097 1,097
Income (Note 2) 7,533 - 7,533
Investment management fee (2,252) - (2,252)
Administrative expenses (361) - (361)
_______ ________ ________
Net return before finance costs and taxation 4,920 33,836 38,756
Interest payable and similar charges (1,155) - (1,155)
________ ________ ________
Net return on ordinary activities before taxation 3,765 33,836 37,601
Taxation on ordinary activities (996) 645 (351)
_______ ________ ________
Net return after taxation attributable to equity shareholders 2,769 34,481 37,250
===== ====== ======
Net return per Ordinary share (pence) (Note 3) 1.76 21.93 23.69
===== ====== ======
The total column shown above for each period represents the Profit and Loss
Account of the Company.
The revenue and capital items derive from continuing activities.
A Statement of Total Recognised Gains and Losses has not been presented as all
gains and losses are recognised in the Income Statement.
No operations were acquired or discontinued during the year.
Reconciliation of Movements
in Shareholders' Funds
(Unaudited)
for the year ended 30 September 2007
Called Capital Share Warrant
up Share redemption Share purchase Warrant exercise Capital Revenue
Capital reserve premium reserve reserve reserve reserves Reserve Total
*
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
At 30 September 2005 13,922 81 25 110,529 8,695 9 34,382 3,153 170,796
Net return from
operating activities - - - - - - 34,481 2,769 37,250
Ordinary
dividends paid - - - - - - - (2,645) (2,645)
Conversion of warrants 2,797 - 25,174 - (8,695) 8,695 - - 27,971
to ordinary shares
At 30 September 2006 16,719 81 25,199 110,529 - 8,704 68,863 3,277 233,372
At 30 September 2006 16,719 81 25,199 110,529 - 8,704 68,863 3,277 233,372
Net return from
operating activities - - - - - - 102,736 2,497 105,233
Ordinary
dividends paid - - - - - - - (2,842) (2,842)
At 30 September 2007 16,719 81 25,199 110,529 - 8,704 171,599 2,932 335,763
*The revenue reserve represents the amount of the Company's reserves
distributable by way of dividend.
Balance Sheet
(Unaudited)
At At
30 September 30 September
2007 2006
£'000 £'000
Fixed assets
Investments held at fair value through profit or loss 361,756 242,628
_______ _______
361,756 242,628
Current assets
Debtors 10,605 7,203
Cash at bank and short-term deposits 9,572 11,027
_______ _______
20,177 18,230
Current liabilities
Creditors - amounts falling due within one year (45,972) (27,428)
_______ _______
Net current liabilities (25,795) (9,198)
_______ _______
Total assets less current liabilities 335,961 233,430
_______ _______
Non current liabilities
Creditors - amounts falling due after more than one year (198) (58)
_______ _______
Net assets 335,763 233,372
====== ======
Capital and Reserves
Called up share capital 16,719 16,719
Capital redemption reserve 81 81
Share premium account 25,199 25,199
Share purchase reserve 110,529 110,529
Warrant exercise reserve 8,704 8,704
Capital reserves 171,599 68,863
Revenue reserve 2,932 3,277
_______ _______
Equity shareholders' funds 335,763 233,372
====== ======
Net asset value per Ordinary share (pence) (Note 4) 200.83 139.59
===== =====
Cash Flow Statement (Unaudited)
For the year ended For the year ended
30 September 30 September
2007 2006
£'000 £'000
Operating activities
Dividends and interest received from investments 7,424 6,853
Interest received on deposits 507 312
Stock lending fee income - 84
Investment management fee paid (2,663) (2,089)
Administrative expenses paid (446) (357)
_______ _______
Net cash inflow from operating activities 4,822 4,803
_______ _______
Servicing of Finance
Bank loan interest paid (1,294) (1,120)
_______ _______
Net cash outflow from servicing of finance (1,294) (1,120)
_______ _______
Taxation
UK tax paid (604) (636)
Overseas tax paid (506) (499)
_______ _______
Total tax paid (1,110) (1,135)
_______ _______
Investment Activities
Purchase of investments ( 276,531) (158,092)
Disposal of investments 260,579 123,219
_______ _______
Net cash outflow from investment activities (15,952) (34,873)
_______ _______
Equity dividends paid (2,842) (2,645)
_______ _______
Net cash outflow before financing (16,376) (34,970)
_______ _______
Financing
Conversion of warrants to ordinary shares - 27,971
Bank loans drawn 15,144 -
_______ _______
Net cash inflow from financing 15,144 27,971
_______ _______
Net Cash outflow (1,232) (6,999)
====== ======
Notes
1. Accounting Policies
The accounts have been prepared under the historical cost convention, modified
to include the revaluation of investments and in accordance with applicable UK
Accounting Standards and with the Statement of Recommended Practice ('SORP') for
'Financial Statements of Investment Trust Companies' issued in January 2003 and
revised in December 2005 by the Association of Investment Companies (AIC).
