Annual Financial Report
Invesco Asia Trust plc
Annual Financial Report Announcement
For the Financial Year Ended 30 April 2016
FINANCIAL INFORMATION AND PERFORMANCE STATISTICS
From 1 May 2015, the benchmark index of the Company was changed to the MSCI AC Asia ex Japan Index from the MSCI All Countries Asia Pacific ex Japan Index (both indices total return, in sterling terms).
A composite benchmark of these two indices is used throughout this report whenever the period used spans the change date.
| Total Return Statistics | |||
| Change for the year | 2016 | 2015 | |
| Net asset value(1) (NAV) | –7.1% | +28.4% | |
| Share price(1) | –10.3% | +29.4% | |
| Benchmark index(1) | –14.3% | +22.7% | |
| Capital Statistics | |||
| At 30 April | 2016 | 2015 | Change % |
| Net assets (£’000) | 180,108 | 202,167 | –10.9 |
| Gearing: | |||
| – gross | 3.1% | 0.3% | |
| – net | 1.7% | 0.3% | |
| NAV | 210.7p | 230.7p | –8.7 |
| Share price | 183.0p | 208.0p | –12.0 |
| Benchmark index (1) | — | — | –16.5 |
| Discount per ordinary share: | |||
| – cum income | 13.1% | 9.8% | |
| – ex income | 11.7% | 8.3% | |
| Average discount over the year (ex income) | 9.7% | 9.5% | |
| Revenue Statistics | |||
| Year Ended 30 April | 2016 | 2015 | Change % |
| Income (£’000) | 4,256 | 4,672 | –8.9 |
| Net revenue available for ordinary shares (£’000) | 2,978 | 3,334 | –10.7 |
| Revenue return per ordinary share | 3.42p | 3.77p | –9.3 |
| Dividend per share | 3.65p | 3.65p | 0.0 |
| Ongoing charges ratio | 1.02 | 1.06 |
(1) Source: Thomson Reuters Datastream.
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CHAIRMAN’S STATEMENT
Performance
The 12 months to 30 April 2016 has seen a notable decline in Asian markets with higher levels of volatility than usual. Factors such as China’s slowing economic growth, significant movements in ASEAN currencies and uncertainty over the direction of US interest rate policy, all contributed to this decline. However, we have seen economic activity indicators beginning to stabilise this year in China and elsewhere, with earlier concerns over China’s market and currency interventions easing. A healthy degree of scepticism about the sustainability of the economic pickup prevails but valuations remain low across parts of the region’s equity markets.
Reflecting this background, the Company’s net asset value declined 7.1%, but we take some comfort from the significant outperformance this represents against the benchmark index, the MSCI AC Asia ex Japan Index (total return, in sterling terms), which fell by 14.3%. The Company’s share price fell by 12% (from 208p to 183p), partly as a consequence of the widening of the discount to NAV ex-income at which the shares trade from 8.3% to 11.7%.
Dividend
The Board recommends an unchanged final dividend of 3.65p per ordinary share (2015: 3.65p). This is a little more than earnings per share of 3.42p, but the Board has drawn modestly on revenue reserves built up in earlier years to maintain the payout in these challenging times. The dividend, which is subject to the approval of shareholders at the Annual General Meeting, will be payable on 12 August 2016 to shareholders on the register on 15 July 2016, and will be marked ex-dividend on 14 July 2016.
Borrowings
The Manager has the freedom to borrow within a working range set by the Board within the overall limit of the Company’s investment policy which permits gross gearing of up to 25% of net assets. In practice, borrowings have typically been in the 0% to 5% range and as at 30 April 2016 gross gearing was at the relatively low level of just 3.1%.
Discount Control and Tender Offer
The Board considers it to be 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.
Shares may be bought back when there is an excess available in the market and the discount is higher than desired. Such buy backs assist in addressing any imbalance between the supply and demand, thereby reducing the scale and volatility of the discount at which the shares trade in relation to the underlying net asset value. It is the Board’s policy to undertake share buy backs only when they enhance net asset value. During the year to 30 April 2016 a total of 2,177,673 shares were bought back and cancelled, enhancing the NAV by £403,000 (0.25%). Since the year end, a further 730,939 shares have been bought back and cancelled, enhancing the NAV by a further £161,970 (0.09%). The authority for the Board to buy back shares at its discretion is sought from shareholders annually at the AGM. At the AGM in 2015 the Board proposed making a tender offer if the shares traded over the year to 30 April 2016 at an average discount of more than 10% to NAV excluding income. The average discount over the year was 9.7%. Accordingly, no tender offer will be made. This is the third consecutive year where the discount has averaged less than 10%. The Board believes that it would be in shareholders’ interests to extend this arrangement to the current financial year ending 30 April 2017.
Vote on the Future of the Company
Every three years, shareholders are given the opportunity to vote on the future of the Company. At the forthcoming Annual General Meeting (AGM) an ordinary resolution is proposed that releases Directors from their obligation to convene a general meeting and propose a special resolution to wind up the Company on a voluntary basis. The Directors continue to believe that a wind-up would not serve shareholders’ best interests taking into consideration the combination of the expertise of the Portfolio Manager and the longer term prospects that the Directors foresee for the Asian and Australasian markets in which the Company invests.
