Annual Financial Report
26/07/2023 07:00
LEGAL ENTITY IDENTIFIER: 549300YM9USHRKIET173
Invesco Asia Trust plc
Annual Financial Report Announcement for the Year Ended 30 April 2023
The following text is extracted from the Annual Financial Report of the
Company for the year ended 30 April 2023. All page numbers below refer to the
Annual Financial Report which will be made available on the Company's website.
This announcement contains regulated information.
Investment Objective
The Company’s objective is to provide long-term capital growth and income by
investing in a diversified portfolio of Asian and Australasian companies. The
Company aims to achieve growth in its net asset value (NAV) total return in
excess of the Benchmark Index, the MSCI AC Asia ex Japan Index (total return,
net of withholding tax, in sterling terms).
Financial Information and Performance Statistics
The benchmark index of the Company is the MSCI AC Asia ex Japan Index (total
return, net of withholding tax, in sterling terms)
Total Return Statistics(1) with dividends reinvested
Change for the year (%) 2023 2022
Net asset value (NAV) total return (2) 1.3 -6.7
Share price total return (2) 1.2 -10.0
Benchmark index total return (3) -6.0 -12.9
Capital Statistics
At 30 April 2023 2022 change %
Net assets (£’000) 245,004 252,176 –2.8
NAV per share 366.48p 377.21p –2.8
Share price (1) 321.00p 332.50p –3.5
Benchmark index (capital) 938.42 1,023.11 –8.3
Discount (2) per ordinary share: (12.4)% (11.9)%
Average discount over the year (1)(2) (11.6)% (9.5)%
Gearing (2) :
– gross 5.9% 2.2%
– net 5.3% 1.6%
Revenue Statistics
Year Ended 30 April 2023 2022 change %
Income (£’000) 7,601 6,228 +22.0
Net revenue available for ordinary shares (£’000) 5,596 4,469 +25.2
Revenue return per ordinary share 8.37p 6.68p +25.3
Dividends per share (4) :
– first interim 7.20p 7.70p
– second interim 7.60p 7.60p
Total dividends 14.80p 15.30p –3.3
Ongoing charges ratio (2) 0.99% 0.97%
(1) Source: Refinitiv.
(2) Alternative Performance Measure (APM). See Glossary of Terms and
Alternative Performance Measures on pages 78 to 80 of the financial report for
details of the explanation and reconciliations of APMs.
(3) Index returns are shown on a total return basis, with dividends
reinvested net of withholding taxes.
(4) The Company's dividend policy aims to pay a regular six-monthly dividend
calculated at 2% of the Company’s NAV on the last business day of September
and February. Dividends are paid from a combination of the Company’s revenue
reserves and capital reserves, as required.
Chairman’s Statement
Highlights
• Strong relative performance over 1, 3, 5 and 10 years.
• Investment Style: “Valuation not value”.
• The next period is quite likely to prove to be a very attractive
long-term opportunity for shareholders. We have not been buying back shares
recently because we do not want to stand in their way.
I am pleased to report a strong second half to the Company’s year both in
absolute and relative terms. NAV total return was +16.6% over the six months
to 30 April 2023, your share price total return was +19.7% whereas the MSCI
AC Asia ex-Japan Index total return was +11.0% (all figures in Sterling
terms).
For the full year to 30 April 2023, this brings NAV total return back into
positive territory at +1.3% with the share price total return at +1.2%, both
outperforming the Index total return of -6.0%.
Attribution numbers show that the year’s outperformance came once again
mainly from stock selection. Ian Hargreaves and Fiona Yang review performance
in more detail in their Portfolio Managers’ Report.
Shareholders will know that we believe that the discount is determined by a
combination of demand for Asian equity investment vehicles, the Investment
Case for Invesco Asia Trust and the Corporate Proposition that we offer. In
order to stimulate more demand for the Company’s shares, we aim to provide a
compelling investment case and a strong corporate proposition at the same
time.
The Investment Case
The Investment Case rests on accessing the attractions of Asian equity markets
through the institutional expertise of Ian Hargreaves’ team at Invesco. The
Co-Portfolio Managers, supported by a well-resourced Asian dedicated team,
work very closely on our portfolio and engage with our shareholders and
potential investors. Their investment process can be summarised as
“valuation not value” and has been very successful with institutional
clients such as pension funds and sovereign wealth investors. In times like
these of great change, we would argue that this forward-looking active
approach (as opposed to a backward-looking index or passive style) is exactly
what is needed. The team have delivered very strong performance relative to
the benchmark for shareholders over 1, 3, 5 and 10 years, as shown in the
table below.
Like many professional consultants and shareholders, we, as fully independent
non-executive directors, look for talented stock pickers, a robust process and
consistent outperformance in our investment manager. We believe we have all
three in Ian, Fiona and the team at Invesco.
Annualised Total Return in Sterling Terms to 30 April 2023(1)(2)
1 3 5 10
year years years years
Net Asset Value % 1.3 13.9 6.0 10.0
Benchmark % –6.0 3.3 1.3 5.2
(1) Source: Refinitiv.
(2) The benchmark index of the Company was changed on 1 May 2015 to the MSCI
AC Asia ex Japan Index from the MSCI AC Asia Pacific ex Japan Index (both
indices total return, net of withholding tax, in sterling terms). The
benchmark performance used throughout this report uses the former index for
periods prior to 1 May 2015.
The Corporate Proposition
The Company’s Corporate Proposition was first introduced in the Half-Yearly
Financial Report to 31 October 2018. Since then, the Board has continued to
review and adopt measures intended to create additional demand for the
Company’s shares, both from existing and new shareholders, and to reduce the
discount. We have been careful to ensure that the measures chosen are in the
best interests of shareholders as a whole. The intention is that the gains
from each will combine to make the Corporate Proposition as compelling as the
Investment Case.
There are multiple elements to our Corporate Proposition, including:
1. Continuation Vote: Every three years the future of the Company is subject
to a continuation vote. The next one is due in 2025.
2. Enhanced dividend policy: The Board introduced a new enhanced dividend
policy in August 2020 which aims to pay, in the absence of unforeseen
circumstances, a regular six-monthly dividend equivalent to 2.0% of the
Company’s NAV, calculated on the last business day of September and
February. The dividends will be paid to shareholders in November and April.
This means that the two interim dividends will not be subject to a resolution
at the Annual General Meeting (AGM) but that the distribution policy as a
whole will be put to shareholders at each AGM. For the year ended 30 April
2023, the first interim dividend of 7.20p was paid to shareholders on 24
November 2022 and a second interim dividend of 7.60p was paid to shareholders
on 25 April 2023. This gave a total distribution of approximately 4.0% of NAV
over the year and represents a 4.6% dividend yield on the closing share price
on 30 April 2023. Please note that the policy of paying out approximately 4.0%
of NAV means that dividend payments will not necessarily increase every year.
3. Performance Conditional Tender: We introduced a performance conditional
tender offer in August 2020 through which the Board has undertaken to effect a
tender offer for up to 25.0% of the Company’s issued share capital at a
discount of 2.0% to the prevailing NAV per share (after deduction of tender
costs), in the event that the Company’s NAV cum-income total return
performance over the five year period to 30 April 2025 fails to exceed the
Company’s comparator index, the MSCI AC Asia ex Japan Index (total return,
net of withholding tax, in sterling terms) by 0.5% per annum over the five
years on a cumulative basis. Shareholders already have the opportunity to vote
on the continuation of the Company every three years, but the Board believes
that also providing shareholders with the option to tender a proportion of
their shares for a cash price close to NAV if the Company underperforms,
constitutes a pragmatic and attractive initiative, particularly if the shares
were to be trading at a material discount at the time.
We are now three years through this five-year period over which the
performance of the Company will be assessed: On an annualised basis, the
Company’s NAV is up by 13.9% per annum (p.a.) over the three years while
the index is up by 3.3% p.a.
4. Environmental, Social and Governance Matters (ESG): The Board recognises
the importance of ESG considerations in delivering value to shareholders and
the Manager’s approach is explained in detail later in this report. We
continue to monitor closely developments in this space and, noting the growing
public discourse on climate change, we have asked the Manager to highlight
examples of holdings in companies that are helping facilitate the journey
towards Net Zero Alignment (NZA). The Manager has the resources to assess the
risks and opportunities which may result from accelerating ESG-driven change.
