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Asian Total Retn Inv (ATR)

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Friday 29 August, 2014

Asian Total Retn Inv

Half Yearly Report

RNS Number : 3988Q
Asian Total Return Invest Co PLC
29 August 2014
 



Half Year Report

 

Asian Total Return Investment Company plc (the "Company") hereby submits its Half-Year Report for the period ended 30 June 2014 as required by the UK Listing Authority's Disclosure 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.asiantotalreturninvestmentcompany.com. Please click on the following link to view the document:

 

 

The Company has submitted a pdf of the hard copy format of its Half-Year Report to the National Storage Mechanism and it will shortly be available for inspection at www.morningstar.co.uk/uk/NSM.

 

Enquiries:

 

John Spedding

Schroder Investment Management Limited                                        Tel: 020 7658 3206

 

29 August 2014

 

 

Half Year Report for the Six Months Ended 31 March 2014

 

Interim Management Report  

 

Chairman's Statement

 

Performance

 

I am pleased to be able to report a marked improvement in your Company's performance since the end of 2013. In the six months to 30 June 2014, the net asset value total return of your Company increased by 5.8% which compares to a 3.7% rise in the reference index in sterling terms.

 

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

 

Promotion and discount management

 

The Board continues to believe that successful promotion of the Company is key to discount control. The Company is promoted through a range of activities including marketing to discretionary wealth managers, private investors, financial advisers and institutions; regular contact with current and potential shareholders and maintaining relationships with adviser and execution only platforms; advertising in the trade press and provision of information on the Company's website. This promotion continues to be supported by a discount management policy. In the Annual Report, I reported that the Board had adjusted the discount management policy to target a discount to net asset value per share nearer to 5% in normal market conditions, through use of the Company's share buyback authorities, and this level has continued to be targeted during the period under review.

 

In the six months to 30 June 2014, the average discount was 6.0% and a total of 450,000 shares were purchased by the Company to be held in Treasury, in support of the discount policy.

 

Board refreshment

 

Your Board continues to monitor its composition and balance, in accordance with its long term succession plan. As part of this planned refreshment of the Board, I am pleased to report that Mr Mike Holt was appointed as a non-executive Director of the Company with effect from 1 July 2014, following the retirement of Mr Robertson at the Annual General Meeting in April.

 

Mr Holt is currently Group Finance Director of Low & Bonar PLC, an international performance materials group. He is also a trustee (and treasurer) of Target Ovarian Cancer. Prior to joining Low & Bonar in 2010, he was Group Finance Director of Vp plc for six years and had previously held a number of senior financial positions with Rolls-Royce group plc in the UK, the USA and Hong Kong. He is a Fellow of The Institute of Chartered Accountants in England & Wales.

 

The election of Mr Holt as a Director of the Company will be proposed at the next Annual General Meeting.

 

Alternative Investment Fund Managers (AIFM) Directive

 

In accordance with the AIFM Directive, the Company has, with effect from 17 July 2014, become an Alternative Investment Fund and has appointed Schroder Unit Trusts Limited ("SUTL"), a wholly owned subsidiary of Schroders plc, as the Alternative Investment Fund Manager (the "Manager") to provide portfolio management, risk management, accounting and company secretarial services to the Company in accordance with an Alternative Investment Fund Managers Agreement. SUTL has delegated investment management to another wholly owned subsidiary of Schroders plc, Schroder Investment Management Limited, which has sub-delegated investment management to Schroder Investment Management (Singapore) Limited. Fees paid to the Manager remain unchanged to those paid under the previous Investment Management Agreement. In addition, the Company has appointed HSBC Bank plc as its Depositary, also with effect from 17 July 2014. An additional fee of one basis point of net assets will be payable for Depositary Services.

 

Further details of both the AIFM Agreement and the Depositary Agreement may be found on pages 15 and 16 in the Company Summary section of the Half-Year Report.

 

Leverage

 

The Company may use gearing to enhance performance but net gearing will not exceed 30% of net asset value. The Board has agreed a disciplined framework for gearing, based on a number of valuation indicators. Currently the Company does not employ gearing.

 

The AIFM Directive has introduced new requirements to disclose maximum leverage levels. The definition of leverage in this context includes not only gearing as described above but also leverage used in other ways.

 

Please refer to note 7 of the Half-Year Report for further information on leverage.