Outlook
Over recent years, Asian equity markets have had to contend with slowing growth in the region. This is partly due to subdued global economic growth which has resulted in a fall in demand for Asian exports. It also reflects the reorientation of China’s economy away from investment as the primary driver of its GDP growth. There are signs that lead indicators are once again stabilising as previous Chinese government stimulus measures take effect and, more generally, central banks across the world continue to provide monetary policy cushioning. However, it is worth noting that elevated Chinese debt levels are a continuing structural imbalance with implications for global growth. For this reason, the portfolio is predominantly focused on companies that can continue to weather the challenging macro conditions through high quality management, healthy balance sheets and where growth prospects are underappreciated by the market. This goes some way to explaining the tilt towards consumption and technology.
GDP growth in India has been slow to materialise but we are nevertheless positive about opportunities. The Modi government appears to be making some progress by gradually implementing measures to tackle barriers that have inhibited India’s natural growth drivers. As is typical with India, the market is at times disappointed by the pace of reforms and this has allowed several new holdings to be added at attractive valuations. Conversely, Indonesia’s strong equity market over the period has, from time to time, offered opportunities to sell exposure at a profit. The Portfolio Manager’s Report covers the investments held in these markets in greater detail.
The UK vote on the renegotiation of its relationship with Europe is likely to accentuate market uncertainty in the short term. Against this volatile and uncertain backdrop, Asian equities appear relatively good value compared to other global equity markets. The current 30% discount to global equity markets in Asia is wide by historical standards. In absolute terms this development will probably exacerbate the current weak earnings momentum in Asia although this may be ameliorated to some degree by weakness in Sterling for UK-based investors. Your Portfolio Manager and the Board believe that that stock selection is crucial in this kind of market. There are stocks with attractive growth prospects in the region whose valuation multiples offer good entry points for long term investors.
Annual General Meeting
The Company’s AGM will be held at 12 noon on 4 August 2016 at 43-45 Portman Square, London W1H 6LY. The Portfolio Manager, Ian Hargreaves, will make 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 the 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
27 June 2016
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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 Invesco Fund Managers Limited (the ‘Manager’). Invesco Asset Management Limited, an associate company of the Manager, manages the Company’s investments and acts as Company Secretary under delegated authority from 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 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 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% 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 Company’s benchmark index can be found in the annual financial report.
Peer group performance is monitored in relation to nine 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 29 April 2016, in NAV terms the Company was ranked 4th over one year, 3rd over three years and 4th over five years.
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 6.8% to 12.0% with an average discount of 9.7%. This is shown in the adjacent graph which plots the discount over the two years to 30 April 2016. At the year end the discount to the NAV (ex income) stood at 11.7%.
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 Dividend
For the year ended 30 April 2016 the net asset value total return was –7.1% compared to the return on the benchmark index of –14.3%. 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 2016 of 3.65p per share (2015: 3.65p) will be payable on 12 August 2016 to shareholders on the register on 15 July 2016. Shares will be marked ex-dividend on 14 July 2016.
Financial Position and Borrowing
The Company’s balance sheet shows the assets and liabilities at the year end. Details of the Company’s borrowing facility are shown in note 11 to the financial statements in the annual financial report, with interest paid (finance costs) shown in note 5 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. 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 following sets out how the Directors have carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity.
The Audit Committee (the ‘Committee’), on behalf of the Board, has established an ongoing process for identifying and undertaking a robust assessment of 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 that follow.
The effectiveness of the Company’s internal control and risk management system is reviewed at least annually 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. 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. No significant failings or weaknesses occurred throughout the year ended 30 April 2016 and up to the date of this annual financial report.
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 note 15 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. 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 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 to the value of the Company’s net assets. The Board and the Manager maintain an active dialogue 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 in the annual financial report.
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 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.
Viability Statement
The Company is a collective investment vehicle rather than a commercial business venture and is designed and managed for long term investment. The Company’s investment objective clearly sets out the long-term nature of the returns from the portfolio and this is the view taken by both the Directors and the Portfolio Manager in the running of the portfolio. As explained in the Chairman’s Statement, every three years shareholders are given the opportunity to vote on the future of the Company. The Directors have no reason to believe that shareholders will not vote to release the Directors from their obligation to propose a wind up resolution. On this basis, the Directors consider that ‘long term’ for the purpose of this viability statement is three years, albeit that the life of the Company is not intended to be limited to this period.
In their assessment of the Company’s viability, the Directors considered the risks to which it is exposed, together with mitigating factors. Their assessment considered these risks, as well as the Company’s investment objective, investment policy and strategy, the investment capabilities of the Manager and the business model of the Company, which has effectively been stress tested since the Company’s inception in 1995 through various volatile market cycles. Their assessment also covered the current outlook for the Asian economies and equity markets, demand for the Company’s shares – including the discount control mechanism and potential future tender offers that could arise, the Company’s borrowing structure, the liquidity of the portfolio and the Company’s future income and annual operating costs. Lastly, whilst past performance may not be indicative of performance in the future, the sustainability of the Company can be demonstrated to date by there being no material change in the Company’s investment objective since its launch in 1995.