Invesco’s Global ESG function, based in Henley, inputs into the research
process and provides a formal ESG oversight process including meetings with
the portfolio managers and analysts to review the portfolio from an ESG
perspective. The Manager is a signatory of the Financial Reporting Council’s
Stewardship Code and is an active member of the UK Sustainable Investment and
Finance Association which guides the Portfolio Managers’ investment approach
for the portfolio. In addition, the Manager scored four stars for its
Investment & Stewardship Policy under new scoring methodology produced by
United Nations Principles for Responsible Investment (PRI). This followed
five consecutive years of achieving an A+ rating for responsible investment
(Strategy & Governance) under the previous methodology. The Manager is a
supporter of the Task Force for Climate Related Financial Disclosure (TCFD)
since 2019 and published its third iteration of its TCFD-aligned Climate
Change Report in 2022.
As well as monitoring at each board meeting the Manager’s assessment of
ESG considerations on individual stock decisions, the Board looks at various
indicators of overall ESG progress. We do not expect every indicator to travel
in the favoured direction in every period: the portfolio will change as will
the measurements. Some factors will have their priorities reassessed over
time, for example products with a military use may have been negatively
assessed in the past but when reconsidering the social factor of security in
the light of the Russian invasion of Ukraine, will now be assessed more
favourably. Despite these challenges, we should be able to see progress for
many indicators over longer time periods. For example, in the year just ended
the Manager engaged with 54 of the 56 portfolio holdings, voting against
management resolutions for 38 of them. The Manager met a total of
342 companies over the year, engaging with ESG issues on 255 of them. A year
ago, the Company held 28 companies that had not yet set a net zero target.
Now that number is down to 23 which is due in part to active engagement with
these companies by Invesco. Finally, the number of women on investee company
boards has been increasing.
5. Access to Invesco Expertise: Ian Hargreaves is Invesco’s lead portfolio
manager of Asian accounts for institutional investors and manages over £4
billion of institutional assets (as at 30 June 2023). Fiona Yang is proving to
be a rising star in the Invesco Team contributing from her base in Singapore.
Invesco Asia Trust plc is the only vehicle available to UK retail investors
who wish to access their track record. They manage it with a high degree of
commonality to their institutional portfolios although they also add the best
smaller company opportunities.
6. Engaging more individual shareholders: We are encouraged that an
increasing proportion of our shareholders are individuals, with the proportion
of investors who hold shares of Invesco Asia Trust plc via execution-only
platforms once again increasing. The Board aims to engage more directly with
individual investors. Working closely with the Manager, we continue to raise
the profile of the Company through new direct investor information, commentary
and events, which provide access to the thoughts and views of Ian and Fiona,
their team and the Directors. These activities complement the ongoing
engagement with a broad range of professional investors. Please visit our
homepage www.invesco.co.uk/invescoasia where you can also find presentations,
read updates or register to receive printed copies of the Half-Yearly and
Annual Financial Reports. You can also see third party research (by Kepler
Partners) and monthly factsheets on the Company’s website. Shareholders can
also contact us by email at investmenttrusts@invesco.com.
7. Meeting the Directors and Portfolio Managers: One of the main attractions
of owning an investment trust over a unit trust or open-ended investment
company (OEIC) is that all shareholders have the opportunity of meeting the
Directors and the Portfolio Managers every year at the AGM. This year’s
meeting will be held in person at Invesco’s London office at 12pm on
Thursday 21 September 2023. As well as the Company’s formal business, there
will be a presentation from Ian and Fiona, the opportunity to ask questions to
the Portfolio Managers and Directors and then to chat informally with all of
us afterwards over lunch. Shareholders may bring a guest to these meetings.
For me this is one of the highlights of being Chairman and I look forward to
meeting as many of you as possible. For those unable to make it in person, we
will record a special version of the presentation and post it onto our website
after the AGM. Shareholders wishing to lodge questions in advance of the AGM
should do so by email to the Company Secretary at investmenttrusts@invesco.com
or, by letter, to 43-45 Portman Square, London W1H 6LY.
8. Ongoing Charges and Fees: As a Board we are responsible for managing the
level of charges to shareholders. Our intention is to seek to reduce gradually
the level of ongoing charges over time. The main component of the 0.99% p.a.
ongoing charge is the investment management fee paid to Invesco. The
investment management fee is 0.75% on assets up to £250 million reducing to
0.65% on net assets over this amount.
9. Gearing: The Company intends to use gearing (or borrowings) actively to
take advantage of its closed-end structure. At the year end the Company had
net gearing of 5.3% having started the year at 1.6%.
10. Directors’ Shareholdings: Institutional investors often follow and ask
for information on Directors’ holdings of shares in the Company. These are
shown in the Directors’ Remuneration Report in the Annual Financial Report
and we are required to notify any changes to the stock market by regulatory
announcement. Additionally, our Portfolio Managers, Ian and Fiona, are both
shareholders in the Company and we can confirm that their remuneration by the
Manager is partly determined by the performance of the Company.
11. Buyback Authority: The Board has a stated average discount target of less
than 10% of NAV calculated on a cum-income basis (formerly ex-income) over the
Company’s financial year, although the Directors are cognisant of the fact
that the Company’s share rating at any particular time will reflect a
combination of various factors, a number of which are beyond the Board’s
control. Share buybacks will occur where and when we consider (in conjunction
with our broker) that such buybacks will be effective, taking into account
market factors and the discounts of comparable funds.
Update
As at the latest practicable date prior to the publication of this report,
being 24 July 2023, the NAV total return was -0.2%, underperforming the index
total return of 0.8%. The share price total return was 4.1%, with the discount
narrowing to 8.7%.
Outlook
After a big fall in the first half of the Company’s financial year and a big
rise in the second half, we are back to where we were a year ago. Some
concerns remain: relations between China and the US have been strained and are
still adjusting to a new normal. US interest rates have risen and are expected
to rise further. Yet some factors have improved: Asia and China in particular
seem to have escaped Covid-19 without the pain that was expected at the
beginning of last winter. Asian economies have proved robust in the absence of
the inflation problems that have plagued the West and the UK in particular.
Corporate earnings have rebounded which means that markets today are trading
at valuations that are much more attractive than a year ago. As Ian and Fiona
argue, valuations such as these have historically proven to be attractive
entry points, even when geopolitical or macroeconomic conditions might have
suggested otherwise.
This is one of the main reasons why the Company has not undertaken any share
buybacks in the last year even though the average discount of the share price
to net asset value was higher than the Board’s tolerance at 11.6%. We
believe that the Investment Case for the Company is strong and so too is the
combination of policies enshrined in our Corporate Proposition. The next
period is quite likely to prove to be a very attractive long-term opportunity
for shareholders. We simply do not want to stand in their way.
Neil Rogan
Chairman
25 July 2023
Portfolio Managers’ Report Q&A
Portfolio Manager
Ian Hargreaves is Co-Head of the Asian & Emerging Markets Equities team which
manages pan-Asian portfolios and covers the entire Asian region. He has led
this team as Co-Head since 2018. He started his investment career with Invesco
Asia Pacific in Hong Kong in 1994 as an investment analyst where he was
responsible for coverage of Indonesia, South Korea and the Indian
sub-continent, as well as managing several regional institutional client
accounts. Ian returned to the UK to join Invesco’s Asian Equities team in
2005, working on the portfolio as part of the investment team. He was
appointed as joint Portfolio Manager in 2011 and became the sole Portfolio
Manager on 1 January 2015, up until the appointment of Fiona Yang as
Co-Portfolio Manager in January 2022.
Portfolio Manager
Fiona Yang was appointed Co-Portfolio Manager of Invesco Asia Trust plc in
January 2022 and is a member of the Henley-based Asian & Emerging Markets
Equities team. In February 2022, Fiona moved to Invesco’s Singapore office
and remains an integral part of the Henley-based team. Fiona started her
career with Goldman Sachs in July 2012 and became a member of their Asian
Equity sales team as a China product specialist. She joined Invesco in August
2017. Fiona is also the fund manager on the Invesco Asian Equity Income Fund
(UK) and provides stock and sector research covering the wider Asia ex-Japan
region with a focus on China H and A share markets.
Q How has the Company performed in the year under review?
A The Company’s net asset value grew by 1.3% (total return, in sterling
terms) over the twelve months to 30 April 2023, which compares to the
benchmark MSCI AC Asia ex Japan index return of –6.0%.
A small positive return for the portfolio over the year feels like a good
result. Markets have been volatile, and although they have rebounded strongly
from their October lows, buoyed by some admittedly short-lived optimism
surrounding China’s reopening, the benchmark index against which we measure
performance has not recovered its lost ground and evidences the changing
market conditions. Continued outperformance can be attributed to strong stock
selection across different countries and sectors. Having a balanced portfolio
has also helped, and we have remained active, seeking out new opportunities to
invest in companies that are worth more than the market believes.
