Annual Financial Report
Invesco Asia Trust plc
Annual Financial Report Announcement
For the Financial Year Ended 30 April 2015
FINANCIAL INFORMATION AND PERFORMANCE STATISTICS
The benchmark index of the Company during the year was the MSCI All Countries Asia Pacific ex Japan Index (total return, in sterling terms). With effect from 1 May 2015 the Company’s benchmark changed to the MSCI AC Asia ex Japan Index (total return, in sterling terms).
| Total Return Statistics(1) | |||
| Change for the year | 2015 | 2014 | |
| Net asset value (NAV) | +28.3% | +0.9% | |
| Share price | +29.4% | +2.0% | |
| Benchmark index | +22.7% | –6.8% | |
| Capital Statistics | |||
| At 30 April | 2015 | 2014 | change % |
| Net assets (£’000) | 202,167 | 162,969 | +24.1 |
| Gearing: | |||
| – gross | 0.3% | 3.3% | |
| – net | 0.3% | 2.4% | |
| NAV – basic | 230.7p | 183.4p | +25.8 |
| Share price | 208.0p | 164.0p | +26.8 |
| Benchmark index (1) | 334.1 | 280.9 | +18.9 |
| Discount per ordinary share: | |||
| – cum income | 9.8% | 10.6% | |
| – ex income | 8.3% | 8.8% | |
| Average discount over the year (ex income) | 9.5% | 9.8% | |
| Revenue Statistics | |||
| Year Ended 30 April | 2015 | 2014 | change % |
| Income (£’000) | 4,672 | 4,547 | +2.7 |
| Net revenue available for ordinary shares (£’000) | 3,334 | 3,332 | +0.1 |
| Revenue return per ordinary share | 3.77p | 3.55p | +6.2 |
| Dividend per share | 3.65p | 3.45p | +5.8 |
| Ongoing charges ratio | 1.06% | 1.05% |
(1) Source: Thomson Reuters Datastream.
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CHAIRMAN’S STATEMENT
Performance
I am pleased to report that for the year ended 30 April 2015, Invesco Asia Trust delivered a strong performance with a net asset value per share total return of 28.3% compared with a return of 22.7% in the benchmark, MSCI All Countries Asia Pacific ex Japan Index (total return, in sterling terms). The Company’s share price increased from 164p to 208p, while the average discount to net asset value at which the shares trade narrowed slightly from 9.8% to 9.5%.
Asian equities rose strongly over the last year. Factors such as monetary easing, optimism about economic reform and the low equity valuations of 12 months ago all played a part in this performance. Low inflation and slowing economic growth ensured that there was plenty of scope for the interest rate cuts seen in a number of countries, and investors expect these low rates to persist as economic data has remained weak. Positive momentum in equities can also be linked to optimism about governments’ reform agendas with their potential to increase efficiency and growth, particularly in China and India. These factors together with the initially low earnings multiples of a year ago, explain the good performance we have seen over the period.
Dividend
The Board is recommending a final dividend of 3.65p per ordinary share (2014: 3.45p), an increase of 5.8%. The dividend, which is subject to the approval of shareholders at the Annual General Meeting, will be payable on 12 August 2015 to shareholders on the register on 17 July 2015, and will be marked ex-dividend on 16 July 2015.
Borrowings
The Manager has the freedom to borrow within a working range set by the Board and subject to the overall limit of the Company’s investment policy which permits borrowings up to 25% of net assets. The Board has currently set a working range of up to 15% of net assets. In practice, borrowings have typically been in the range of 5-10% of net assets, and as at 30 April 2015, gearing was at the relatively low level of just 0.3% of net assets.
Portfolio Manager and Benchmark
As reported in the Half-Yearly Financial Report, Ian Hargreaves was appointed principal portfolio manager with effect from 1 January 2015. Prior to this Ian co-managed the portfolio with Stuart Parks. Stuart, who is head of Invesco Perpetual’s Asian Equities Team will continue to support Ian in managing the portfolio. The Board would like to express their thanks to Stuart for his excellent contribution to the investment performance of the Company.
As also reported at the half year, the benchmark against which performance will be measured is to be changed with effect from 1 May 2015. Until this financial year end the benchmark has been the MSCI All Countries Asia Pacific ex Japan Index, which includes Australia. The new benchmark, the MSCI AC Asia ex Japan Index, excludes Australia. This change brings us into line with most of our peers, while giving us a more representative benchmark for the Company which historically has had a large underweight position in Australia. The portfolio manager is still able to invest in Australia as and when attractive investment opportunities are identified.
Discount Control and Tender Offer
The Board considers it desirable that, in normal market conditions, the Company’s shares should trade at a price which, on average, represents a discount of less than 10% to NAV excluding income. In order to meet this objective, the Company uses a combination of share buy backs and tender offers.
Share buy backs can assist in addressing any imbalance between the supply of and demand for the Company’s shares and thereby reduce the scale and volatility of the discount. During the year to 30 April 2015 a total of 1,219,305 ordinary shares were bought back and cancelled, enhancing the NAV by £243,000 (0.12%). Since the year end, a further 101,196 ordinary shares have been bought back and cancelled, enhancing the NAV by a further £21,000 (0.01%).
At the AGM in 2014 the Board proposed making a tender offer if the shares traded over the year to 30 April 2015 at an average discount of more than 10% to NAV excluding income. I can confirm that as the average discount over the year was 9.5% a tender offer has not been triggered. However, the Board has concluded that it would be in shareholders’ interests to extend this arrangement to the financial year ending 30 April 2016.
As reported in my Chairman’s Statement at the half year, shareholders approved the cancellation of the share premium account. The special reserve that arose as a result will be used to fund any future share back buys or tender offers.
Outlook
In the region generally, growth is expected to slow. Inflation should remain subdued and some of the region’s imbalances have been reduced, allowing interest rates to continue to fall. As growth slows, the potential for reforms to improve the allocation of resources and increase economic efficiency assume greater importance and we have seen equity valuations driven higher on optimism surrounding reforms. In some markets this optimism may have run ahead of reality making re-ratings unsustainable unless supported by a commensurate improvement in earnings.
We have identified two potential risks for Asia. First, there has now been a long period of rising leverage, which so far has been helpful in driving growth. This could become a headwind in the medium term as marginal returns on incremental debt deteriorate. Second, a substantial increase in US interest rates would have a negative impact on liquidity conditions in Asia. However, with the likelihood that the US economy will grow at around 2-3% annually, it seems unlikely that US interest rates will rise significantly over the near term.
Against this backdrop, average valuations of 13.7 times 2015 expected earnings for the region look reasonable relative both to recent history and against other equity markets. As growth stabilises, liquidity is eased and reform programmes begin to have an impact we should expect to see many attractive opportunities for investment.
Annual General Meeting
The Company’s AGM will be held at 12 noon on 6 August 2015 at 43-45 Portman Square, London W1H 6LY. The portfolio manager, Ian Hargreaves, will be making a presentation, highlighting the achievements of the past year and the prospects for the year to come. He will also be available to answer shareholders’ questions and I hope as many of you as possible will attend. The Board has considered all the resolutions proposed in the Notice of AGM and believe all are in the interests of shareholders as a whole. We therefore recommend that you vote in favour of each resolution.