Provided there is no requirement to wind up the Company following the shareholder vote, and no need to undertake repeated tenders, the Directors confirm that they have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the three year period of assessment.
Board Diversity
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.
As an investment vehicle the Company does not provide goods or services in the normal course of business, and does not have customers.
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PORTFOLIO MANAGER’S REPORT
Market Review
Asian equity markets, as measured by the MSCI AC Asia ex Japan Index (total return, in sterling terms), fell by 14.3% over the review period in sterling terms. There was a wide variation in performance among markets with China leading the decline. The Indonesian and Indian markets on the other hand were relatively resilient. From a sector perspective, Asian banks were the weakest performers primarily due to concerns about asset quality.
China’s equity market started the period at inflated valuation levels. However, a continued slowdown in Chinese economic growth in the first half of the financial year resulted in weak earnings momentum. Further, a change in the renminbi regime in August encouraged the idea, although subsequently shown to be incorrect, that China had decided to engage in a competitive devaluation to support growth. This led to a derating of Chinese equities. Some market stability returned in the first quarter of 2016 as monetary policy eased, economic activity indicators picked up and worries over a renminbi depreciation faded.
Significant movements in ASEAN currencies were an important feature over the period with currency weakness resulting in South East Asian equity markets being amongst the worst global performers in sterling terms. Weak commodity prices increasing pressure on trade balances and anxiety about a possible US interest rate rise were both contributing factors. This year, currencies, such as the Indonesian rupiah, have stabilised as slowing domestic demand growth has begun to correct external imbalances. In addition, it now appears likely that US monetary policy will be tightened more gradually than feared earlier.
Elsewhere, the Indian market was relatively resilient. India is a particular beneficiary of a lower oil price. This has aided a large reduction in its current account deficit without the necessity of the kind of domestic demand contraction experienced elsewhere. This has ensured that the Indian rupee has been more resilient than most other emerging market currencies. India’s economic recovery remains anaemic and this has been reflected in generally weak corporate results. However, investors remain convinced of India’s positive structural outlook.
Company Performance
In the 12 months to the end of April 2016, the Company’s net asset value decreased by 7.1% (total return, in sterling terms). This performance, however, was better than the benchmark which declined by 14.3% (total return, in sterling terms).
The Company’s holdings in Chinese internet companies were key contributors to relative outperformance. In particular NetEase, the second largest holding in the portfolio, enjoyed strong share price gains. This was driven by growing evidence that the company has been able to translate its expertise in PC games to games played on smartphones, with the latter now contributing about 60% of total revenue from nothing two years ago. This successful transition has not gone unnoticed by the market as the shares have rerated from previously low levels and consensus expectations for future earnings growth have risen. Consequently, we decided to take some profits by trimming the position, reflecting the large size of the position in the portfolio. However, the shares remain reasonably valued, in our view, given NetEase’s track record of strong execution in a fast-growing industry and a meaningful pipeline of new games to be launched this year.
The Indian agrochemical company, UPL, a long term holding in the portfolio, has continued its strong run of performance. Given the quality and diversity of UPL’s branded generic business, we have always felt that the company has been unfairly saddled with a valuation more akin to a commodity chemical business. An examination of UPL’s historical financials indicates a business of steady growth and stable profitability despite fluctuations in weather and commodity prices. The company has managed to iron out these risks by successfully diversifying its product and geographical mix. This was exemplified in the latest FY16 results by the successful launch of a new fungicide product in Latin America which helped UPL achieve 20% volume growth year-on-year. UPL’s P/E valuation rose to 16x compared to a trough level of 9x. In our view, this approaches fair value and thus we have reduced the weighting in the portfolio.
HDFC Bank, the Indian private bank, also produced good returns over the period. The long-term investment case for HDFC Bank is based on its ability to gain market share from the Indian Government-owned banks. These public banks still dominate the industry with 70% loan share but are unable to match HDFC in terms of customer service, product innovation, efficiency and credit control. However, in the shorter term HDFC has also benefited from the fact that most Indian banks are struggling to deal with asset quality problems stemming from excessive leverage in the private infrastructure sector. This is also resulting in a shortage of capital in some banks that the government has been slow to address. HDFC Bank is well-capitalised and has benign asset quality. It is thus experiencing more rapid market share gains as a result.
Turning to Indonesia, this is the only Asian market which managed to produce a positive return during the period in sterling terms. Our holding in Telkom Indonesia was a key positive contributor to relative performance. The competitive intensity in the telecom sector across the region is generally a headwind for profitability but this threat is fairly benign in Indonesia with rational pricing being adopted by the three major Indonesian players. This has allowed Telkom Indonesia to reap the benefits of strong demand for wireless data services across the country given its network coverage advantage. Smart phone penetration is still growing in Indonesia and the average revenue per user is starting to increase as consumers use more data. This is a good example of a stock in Asia whose acceleration in earnings momentum has been rewarded by good share price performance.