Geopolitical uncertainty remains a significant overhang, with the ongoing
Russia-Ukraine conflict and resurfacing US-China tensions. Markets have also
had to contend with the collapse of Credit Suisse and the failure of some US
regional banks, who were caught off guard by the pace of Federal Reserve
tightening. The risk of developed markets entering recession lingers, but
China’s reopening is a potential offset and domestic macro conditions in
Asia remain largely stable.
Q What have been the biggest contributors?
A India’s economy is enjoying a broad-based recovery, and holdings in
ICICI Bank and Housing Development Finance Corporation (HDFC) made a
significant contribution, supported by a benign credit cycle and a pick-up in
growth across business lines. Engineering and construction conglomerate Larsen
& Toubro and Mahindra & Mahindra (auto manufacturer) also made strong gains.
Stock selection in financials elsewhere added value, with United Overseas Bank
in Singapore and PT Bank Negara Indonesia Persero outperforming, as did
insurers, particularly QBE Insurance which is enjoying a turnaround in
profitability.
China reopening acted as a positive catalyst for consumer-related stocks such
as Gree Electrical Appliances, Sands China, Beijing Capital International
Airport and Samsonite International. In Korea, steel manufacturer POSCO was
buoyed by the China reopening trade and the improved outlook for battery
supply chain companies (given its lithium business), which also benefitted LG
Chemical.
Q And detractors?
A JD.com was the biggest single detractor amidst concerns over competitive
pressures in e-commerce as revenue growth slows. Alibaba has been similarly
impacted, with valuations for both having derated to such an extent that the
market does not appear to share our belief that earnings will start to show
signs of improvement.
Property-related companies in China underperformed, with China Overseas Land
and Investment and A-Living Smart City Services lagging the broader
market rebound. Dongfeng Motor also disappointed, although we have now sold
this position, with the car company’s outlook challenged by the strength of
competition in China’s electric vehicle (EV) market, an area of the market
they are losing ground in with joint venture partners Nissan and Honda.
Finally, Kasikornbank a leading Thai bank, has underperformed due to asset
quality concerns, but the bank has been cleaning-up its balance sheet and is
well positioned to benefit from a recovery in tourism, which should help
improve the outlook for growth and core bank profitability.
Q Has your view on China changed at all?
A China’s reopening has resulted in a robust recovery in consumer demand,
but economic data has been mixed as expansion in the services sector is not
yet feeding through into other areas. Lingering concern over the strength of a
cyclical recovery appears to be feeding back into markets, which continue to
struggle with US/China tensions. Recent suggestions that regular direct
communication between the US and China might be resumed would be constructive
and help markets better price the equity risk premium for China. Policy
settings remain supportive and although this is not a typical cycle, we would
expect confidence to return to more cyclical areas of the economy in due
course.
We believe the current mix of macro, regulatory and geopolitical concerns
leave valuations at overly discounted levels, providing attractive
opportunities to add exposure to quality growth names that appear cheap
relative to their history. As well as adding to existing holdings that we
like, we have introduced: dairy producer Yili, which has an improving branding
and consumer service capability that is likely to drive sales growth and
support a recovery in earnings over the medium term; and Will Semiconductor, a
company which principally engages in the research and development, design and
sales of semiconductor devices. The company was impacted by a downturn in the
Chinese smartphone cycle, but has a more positive growth outlook further out
which is supported by drivers such as auto contact image sensor (CIS) where it
has 40% market share.
Q Are you more positive on tech?
A In our half-year report, we noted that valuations appeared more reasonable,
particularly in the memory semiconductor market that is going through a sharp
downturn. Given that these downcycles tend to be relatively short in duration,
we feel that an inflexion point is inevitable at some stage in our investment
horizon, with capital expenditure (capex) cuts from weak players an
encouraging signal on that front.
Having already added to Samsung Electronics, we introduced SK Hynix, the
second biggest memory company globally. We also added slightly to other
existing semiconductor and tech hardware names on weakness, with the portfolio
now having a slight overweight position in the IT sector.
Sector performance has picked up year-to-date, benefitting from some
excitement around the launch of generative AI models such as ChatGPT, which
are likely to be revolutionary for the tech industry, allowing machines to
understand natural language and converse with us like humans. Strong demand
for additional computing power and AI servers makes us increasingly confident
on the structural outlook of several portfolio companies, particularly Taiwan
Semiconductor Manufacturing (TSMC) as the main fabricator of AI chips.
Q How are geopolitics and supply-chain changes affecting the sector?
A What some call ‘de-globalisation’, and the Chinese call ‘dual
circulation’ is already underway, and these trends are likely to continue as
multinational companies around the world seek greater supply chain resilience,
with support from governments looking to shield their economies from global
volatility and promote self-reliance. The US CHIPS and Science Act is likely
to see greater semiconductor capacity based out of the US and its associated
ecosystem. Meanwhile, US export controls seek to curtail China’s access to
advanced semiconductor technology, slowing its development in quantum
computing and artificial intelligence. However, China continues to invest
heavily in these fields, in the hope that domestic innovation helps them
remain competitive.
These trends have already caused disruption, but policy is unlikely to
challenge the systemic importance of key semiconductor technology providers
like Samsung Electronics and TSMC. While China’s semiconductor industry
faces increasing technology constraints, a company like SK Hynix could benefit
as competitive pressures from China ease. It is important to stress that this
remains a fluid situation, which we continue to monitor closely. Further risks
lie ahead, as do opportunities, making stock picking imperative.
Q Is increased exposure to Korea solely tech-related?
A South Korea continues to be the cheapest market in Asia, even after a
strong start to the year. We increasingly feel that the ‘Korea discount’
overstates corporate governance concerns, geopolitical risk and the cyclical
nature of its economy. We believe that this is an opportunity to own
operationally solid companies, with good balance sheets, and an ability and
desire to improve shareholder returns over time – a trend we already see
evidence of (see chart in the Annual Financial Report).
This biggest driver of position changes is conviction in the undervaluation of
the stocks we are adding to. As well as the memory chip companies mentioned
above, we have added to existing holdings such as: LG Chemical, the largest
maker of EV batteries outside China; and LG Household & Health Care, a
consumer goods company that manages cosmetics, household products and
beverages brands. The portfolio also has exposure to leading franchises across
a variety of sectors including an insurer, and manufacturers of autos and
steel products.
Q What opportunities have you found in Vietnam?
A Historically, low levels of liquidity and relatively expensive valuations
have deterred us from investing in Vietnam. The market had a tough year in
2022 and the near-term outlook is challenging. The property market has been
hit by a liquidity crunch, which has ramifications for the banks. Consumer
spending has been impacted by faltering exports growth, high mortgage rates
and losses for investors in domestics stocks and bonds. Finally, the near-term
outlook for earnings is lacklustre as the domestic economy appears to be in a
period of consolidation. However, with valuations having fallen to trough
levels, we felt the market was reflecting an overly pessimistic outlook and
that there were likely to be some attractive opportunities.
Vietnam’s structural growth drivers remain intact. Foreign direct investment
in 2022 was a record US$22.5 billion (5.5% of GDP), with multinationals such
as Apple and Boeing following Samsung Electronics, which already produces most
of its handsets in the country. As others follow, the improved infrastructure,
logistics and clustering of supply-chains should help to create a virtuous
cycle. Meanwhile, 37 million people are expected to join the middle class by
2030, which in turn is supporting rapid urbanisation.
We have introduced two new holdings. Vinamilk, the market-leading dairy
company generates strong free cash flow and offers a stable 5-6% dividend
yield. While near-term margins have been under pressure given milk powder
price increases, we expect to see a recovery in margins in 2023 as milk prices
stabilise. Hoa Phat is the largest steel producer in Vietnam, which has a
significant cost and scale advantage over smaller local competitors. Cyclical
concerns are ultimately less important than the potential for long-term steel
demand growth, driven by both property and infrastructure.
Q Has your exposure to financials changed at all?
A The portfolio continues to have significant exposure to financials, but we
have reduced position sizes in recent months, taking some profits from
outperformers such as PT Bank Negara Indonesia Persero, ICICI Bank, United
Overseas Bank and QBE Insurance. With portfolio performance having benefitted
from a sensitivity to rising interest rates, we have started to consider more
closely areas of the market that might benefit from an eventual easing of
policy, such as real estate.