 

Outlook

 

The market's short term challenges, such as the risks when interest rates normalise, are discussed in the Portfolio Managers' Review contained in the Half-Year Report. We share their optimism that, if there is a market correction, it is likely to provide excellent opportunities for the Company to position itself to benefit from the region's longer term attractions.

 

David Robins

Chairman

 

29 August 2014

 

 

 

Portfolio Managers' Review

 

Performance Analysis

 

Asian markets have performed well in the first half of the year against a backdrop of seemingly mixed news flow. The promise of continued loose monetary policies has seen global equity and bond markets continue their upward climb, with almost all of the de-rating suffered by the more fragile Asian economies during the sell-off that began in mid-May last year being reversed amidst renewed capital inflows into emerging markets.

 

The reference index - the MSCI AC Asia Pacific ex Japan Index - rose 3.7% in sterling terms over the period, a figure depressed for UK investors by the rise of sterling. Policy reform was a key driver of Asian market outperformance, as the Indian and Indonesian markets rallied on hopes that the election of reform-minded candidates would bring about a political mandate for change and kick-start a revival of growth. In contrast, growing concerns over a credit crisis and property bubble saw continued weak returns in the Chinese market, though there was a slight reversal in June on hopes that the announcement of stimulus measures by the authorities would help spur growth and stabilise the economy.

 

Against this backdrop, the portfolio delivered an NAV return of +5.8% in the first half. Performance was driven by gains across most markets, in particular the portfolio's holdings in ASEAN which rebounded on receding economic fears and undemanding valuations. Overall stock selection helped the portfolio outperform the reference index despite the hedging adopted.

 

The Jardine group of companies, which detracted from performance in the second half of last year, were amongst the top gainers as continued steady growth across their businesses and improved sentiment in Indonesia (due to its exposure via Astra International) helped drive a strong recovery in their share prices. Hongkong Land, Jardine's Hong Kong commercial property arm, was another leading contributor as the stock rebounded on easing concerns over rising interest rates. Overall, the holdings in ASEAN and Hong Kong property stocks saw a strong turnaround in performance as investors realised that the negative effects of a tapering in US quantitative easing had been excessively discounted. Again this underpins our belief in adopting a disciplined bottom-up approach with a focus on investing in companies with sound fundamentals as a driver of long term outperformance.

 

Across other markets, Taiwan technology stocks Taiwan Semicon Manufacturing and Mediatek continued their positive momentum on the back of improving global demand. Indian stocks were also up across the board, led by Phoenix Mills, India's largest retail mall operator, which rallied on expectations of a revival in consumption growth.

 

Amongst stocks that detracted, Chinese healthcare names Wuxi Pharmatech and Mindray Medical retreated on concerns over decelerating revenue growth due to China's anti-corruption campaign and regulatory uncertainty. Hotel chain operator China Lodging Group also declined as concerns over high valuations and an economic slowdown prompted investors to take profit.

 

At the end of June, the derivatives gave the portfolio approximately 22% notional protection (10% Delta adjusted).

 

Portfolio Positioning

 

The portfolio is invested in Asian companies where long term domestic consumption growth remains a structural theme. We continue to find attractive stock opportunities in businesses that are benefiting from the ongoing secular change in Asia, primarily in healthcare, selected technology names with genuine intellectual property, branded manufacturers and quality financial companies. We also continue to see good value in many of the more traditional Hong Kong blue chip property and conglomerate stocks, where valuations have been depressed by worries over the impending pick-up in US interest rates. Elsewhere the portfolio remains focused on the stronger, globally competitive industrial companies, as well as local businesses in South East Asia that are well placed to benefit from rising domestic spending and a pick-up in infrastructure investment.

 

While Asian markets are now trading at fair value, qualitatively we see substantial risks in China as a result of the credit and property bubble. We believe risks of volatility and sell-downs are high, with a material segment of the market susceptible to substantial capital erosion should specific high-risk events materialise. With volatility at 25-year lows, capital protection is cheap, so we continue to buy a moderate level of protection (c. 20-25% notional cover in the portfolio) via put options.

 

Investment Trends and Outlook

 

We have made few changes to the portfolio strategy over the period. Our caution increases as valuations rise, and we believe that with rising valuations Asian stock markets, like those in the West, are vulnerable to any moves to start to normalise monetary policy. We continue to aim to provide some capital protection to a potential market correction via the puts, and further rises in Asian stock markets are likely to see the portfolio move to a more defensive stance either through the sale of index futures or by raising cash levels.