Carol Ferguson
Chairman
26 June 2015
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BUSINESS REVIEW
Invesco Asia Trust plc is an investment company and its investment objective is set out below. The strategy the Board follows to achieve that objective is to set investment policy and risk guidelines, together with investment limits, and to monitor how they are applied. These are also set out below and have been approved by shareholders.
The business model the Company has adopted to achieve its investment objective has been to contract investment management and administration to appropriate external service providers, which are overseen by the Board. The principal service provider is, from 22 July 2014, Invesco Fund Managers Limited (‘IFML’ or the ‘Manager’). Prior to 22 July 2014, Invesco Asset Management Limited had been the Manager.
The Manager provides company secretarial, marketing and general administration services including accounting and manages the portfolio in accordance with the Board’s strategy. Ian Hargreaves is the portfolio manager responsible for the day-to-day management of the portfolio.
The Company also has contractual arrangements with third parties to act as registrar, corporate broker and, since 22 July 2014, depositary. The depositary is BNY Mellon Trust & Depositary (UK) Limited. The depositary has delegated safekeeping of the Company’s investments to The Bank of New York Mellon (London Branch), which was previously the Company’s custodian and retains that function under delegated authority.
Investment Objective
The Company’s objective is to provide long-term capital growth by investing in a diversified portfolio of Asian and Australasian companies. The Company aims to achieve growth in its net asset value (NAV) in excess of the Benchmark Index, the MSCI All Countries Asia Pacific ex Japan Index (total return, in sterling terms). With effect from 1 May 2015 the Company’s benchmark is the MSCI AC Asia ex Japan Index (total return, in sterling terms).
Investment Policy
Invesco Asia Trust plc invests primarily in the equity securities of companies listed on the stockmarkets of Asia (ex Japan) including Australasia. It may also invest in unquoted securities up to 10% of the value of the Company’s gross assets, and in warrants and options when it is considered the most economical means of achieving exposure to an asset.
The Company is actively managed and the Manager has broad discretion to invest the Company’s assets to achieve its investment objective. The Manager seeks to ensure that the portfolio is appropriately diversified having regard to the nature and type of securities (such as performance and liquidity) and the geographic and sector composition of the portfolio.
Investment Limits
The Board has prescribed limits on the investment policy, including:
– exposure to any one company may not exceed 10% of total assets;
– exposure to group-related companies may not exceed 15% respectively of total assets;
– the Company may not invest more than 10% of total assets in collective investment funds;
– the Company may not invest more than 10% in aggregate in unquoted investments;
– the Company may invest in warrants and options up to a maximum of 10% of total assets. Apart from these and currency hedges, other derivative instruments are not permitted; and
– the Company may use borrowings up to 25% of net assets.
With the exception of borrowings in foreign currency, the Company does not normally hedge its currency positions but may do so if considered appropriate.
All the above limits are applied at the time of acquisition, except gearing which is monitored on a daily basis.
Borrowing and Debt
The Company’s borrowing policy is determined by the Board. The level of borrowing may be varied in accordance with the portfolio manager’s assessment of risk and reward, subject to the overall limit of 25% of net assets and the availability of suitable finance.
Performance and Key Performance Indicators
The Board reviews performance by reference to a number of Key Performance Indicators which include the following:
• the net asset value (NAV) and share price;
• peer group performance;
• discount;
• dividend; and
• ongoing charges ratio.
A chart showing the total return NAV and share price performance compared to the MSCI All Countries Asia Pacific ex Japan Index (in sterling terms) (the Company’s ‘benchmark index’) can be found in the Annual Financial Report. As explained in the Half-Yearly Financial Report and in the Chairman’s Statement above, the benchmark index will be the MSCI AC Asia ex Japan Index with effect from 1 May 2015.
Peer group performance is monitored in relation to eight other investment trust companies that in the opinion of the Board form the peer group of the Company, being trusts that invest for growth in the Asia excluding Japan sector, as these most closely match the Company’s investment objective and capital structure. As at 30 April 2015, in NAV terms the Company was ranked 4 over one year, and ranked 3 and 3 over three and five years respectively (source: Thomson Reuters Datastream).
The discount of the shares is monitored on a daily basis. During the year the shares traded at a discount to NAV (ex income) in a range of 7.4% to 11.4% with an average discount of 9.5%. At the year end the discount to the NAV (ex income) stood at 8.3%.
The Board considers it desirable that the Company’s shares do not trade at a significant discount to NAV and believes that, in normal market conditions, the shares should trade at a price which on average represents a discount of less than 10% to NAV. To enable the Board to take action to deal with any material overhang of shares in the market it seeks authority from shareholders annually to buy back shares. Shares may be repurchased when, in the opinion of the Board, the discount is wider than desired and shares are available in the market. The Board considers that the repurchase of shares will enhance net asset value for remaining shareholders and may also assist in addressing the imbalance between the supply of and demand for the Company’s shares and thereby reduce the scale and volatility of the discount at which the shares trade in relation to the underlying net asset value.
The ten year record for dividends and the ongoing charges ratio for the last two years can be found in the Annual Financial Report.
Results and Dividends
For the year ended 30 April 2015 the net asset value total return was 28.3% compared to the return on the benchmark index of 22.7%. The Portfolio Manager’s Report below reviews the results.
Subject to approval at the AGM, the proposed final dividend for the year ended 30 April 2015 of 3.65p per share (2014: 3.45p) will be payable on 12 August 2015 to shareholders on the register on 17 July 2015. Shares will be marked ex-dividend on 16 July 2015.
Financial Position and Borrowing
The Company’s balance sheet on below shows the assets and liabilities at the year end. Details of the Company’s borrowing facility, with interest paid (finance costs) are shown in the notes to the financial statements in the Annual Financial Report.
Outlook, including the Future of the Company
The main trends and factors likely to affect the future development, performance and position of the Company’s business can be found in the Portfolio Manager’s Report of this Strategic Report. Further details of the principal risks affecting the Company are set out in the next section: ‘Principal Risks and Uncertainties’.
Investment Process
At the core of the Manager’s philosophy is a belief in active investment management. Fundamental principles drive a genuinely unconstrained investment approach, which aims to deliver attractive total returns over the long term. The investment process emphasises pragmatism and flexibility, active management, a focus on valuation and the combination of top-down and bottom-up fundamental analysis. Bottom-up analysis forms the basis of the investment process. It is the key driver of stock selection and is expected to be the main contributor to alpha generation within the portfolio. Portfolio construction at sector level is largely determined by this bottom-up process but is also influenced by top-down macro economic views.
Research provides a detailed understanding of a company’s key historical and future business drivers, such as demand for its products, pricing power, market share trends, cash flow and management strategy. This allows the Manager to form an opinion on a company’s competitive position, its strategic advantages/disadvantages and the quality of its management. Each member of the portfolio management team travels to the region between three and four times per year and therefore the team has contact with several hundred companies during each year. The Manager will also use valuation models selectively in order to understand the assumptions that brokers/analysts have incorporated into their valuation conclusions and as a structure into which the Manager can input its own scenarios.