A number of stocks in the small and mid-cap space added notable value. Minth Group, a Chinese auto-parts manufacturer, saw its share price rise on evidence that its investments in Europe and the US are beginning to bear fruit. It has managed to successfully take market share in higher margin products such as aluminium trims, which has positively impacted its bottom line. We continue to believe that the shares are undervalued given the quality of management and the company’s ability to grow through product diversification and customer focus. Australian services company, Broadspectrum, rose significantly after shareholders, including ourselves, accepted an offer from Spanish company Ferrovial of AU$1.50 per share to acquire the company. Originally we considered this bid too low on valuation grounds, however, the decision by Papua New Guinea’s government to close one of the immigration processing centres run by the company made us reduce our fair value estimate to a level approximately matching Ferrovial’s offer.
Conversely, the further drop in the oil price during the period negatively affected the profitability and share prices of our holdings in the energy sector, such as Origin Energy and PetroChina. However, the oil price had reached an unsustainably low level, in our view, as the direction of travel of the oil market is towards a balancing of supply and demand. More importantly for investors, the share price of some oil companies was implying too pessimistic an outlook for the oil price. This prompted the introduction of a new holding in CNOOC, a Chinese oil and gas producer, which then rallied alongside the oil price since the beginning of the year. Finally, a large detractor was EVA Precision Industrial Holdings, a small cap manufacturer of high-quality moulds and parts for photocopiers used mostly by Japanese office equipment companies. The company’s share price suffered as some of its clients have delayed the launches of new products, which led to sluggish sales growth. However, we remain positive on the outlook for the company over the medium term and have added to the position. We believe that the company will begin to show improved earnings momentum as it brings on its first plant in Vietnam and its new investments in the auto sector begin to bear fruit. At current prices, EVA is offering a high free cash flow yield making it one of the most undervalued stocks in the portfolio.
Outlook
Asian markets have been stuck in a trading range now for several years. It has been a tug-of-war between low valuation (both relative to Asia’s own history and relative to other global markets) on one hand and weak earnings trends on the other. This reflects the lower rates of economic growth in the developed world post the Global Financial Crisis with its negative implications for Asian export growth and, importantly, the structural slowdown in China. There is little to suggest that these trends are going to change significantly in coming years. The rational response from the market has been to rerate companies that have been able to surprise on growth or where there is a decent level of earnings certainty. The challenge arising from this is that valuations of these stocks are frequently above levels that feel comfortable. The focus for us then in managing the Company remains trying to uncover companies that fit these earnings criteria but where valuations are reasonable. Some of the best contributors to the Company’s performance over the last few years like Netease and UPL are examples of where the market has been under-estimating the earnings power and quality of these businesses. In recognition of the fact that these opportunities are relatively rare, we have recently reduced the number of holdings to 57 with the aim of increased exposure where we do have conviction. We are also casting the net as wide as possible by looking at small and mid-sized companies because this is typically a less well researched segment of the market and, unlike in other global equity markets, frequently trade at discounts to larger companies. Companies with a market capitalisation below US$3 billion now represent 30% of the portfolio.
The signs of economic stabilisation in China that we discussed in the interim report have become more apparent in the first quarter of 2016. The recovery in property sales that first began back in May 2015 has been central to this and is now being reflected in improving trends across a range of economic indicators. As we had hoped, this has led to improved performance in the more cyclical areas of the market such as materials. We have used this strength to reduce the portfolio’s modest exposure to this sector as we view the recovery in Chinese property demand as fleeting and not the beginning of a new sustained uptrend.
The improvement in the Chinese economy has also been accompanied by a reacceleration in credit growth. This unwelcome development stems from the government’s commitment to maintain real economic growth of at least 6.5%. The Party identifies the need to minimise unemployment as critical to maintaining confidence in the economy. However, given the peak in the working age population, this level of growth is no longer necessary to maintain full employment and can only be achieved through increased leverage. Ultimately this is an unsustainable policy and is a medium term risk for Asia. However, other than the sizeable increase in leverage since 2009, China does not yet share some of the key characteristics that have marked out previous emerging market crises. These include large current account deficits (China is in surplus), dependence on large scale foreign borrowing to fund domestic credit (China foreign debt to GDP is only 10%), a high loan to deposit ratio (China has only recently surpassed 100%) and an open capital account (China’s is relatively closed). Thus, while this policy will ultimately lead to a high fiscal cost as a result of bad debt resolution, China does not yet appear vulnerable to an uncontrolled liquidity shock that could reverse the credit cycle. To take account of this situation and the maturity of the credit cycle in other parts of Asia, we have continued to lower the Company’s exposure to financials, reducing by over 6% during the course of the year. Conversely, given the pervasive negativity on China, we continue to find opportunities where companies with relatively defensive earnings are being mispriced. For example, China Mobile, like Telkom Indonesia, is benefiting from rapid adoption of data services by consumers. This is leading to rising revenues per subscriber and accelerating cashflow growth. However, China Mobile trades on roughly half the cashflow multiple of Telkom.
Turning to India, we concur with consensus that this economy is better placed than others in the region. It remains under-developed and is one of the few economies that appears close to the bottom of its credit cycle.
Ian Hargreaves
Portfolio Manager
The Strategic Report was approved by the Board of Directors on 27 June 2016.
Invesco Asset Management Limited
Company Secretary
.