 

Portfolio Managers

Robin Parbrook and King Fuei Lee

 

29 August 2014

 

Principal Risks and Uncertainties

 

The principal risks and uncertainties with the Company's business fall into the following categories: portfolio and market risk; investment activity and performance; tax and regulatory risks and financial risk.  A detailed explanation of the principal risks and uncertainties in each of these categories can be found on pages 16 and 17 of the Company's published Annual Report and Accounts for the year ended 31 December 2013. These risks and uncertainties have not materially changed during the six months ended 30 June 2014.

 

Going Concern

 

The Directors believe that, having considered the Company's investment objectives, risk management policies, capital management policies and procedures, expenditure projections and the fact that the Company's assets comprise readily realisable securities which can be sold to meet funding requirements if necessary, the Company has adequate resources, an appropriate financial structure and suitable management arrangements in place to continue in operational existence for the foreseeable future. For these reasons, they consider there is reasonable evidence to continue to adopt the going concern basis in preparing the accounts.

 

Related Party Transactions

 

Details of transactions with the Manager can be found in note 18 on page 43 of the Company's published Annual Report and Accounts for the year ended 31 December 2013. On 17 July 2014, the Company appointed Schroder Unit Trusts Limited, a wholly owned subsidiary of Schroders plc, to provide portfolio management, risk management, accounting and company secretarial services. If the Company invests in funds managed or advised by the Manager or any of its associated companies, those funds are excluded from the assets used for the purposes of the management fee calculation and therefore attract no fee.

 

No Director of the Company served as a director of Schroder Unit Trusts Limited, or any member of the Schroders plc group, at any time during the six months ended 30 June 2014.

 

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 United Kingdom Generally Accepted Accounting Practice (UK GAAP) and with the Statement of Recommended Practice, "Financial Statements of Investment Trust Companies and Venture Capital Trusts" issued in January 2009 and the Interim Management Report as set out above includes a fair review of the information required by 4.2.7R and 4.2.8R of the Financial Conduct Authority's Disclosure and Transparency Rules.

 

Income Statement

 


(Unaudited)

For the six months

ended 30 June 2014

(Unaudited)

For the six months

ended 30 June 2013

(Audited)

For the year

ended 31 December 2013


Revenue

£'000

Capital

£'000

Total

£'000

Revenue

£'000

Capital

£'000

Total

£'000

Revenue

£'000

Capital

£'000

Total

£'000

Gains/(losses) on investments held at fair value through profit or loss

-

8,664

8,664

-

4,482

4,482

-

(5,141)

(5,141)

Net (losses)/gains on










derivative contracts

-

(2,001)

(2,001)

-

631

631

-

(2,755)

(2,755)

Net foreign currency losses

-

(116)

(116)

-

(77)

(77)

-

(71)

(71)

Income from investments

1,569

248

1,817

1,481

-

1,481

2,741

-

2,741

Other interest receivable and










similar income

115

-

115

31

-

31

33

-

33

Gross return/(loss)

1,684

6,795

8,479

1,512

5,036

6,548

2,774

(7,967)

(5,193)

Investment management fee

(109)

(327)

(436)

(202)

(378)

(580)

(266)

(569)

(835)

Administrative expenses

(214)

-

(214)

(332)

-

(332)

(581)

-

(581)

Net return/(loss) before










finance costs and taxation

1,361

6,468

7,829

978

4,658

5,636

1,927

(8,536)

(6,609)

Finance costs

-

-

-

(1)

(2)

(3)

(1)

(2)

(3)

Net return/(loss) on ordinary










activities before taxation

1,361

6,468

7,829

977

4,656

5,633

1,926

(8,538)

(6,612)

Taxation on ordinary










activities (note 3)

(71)

-

(71)

(16)

(103)

(119)

(133)

(103)

(236)

Net return/(loss) on










ordinary activities after










taxation

1,290

6,468

7,758

961

4,553

5,514

1,793

(8,641)

(6,848)

Return/(loss) per share










(note 4)

1.74p

8.73p

10.47p

0.90p

4.26p

5.16p

1.98p

(9.55)p

(7.57)p

 

The "Total" column of this statement is the profit and loss account of the Company. The "Revenue" and "Capital" columns represent supplementary information prepared under guidance issued by The Association of Investment Companies. The Company has no recognised gains and losses other than those included in the results above and therefore no separate statement of total recognised gains and losses has been presented.