Risk management is an integral part of the investment management process. Core to the process is that risks taken are not incidental but are understood and taken with conviction. The Manager controls stock-specific risk effectively by ensuring that the portfolio is appropriately diversified.
Also, in-depth and constant fundamental analysis of the portfolio’s holdings provide the Manager with a thorough understanding of the individual stock risk taken. The internal Performance & Risk Team, an independent team, ensures that the Manager adheres to the portfolio’s investment objectives, guidelines and parameters. There is also a culture of challenge and debate within the portfolio management team regarding portfolio construction and risk.
Internal Control and Risk Management
The Directors have overall responsibility for the Company’s system of internal controls and are responsible for reviewing the effectiveness of these controls. This includes safeguarding of the Company’s assets.
The Audit Committee (the ‘Committee’), on behalf of the Board, has established an ongoing process for identifying and assessing the risks to which the Company is exposed by reference to a risk control summary, which maps the risks, mitigating controls in place, and monitoring and reporting of relevant information to them. The risks reviewed in this process include, but are not limited to, business risk, other investment and borrowing risks, and operating risks; the latter risk covering third party provider risks, including cyber risk. The resultant ratings of the mitigated risks, in the form of a risk control matrix, enable the Directors to concentrate on those risks that are most significant and also forms the basis of the list of principal risks and uncertainties set out below.
The effectiveness of the Company’s internal control and risk management system is reviewed by the Committee. The Committee has received satisfactory reports on the operations and systems of internal control of the Manager, custodian and registrar from the Manager’s Compliance and Internal Audit Officers. Reports on the Manager encompassed all the areas the Manager is responsible for: investment management, company secretarial and general administration, including accounting. Subsequent to the appointment of the depositary during the year, the Committee also received a comprehensive, and satisfactory, report from the depositary at the year end Committee meeting. The Manager regularly reviews, against agreed service standards, the performance of all third party providers through formal and informal meetings, and by reference to third party independently audited control reports. The results of the Manager’s reviews are reported to and reviewed by the Committee. These various reports did not identify any significant failings or weaknesses during the year and up to the date of this annual financial report. If any had been identified, the required remedial action would have been taken. In particular the Board formally reviews the performance of the Manager annually and informally at every Board meeting.
Reporting to the Board at each board meeting comprises, but is not limited to: financial reports, including any hedging and gearing; performance against the benchmark and the Company’s peer group; the portfolio managers’ review, including of the market, the portfolio, transactions and prospects; revenue forecasts; and investment monitoring against investment guidelines. The portfolio manager is permitted discretion within these guidelines, which are set by the Board. Compliance with the guidelines is monitored daily. Any proposed variation to these guidelines is referred to the Board.
Principal Risks and Uncertainties
The internal control and risk management system, which was explained above, identifies the key risks to the Company. These principal risks are considered to be:
Investment Objective
There can be no guarantee that the Company will meet its investment objective. The Board monitors the performance of the Company and has established clear guidelines to ensure that the investment policy is followed.
Market Risk
The Company’s investments are traded on Asian and Australasian stockmarkets as well as the UK. The principal risk for investors in the Company is a significant fall and/or a prolonged period of decline in these markets. This could be triggered by unfavourable developments within the region or events outside it.
The value of investments held within the portfolio is influenced by many factors including the general health of the world economy, interest rates, inflation, government policies, industry conditions, political and diplomatic events, tax laws, environmental laws, and by changing investor demand. Such factors are outside the control of the Board and the Manager and may give rise to high levels of volatility in the prices of investments held by the Company.
Investment Risk
Investment risk includes market risk (currency, interest rate and other risk) and credit risk, including counterparty risk. An explanation of market risk and how this is addressed is given in the notes to the financial statements in the Annual Financial Report.
A fuller discussion of the economic and market conditions facing the Company and the current and future performance of the portfolio of the Company are included in the Portfolio Manager’s Report below. Moreover, past performance of the Company is not necessarily indicative of future performance.
Foreign Exchange Risk
The movement of exchange rates may have an unfavourable or favourable impact on returns as nearly all of the Company’s assets are non-sterling denominated. With the exception of borrowings in foreign currency, the Company does not normally hedge its currency positions but may do so should the portfolio manager or the Board feel this was appropriate. Contracts are limited to currencies and amounts commensurate with the asset exposure. The foreign currency exposure of the Company is reviewed at Board meetings.
Derivatives
The Company may enter into derivative transactions if approved by the Board for efficient portfolio management. Derivative instruments can be highly volatile and expose investors to a high risk of loss. There is a risk that the returns on the derivative do not exactly correlate to the returns on the underlying investment, obligation or market sector being hedged against. If there is imperfect correlation, the Company may be exposed to greater loss than if the derivative had not been entered into.
Ordinary Shares
The Company’s share price and the dividend payable on the shares may go down as well as up and an investor may not get back the amount invested. The share price may not reflect the underlying NAV and therefore trade at a discount. The Board and the Manager maintain an active dialogue with the aim of ensuring that the market valuation of the Company’s shares reflects the underlying NAV and there are in place share repurchase and issuance facilities, and a declared discount monitoring mechanism to help the management of this process.
Any tender offer would result in a decrease in the size of the Company which could potentially affect both the liquidity of the Company’s shares as well as requiring the disposal of assets to fund the tender. A tender offer could also materially affect the ongoing charges ratio.
Borrowing
Whilst the use of borrowings by the Company should enhance the total return on the shares where the return on the Company’s underlying portfolio is positive and exceeds the cost of borrowings, it will have the opposite effect where the underlying return is negative, further reducing the total return on the shares.
Reliance on Third Party Service Providers
The Company has no employees and the Directors have all been appointed on a non-executive basis. The Company is reliant upon the performance of third party service providers for its executive function. The Company’s most significant contract is with the Manager, to whom responsibility both for the Company’s portfolio and for the provision of company secretarial and administrative services are delegated. The Company has other contractual arrangements with third parties to act as auditor, registrar, custodian, depositary and broker. Failure by any service provider to carry out its obligations to the Company in accordance with the terms of its appointment could have a materially detrimental impact on the operation of the Company and could affect the ability of the Company to successfully pursue its investment policy and expose the Company to reputational risk.
Details of how the Board monitors the services provided by the Manager and the other third party providers, and the key elements designed to provide effective internal control, are included in the internal control and risk management section above.
Regulatory
The Company is subject to various laws and regulations by virtue of its status as a public limited company, its status as an investment trust and its listing on the Official List of the UK Listing Authority. Failure to comply with relevant law and regulations could damage the Company and its ability to continue in business. The Manager reviews compliance with tax and other financial regulatory requirements on a daily basis, and regularly reports to the Board. In addition, the Board is guided by the Manager and its other external advisers on such matters.
The most significant regulatory change in the year was the implementation of the Alternative Investment Fund Managers Directive. This required the appointment of a depositary and a change in the contractual arrangements with the Manager, which continues to bear the main compliance obligations.