The portfolio retains an underweight position in banks, with no holdings in
Chinese or Australian banks. We remain comfortable with exposure to banking
markets such as India and Indonesia, which have already undergone significant
credit downcycles in the last 5+ years. In our view this means greatly reduced
credit risk and importantly for the investment case the potential for good
credit growth ahead. This was demonstrated through Covid where bad debts were
low despite economic dislocations. The banks we own also feature high capital
ratios, low loan-to-deposit ratios and strong retail low-cost deposit bases.
Other significant themes within financials include long-term positive
prospects for the life insurance industry in China (AIA and Ping An
Insurance), and a turnaround in profitability for general insurers such as QBE
Insurance and Samsung Fire & Marine.
Q Final thoughts?
A China’s economy is reopening, with a robust recovery in consumer demand,
but its equity market continues to trade at a discount, even as fundamental
improvement in the outlook for corporate earnings mean there is scope for
positive surprises that would validate a re-rating. The rest of Asia should be
a relative beneficiary of China’s reopening and as such may see less
earnings vulnerability from the global slowdown compared to many advanced
economies, with revisions beginning to improve.
Asian markets continue to trade at a significant discount to developed
markets, particularly the US. We believe there is scope for this to narrow,
with US dollar strength challenged by a potential recession in the US as the
Fed seeks to root out inflation. Inflationary pressures in Asia are less of a
concern, suggesting greater policy flexibility, which should also be
supportive for markets. Looking further ahead, US inflation might be stickier
than expected, but it is declining from a high base which could lead to an
easing of financial conditions at a time when Asia is enjoying a favourable
growth differential. Combined, we feel this makes Asia an attractive place to
be investing over the medium-term, with divergence between countries and
sectors providing good opportunities for lucrative stock picking.
Ian Hargreaves & Fiona Yang
Portfolio Managers
25 July 2023
Principal and Emerging Risks and Uncertainties
The Board has carried out a robust assessment of the principal and emerging
risks facing the Company. These include those that would threaten its business
model, future performance, solvency and liquidity. In carrying out this
assessment, the Board together with the Manager have considered emerging risks
such as geopolitical risks, evolving cyber threats and climate related risks.
These risks also form part of the principal risks identified and the
mitigating actions are detailed below.
Category and Principal Risk Description Mitigating Procedures and Controls Risk trend during the year
Strategic Risk
Market Risk The Company’s investments are mainly traded on Asian and Australasian stock markets 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 Company has a diversified investment portfolio by country, sector and stock. Due to its investment trust structure, no forced sales need to take place and investments ► Unchanged
can be held over a longer term horizon. However, there are few ways to mitigate absolute market risk because it is engendered by factors which are outside the control of
the Board and the Manager. These factors include the general health of the world economy, interest rates, inflation, government policies, industry conditions, and
changing investor demand and sentiment. Such factors may give rise to high levels of volatility in the prices of investments held by the Company.
Geopolitical Risk Political risk has always been a feature of investing in stock markets and it is particularly so in Asia. Wider political developments in geographies beyond Asia, such as the US and Ukraine, can create risks to the value of the Company’s assets. Asia encompasses a variety of political systems. There are many examples of diplomatic skirmishes and military tensions and sometimes these resort to military engagement. Moreover, the involvement in Asian politics of the US and European countries can reduce or raise tensions. The Manager evaluates and assesses political risk as part of the stock selection and asset allocation policy which is monitored at every Board meeting. This includes ▲ Increased
political, military and diplomatic events and changes to legislation. Balancing political risk and reward is an essential part of the active management process.
Investment Objectives and Strategy The Company’s investment objectives and strategy are no longer meeting investors’ demands. The Board receives regular reports reviewing the Company’s investment performance against its stated objectives and peer group, and reports from discussions with its ► Unchanged
brokers and major shareholders. The Board also has a separate annual strategy meeting.
Widening Discount A lack of liquidity and/or lack of investor interest in the Company’s shares leads to a depressed share price and a widening discount to its NAV. A persistently high discount may lead to buybacks of the Company’s shares and result in the shrinkage of the Company. The Board receives regular reports from both the Manager and the Company’s broker on the Company’s share price performance, level of share price discount to NAV and ▲ Increased
recent trading activity in the Company’s shares. The Board has introduced initiatives to help address the Company’s share rating including a performance conditional
tender in 2025 and the enhanced dividend policy. It may seek to reduce the volatility and absolute level of the share price discount to NAV for shareholders through
buying back shares within the stated limit. The Board also receives regular reports on investor relation meetings with shareholders and prospective investors and works to
ensure that the Company’s investment proposition is actively marketed through relevant messaging across many distribution channels.
Performance That the Portfolio Managers consistently underperform the benchmark and/or peer group over 3-5 years. The Board regularly compares the Company’s NAV performance over both the short and long term to that of the benchmark and peer group as well as reviewing the portfolio’s ► Unchanged
performance against benchmark (attribution) and risk adjusted performance (volatility, beta, tracking error, Sharpe ratio) of the Company and its peers.
ESG including climate risk Risks associated with climate change and ESG considerations could affect the valuation of the Company’s holdings. ESG considerations are integrated as part of the investment decision-making in constructing the portfolio. Such investment decisions include the transactions undertaken ▲ Increased
in the year, the review of active portfolio positions and consideration of the gearing position and, if applicable, hedging. The Manager’s process around ESG is described
in the ESG Monitoring and Engagement section on pages 14 to 17.
Key Person Dependency Either or both of the Portfolio Managers (Ian Hargreaves and Fiona Yang) ceases to be Portfolio Manager or are incapacitated or otherwise unavailable. The appointment of Fiona Yang as Co-Portfolio Manager has mitigated the risk of key person dependency. Also, the Portfolio Managers work within and are supported by the ► Unchanged
wider Invesco Asian and Emerging Markets Equities team, with Ian Hargreaves and William Lam as Co-Heads of this team.
Currency Fluctuation Risk Exposure to currency fluctuation risk negatively impacts the Company’s NAV. 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 Managers or the Board ► Unchanged
feel this to be 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.
Third Party Service Providers Risk
Unsatisfactory Performance of Third Party Service Providers Failure by any Third Party Service Provider (TPP) to carry out its obligations to the Company in accordance with the terms of its appointment could have a materially detrimental impact on the operations of the Company and could affect the ability of the Company to successfully pursue its investment policy and expose the Company to reputational risk. Disruption to the accounting, payment systems or custody records could prevent the accurate reporting and monitoring of the Company’s financial position. The Audit Committee closely monitors the services provided by the Manager and other TPPs. The details of how effective internal control is assured are set out in the ► Unchanged
internal control and risk management section on page 41.
Information Technology Resilience and Security The Company’s operational structure means that all cyber risk (information and physical security) arises at its TPP. This cyber risk includes fraud, sabotage or crime perpetrated against the Company or any of its TPPs. The Audit Committee receives regular updates on the Manager’s information and cyber security. This includes updates on the cyber security framework, staff resource and ► Unchanged
training, and the testing of its security systems designed to protect against a cyber security attack. As well as conducting a regular review of TPPs audited service
organisation control reports, the Audit Committee monitors TPPs’ business continuity plans and testing including the TPPs’ and Manager’s regular ‘live’ testing of
workplace recovery arrangements should a cyber event occur.
Operational Resilience The Company’s operational capability relies upon the ability of its TPPs to continue working throughout the disruption caused by a major event such as the Covid-19 pandemic. The Manager’s business continuity plans are reviewed on an ongoing basis and the Directors are satisfied that the Manager has in place robust plans and infrastructure to ► Unchanged
minimise the impact on its operations so that the Company can continue to trade, meet regulatory obligations, report and meet shareholder requirements. The Manager has
arrangements and prioritises between work deemed necessary to be carried out on business premises and work from home arrangements should it be necessary, for instance due
to further restrictions. Any meetings are held in person, virtually or via conference calls. Other similar working arrangements are in place for the Company’s TPPs. The
Audit Committee receives regular update reports from the Manager and TPPs on business continuity processes.
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 Managers in the running of the portfolio. The Company is
required by its Articles to have a vote on its future every three years, the
next vote being at the Annual General Meeting in 2025. The Directors remain
confident in the Company’s Investment Case and Corporate Proposition, as
detailed on pages 7 to 9, to deliver against the Company’s investment
objectives. On this basis and notwithstanding the continuation vote in 2025,
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 have performed
a robust assessment of the emerging and principal risks. The Directors
considered the risks to which it is exposed, as set out on pages 23 to 25,
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 withstood several major market downcycles since the
Company’s inception in 1995. Their assessment also covered the current
outlook for the Asian economies and equity markets, the ongoing conflict in
Ukraine; the demand for and buybacks of the Company’s shares; the
Company’s borrowing structure and level of gearing; the liquidity of the
portfolio; and the Company’s future income and annual operating costs,
including stressed scenario testing for both income and loan covenants.