The Company's accounting policies have not varied from those described in the
Report and Accounts for the year ended 30 September 2006.
2. Income
Dividends and Other Income comprise:
For the year ended 30 For the year ended 30
September 2007 September 2006
£'000 £'000
Income from investments:
Overseas dividends 7,729 6,455
UK franked dividends 86 -
Interest from overseas bonds 68 240
Stock dividends 305 456
Bank deposit interest 501 310
Stock lending fee income 15 72
_______ _______
8,704 7,533
===== =====
Income from investments allocated
to capital:
UK special dividends 6 -
Overseas dividends 1,303 -
_______ _______
1,309 -
===== =====
3. Return per Ordinary Share
The total return per Ordinary share is calculated on the return attributable to
Ordinary shareholders of £105,233,000 (2006: return of £37,250,000) and
167,189,762 (2006: 157,198,596) Ordinary shares, being the weighted average
number of shares in issue during the year.
The revenue return per Ordinary share is calculated on the return attributable
to Ordinary shareholders of £2,497,000 (2006: £2,769,000) and 167,189,762 (2006:
157,198,596) Ordinary shares, being the weighted average number of shares in
issue during the year.
The capital return per Ordinary share is calculated on the return attributable
to Ordinary shareholders of £102,736,000 (2006: return of £34,481,000) and
167,189,762 (2006: 157,198,762) Ordinary shares, being the weighted average
number of shares in issue during the year.
4. Net Asset Value
The Net Asset Value per Ordinary share is calculated on net assets of
£335,763,000 (2006: £233,372,000) and 167,189,762 (2006: 167,189,762) Ordinary
shares in issue at the year-end.
Annual Report and Accounts
The financial information contained in this preliminary announcement of annual
results is unaudited and does not constitute statutory accounts as defined in
Section 240 of the Companies Act 1985. Full statutory accounts for the year
ended 30 September 2006 included a report from the Company's auditors, in
accordance with Section 235 of the Companies Act 1985, which was unqualified,
did not include a reference to any matters to which the auditors drew attention
by way of emphasis without qualifying the report and did not contain statements
under Section 237 (2) and (3) of the Companies Act 1985, were filed with the
Registrar of Companies. No statutory accounts in respect of any period after 30
September 2006 have been reported on by the Company's auditors or delivered to
the Registrar of Companies.
The statutory accounts for the year to 30 September 2007 will be finalised on
the basis of the financial information presented by the Directors in this
preliminary announcement and will be delivered to the Registrar of Companies
following the Annual General Meeting.
Final Dividend
The Directors of the Company have declared the payment of a final dividend of
1.50p net per share for the year ended 30 September 2007. Subject to approval by
shareholders at the Annual General Meeting, the dividend will be payable on 5
February 2008 to shareholders on the register on 4 January 2008.
Ex-Dividend Date: 2 January 2008
Record Date: 4 January 2008
Dividend Warrants: Despatched on 4 February 2008
Payment Date: 5 February 2008
Dividend per share: 1.50p
The Annual Report and Accounts Report will be mailed to registered shareholders
in December 2007 and from the date of release copies will be made available to
the public at the Company's Registered Office at 31 Gresham Street, London
EC2V 7QA.
Schroder Investment Management Limited
Secretary
16 November 2007
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