The Manager is regulated by the Financial Conduct Authority and failure to comply with the relevant regulations could harm the Manager’s reputation with a potential detrimental effect on the Company.
Board Diversity
The Company’s policy on diversity is set out in the Annual Financial Report. The Board takes into account many factors, including the balance of skills, knowledge, diversity (including gender) and experience, amongst other factors when reviewing its composition and appointing new directors, but does not consider it appropriate to establish targets or quotas in this regard. The Board comprises four non-executive directors, three of whom are male. There are no set targets in respect of diversity, including gender. However, diversity forms part of both the Nominations Committee and main Board’s deliberations when considering new appointments. The Company’s success depends on suitably qualified candidates who are willing, and have the time, to be a director of the Company. Summary biographical details of the Directors are set out in the Annual Financial Report. The Company has no employees.
Social and Environmental Matters
As an investment company with no employees, property or activities outside investment, environmental policy has limited application. The Manager considers various factors when evaluating potential investments. While a company’s policy towards the environment and social responsibility, including its regard for human rights, is considered as part of the overall assessment of risk and suitability for the portfolio, the Manager does not make its investment decisions on environmental and social grounds alone. The Company does not have a human rights policy, although the Manager invests in accordance with the United Nations Principles for Responsible Investment.
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PORTFOLIO MANAGER’S REPORT
Market and Economic Review
Asian equity markets made strong gains over the review period in sterling terms. This performance can be attributed to a combination of low valuation levels 12 months ago, monetary policy easing facilitated by the lack of inflationary pressures and optimism concerning reform agendas. Within the region, there was some divergence in performance, with China and Hong Kong’s equity markets achieving the highest returns, while the Malaysian and Australian markets lagged most over the period. This divergence in performance can be attributed to changing perceptions of economic growth and the impact of new reform agendas across the region.
A Positive Year for Asian Equity Markets
China’s equity market rose strongly due to a combination of enthusiasm surrounding the introduction of monetary and fiscal stimulus measures aimed at supporting growth and the low valuation levels of Chinese equities 12 months ago. There has been a slowdown across a broad range of economic data reflecting a lower economic growth trend. In response to this slowdown, the central bank cut both interest rates and the banking sector’s reserve requirement ratio in an effort to stimulate economic activity. Expectations that the People’s Bank of China would continue to take policy action in a slowing economy, and that the reform agenda would be successful, have fuelled a rising market. Hong Kong’s equity market has also benefited from this improved sentiment in China and new policies allowing Chinese domestic mutual funds to invest in Hong Kong.
Elsewhere in the region, market performance was helped by central banks in South Korea, India, Indonesia, Thailand and Australia taking advantage of lower inflation to cut interest rates in support of growth. While India’s equity market made strong gains in 2014 on increased optimism surrounding the prospects for reform under a new government, interest rate cuts earlier this year were also supportive. The market has since corrected, as expectations appeared to have run ahead of reality. Also on the positive side, the Philippines equity market made strong gains buoyed by good corporate earnings results and a benign inflationary environment.
Conversely, South Korea’s equity market lagged the broader market due to some disappointing earnings and concerns about debt levels, corporate governance and the weak yen. This is despite the fact that some share buyback announcements by large companies, such as Samsung Electronics and Hyundai Motor, were well received. Thai equities also lagged on the back of a weak outlook for domestic consumption growth, high consumer debt and political concerns. Finally, commodity price weakness and lower consumption growth led to earnings downgrades in Indonesia, Australia and Malaysia. The slowdown in China’s demand for resources has negatively impacted these resource-exporting countries, while the reform process in these countries has also been less effective than the market might have expected.
Company Performance
In the 12 months to the end of April 2015, the Company’s net asset value increased by 28.3% (total return, in sterling terms), which was ahead of the benchmark MSCI All Countries Asia Pacific ex-Japan Index, which returned 22.7% (total return, in sterling terms).
The Company’s outperformance was largely attributable to strong stock selection in the information technology and materials sectors. Chinese internet companies NetEase and Baidu were among the larger contributors thanks to a growing market appreciation of their ability to monetise mobile traffic. NetEase, in particular, enjoyed strong share price gains driven by stable revenues from PC games, with growing contributions from mobile games, e-commerce and online advertising. Among the materials stocks, the Indian agrochemical company, UPL, was a key positive contributor, as its share price was driven higher as investors recognised that the Company’s diverse range of global products and stable margins were not reflected in its market valuation. Stock selection elsewhere in India has also been a significant contributor to relative returns. We saw good returns from holdings in banks and Adani Ports & Special Economic Zone, which benefited from its good revenue and earnings growth supported by its high quality port asset on the west coast of India.
Conversely, stock selection in financials detracted from relative performance, particularly our limited exposure to the Chinese banks and insurers, as these stocks outperformed over the period. Elsewhere, DGB Financial detracted after the South Korean bank unexpectedly announced a rights issue to shore up its capital base in anticipation of stronger loan growth, while Standard Chartered suffered on the back of continued negative earnings surprises and concerns about asset quality. Overall, our investments in South Korea had a negative impact, with holdings in POSCO, Hyundai Mobis, Shinhan Financial, and Shinsegae among the larger negative contributors. Generally, this can be attributed to a lack of confidence in a domestic consumption recovery and fears about the outlook for exports given the slowing growth rate of the Chinese economy. The current valuation levels appear to reflect the weak fundamentals, however, and there have been signs of a recovery coming through in South Korea’s economy.
Outlook for Asian Economies and Markets
Asia’s economic growth appears to be bottoming, supported by easier monetary policy across the region. Growth, however, will likely remain at a lower level than that which has prevailed in the decade after 2000. This is chiefly because the credit cycle in Asia is more advanced and there is unlikely to be a significant pick up in Asia’s exports growth, as there is little to suggest a strong rebound in global growth in the near term. This moderate outlook for growth appears adequately reflected in consensus revenue growth estimates and lower commodity prices and a slowdown in wage inflation should help to stabilise margins and support earnings. Consensus earnings growth forecasts for the Asia Pacific ex-Japan region are currently around 5.7% for 2015.
With the strong performance of Asian equity markets over the past year, market valuations have increased to 13.7 times consensus 2015 earnings. While still attractive relative to developed equity markets, this valuation level is towards the upper end of the range established in the last five years. In this sense Asian markets have, to some degree, already priced in an improvement in earnings momentum. Chinese equity markets are a good example of this. Chinese policy-makers have needed to strike a difficult balancing act between the need to control runaway credit and investment cycles with the need to prevent growth from slowing too much for the sake of social stability. Twelve months ago, Chinese equities were trading on low valuations pricing in this challenging economic environment. Since then Chinese equities (both onshore and in Hong Kong) have rerated significantly. This reflects solid progress in various areas of reform particularly in tackling corruption, state-owned company inefficiency, financial sector and capital account liberalisation. It also stems from a belief that the Chinese authorities will be more aggressive in supporting economic growth through fiscal and monetary policy. However, the government has yet to face head-on the excesses of the credit cycle and the economic losses that are likely to be associated with them. Thus, while we do not completely discount the government’s chances of successfully reinventing the Chinese growth model, there is considerable uncertainty over the medium term path for economic growth. Real interest rates remain relatively high in China and it may well be that interest rate cuts fuel further increases in equity valuations. However, as valuations rise, we need to be mindful of a deteriorating medium term risk/reward outlook in Chinese equities.