Although the current outlook for Asian markets is challenging, the Directors
and the Manager are cautiously optimistic that Asia remains a region with
sound economic and corporate fundamentals. 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 having been no material change in
the Company’s investment objective since its launch in 1995.
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 for the three year period from the signing of the balance sheet.
Investments in Order of Valuation
at 30 April 2023
Ordinary shares unless stated otherwise
† The sector group is based on MSCI and Standard & Poor’s Global Industry
Classification Standard.
Market
Value % of
Company Sector † Country £’000 Portfolio
Taiwan Semiconductor Manufacturing Semiconductors and Semiconductor Equipment Taiwan 22,073 8.5
Samsung Electronics Technology Hardware and Equipment South Korea 16,551 6.4
Tencent R Media and Entertainment China 16,385 6.3
Alibaba R Consumer Discretionary Distribution and Retail China 10,344 4.0
Housing Development Finance Corporation Financial Services India 9,877 3.8
AIA Insurance Hong Kong 9,373 3.6
Gree Electrical Appliances A Consumer Durables and Apparel China 7,045 2.7
Kasikornbank F Banks Thailand 6,680 2.6
Astra International Capital Goods Indonesia 6,606 2.6
Ping An Insurance H Insurance China 6,353 2.5
Top Ten Holdings 111,287 43.0
LG Chemical Materials South Korea 6,313 2.5
SK Hynix Semiconductors and Semiconductor Equipment South Korea 6,123 2.4
MINTH Automobiles and Components Hong Kong 5,357 2.1
Yili A Food, Beverage and Tobacco China 5,114 2.0
Aurobindo Pharma Pharmaceuticals, Biotechnology and Life Sciences India 4,995 1.9
JD.com R Consumer Discretionary Distribution and Retail China 4,575 1.8
Shriram Transport Finance Financial Services India 4,529 1.7
MingYang Smart Energy A Capital Goods China 4,521 1.7
Hyundai Motor – preference shares Automobiles and Components South Korea 4,346 1.7
CK Asset Real Estate Management and Development Hong Kong 4,283 1.7
Top Twenty Holdings 161,443 62.5
Beijing Capital International Airport H Transportation China 4,258 1.6
China Overseas Land and Investment Real Estate Management and Development Hong Kong 4,085 1.6
Yue Yuen Industrial Consumer Durables and Apparel Hong Kong 3,886 1.5
Samsung Fire & Marine Insurance South Korea 3,883 1.5
Will Semiconductor A Semiconductors and Semiconductor Equipment China 3,773 1.5
Newcrest Mining Materials Australia 3,702 1.4
ICICI Bank – ADR Banks India 3,622 1.4
NetEase R Media and Entertainment China 3,608 1.4
LG Household & Health Care Household and Personal Products South Korea 3,503 1.4
Largan Precision Technology Hardware and Equipment Taiwan 3,473 1.4
Top Thirty Holdings 199,236 77.2
China MeiDong Auto R Consumer Discretionary Distribution and Retail China 3,422 1.3
Suofeiya Home Collection A Consumer Durables and Apparel China 3,369 1.3
Vinamilk Food, Beverage and Tobacco Vietnam 3,356 1.3
Uni-President Food, Beverage and Tobacco Taiwan 3,273 1.3
Hansoh Pharmaceutical R Pharmaceuticals, Biotechnology and Life Sciences China 3,227 1.2
Larsen & Toubro Capital Goods India 3,212 1.2
ENN Energy R Utilities China 3,123 1.2
Autohome – ADS Media and Entertainment China 3,080 1.2
Chroma ATE Technology Hardware and Equipment Taiwan 2,815 1.1
Semen Indonesia Materials Indonesia 2,707 1.0
Top Forty Holdings 230,820 89.3
Tingyi R Food, Beverage and Tobacco China 2,559 1.0
Hoa Phat Materials Vietnam 2,399 0.9
QBE Insurance Insurance Australia 2,380 0.9
Worley Capital Goods Australia 2,345 0.9
POSCO Materials South Korea 2,274 0.9
China Communications Services H Capital Goods China 2,171 0.8
United Overseas Bank Banks Singapore 2,167 0.8
Jiumaojiu R Consumer Services China 2,040 0.8
MediaTek Semiconductors and Semiconductor Equipment Taiwan 2,012 0.8
Mahindra & Mahindra Automobiles and Components India 1,656 0.6
Top Fifty Holdings 252,823 97.7
China BlueChemical H Materials China 1,593 0.6
PT Bank Negara Indonesia Persero Banks Indonesia 1,314 0.5
Sands China Consumer Services Hong Kong 1,234 0.5
HKR International Real Estate Management and Development Hong Kong 840 0.3
Meituan R Consumer Services China 633 0.2
A-Living Smart City Services H Real Estate Management and Development China 487 0.2
Lime Co UQ Capital Goods South Korea 38 –
Total Holdings 57 (2022: 57) 258,962 100.0
UQ: Unquoted investment.
ADR/ADS: American Depositary Receipts/Shares – 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.
A: A-shares – shares that are denominated in Renminbi and traded on the
Shanghai and Shenzhen stock exchanges.
F: F-Shares – shares issued by companies incorporated in Thailand that
are available to foreign investors only. Thai laws have imposed restrictions
on foreign ownership of Thai companies so there is a pre-determined limit of
these shares. Voting rights are retained with these shares.
Classification of Investments by Country/Sector
at 30 April
2023 2022 1
Market Value % of Market Value % of
£’000 Portfolio £’000 Portfolio
Australia
Capital Goods 2,345 0.9 3,157 1.2
Insurance 2,380 0.9 5,702 2.2
Materials 3,702 1.4 2,082 0.8
8,427 3.2 10,941 4.2
China
Automobiles and Components - - 3,525 1.4
Capital Goods 6,692 2.5 6,004 2.3
Consumer Discretionary Distribution and Retail 18,341 7.1 20,604 8.1
Consumer Durables and Apparel 10,414 4.0 8,986 3.5
Consumer Services 2,673 1.0 - -
Food, Beverage and Tobacco 7,673 3.0 1,884 0.7
Insurance 6,353 2.5 5,374 2.1
Materials 1,593 0.6 2,531 1.0
Media and Entertainment 23,073 8.9 23,803 9.2
Pharmaceuticals, Biotechnology and Life Sciences 3,227 1.2 1,801 0.7
Real Estate Management and Development 487 0.2 976 0.4
Semiconductors and Semiconductor Equipment 3,773 1.5 - -
Transportation 4,258 1.6 1,726 0.7
Utilities 3,123 1.2 2,561 1.0
91,680 35.3 79,775 31.1
Hong Kong
Automobiles and Components 5,357 2.1 2,126 0.8
Capital Goods - - 3,771 1.5
Consumer Durables and Apparel 3,886 1.5 5,262 2.0
Consumer Services 1,234 0.5 2,371 0.9
Insurance 9,373 3.6 7,693 3.0
Real Estate Management and Development 9,208 3.6 10,977 4.3
Transportation - - 1,409 0.5
29,058 11.3 33,609 13.0
India
Automobiles and Components 1,656 0.6 3,528 1.4
Banks 3,622 1.4 8,622 3.4
Capital Goods 3,212 1.2 4,229 1.6
Financial Services 14,406 5.5 13,215 5.1
Pharmaceuticals, Biotechnology and Life Sciences 4,995 1.9 4,830 1.9
27,891 10.6 34,424 13.4
Indonesia
Banks 1,314 0.5 6,278 2.4
Capital Goods 6,606 2.6 10,848 4.3
Materials 2,707 1.0 - -
10,627 4.1 17,126 6.7
Ireland
Money Market Fund - - 846 0.3
- - 846 0.3
Singapore
Banks 2,167 0.8 5,661 2.2
Consumer Services - - 1,237 0.5
2,167 0.8 6,898 2.7
South Korea
Automobiles and Components 4,346 1.7 4,578 1.8
Banks - - 1,710 0.7
Capital Goods 38 - 101 -
Energy - - 2,964 1.2
Household and Personal Products 3,503 1.4 - -
Insurance 3,883 1.5 3,364 1.3
Materials 8,587 3.4 6,495 2.5
Semiconductors and Semiconductor Equipment 6,123 2.4 - -
Technology Hardware and Equipment 16,551 6.4 15,242 6.0
43,031 16.8 34,454 13.5
Taiwan
Food, Beverage and Tobacco 3,273 1.3 4,416 1.7
Semiconductors and Semiconductor Equipment 24,085 9.3 19,499 7.7
Technology Hardware and Equipment 6,288 2.5 9,707 3.8
33,646 13.1 33,622 13.2
Thailand
Banks 6,680 2.6 4,991 1.9
6,680 2.6 4,991 1.9
Vietnam
Food, Beverage and Tobacco 3,356 1.3 - -
Materials 2,399 0.9 - -
5,755 2.2 - -
Total 258,962 100.0 256,686 100.0
1 Restated to reflect 2023 MSCI Global Industry Classification Standard (GICS)
sector structure changes.