INVESTMENTS IN ORDER OF VALUATION
at 30 April 2016
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 | 6,159 | } 5.9 |
|
| – preference shares | 4,697 | |||
| China MobileR | Telecommunication Services | China | 7,593 | 4.1 |
| Baidu – ADR | Software & Services | China | 7,176 | 3.9 |
| NetEase – ADR | Software & Services | China | 6,586 | 3.6 |
| HDFC Bank | Banks | India | 6,235 | 3.4 |
| UPL | Materials | India | 5,481 | 3.0 |
| AIA | Insurance | Hong Kong | 5,421 | 3.0 |
| Taiwan Semiconductor | Semiconductors & | Taiwan | 5,388 | 2.9 |
| Manufacturing | Semiconductor Equipment | |||
| CK Hutchison | Capital Goods | Hong Kong | 4,933 | 2.7 |
| China Life Insurance – Taiwan | Insurance | Taiwan | 4,484 | 2.4 |
| Top Ten Holdings | 64,153 | 34.9 | ||
| Hyundai Motor – preference shares | Automobiles & Components | South Korea | 4,379 | 2.4 |
| MINTH | Automobiles & Components | China | 4,366 | 2.4 |
| Korea Electric Power Corporation | Utilities | South Korea | 4,225 | 2.3 |
| Samsonite International | Consumer Durables & Apparel | Hong Kong | 4,052 | 2.2 |
| Broadspectrum (formerly | Commercial & Professional | Australia | 3,781 | 2.1 |
| Transfield Services) | Services | |||
| Tata Consultancy | Software & Services | India | 3,757 | 2.0 |
| Industrial & Commercial Bank Of ChinaH | Banks | China | 3,713 | 2.0 |
| HSBC | Banks | Hong Kong | 3,663 | 2.0 |
| Telekomunikasi Indonesia | Telecommunication Services | Indonesia | 3,539 | 2.0 |
| United Overseas Bank | Banks | Singapore | 3,466 | 1.9 |
| Top Twenty Holdings | 103,094 | 56.2 | ||
| Hyundai Mobis | Automobiles & Components | South Korea | 3,423 | 1.9 |
| ASUSTeK Computer | Technology Hardware & Equipment | Taiwan | 3,378 | 1.9 |
| Greatview Aseptic Packaging | Materials | Hong Kong | 3,360 | 1.8 |
| FIH Mobile | Technology Hardware & Equipment | Hong Kong | 3,171 | 1.7 |
| Shinhan Financial | Banks | South Korea | 3,139 | 1.7 |
| Cheung Kong Property | Real Estate | Hong Kong | 3,079 | 1.7 |
| POSCO | Materials | South Korea | 3,076 | 1.7 |
| Filinvest Land | Real Estate | Philippines | 3,019 | 1.7 |
| Tata Motors | Automobiles & Components | India | 2,994 | 1.6 |
| Hon Hai Precision Industry | Technology Hardware & Equipment | Taiwan | 2,899 | 1.6 |
| Top Thirty Holdings | 134,632 | 73.5 |
| Gujarat Gas | Utilities | India | 2,760 | 1.5 |
| Qingling MotorsH | Automobiles & Components | China | 2,743 | 1.5 |
| Cognizant Technology Solutions | Software & Services | India | 2,591 | 1.4 |
| Yageo | Technology Hardware & Equipment | Taiwan | 2,584 | 1.4 |
| Petrochina – ADR | Energy | China | 2,499 | 1.4 |
| PT Bank Negara Indonesia Persero | Banks | Indonesia | 2,436 | 1.3 |
| DGB Financial | Banks | South Korea | 2,420 | 1.3 |
| ENN Energy | Utilities | Hong Kong | 2,382 | 1.3 |
| Sobha | Real Estate | India | 2,376 | 1.3 |
| HKR International | Real Estate | Hong Kong | 2,240 | 1.2 |
| Top Forty Holdings | 159,663 | 87.1 | ||
| Tencent | Software & Services | Hong Kong | 2,168 | 1.2 |
| 51job | Commercial & Professional Services | China | 2,123 | 1.1 |
| Chroma ATE | Technology Hardware & Equipment | Taiwan | 1,933 | 1.1 |
| Origin Energy | Energy | Australia | 1,861 | 1.0 |
| BHP Billiton | Materials | Australia | 1,799 | 1.0 |
| CNOOCR | Energy | China | 1,756 | 1.0 |
| Hyundai Home | Retailing | South Korea | 1,749 | 0.9 |
| EVA Precision Industrial | Capital Goods | Hong Kong | 1,715 | 0.9 |
| ICICI | Banks | India | 1,623 | 0.9 |
| Adani Ports & Special Economic Zone | Transportation | India | 1,587 | 0.9 |
| Top Fifty Holdings | 177,977 | 97.1 | ||
| Jardine Matheson – Singapore Reg | Capital Goods | Hong Kong | 1,417 | 0.8 |
| Delta Electronics | Technology Hardware & Equipment | Taiwan | 1,163 | 0.6 |
| Cathay Pacific Airways | Transportation | Hong Kong | 937 | 0.5 |
| Noble | Capital Goods | Singapore | 595 | 0.3 |
| Pacific Basin Shipping | Transportation | Hong Kong | 531 | 0.3 |