As valuations in Chinese equity markets continue to expand, the relative attractiveness of the Indian equity market increases, in our view. The recent correction of India’s equity market, caused by investors adjusting down their expectations about reform progress to more realistic levels, may still have further to run. Given where we are in the economic cycle, we expect some recovery in GDP growth from its current 4% level to a level closer to its historical long term rate of 5-6% over the next two years. This rebound should be achieved even with limited success on the reform front. In our view, accelerating growth combined with the current correction in the market will render attractive opportunities going forward.
Elsewhere, we believe that opportunities can be found in South Korea. The market now trades at a significant discount to its long term average valuation level, while at the same time there are recent signs of an improving economy. Housing transactions are starting to pick-up, which we expect will underpin future consumer confidence and spending. Increased spending is evident in the retail sales annual growth rate which rose more than expected to 1.6% in April 2015. Furthermore, the market’s dividend payout ratio is beginning to rise which should provide further support.
Strategy
Hong Kong and China represent the largest exposure in the portfolio. In China, we favour companies that benefit from secular shifts in the economy. These include Chinese internet companies Netease, Baidu and 51Job. We also have exposure to several state-owned enterprises like China Mobile and Petrochina that we believe will be able deliver improved returns as a result of the government efficiency drive. In Hong Kong, our weighting is reflective of the stock specific opportunities that we see rather than a positive view on the Hong Kong economy. For example, the second biggest holding in the Trust is Hutchison Whampoa. Hutchison is a global business with a presence in the retail, telecom, ports and property sectors. Hutchison is striving to improve returns by streamlining its holding structure and spinning off its property assets. Although we are invested in some Hong-Kong listed banks, such as HSBC and Standard Chartered, we remain underweight Chinese Banks due to their low earnings visibility and our concerns about macro-economic conditions in China.
We also have an overweight position in India, where our holdings in banks and more economically sensitive areas of the market stand to benefit from an upturn in the investment cycle. For example, we have holdings in HDFC Bank, which is well placed to deliver strong earnings growth as it takes market share from the public sector banks in India, and ICICI Bank which is expected to benefit as the domestic economy improves the outlook for its asset quality.
In South Korea, we also have an overweight position given current valuations levels and signs of a recovering domestic economy. Our exposure is a mixture of both large exporters and domestically focussed companies. We maintain a position in Korea Electric Power Corp, which is benefiting from a significant change in fundamentals with fuel costs easing, and electricity tariffs supporting earnings growth. Meanwhile, we continue to have exposure in the preference shares of Hyundai Motor, as we believe it is on an excessively low valuation given our view that its negative earnings revision cycle is coming to an end. Samsung Electronics is the largest holding in the fund. While margins in the handset business have come down recently due to intense competition, we believe that these are in the process of stabilising. Meanwhile Samsung is making great strides in some of its other businesses like semiconductors. On nine times 2015 forecast earnings and over 30% of its market capitalisation in cash, Samsung Electronics is an attractive investment.
Given the change in benchmark effective 1 May, we have recently sold a number of holdings in Australia, including Westpac Banking, ANZ Bank, Goodman Group and QBE Insurance. However, we have retained exposure in selected stocks where we believe valuations are particularly attractive, such as the recently introduced engineering services contractor, Transfield Services.We introduced a holding in Sobha, a small cap Indian real estate developer, as we believe its market valuation does not adequately reflect the earnings growth potential of its large mid-income projects due to be launched by the end of the year. We also continued to add in areas where we feel confident that earnings can exceed expectations. For example, China Life Insurance (Taiwan), as we think the fundamentals of the business are improving and yet it trades on a steep discount to its embedded value, and United Overseas Bank, as we believe the share price does not adequately reflect its solid loan growth and strong balance sheet.
Elsewhere, we completely sold out of our holding in CNOOC, where the outlook for earnings is less certain given the drop in the oil price. In turn, we introduced a new holding in EVA Precision Industrial Holdings, a Chinese manufacturer of high-quality moulds and components largely for the office automation, consumer electronics and automotive sectors. We believe this company’s rating does not reflect its ability to deliver robust earnings growth supported by rapid sales growth and improved economies of scale.
Finally, we remain underweight Malaysian equities, as we believe that concerns about the economy are not reflected in current valuations. As the domestic employee pension funds have been purchasing in the local market, the equity market has not de-rated in line with deteriorating fundamentals.
Ian Hargreaves
Portfolio Manager
The Strategic Report was approved by the Board of Directors on 26 June 2015
Invesco Asset Management Limited
Company Secretary
.
INVESTMENTS IN ORDER OF VALUATION
at 30 April 2015
Ordinary shares unless stated otherwise
The industry group is based on MSCI and Standard & Poor’s Global Industry Classification Standard.
| AT MARKET | % OF | |||
| VALUE | PORT- | |||
| COMPANY | INDUSTRY GROUP | COUNTRY | £’000 | FOLIO |
| Samsung Electronics | Technology Hardware | South Korea | ||
| – Ordinary Shares | & Equipment | 6,847 | } 5.8 | |
| – Preference Shares | 4,969 | |||
| Hutchison Whampoa# | Capital Goods | Hong Kong | 10,093 | 5.0 |
| NetEase – ADR | Software & Services | China | 9,832 | 4.9 |
| UPL | Materials | India | 7,629 | 3.8 |
| China MobileR | Telecommunication Services | China | 7,103 | 3.5 |
| Baidu – ADR | Software & Services | China | 6,833 | 3.4 |
| AIA | Insurance | Hong Kong | 5,754 | 2.8 |
| Industrial & Commercial Bank Of ChinaH | Banks | China | 5,548 | 2.7 |
| ICICI | Banks | India | 5,514 | 2.7 |
| China Life Insurance – Taiwan | Insurance | Taiwan | 5,244 | 2.6 |
| Top Ten Holdings | 75,366 | 37.2 | ||
| Hyundai Motor – Preference Shares | Automobiles & Components | South Korea | 4,947 | 2.4 |
| HSBC | Banks | Hong Kong | 4,753 | 2.3 |
| HDFC Bank | Banks | India | 4,682 | 2.3 |
| Shinhan Financial | Banks | South Korea | 4,586 | 2.3 |
| Taiwan Semiconductor Manufacturing | Semiconductors & Semiconductor Equipment | Taiwan | 4,493 | 2.2 |
| Tata Consultancy | Software & Services | India | 4,364 | 2.2 |
| Samsonite International | Consumer Durables & Apparel | Hong Kong | 4,357 | 2.2 |
| Petrochina – ADR | Energy | China | 4,233 | 2.1 |
| Bank Negara Indonesia Persero | Banks | Indonesia | 4,079 | 2.0 |
| Hon Hai Precision Industry | Technology Hardware & Equipment | Taiwan | 4,058 | 2.0 |