 

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

 

Reconciliation of Movements in Shareholders' Funds

 


For the six months ended 30 June 2014 (Unaudited)


Called-up


Capital






Share

Share

redemption

Special

Capital

Revenue



capital

premium

reserve

reserve

reserves

reserve

Total


£'000

£'000

£'000

£'000

£'000

£'000

£'000

At 31 December 2013

4,260

5

11,646

29,182

79,894

10,253

135,240

Repurchase of shares into








Treasury

-

-

-

-

(785)

-

(785)

Net return on ordinary activities

-

-

-

-

6,468

1,290

7,758

Ordinary dividend paid in the








period

-

-

-

-

-

(2,409)

(2,409)

At 30 June 2014

4,260

5

11,646

29,182

85,577

9,134

139,804

 


For the six months ended 30 June 2013 (Unaudited)


Called-up


Capital






Share

Share

redemption

Special

Capital

Revenue



capital

premium

reserve

reserve

reserves

reserve

Total


£'000

£'000

£'000

£'000

£'000

£'000

£'000

At 31 December 2012

7,409

-

8,497

29,182

239,712

13,276

298,076

Repurchase of the Company's








own shares following a Tender








Offer

(3,149)

-

3,149

-

(151,812)

-

(151,812)

Reissue of shares from Treasury

-

5

-

-

487

-

492

Net return on ordinary activities

-

-

-

-

4,553

961

5,514

Ordinary dividend paid in the








period

-

-

-

-

-

(4,816)

(4,816)

At 30 June 2013

4,260

5

11,646

29,182

92,940

9,421

147,454

 


For the year ended 31 December 2013 (Audited)


Called-up


Capital






Share

Share

redemption

Special

Capital

Revenue



capital

premium

reserve

reserve

reserves

reserve

Total


£'000

£'000

£'000

£'000

£'000

£'000

£'000

At 31 December 2012

7,409

-

8,497

29,182

239,712

13,276

298,076

Repurchase of the Company's








own shares following a








Tender Offer

(3,149)

-

3,149

-

(151,758)

-

(151,758)

Reissue of shares from Treasury

-

5

-

-

581

-

586

Net (loss)/return on ordinary








activities

-

-

-

-

(8,641)

1,793

(6,848)

Ordinary dividend paid in the








year

-

-

-

-

-

(4,816)

(4,816)

At 31 December 2013

4,260

5

11,646

29,182

79,894

10,253

135,240

 

Balance Sheet

 


(Unaudited)

(Unaudited)

(Audited)


30 June

30 June

31 December


2014

2013

2013


£'000

£'000

£'000

Fixed assets




Investments held at fair value through profit or loss

139,012

142,646

132,609

Current assets




Debtors

145

95

922

Cash at bank and in hand

644

3,929

1,824

Derivative financial instruments held at fair value




through profit or loss

401

2,105

310


1,190

6,129

3,056

Current liabilities




Creditors: amounts falling due within one year

(395)

(1,321)

(394)

Derivative financial instruments held at




fair value through profit or loss

(3)

-

(31)


(398)

(1,321)

(425)

Net current assets

792

4,808

2,631

Net assets

139,804

147,454

135,240

Capital and reserves




Called-up share capital

4,260

4,260

4,260

Share premium

5

5

5

Capital redemption reserve

11,646

11,646

11,646

Special reserve

29,182

29,182

29,182

Capital reserves

85,577

92,940

79,894

Revenue reserve

9,134

9,421

10,253

Total equity shareholders' funds

139,804

147,454

135,240

Net asset value per share (note 5)

189.10p

198.37p

181.82p

 

 

Cash Flow Statement

 


(Unaudited)

(Unaudited)

(Audited)


For the six

For the six

For the


months ended

months ended

year ended


30 June
2014

30 June
2013

31 December 2013


£'000

£'000

£'000

Net cash inflow from operating activities (note 6)

1,198

294

1,111

Net cash outflow from servicing of finance

-

(20)

(20)

Taxation paid

-

(103)

(103)

Net cash inflow from investment activities

936

158,723

156,444

Dividends paid

(2,409)

(4,816)

(4,816)

Net cash outflow from financing

(789)

(150,523)

(151,172)

Net cash (outflow)/inflow in the period

(1,064)

3,555

1,444

Reconciliation of net cash flow to movement in net funds




Net cash (outflow)/inflow in the period

(1,064)

3,555

1,444

Exchange movements

(116)

(77)

(71)

Changes in net funds arising from cash flows

(1,180)

3,478

1,373

Net funds at the beginning of the period

1,824

451

451

Net funds at the end of the period

644

3,929

1,824

Represented by:




Cash at bank and in hand

644

3,929

1,824

 

Notes to the Accounts

 

1. Financial Statements

Basis of accounting

 

The information contained within the accounts in this half-year report has not been audited or reviewed by the Company's auditors.