| Bloomberry Resorts | Consumer Services | Philippines | 392 | 0.2 |
| Hanison Construction | Capital Goods | Hong Kong | 333 | 0.2 |
| Total holdings of 57 (2015: 52) | 183,345 | 100.0 |
ADR: American Depositary Receipts – are certificates that represent shares in the relevant 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
| 2016 | 2015 | |||
| AT | % OF | AT | % OF | |
| VALUATION | PORTFOLIO | VALUATION | PORTFOLIO | |
| £’000 | £’000 | |||
| Australia | ||||
| Commercial & Professional Services | 3,781 | 2.1 | – | – |
| Energy | 1,861 | 1.0 | 2,714 | 1.3 |
| Industrials | – | – | 2,158 | 1.1 |
| Materials | 1,799 | 1.0 | 4,752 | 2.4 |
| 7,441 | 4.1 | 9,624 | 4.8 | |
| China | ||||
| Automobiles & Components | 7,109 | 3.9 | – | – |
| Banks | 3,713 | 2.0 | – | – |
| Commercial & Professional Services | 2,123 | 1.1 | – | – |
| Consumer Discretionary | – | – | 3,232 | 1.6 |
| Consumer Staples | – | – | 686 | 0.3 |
| Energy | 4,255 | 2.4 | 6,444 | 3.2 |
| Financials | – | – | 5,548 | 2.7 |
| Industrials | – | – | 3,419 | 1.7 |
| Information Technology | – | – | 16,665 | 8.3 |
| Software & Services | 13,762 | 7.5 | – | – |
| Telecommunication Services | 7,593 | 4.1 | 7,103 | 3.5 |
| 38,555 | 21.0 | 43,097 | 21.3 | |
| Hong Kong | ||||
| Banks | 3,663 | 2.0 | – | – |
| Capital Goods | 8,398 | 4.6 | – | – |
| Consumer Discretionary | – | – | 4,357 | 2.2 |
| Consumer Durables & Apparel | 4,052 | 2.2 | – | – |
| Financials | – | – | 15,501 | 7.6 |
| Industrials | – | – | 19,879 | 9.8 |
| Insurance | 5,421 | 2.9 | – | – |
| Materials | 3,360 | 1.8 | 1,787 | 0.9 |
| Real Estate | 5,319 | 2.9 | – | – |
| Software & Services | 2,168 | 1.2 | – | – |
| Technology Hardware & Equipment | 3,171 | 1.8 | – | – |
| Transportation | 1,468 | 0.8 | – | – |
| Utilities | 2,382 | 1.3 | – | – |
| 39,402 | 21.5 | 41,524 | 20.5 | |
| India | ||||
| Automobiles & Components | 2,994 | 1.6 | – | – |
| Banks | 7,858 | 4.3 | – | – |
| Financials | – | – | 11,396 | 5.6 |
| Industrials | – | – | 2,332 | 1.1 |
| Information Technology | – | – | 4,364 | 2.2 |
| Materials | 5,481 | 3.0 | 7,629 | 3.8 |
| Real Estate | 2,376 | 1.3 | – | – |
| Software & Services | 6,348 | 3.4 | – | – |
| Transportation | 1,587 | 0.9 | – | – |
| Utilities | 2,760 | 1.5 | – | – |
| 29,404 | 16.0 | 25,721 | 12.7 | |
| Indonesia | ||||
| Banks | 2,436 | 1.3 | – | – |
| Financials | – | – | 4,079 | 2.0 |
| Telecommunication Services | 3,539 | 2.0 | 2,827 | 1.4 |
| 6,906 | 3.4 | 5,475 | 3.3 | |
| Philippines | ||||
| Consumer Services | 392 | 0.2 | – | – |
| Consumer Staples | – | – | – | – |
| Financials | – | – | 3,548 | 1.8 |
| Real Estate | 3,019 | 1.7 | – | – |
| 3,411 | 1.9 | 3,548 | 1.8 | |
| Singapore | ||||
| Banks | 3,466 | 1.9 | – | – |
| Capital Goods | 595 | 0.3 | – | – |
| Financials | – | – | 3,963 | 2.0 |
| Industrials | – | – | 1,095 | 0.5 |
| 4,061 | 2.2 | 5,058 | 2.5 | |
| South Korea | ||||
| Automobiles & Components | 7,802 | 4.3 | – | – |
| Banks | 5,559 | 3.0 | – | – |
| Consumer Discretionary | – | – | 12,772 | 6.3 |
| Financials | – | – | 10,900 | 5.4 |
| Information Technology | – | – | 13,792 | 6.8 |
| Materials | 3,076 | 1.7 | 3,694 | 1.9 |
| Retailing | 1,749 | 0.9 | – | – |
| Technology Hardware & Equipment | 10,856 | 5.9 | – | – |
| Utilities | 4,225 | 2.3 | 3,253 | 1.6 |
| 33,267 | 18.1 | 44,411 | 22.0 | |
| Taiwan | ||||
| Financials | – | – | 9,000 | 4.5 |
| Industrials | – | – | – | – |
| Information Technology | – | – | 11,222 | 5.5 |
| Insurance | 4,484 | 2.5 | – | – |
| Semiconductors & Semiconductor Equipment | 5,388 | 2.9 | – | – |
| Technology Hardware & Equipment | 11,957 | 6.5 | – | – |
| 21,829 | 11.9 | 20,222 | 10.0 | |
| Thailand | ||||
| Financials | – | – | 2,065 | 1.0 |
| Total | 183,345 | 100.0 | 202,176 | 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 UK Accounting Standards, including FRS 102 Financial Reporting Standard applicable in the UK and Republic of Ireland.