| Top Twenty Holdings | 119,918 | 59.2 | ||
| United Overseas Bank | Banks | Singapore | 3,963 | 2.0 |
| E.Sun Financial | Banks | Taiwan | 3,756 | 1.9 |
| POSCO | Materials | South Korea | 3,694 | 1.9 |
| Filinvest Land | Real Estate | Philippines | 3,548 | 1.8 |
| 51job | Commercial & Professional Services | China | 3,419 | 1.7 |
| Korea Electric Power Corporation | Utilities | South Korea | 3,253 | 1.6 |
| Korean Reinsurance | Insurance | South Korea | 3,252 | 1.6 |
| Qingling MotorsH | Automobiles & Components | China | 3,232 | 1.6 |
| Hyundai Mobis | Automobiles & Components | South Korea | 3,157 | 1.6 |
| BHP Billiton | Materials | Australia | 3,090 | 1.5 |
| Top Thirty Holdings | 154,282 | 76.4 |
# Hutchison Whampoa underwent a reconstruction subsequent to the year end and changed its name to CK Hutchison.
| AT MARKET | % OF | |||
| VALUE | PORT- | |||
| COMPANY | INDUSTRY GROUP | COUNTRY | £’000 | FOLIO |
| Shinsegae | Retailing | South Korea | 3,076 | 1.5 |
| DGB Financial | Banks | South Korea | 3,062 | 1.5 |
| Jardine Matheson – Singapore Reg | Capital Goods | Hong Kong | 3,037 | 1.5 |
| Cathay Pacific Airways | Transportation | Hong Kong | 2,846 | 1.4 |
| Telekomunikasi Indonesia | Telecommunication Services | Indonesia | 2,827 | 1.4 |
| HKR International | Real Estate | Hong Kong | 2,804 | 1.4 |
| Origin Energy | Energy | Australia | 2,714 | 1.3 |
| Yageo | Technology Hardware & Equipment | Taiwan | 2,671 | 1.3 |
| EVA Precision Industrial | Capital Goods | Hong Kong | 2,427 | 1.2 |
| Adani Ports & Special Economic Zone | Transportation | India | 2,332 | 1.1 |
| Top Forty Holdings | 182,078 | 90.0 | ||
| China Shenhua EnergyH | Energy | China | 2,211 | 1.1 |
| Standard Chartered | Banks | Hong Kong | 2,190 | 1.1 |
| Transfield Services | Commercial & Professional Services | Australia | 2,158 | 1.1 |
| Kasikornbank | Banks | Thailand | 2,065 | 1.0 |
| Samsung SDI | Technology Hardware & Equipment | South Korea | 1,976 | 1.0 |
| Greatview Aseptic Packaging | Materials | Hong Kong | 1,787 | 0.9 |
| Newcrest Mining | Materials | Australia | 1,662 | 0.9 |
| Hyundai Home | Retailing | South Korea | 1,592 | 0.8 |
| Pacific Basin Shipping | Transportation | Hong Kong | 1,476 | 0.7 |
| Sobha | Real Estate | India | 1,200 | 0.6 |
| Top Fifty Holdings | 200,395 | 99.2 | ||
| Noble | Capital Goods | Singapore | 1,095 | 0.5 |
| Wumart StoresH | Food & Staples Retailing | China | 686 | 0.3 |
| Total Holdings of 52 (2014: 60) | 202,176 | 100.0 |
ADR: American Depositary Receipts – are certificates that represent shares in the applicable stock and are issued by a US bank. They are denominated and pay dividends in US dollars.
H: H-Shares – shares issued by companies incorporated in the People’s Republic of China (PRC) and listed on the Hong Kong Stock Exchange.
R: Red Chip Holdings – holdings in companies incorporated outside the PRC, listed on the Hong Kong Stock Exchange, and controlled by PRC entities by way of direct or indirect shareholding and/or representation on the board.
Classification of Investments by Country/Sector
at 30 April
| 2015 | 2014 | |||
| AT | % OF | AT | % OF | |
| VALUATION | PORTFOLIO | VALUATION | PORTFOLIO | |
| £’000 | £’000 | |||
| Australia | ||||
| Consumer Staples | – | – | 442 | 0.3 |
| Energy | 2,714 | 1.3 | 2,963 | 1.8 |
| Financials | – | – | 7,353 | 4.3 |
| Industrials | 2,158 | 1.1 | – | – |
| Materials | 4,752 | 2.4 | 4,539 | 2.8 |
| 9,624 | 4.8 | 15,297 | 9.2 | |
| China | ||||
| Consumer Discretionary | 3,232 | 1.6 | 2,048 | 1.2 |
| Consumer Staples | 686 | 0.3 | 643 | 0.4 |
| Energy | 6,444 | 3.2 | 7,320 | 4.4 |
| Financials | 5,548 | 2.7 | 2,626 | 1.6 |
| Health Care | – | – | 1,124 | 0.6 |
| Industrials | 3,419 | 1.7 | – | – |
| Information Technology | 16,665 | 8.3 | 8,855 | 5.3 |
| Telecommunication Services | 7,103 | 3.5 | 2,131 | 1.4 |
| 43,097 | 21.3 | 24,747 | 14.9 | |
| Hong Kong | ||||
| Consumer Discretionary | 4,357 | 2.2 | 3,894 | 2.3 |
| Financials | 15,501 | 7.6 | 12,960 | 7.9 |
| Industrials | 19,879 | 9.8 | 14,242 | 8.5 |
| Materials | 1,787 | 0.9 | 3,423 | 2.1 |
| 41,524 | 20.5 | 34,519 | 20.8 | |
| India | ||||
| Financials | 11,396 | 5.6 | 6,142 | 3.7 |
| Health Care | – | – | 1,205 | 0.6 |
| Industrials | 2,332 | 1.1 | 1,795 | 1.1 |
| Information Technology | 4,364 | 2.2 | 2,743 | 1.7 |
| Materials | 7,629 | 3.8 | 7,738 | 4.7 |
| 25,721 | 12.7 | 19,623 | 11.8 | |
| Indonesia | ||||
| Financials | 4,079 | 2.0 | 3,162 | 1.9 |
| Telecommunication Services | 2,827 | 1.4 | 2,313 | 1.4 |
| 6,906 | 3.4 | 5,475 | 3.3 | |
| Philippines | ||||
| Consumer Staples | – | – | 1,256 | 0.7 |
| Financials | 3,548 | 1.8 | 2,272 | 1.4 |
| 3,548 | 1.8 | 3,528 | 2.1 | |
| Singapore | ||||
| Financials | 3,963 | 2.0 | 1,764 | 1.1 |
| Industrials | 1,095 | 0.5 | 2,984 | 1.8 |
| 5,058 | 2.5 | 4,748 | 2.9 | |
| 2015 | 2014 | |||
| AT | % OF | AT | % OF | |
| VALUATION | PORTFOLIO | VALUATION | PORTFOLIO | |
| £’000 | £’000 | |||
| South Korea | ||||
| Consumer Discretionary | 12,772 | 6.3 | 11,686 | 7.0 |
| Financials | 10,900 | 5.4 | 8,682 | 5.2 |
| Information Technology | 13,792 | 6.8 | 9,685 | 5.8 |
| Materials | 3,694 | 1.9 | 3,428 | 2.1 |
| Utilities | 3,253 | 1.6 | 4,911 | 3.0 |
| 44,411 | 22.0 | 38,392 | 23.1 | |
| Taiwan | ||||
| Financials | 9,000 | 4.5 | 4,538 | 2.8 |
| Industrials | – | – | 2,054 | 1.2 |
| Information Technology | 11,222 | 5.5 | 10,911 | 6.5 |
| 20,222 | 10.0 | 17,503 | 10.5 | |
| Thailand | ||||
| Financials | 2,065 | 1.0 | 2,326 | 1.4 |
| Total | 202,176 | 100.0 | 166,158 | 100.0 |
DIRECTORS’ RESPONSIBILITIES STATEMENT
in respect of the preparation of the annual financial report
The Directors are responsible for preparing the annual financial report in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under the law the Directors have elected to prepare financial statements in accordance with United Kingdom Generally Accepted Accounting Practice.