 

The figures and financial information for the year ended 31 December 2013 are extracted from the latest published accounts of the Company and do not constitute statutory accounts for that year. Those accounts have been delivered to the Registrar of Companies and included the report of the auditors which was unqualified and did not contain a statement under either section 498(2) or 498(3) of the Companies Act 2006.

 

2. Accounting policies

 

The accounts have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice and with the Statement of Recommend Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" issued in January 2009.

 

All of the Company's operations are of a continuing nature.

 

The accounting policies applied to these half-year accounts are consistent with those applied in the accounts for the year ended 31 December 2013.

 

3. Taxation on ordinary activities

 

The Company's effective corporation tax rate is nil, as deductible expenses exceed taxable income. The taxation charge comprises irrecoverable overseas withholding tax on dividends receivable and overseas capital gains tax.

 

4. Return/(loss) per share

 


(Unaudited)

(Unaudited)

(Audited)


For the six

For the six

For the


months ended

months ended

year ended


30 June 2014

30 June 2013

31 December 2013


£'000

£'000

£'000

Revenue return

1,290

961

1,793

Capital return/(loss)

6,468

4,553

(8,641)

Total return/(loss)

7,758

5,514

(6,848)

Weighted average number of shares in issue




during the period

74,129,484

106,921,728

90,510,583

Revenue return per share

1.74p

0.90p

1.98p

Capital return/(loss) per share

8.73p

4.26p

(9.55)p

Total return/(loss) per share

10.47p

5.16p

(7.57)p

 

5. Net asset value per share

 

Net asset value per share is calculated by dividing shareholders' funds by the number of shares in issue at 30 June 2014 of 73,931,141 (30 June 2013: 74,331,141 and 31 December 2013: 74,381,141).

 

6. Reconciliation of total return/(loss) on ordinary activities before finance costs and taxation to net cash inflow from operating activities

 


(Unaudited)

(Unaudited)

(Audited)


For the six

For the six

For the


months ended

months ended

year ended


30 June 2014

30 June 2013

31 December 2013


£'000

£'000

£'000

Total return/(loss) on ordinary activities before finance costs and taxation




7,829

5,636

(6,609)

Less capital (return)/loss on ordinary activities before finance costs and taxation




(6,468)

(4,658)

8,536

Stock dividends received as income

-

-

(4)

Decrease in prepayments and accrued income

26

371

351

Decrease/(increase) in other debtors

3

24

(17)

Decrease in creditors

(27)

(685)

(366)

Special dividend allocated to capital

248

-

-

Management fee allocated to capital

(327)

(378)

(569)

Overseas withholding tax deducted at source

(86)

(16)

(211)

Net cash inflow from operating activities

1,198

294

1,111

 

7. Leverage

 

The Company currently is not geared in the traditional sense in that its bank overdraft facility is not being utilised, it has no outstanding bonds and is not using Contracts for Difference. However it may employ leverage by other means. Leverage is any method by which the Company increases its exposure to market movements not only by utilising the instruments listed above but also by using derivative positions or forward currency contracts. Leverage is then expressed as the ratio of the total exposure to net asset value.

 

The AIFM Directive requires that this ratio is calculated in accordance with two methodologies, the "Gross Method" and the "Commitment Method". The essential difference between the two is that the Commitment Method allows netting off for the effect of hedges under certain strict conditions. The Company's current leverage emanates from two sources: index put options and a forward currency contract. The index put options are held as a limited hedge of the portfolio for the purpose of capital protection. However, this is not reflected in the leverage ratios because no netting off is allowed under the Gross Method and only limited netting off is allowed under the Commitment Method. Forward currency contracts can also greatly inflate the Gross ratio and to a lesser extent the Commitment ratio due to the strict conditions needed to net off for the effect of this type of hedge product.

 

In accordance with the requirements of the AIFM Directive, the Manager has set the following leverage limits:

 

Leverage ratio                            Maximum

Gross method                                      2.5

Commitment method                           2.0

 

The Manager expects that, under normal market conditions, the typical level of leverage will be substantially lower than the above maximum limits and, as at 30 June 2014, the Company's Gross leverage ratio stood at 1.18 and its Commitment leverage ratio stood at 1.10.

 

 

 

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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