Statement of Directors’ Responsibilities
IN RESPECT OF THE PREPARATION OF THE ANNUAL FINANCIAL REPORT AND THE FINANCIAL
STATEMENTS
The Directors are responsible for preparing the Annual Financial Report and
financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law they have elected to prepare the financial
statements in accordance with UK accounting standards, and applicable law,
including FRS 102 The Financial Reporting Standard applicable in the UK and
Republic of Ireland.
Under company law the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Company and of its profit or loss for that period.
In preparing these financial statements, the Directors are required to:
– select suitable accounting policies and then apply them consistently;
– make judgements and estimates that are reasonable and prudent;
– state whether applicable UK accounting standards have been followed,
subject to any material departures disclosed and explained in the financial
statements;
– assess the Company’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern; and
– use the going concern basis of accounting unless they either intend to
liquidate the Company or to cease operations or have no realistic alternative
but to do so.
The Directors are responsible for keeping adequate accounting records that 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
enable them to ensure that its financial statements comply with the Companies
Act 2006. They are responsible for such internal control as they determine is
necessary to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error, and 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, Directors’ Report, Directors’ Remuneration
Report and Corporate Governance Statement that complies with that law and
those regulations.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company’s website, which
is maintained by the Company’s Manager. Legislation in the UK governing the
preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
Responsibility Statement of the Directors in Respect of the Annual Financial
Report
We confirm that to the best of our knowledge:
– the financial statements, prepared in accordance with the applicable set
of accounting standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company; and
– the Strategic Report includes a fair review of the development and
performance of the business and the position of the issuer, together with a
description of the principal risks and uncertainties that they face.
We consider the 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.
Signed on behalf of the Board of Directors
Neil Rogan
Chairman
25 July 2023
Income Statement
For the Year ended 30 April 2023 For the Year ended 30 April 2022
Revenue Capital Total Revenue Capital Total
Notes £’000 £’000 £’000 £’000 £’000 £’000
Losses on investments held at fair value 9 - (1,309) (1,309) - (20,854) (20,854)
Gains/(losses) on foreign exchange - 625 625 - (178) (178)
Income 2 7,601 51 7,652 6,228 62 6,290
Investment management fee 3 (460) (1,381) (1,841) (484) (1,453) (1,937)
Other expenses 4 (681) (3) (684) (612) (5) (617)
Net return before finance costs and taxation 6,460 (2,017) 4,443 5,132 (22,428) (17,296)
Finance costs 5 (108) (325) (433) (11) (33) (44)
Return on ordinary activities before taxation 6,352 (2,342) 4,010 5,121 (22,461) (17,340)
Tax on ordinary activities 6 (756) (532) (1,288) (652) (855) (1,507)
Return on ordinary activities after taxation for the financial year 5,596 (2,874) 2,722 4,469 (23,316) (18,847)
Return per ordinary share Basic 7 8.37p (4.30)p 4.07p 6.68p (34.87)p (28.19)p
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 other 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 of the Company. No operations were acquired
or discontinued in the year.
Statement of Changes in Equity
Capital
Share Redemption Special Capital Revenue
Capital Reserve Reserve Reserve (1) Reserve (1) Total
Notes £’000 £’000 £’000 £’000 £’000 £’000
At Year ended 30 April 2021 7,500 5,624 34,827 229,438 3,863 281,252
Return on ordinary activities - - - (23,316) 4,469 (18,847)
Dividends paid 8 - - - (3,308) (6,921) (10,229)
At Year ended 30 April 2022 7,500 5,624 34,827 202,814 1,411 252,176
Return on ordinary activities - - - (2,874) 5,596 2,722
Dividends paid 8 - - - (4,227) (5,667) (9,894)
At Year ended 30 April 2023 7,500 5,624 34,827 195,713 1,340 245,004
(1) These reserves form the distributable reserves of the Company and may be
used to fund distributions by way of dividends.
Balance Sheet
At 30 April 2023 At 30 April 2022
Notes £’000 £’000
Fixed assets
Investments held at fair value through profit or loss 9 258,962 256,686
Current assets
Debtors 10 522 2,492
Cash and cash equivalents 1,337 738
1,859 3,230
Creditors: amounts falling due within one year
Bank overdraft (740) -
Other Creditors 11 (14,261) (7,047)
(15,001) (7,047)
Net current liabilities (13,142) (3,817)
Total assets less current liabilities 245,820 252,869
Provision for deferred tax liabilities 12 (816) (693)
Net assets 245,004 252,176
Capital and reserves
Share capital 13 7,500 7,500
Other reserves:
Capital redemption reserve 14 5,624 5,624
Special reserve 14 34,827 34,827
Capital reserve 14 195,713 202,814
Revenue reserve 14 1,340 1,411
Total shareholders’ funds 245,004 252,176
Net asset value per ordinary share
Basic 15 366.48p 377.21p
The financial statements were approved and authorised for issue by the Board
of Directors on 25 July 2023.
Signed on behalf of the Board of Directors
Neil Rogan
Chairman
Notes to the Financial Statements
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:
(a) Basis of Preparation
(i) 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 (‘UK GAAP’)), including FRS 102, and with the
Statement of Recommended Practice Financial Statements of Investment Trust
Companies and Venture Capital Trusts, updated by the Association of Investment
Companies in July 2022 (‘SORP’). The financial statements are prepared on
a going concern basis.
As an investment fund the Company has the option, which it has taken, not to
present a cash flow statement as the following conditions have been met:
• substantially all investments are highly liquid;
• substantially all investments are carried at market value; and
• a statement of changes in equity is provided.
(ii) Going concern
The financial statements have been prepared on a going concern basis. The
Directors performed an assessment of the Company’s ability to meet its
liabilities as they fall due. In performing this assessment, the Directors
took into consideration the continuing uncertain economic outlook and other
geopolitical events including:
• the level of borrowings, cash balances and the diversified portfolio of
readily realisable securities which can be used to meet short-term funding
commitments, including repayment of the bank facility;
• the net current liability position of the Company, after the deduction of
drawn-down borrowings, which will be met through the renewal of the existing
credit facility or the sale of investments in order to repay any borrowings;
• the ability of the Company to meet all of its liabilities and ongoing
expenses from its assets;
• revenue and operating cost forecasts for the forthcoming year;
• the ability of third-party service providers to continue to provide
services; and
• potential downside scenarios including a fall in the valuation of the
investment portfolio or levels of investment income.
Based on this assessment, the Directors are satisfied that the Company has
adequate resources to continue in operational existence for at least 12 months
after signing the balance sheet and the financial statements have therefore
been prepared on a going concern basis.
(iii) Significant Accounting Estimates and Judgements
The preparation of the financial statements may require the Directors to make
estimates where uncertainty exists. It also requires the Directors to make
judgements, estimates and assumptions, in the process of applying the
accounting policies. Except for the functional and presentation currency as
noted below, there have been no other significant judgements, estimates or
assumptions for the current or preceding year.
(b) Foreign Currency
(i) Functional and presentation currency
The Company’s investments are made in several currencies, however, the
financial statements are presented in sterling, which is the Company’s
functional and presentational currency. In arriving at this conclusion, the
Directors considered that the Company’s shares are listed and traded on the
London Stock Exchange, the shareholder base is predominantly in the United
Kingdom and the Company pays dividends and expenses in sterling.
(ii) Transactions and balances
Transactions in foreign currency, whether of a revenue or capital nature, are
translated to sterling at the rates of exchange ruling on the dates of such
transactions. Foreign currency assets and liabilities are translated to
sterling at the rates of exchange ruling at the balance sheet date. Any gains
or losses, whether realised or unrealised, are taken to the capital reserve or
to the revenue account, depending on whether the gain or loss is of a capital
or revenue nature. All gains and losses are recognised in the income
statement.
(c) Financial Instruments
The Company has chosen to apply the provisions of Sections 11 and 12 of FRS
102 in full in respect of the financial instruments, which is explained below.