Under company law, the Directors must not approve the accounts unless they are satisfied that they 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 are required to:
• select suitable accounting policies and then apply them consistently;
• make judgments and estimates that are reasonable and prudent;
• state whether applicable accounting standards have been followed; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records which are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and which enable them to ensure that the financial statements comply with the Companies Act 2006 (CA 2006). They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, a Directors’ Report, a Directors’ Remuneration Report and a Corporate Governance Statement that comply with that law and those regulations.
In so far as each of the Directors is aware:
• there is no relevant audit information of which the Company’s Auditor is unaware; and
• the Directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the Auditor is aware of that information.
This information is given and should be interpreted in accordance with provision s418 of CA 2006.
The Directors of the Company each confirm to the best of their knowledge that:
• the financial statements, prepared in accordance with UK Generally Accepted Accounting Practice, give a true and fair view of the assets, liabilities, financial position and net return of the Company; and
• this annual financial report 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.
The Directors consider that this annual financial report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s performance, business model and strategy.
Carol Ferguson
Chairman
Signed on behalf of the Board of Directors
26 June 2015
.
Income Statement
for the year ended 30 April
| 2015 | 2014 | |||||
| Revenue | Capital | Total | Revenue | Capital | Total | |
| return | return | return | return | return | return | |
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
| Gains/(losses) on investments | – | 42,432 | 42,432 | – | (2,281) | (2,281) |
| (Losses)/gains on foreign currency revaluation | – | (568) | (568) | – | 41 | 41 |
| Income - note 2 | 4,672 | 573 | 5,245 | 4,547 | – | 4,547 |
| Investment management fee -note 3 | (355) | (1,066) | (1,421) | (311) | (933) | (1,244) |
| Other expenses | (597) | (4) | (601) | (539) | (6) | (545) |
| Return before finance costs and taxation | 3,720 | 41,367 | 45,087 | 3,697 | (3,179) | 518 |
| Finance costs | (18) | (54) | (72) | (21) | (64) | (85) |
| Return on ordinary activities before tax | 3,702 | 41,313 | 45,015 | 3,676 | (3,243) | 433 |
| Tax on ordinary activities | (368) | – | (368) | (344) | – | (344) |
| Net return on ordinary activities after tax for the financial year | 3,334 | 41,313 | 44,647 | 3,332 | (3,243) | 89 |
| Return per ordinary share: | ||||||
| Basic - note 4 | 3.77p | 46.64p | 50.41p | 3.55p | (3.46p) | 0.09p |
The total return column of this statement represents the Company’s profit and loss account prepared in accordance with UK Accounting Standards. The supplementary revenue and capital columns are prepared in accordance with the Statement of Recommended Practice issued by the Association of Investment Companies. All items in the above statement derive from continuing operations and the Company has no other gains or losses, therefore no statement of total recognised gains and losses is presented. No operations were acquired or discontinued in the year.
Reconciliation of movements in shareholders’ funds
for the year ended 30 April
| Capital | |||||||
| Share | Share | Redemption | Special | Capital | Revenue | ||
| Capital | Premium | Reserve | Reserve | Reserve | reserve | Total | |
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
| At 30 April 2013 | 10,919 | 95,911 | 2,205 | 2,449 | 78,369 | 5,675 | 195,528 |
| Final dividend – note 5 | – | – | – | – | – | (3,389) | (3,389) |
| Net return for the year | – | – | – | – | (3,243) | 3,332 | 89 |
| Tender offer | (1,589) | – | 1,589 | (2,449) | (24,952) | – | (27,401) |
| Shares bought back and cancelled | (116) | – | 116 | – | (1,858) | – | (1,858) |
| At 30 April 2014 | 9,214 | 95,911 | 3,910 | – | 48,316 | 5,618 | 162,969 |
| Final dividend – note 5 | – | – | – | – | – | (3,064) | (3,064) |
| Net return for the year | – | – | – | – | 41,313 | 3,334 | 44,647 |
| Transfer to special reserve | – | (95,911) | – | 95,911 | – | – | – |
| Shares bought back and cancelled | (122) | – | 122 | (2,108) | (277) | – | (2,385) |
| At 30 April 2015 | 9,092 | – | 4,032 | 93,803 | 89,352 | 5,888 | 202,167 |
BALANCE SHEET
at 30 April
| 2015 | 2014 | |
| £’000 | £’000 | |
| Fixed assets | ||
| Investments designated at fair value | 202,176 | 166,158 |
| Current assets | ||
| Debtors | 7,271 | 1,390 |
| Cash at bank | 140 | 1,348 |
| 7,411 | 2,738 | |
| Creditors: amounts falling due within one year | (7,420) | (5,927) |
| Net current liabilities | (9) | (3,189) |
| Total net assets | 202,167 | 162,969 |
| Capital and reserves | ||
| Share capital – note 6 | 9,092 | 9,214 |
| Share premium | – | 95,911 |
| Other reserves: | ||
| Capital redemption reserve | 4,032 | 3,910 |
| Special reserve | 93,803 | – |
| Capital reserve | 89,352 | 48,316 |
| Revenue reserve | 5,888 | 5,618 |
| Total Shareholders’ funds | 202,167 | 162,969 |
| Net asset value per ordinary share | ||
| Basic – note 7 | 230.7p | 183.4p |
These financial statements were approved and authorised for issue by the Board of Directors on 26 June 2015.
Carol Ferguson
Chairman
Signed on behalf of the Board of Directors
.
Cash Flow Statement
for the year ended 30 April
| 2015 | 2014 | |
| £’000 | £’000 | |
| Cash inflow from operating activities | 2,672 | 2,545 |
| Servicing of finance | (71) | (85) |
| Taxation | – | – |
| Capital expenditure and financial investment | 6,880 | 36,159 |
| Dividends paid – note 5 | (3,064) | (3,389) |
| Net cash inflow before management of liquid resources and financing | 6,417 | 35,230 |
| Financing | (7,733) | (34,817) |
| (Decrease)/increase in cash in the year | (1,316) | 413 |
Reconciliation of cash flows to net Debt
for the year ended 30 April
| 2015 | 2014 | |
| £’000 | £’000 | |
| (Decrease)/increase in cash in the year | (1,316) | 413 |
| Cash outflow from movement in debt | 5,355 | 5,558 |
| Change in net funds resulting from cash flows | 4,039 | 5,971 |
| Exchange differences | (568) | 41 |
| Movement in net funds in the year | 3,471 | 6,012 |
| Net debt at beginning of year | (3,983) | (9,995) |
| Net debt at end of year | (512) | (3,983) |
.