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. 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 complies with that law and those regulations.
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 profit of the Company taken as a whole; 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 position and performance, business model and strategy.
Carol Ferguson
Chairman
Signed on behalf of the Board of Directors
27 June 2016
.
INCOME STATEMENT
FOR THE YEAR ENDED 30 APRIL
| 2016 | 2015 | ||||||
| REVENUE | CAPITAL | TOTAL | REVENUE | CAPITAL | TOTAL | ||
| RETURN | RETURN | RETURN | RETURN | RETURN | RETURN | ||
| NOTES | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
| (Losses)/gains on | |||||||
| investments at | |||||||
| fair value | – | (16,739) | (16,739) | – | 42,432 | 42,432 | |
| Losses on foreign | |||||||
| currency revaluation | – | (234) | (234) | – | (568) | (568) | |
| Income | 2 | 4,256 | – | 4,256 | 4,672 | 573 | 5,245 |
| Investment management | |||||||
| fee | 3 | (325) | (975) | (1,300) | (355) | (1,066) | (1,421) |
| Other expenses | (503) | (5) | (508) | (597) | (4) | (601) | |
| Net return before finance | |||||||
| costs and taxation | 3,428 | (17,953) | (14,525) | 3,720 | 41,367 | 45,087 | |
| Finance costs | (17) | (51) | (68) | (18) | (54) | (72) | |
| Return on ordinary | |||||||
| activities before | |||||||
| taxation | 3,411 | (18,004) | (14,593) | 3,702 | 41,313 | 45,015 | |
| Tax on ordinary activities | (433) | – | (433) | (368) | – | (368) | |
| Return on ordinary | |||||||
| activities after taxation | |||||||
| for the financial year | 2,978 | (18,004) | (15,026) | 3,334 | 41,313 | 44,647 | |
| Return per ordinary share: | |||||||
| Basic | 4 | 3.42p | (20.70p) | (17.28p) | 3.77p | 46.64p | 50.41p |
The total column of this statement represents the Company’s profit and loss account, prepared in accordance with UK Accounting Standards. The return on ordinary activities after taxation is the total comprehensive income and therefore no additional statement of comprehensive income is presented. The supplementary revenue and capital columns are presented for information purposes 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. No operations were acquired or discontinued in the year.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
FOR THE YEAR ENDED 30 APRIL 2016
| Capital | |||||||
| Share | Share | Redemption | Special | Capital | Revenue | ||
| Capital | Premium | Reserve | Reserve | Reserve | reserve | Total | |
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
| 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 |
| Final dividend – note 5 | – | – | – | – | – | (3,195) | (3,195) |
| Net return on ordinary activities | – | – | – | – | (18,004) | 2,978 | (15,026) |
| Shares bought back and cancelled | (218) | – | 218 | (3,838) | – | – | (3,838) |
| At 30 April 2016 | 8,874 | – | 4,250 | 89,965 | 71,348 | 5,671 | 180,108 |
BALANCE SHEET
AT 30 APRIL
| 2016 | 2015 | ||
| NOTES | £’000 | £’000 | |
| Fixed assets | |||
| Investments at fair value through profit or loss | 183,345 | 202,176 | |
| Current assets | |||
| Debtors | 378 | 7,271 | |
| Cash | 2,391 | 140 | |
| 2,769 | 7,411 | ||
| Creditors: amounts falling due within one year | (6,006) | (7,420) | |
| Net current liabilities | (3,237) | (9) | |
| Net assets | 180,108 | 202,167 | |
| Capital and reserves | |||
| Share capital | 6 | 8,874 | 9,092 |
| Other reserves: | |||
| Capital redemption reserve | 4,250 | 4,032 | |
| Special reserve | 89,965 | 93,803 | |
| Capital reserve | 71,348 | 89,352 | |
| Revenue reserve | 5,671 | 5,888 | |
| Shareholders’ funds | 180,108 | 202,167 | |
| Net asset value per ordinary share | |||
| Basic | 7 | 210.7p | 230.7p |
These financial statements were approved and authorised for issue by the Board of Directors on 27 June 2016.
Carol Ferguson
Chairman
Signed on behalf of the Board of Directors
.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 APRIL 2016
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 out below:
Basis of Preparation
Accounting Standards Applied
The financial statements have been prepared in accordance with applicable United Kingdom Accounting Standards and applicable law (UK Generally Accepted Accounting Practice) and with the Statement of Recommended Practice Financial Statements of Investment Trust Companies and Venture Capital Trusts, issued by the Association of Investment Companies in November 2014. Accordingly, FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland applies for these financial statements for the year ended 31 March 2016 and has been applied for the first time. The financial statements are issued on a going concern basis.