(i) Recognition of financial assets and financial liabilities
The Company recognises financial assets and financial liabilities when the
Company becomes a party to the contractual provisions of the instrument. The
Company offsets financial assets and financial liabilities in the financial
statements if the Company has a legally enforceable right to set off the
recognised amounts and interests and intends to settle on a net basis.
(ii) Derecognition of financial assets
The Company derecognises a financial asset when the contractual rights to the
cash flows from the asset expire or it transfers the right to receive the
contractual cash flows on the financial asset in a transaction in which
substantially all the risks and rewards of ownership of the financial asset
are transferred. Any interest in the transferred financial asset that is
created or retained by the Company is recognised as an asset.
(iii) Derecognition of financial liabilities
The Company derecognises financial liabilities when its obligations are
discharged, cancelled or expired.
(iv) Trade date accounting
Purchases and sales of financial assets are recognised on trade date, being
the date on which the Company commits to purchase or sell the assets.
(v) Classification and measurement of financial assets and financial
liabilities
Financial assets
The Company’s investments are held at fair value through profit or loss as
the investments are managed and their performance evaluated on a fair value
basis in accordance with documented investment strategy and this is also the
basis on which information about the investments is provided internally to the
Board. Financial assets held at fair value through profit or loss are
initially recognised at fair value, which is taken to be their cost, with
transaction costs expensed in the income statement, and are subsequently
valued at fair value.
Financial assets measured at amortised cost include cash, debtors and
prepayments.
Fair value for investments that are actively traded in organised financial
markets, is determined by reference to stock exchange quoted bid prices at the
balance sheet date. For investments that are not actively traded and where
active stock exchange quoted bid prices are not available, fair value is
determined by reference to a variety of valuation techniques including last
traded price, broker quotes and price modelling.
Financial liabilities
Financial liabilities, including borrowings, are initially measured at fair
value, net of transaction costs and are subsequently measured at amortised
cost using the effective interest method.
(d) Cash and Cash Equivalents
Cash and cash equivalents may comprise short term deposits which are readily
convertible to a known amount of cash and are subject to an insignificant risk
of change in value. Investments are regarded as cash equivalents if they meet
all of the following criteria: highly liquid investments held in the
Company’s base currency that are readily convertible to a known amount of
cash, are subject to an insignificant risk of change in value and have a
maturity of no more than three months. There were no cash equivalents at the
balance sheet date.
(e) Income
All dividends are taken into account on the date investments are marked
ex-dividend, and UK dividends are shown net of any associated tax credit.
Where the Company elects to receive dividends in the form of additional shares
rather than cash, the equivalent of the cash dividend is recognised as income
in the revenue account and any excess in value of the shares received over the
amount of the cash dividend is recognised in capital. Special dividends
representing a return of capital are allocated to capital in the Income
Statement and then taken to capital reserves. Dividends will generally be
recognised as revenue however all special dividends will be reviewed, with
consideration given to the facts and circumstances of each case, including the
reasons for the underlying distribution, before a decision over whether
allocation is to revenue or capital is made. Interest income and expenses are
accounted for on an accruals basis. Other income from investments is accounted
for on an accruals basis. Deposit interest receivable is accounted for on an
accruals basis.
(f) Expenses and Finance Costs
Expenses are recognised on an accruals basis and finance costs are recognised
using the effective interest method in the income statement.
The investment management fee and finance costs are allocated 75% to capital
and 25% to revenue. This is in accordance with the Board’s expected
long-term split of returns, in the form of capital gains and income
respectively, from the portfolio.
Investment transaction costs are recognised in capital in the income
statement. All other expenses are allocated to revenue in the income
statement.
(g) Dividends
Dividends are not recognised in the accounts unless there is an obligation to
pay at the balance sheet date. Proposed final dividends are recognised in the
period in which they are either approved by or paid to shareholders.
(h) Taxation
The liability to corporation tax is based on taxable profit for the period.
Taxable profit differs from profit before tax as reported in the income
statement because it excludes items of income or expenses that are taxable or
deductible in other years and it further excludes items that are never taxable
or deductible. The tax charge is allocated between the revenue and capital
accounts on the marginal basis whereby revenue expenses are matched first
against taxable income in the revenue account.
Deferred taxation is recognised in respect of all timing differences that have
originated but not reversed at the balance sheet date where transactions or
events that result in an obligation to pay more tax or a right to pay less tax
in the future have occurred. Timing differences are differences between the
Company’s taxable profits and its results as stated in the financial
statements. Deferred taxation assets are recognised where, in the opinion of
the Directors, it is more likely than not that these amounts will be realised
in future periods.
A deferred tax asset has not been recognised in respect of surplus management
expenses and the non-trade loan relationship deficit as the Company is
unlikely to have sufficient future taxable revenue to offset against these.
Gains and losses on sale of investments purchased and sold in India are liable
to capital gains tax in India.
At each year end date, a provision for Indian capital gains tax is calculated
based upon the Company’s realised and unrealised gains and losses. There are
two rates of tax: short-term and long-term. The short-term rate of tax is
applicable to investments held for less than 12 months and the long-term rate
of tax is applicable to investments held for more than 12 months.
The provision for the Indian capital gains tax is recognised in the balance
sheet and the year-on-year movement in the deferred tax provision is
recognised in the income statement.
2. Income
This note shows the income generated from the portfolio (investment assets) of
the Company and income received from any other source.
2023 2022
£’000 £’000
Income from investments:
Overseas dividends 7,116 5,848
Overseas special dividends 470 380
Total dividend income 7,586 6,228
Other income:
Deposit interest 15 -
15 -
Total income 7,601 6,228
Special dividends of £51,000 were recognised in capital during the year
(2022: £62,000).
3. Investment Management Fee
This note shows the investment management fee due to the Manager which is
calculated and paid quarterly.
2023 2022
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Investment management fee 460 1,381 1,841 484 1,453 1,937
Details of the investment management and secretarial agreement are given on
page 35 in the Directors’ Report.
At 30 April 2023, £448,000 (2022: £461,000) was accrued in respect of the
investment management fee.
4. Other Expenses
The other expenses, including those paid to Directors and the auditor, of the
Company are presented below; those paid to the Directors and the auditor are
separately identified.
2023 2022
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Directors’ remuneration (i) 134 - 134 137 - 137
Auditor’s fees (ii):
– for audit of the Company’s Annual Financial Statements 50 - 50 40 - 40
Other administration expenses (iii) 497 3 500 435 5 440
681 3 684 612 5 617
(i) Directors’ fees authorised by the Articles of Association are
£200,000 per annum. The Director’s Remuneration Report provides further
information on Directors’ fees.
(ii) Auditor’s fees include out of pocket expenses but excludes VAT. The
VAT is included in other administration expenses.
(iii) Other administration expenses include:
• £12,000 (2022: £13,000) of employer’s National Insurance payable on
Directors’ remuneration. As at 30 April 2023, the amounts outstanding on
Directors’ remuneration was £10,000 (2022: £12,000); and the amount
outstanding in respect of employer’s National Insurance was £1,000 (2022:
£1,000).
• custodian transaction charges of £3,000 (2022: £5,000). These are
charged to capital.
• a separate fee paid to the Manager for secretarial and administrative
services which is subject to annual adjustment in line with the UK Retail
Price Index. During the year the Company paid £118,000 (2022: £102,000) for
these services.
5. Finance Costs
Finance costs arise on any borrowing the Company has utilised in the year. The
Company has a committed £20 million revolving credit facility (the ‘bank
facility’) (see note 11 for further details).
2023 2022
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Commitment fees due on bank facility 5 17 22 10 31 41
Interest on bank facility 99 298 397 1 2 3
Overdraft interest 4 10 14 - - -
108 325 433 11 33 44
6. Taxation
As an investment trust the Company pays no UK corporation tax on capital
gains. The Company suffers no UK corporation tax on income arising on UK and
certain overseas dividends. The Company’s tax charge arises from
irrecoverable tax on overseas (generally non-EU) dividends and Indian capital
gains tax paid and provided for.
(a) Tax charge
2023 2022
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Overseas tax 756 - 756 652 - 652
Indian capital gains tax - paid – note 6(d) - 409 409 - 162 162
Indian capital gains tax - provision – note 6(d) - 123 123 - 693 693
Tax charge for the year 756 532 1,288 652 855 1,507
The overseas tax charge consists of irrecoverable withholding tax.