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 April 2015
1. Accounting Policies
Accounting policies describe the Company’s approach to recognising and measuring transactions during the year and the position of the Company at the year end.
A summary of the principal accounting policies, all of which have been consistently applied throughout this and the preceding year is set in the Annual Financial Report:
Basis of Preparation
Accounting Standards Applied
The financial statements have been prepared under the historical cost convention, except for the measurement at fair value of investments, and in accordance with applicable United Kingdom Accounting Standards and with the Statement of Recommended Practice (SORP) ‘Financial Statements of Investment Trust Companies and Venture Capital Trusts’ issued by the Association of Investment Companies in January 2009.
2. Income
This note shows the income generated from the portfolio (investment assets) of the Company and income received from any other source.
| 2015 | 2014 | |
| £’000 | £’000 | |
| Income from investments | ||
| Overseas dividends | 3,975 | 3,753 |
| Scrip dividends | 287 | 306 |
| UK dividends | 293 | 381 |
| Special dividends – overseas | 117 | 107 |
| Total dividend income | 4,672 | 4,547 |
Special dividends of £573,000 (2014: nil) have been recognised in capital.
3. Investment Management Fee
This note shows the investment management fee due to the Manager which is calculated and paid quarterly.
| 2015 | 2014 | |||||
| Revenue | Capital | Total | Revenue | Capital | Total | |
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
| Investment management fee | 355 | 1,066 | 1,421 | 311 | 933 | 1,244 |
Details of the investment management and secretarial agreement are given on page 22 in the Directors’ Report. At 30 April 2015, £370,000 was due for payment in respect of the management fee (2014: £298,000).
4. Return per Ordinary Share
Return per share is the amount of gain generated for the financial year divided by the weighted average number of ordinary shares in issue.
| 2015 | 2014 | |
| £’000 | £’000 | |
| Return per ordinary share is based on the following: | ||
| Revenue return | 3,334 | 3,332 |
| Capital return | 41,313 | (3,243) |
| Total return | 44,647 | 89 |
| 2015 | 2014 | |
| Weighted average number of ordinary shares | ||
| in issue during the year: | ||
| – basic | 88,575,609 | 93,873,305 |
5. Dividends on Ordinary Shares
Dividends represent a return of income less expenses to shareholders. The Company pays one dividend a year.
Dividends paid:
| 2015 | 2014 | |||
| pence | £’000 | pence | £’000 | |
| Final dividend in respect of previous year | 3.45 | 3,066 | 3.20 | 3,389 |
| Unclaimed dividends in respect of prior years | – | (2) | – | – |
| 3.45 | 3,064 | 3.20 | 3,389 | |
Dividends proposed:
| 2015 | 2014 | |||
| pence | £’000 | pence | £’000 | |
| Final dividend proposed | 3.65 | 3,199 | 3.45 | 3,066 |
6. Share Capital
Share capital represents the total number of shares in issue. Any dividends declared will be paid on the shares in issue on the record date.
(a) Allotted, called-up and fully paid
| 2015 | 2014 | ||
| £’000 | £’000 | ||
| Ordinary shares of 10p each | 8,764 | 8,886 | |
| Treasury shares of 10p each | 328 | 328 | |
| 9,092 | 9,214 |
(b) Share movements
| 2015 | 2014 | ||||
| ordinary | Treasury | ordinary | Treasury | ||
| number | number | number | number | ||
| Number at start of year | 88,859,369 | 3,277,224 | 105,911,686 | 3,277,224 | |
| Shares bought back and cancelled | (1,219,305) | – | (1,165,648) | – | |
| Tender offer | – | – | (15,886,669) | – | |
| 87,640,064 | 3,277,224 | 88,859,369 | 3,277,224 | ||
The average price of the shares bought back was 194.21p (2014: 158.39p). Since the year end a further 101,196 ordinary shares have been bought back and cancelled at an average price of 202.20p per share.
In 2014 a tender offer of 15% of shares in issue at 170.3877p was undertaken by the Company. The gross cost of the tender was £27,401,000.
(c) Winding-up provisions
The Directors are obliged to convene an Extraordinary General Meeting (EGM) to consider a special resolution to wind up the Company every third year from the date of the AGM at which the Directors were released from such obligation. At the AGM in 2013 the Directors were released from their obligation to convene an EGM and a resolution to release the Directors from their obligation to convene an EGM will be put to shareholders at the AGM in 2016.
7. Net Asset Value
The Company’s total net assets (total assets less total liabilities) are often termed shareholders’ funds and are converted into net asset value per ordinary share by dividing by the number of shares in issue.
The net asset value attributable to each share in accordance with the Company’s Articles are set out below.
| 2015 | 2014 | |
| Basic: | ||
| Ordinary shareholders’ funds | £202,167,000 | £162,969,000 |
| Number of ordinary shares in issue, excluding treasury shares | 87,640,064 | 88,859,369 |
| Net asset value per ordinary share | 230.7p | 183.4p |
8. Related Party Transactions and Transactions with the Manager
A related party is a company or individual who has direct or indirect control or who has significant influence over the Company. Under accounting standards, the Manager is not a related party.
Under UK GAAP, the Company has identified the Directors as related parties. The Directors’ remuneration and interests have been disclosed in the Annual Financial Report. No other related parties have been identified.
Up to 22 July 2014, the Manager was Invesco Asset Management Limited at which date Invesco Fund Managers Limited was appointed. Details of the Manager’s services and fees are disclosed in the Annual Financial Report, and in note 3 above.
9. This Annual Financial Report Announcement is not the Company's statutory accounts. The above results for the year ended 30 April 2015 have been agreed with the auditors and are an abridged version of the Company's full accounts, which have been approved and audited with an unqualified report. The 2014 and 2015 statutory accounts received unqualified reports from the Company's auditors and did not include any reference to matters to which the auditors drew attention by way of emphasis without qualifying the reports, and did not contain a statement under s498 of the Companies Act 2006. The financial information for 2014 is derived from the statutory accounts for 2014 which have been delivered to the Registrar of Companies. The 2015 accounts will be filed with the Registrar of Companies in due course.
10. The Audited Annual Financial Report will be posted to shareholders shortly. Copies may be obtained during normal business hours from the offices of Invesco Perpetual, 6th Floor, 125 London Wall, EC2Y 5AS. A copy of the Annual Financial Report will be available from Invesco Perpetual on the following website: www.invescoperpetual.co.uk/invescoasia in due course.
11. The Annual General Meeting of the Company will be held at 12.00 noon on 6 August 2015 at 43-45 Portman Square, London, W1H 6LY.
By order of the Board
Invesco Asset Management Limited - Company Secretary
26 June 2015
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