As a result of the first time adoption of FRS 102 and the revised SORP, comparative figures and presentation have been revised where required. The net return attributable to ordinary shareholders and shareholders’ funds remain unchanged. As an investment fund the Company has the option, which it has taken, not to present a cash flow statement. A cash flow statement is not required when an investment fund meets all the following conditions: substantially all investments are highly liquid and are carried at market value, and where a statement of changes in equity is provided (in these financial statements it is called the Reconciliation of Movements in Shareholders’ Funds). The accounting policies applied to these financial statements are consistent with those applied for the year ended 30 April 2015. No other accounting policies have changed as a result of the application of FRS102, amendments to FRS102 (see below) and the revised SORP.
Amendments to FRS 102 – Fair value hierarchy disclosures (March 16) amends paragraphs 34.22 and 34.42 of FRS 102, revising the disclosure requirements for financial instruments held at fair value to align these with the disclosure requirements of EU-adopted IFRS. These amendments become effective for accounting periods beginning on or after 1 January 2017. The Company has chosen to early adopt these paragraphs. There are no accounting policy or disclosure changes as a result of this adoption.
2. Income
This note shows the income generated from the portfolio (investment assets) of the Company and income received from any other source.
| 2016 | 2015 | |
| £’000 | £’000 | |
| Income from investments | ||
| Overseas dividends | 3,709 | 3,975 |
| Scrip dividends | 218 | 287 |
| UK dividends | 259 | 293 |
| Special dividends – overseas | 70 | 117 |
| Total dividend income | 4,256 | 4,672 |
Special dividends of nil (2015: £573,000) 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.
| 2016 | 2015 | ||||||
| Revenue | Capital | Total | Revenue | Capital | Total | ||
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | ||
| Investment management fee | 325 | 975 | 1,300 | 355 | 1,066 | 1,421 | |
Details of the investment management and secretarial agreement are given in the Directors' Report in the annual financial report.
At 30 April 2016, £332,000 was due for payment in respect of the management fee (2015: £370,000).
4. Return per Ordinary Share
Return per share is the amount of gain or loss generated for the financial year divided by the weighted average number of ordinary shares in issue.
| 2016 | 2015 | |
| £’000 | £’000 | |
| Return per ordinary share is based on the following: | ||
| Revenue return | 2,978 | 3,334 |
| Capital return | (18,004) | 41,313 |
| Total return | (15,026) | 44,647 |
| 2016 | 2015 | |
| Weighted average number of ordinary shares | ||
| in issue during the year: | ||
| – basic | 86,972,224 | 88,575,609 |
5. Dividends on Ordinary Shares
Dividends represent a return of income less expenses to shareholders. The Company pays one dividend a year.
Dividends paid:
| 2016 | 2015 | ||||
| pence | £’000 | pence | £’000 | ||
| Final dividend in respect of previous year | 3.65 | 3,195 | 3.45 | 3,066 | |
| Unclaimed dividend in respect of prior years | – | – | – | (2) | |
| 3.65 | 3,195 | 3.45 | 3,064 | ||
| Dividends proposed: | |||||
| 2016 | 2015 | ||||
| pence | £’000 | pence | £’000 | ||
| Final dividend proposed | 3.65 | 3,093 | 3.65 | 3,199 | |
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
| 2016 | 2015 | |
| £’000 | £’000 | |
| Ordinary shares of 10p each | 8,546 | 8,764 |
| Treasury shares of 10p each | 328 | 328 |
| 8,874 | 9,092 |
The Directors’ Report in the annual financial report sets out the share capital structure, restrictions and voting rights.
(b) Share movements
| 2016 | 2015 | ||||
| ORDINARY | TREASURY | ORDINARY | TREASURY | ||
| NUMBER | NUMBER | NUMBER | NUMBER | ||
| Number at start of year | 87,640,064 | 3,277,224 | 88,859,369 | 3,277,224 | |
| Shares bought back and cancelled | (2,177,673) | – | (1,219,305) | – | |
| 85,462,391 | 3,277,224 | 87,640,064 | 3,277,224 | ||
The average price (excluding costs) of the shares bought back was 175.00p (2015: 194.21p).
Since the year end a further 730,939 ordinary shares have been repurchased and cancelled at an average price of 180.72p per share.
(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 values attributable to each share in accordance with the Company’s Articles are set out below.
| 2016 | 2015 | |
| Basic: | ||
| Ordinary shareholders’ funds | £180,108,000 | £202,167,000 |
| Number of ordinary shares in issue, excluding treasury shares | 85,462,391 | 87,640,064 |
| Net asset value per ordinary share | 210.7p | 230.7p |
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’ emoluments and interests have been disclosed in the annual financial report. No other related parties have been identified. Details of the Manager’s services and fees are disclosed in the Director’s Report and notes to the financial statements in the annual financial report.
9. This Annual Financial Report Announcement is not the Company's statutory accounts. The above results for the year ended 30 April 2016 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 2015 and 2016 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 2015 is derived from the statutory accounts for 2015 which have been delivered to the Registrar of Companies. The 2016 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 4 August 2016 at 43-45 Portman Square, London, W1H 6LY.
By order of the Board
Invesco Asset Management Limited - Company Secretary
27 June 2016
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