(b) Reconciliation of total tax charge
2023 2022
£’000 £’000
Return on ordinary activities before taxation 4,010 (17,340)
Theoretical tax at the current UK Corporation Tax rate of 19.5% (2022: 19%) 782 (3,295)
Effects of:
– Non-taxable overseas dividends (1,425) (1,109)
– Non-taxable overseas special dividends (64) (84)
– Losses on investments not subject to UK corporation tax 255 3,962
– Non-taxable (gains)/losses on foreign exchange (122) 34
– Excess of allowable expenses over taxable income 573 491
– Disallowable expenses 1 1
– Overseas taxation 756 652
– Indian capital gains tax - paid 409 162
– Indian capital gains tax – provision – see (d) below 123 693
Tax charge for the year 1,288 1,507
Given the Company’s status as an investment trust, and the intention to
continue meeting the conditions required to obtain the necessary approval in
the foreseeable future, the Company has not provided any UK corporation tax on
any realised or unrealised capital gains or losses arising on investments.
(c) Factors that may affect future tax changes
The Company has cumulative excess management expenses of £28,016,000 (2022:
£25,486,000) and a non-trade loan relationship deficit of £1,220,000 (2022:
£803,000) giving total unutilised losses of £29,236,000 (2022: £26,289,000)
that are available to offset future taxable revenue.
A deferred tax asset of £7,309,000 (2022: £6,572,000) at 25% (2022: 25%) has
not been recognised in respect of these expenses since the Directors believe
that there will be no taxable profits in the future against which the deferred
tax assets can be offset.
The UK corporation tax rate increased from 19% to 25% from 1 April 2023.
Deferred tax assets and liabilities on balance sheets prepared after the
enactment of the new tax rate must therefore be re-measured accordingly, so as
a result the deferred tax asset has been calculated at 25%.
(d) Indian capital gains tax
Capital gains arising from equity investments in Indian companies are subject
to Indian Capital Gains Tax Regulations. Consequently, the Company is subject
to both short and long term capital gains tax in India on the growth in value
of its Indian equities.
Although this capital gains tax only becomes payable at the point at which the
underlying investments are sold and profits crystallised, the Company has made
a provision for this tax liability for the year ended 30 April 2023 of
£816,000 (2022: £693,000). See note 12 for further details.
7. 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.
2023 2022
Pence £’000 Pence £’000
Return per ordinary share is based on the following:
Revenue return after taxation 8.37 5,596 6.68 4,469
Capital return after taxation (4.30) (2,874) (34.87) (23,316)
Total return after taxation 4.07 2,722 (28.19) (18,847)
2023 2022
£’000 £’000
Weighted average number of ordinary shares in issue during the year 66,853,287 66,853,287
8. Dividends on Ordinary Shares
Dividends represent a return of income to shareholders for investing in the
Company’s shares. These are determined by the Directors and paid twice a
year.
2023 2022
Pence £’000 Pence £’000
Dividends paid and recognised in the year:
First interim dividend paid 7.20 4,813 7.70 5,148
Second interim dividend paid 7.60 5,081 7.60 5,081
14.80 9,894 15.30 10,229
Set out above are the total dividends paid in respect of the financial year,
which is the basis on which the requirements of Section 1158–1159 of the
Corporation Tax Act 2010 are considered. The revenue available for
distribution by way of dividend for the year is £5,596,000 (2022:
£4,469,000).
9. Investments at Fair Value
The portfolio comprises investments which are predominantly listed and traded
on regulated stock exchanges. The investments of the Company are registered in
the name of the Company or in the name of nominees and held to the order of
the Company.
Gains and losses are either:
• realised, usually arising when investments are sold; or
• unrealised, being the difference from cost on those investments still
held at the year end.
2023 2022
£’000 £’000
Opening valuation 256,686 279,058
Movements in the year:
Purchases at cost 90,297 85,110
Sales (86,712) (86,628)
Losses on investments in the year (1,309) (20,854)
Closing valuation 258,962 256,686
Closing book cost 234,875 211,699
Closing investment holding gains 24,087 44,987
Closing valuation 258,962 256,686
The Company received £86,712,000 (2022: £86,628,000) from investments sold
in the year. The book cost of these investments when they were purchased was
£67,122,000 (2022: £71,069,000) realising a profit of £19,590,000 (2022:
£15,559,000) which when offset against the movement in closing investment
holding gains results in net losses on investments in the year of £1,309,000
(2022: net losses of £20,854,000). These investments have been revalued over
time and until they were sold any unrealised profits/losses were included in
the fair value of the investments.
The transaction costs included in gains on investments amount to £79,000
(2022: £65,000) on purchases and £134,000 (2022: £119,000) for sales.
10. Debtors
Debtors are amounts which are due to the Company, such as monies due from
brokers for investments sold, income which has been earned (accrued) but not
yet received and any taxes that are recoverable.
2023 2022
£’000 £’000
Amounts due from brokers - 1,746
Overseas withholding tax recoverable 145 163
VAT recoverable 19 16
Prepayments and accrued income 358 567
522 2,492
11. Creditors: amounts falling due within one year
Creditors are amounts which must be paid by the Company and they are all due
within 12 months of the balance sheet date.
The bank facility provides a specific amount of capital, up to £20 million,
over a specified period of time (364 days). Unlike a term loan, the revolving
nature of the bank facility allows the Company to drawdown, repay and re-draw
loans.
2023 2022
£’000 £’000
Bank facility 13,593 5,610
Amounts due to brokers - 780
Accruals 668 657
14,261 7,047
The committed unsecured 364 day multi-currency revolving credit facility (the
‘bank facility’) with The Bank of New York Mellon, has an interest payable
based on the Adjusted Reference Rate (principally SOFR and SONIA respectively
in respect of loans drawn in USD and GBP) plus a margin for amounts drawn. Any
undrawn amounts under the bank facility attract a commitment fee of 0.2%
(2022: 0.2%). The bank facility covenants are based on the lower of 25% of net
asset value and £20 million, renewable on 28 July 2023, and require total
assets to not fall below £80 million. At the year end, the bank facility
drawn down was in US dollars with a sterling equivalent of £13,593,000 (2022:
£5,610,000).
12. Provision for deferred tax liabilities
The Company makes a deferred tax provision when a potential obligation exists
that will probably have to settle in cash, but the amount is estimated and
only becomes payable at the point at which the underlying investments are sold
and profits crystallised.
2023 2022
£’000 £’000
Provision for deferred Indian capital gains tax 816 693
816 693
13. 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.
The Directors’ Report on page 36 sets out the share capital structure,
restrictions and voting rights.
Share capital represents the total number of shares in issue, including
treasury shares.
(a) Allotted, called-up and fully paid
2023 2022
£’000 £’000
Share capital:
Ordinary shares of 10p each 6,685 6,685
Treasury shares of 10p each 815 815
7,500 7,500
(b) Share movements
2023 2022
Ordinary Treasury Ordinary Treasury
number number number number
Number at start of year 66,853,287 8,146,594 66,853,287 8,146,594
Number at the end of the year 66,853,287 8,146,594 66,853,287 8,146,594
During the year the Company has not bought back any shares into treasury
(2022: nil shares bought back into treasury).
Since the year end and to the date of this annual financial report, no shares
have been bought back or re-issued.
14. Reserves
This note explains the different reserves attributable to shareholders. The
aggregate of the reserves and share capital (see previous note) make up total
shareholders’ funds.
The capital redemption reserve maintains the equity share capital arising from
the buy-back and cancellation of shares and is non-distributable. The special
reserve arose from the cancellation of the share premium account and is
available as a distributable reserve to fund any future tender offers and
share buybacks.
The capital reserve includes investment gains and losses, expenses allocated
to capital and special dividends received that are classified as capital in
nature. The revenue reserve reflects the income and expenses as shown in the
revenue column of the Income Statement. The capital and revenue reserves are
distributable by way of dividend. Dividends are first funded from available
revenue reserves and then funded from capital reserves at the date of the
dividend payment.
15. 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 as at the
reporting date.
The net asset values attributable to each share in accordance with the
Company's Articles are set out below.
2023 2022
Ordinary shareholders’ funds £245,004,000 £252,176,000
Number of ordinary shares in issue, excluding treasury shares 66,853,287 66,853,287
Net asset value per ordinary share 366.48p 377.21p
There is no dilution in this or the prior year and therefore no diluted net
asset value per ordinary share has been disclosed.
16. Financial Instruments
Financial instruments comprise the Company’s investment portfolio,
derivative financial instruments (if the Company had any), as well as any
cash, borrowings, debtors and creditors. This note sets out the risks arising
from the Company’s financial instruments in terms of the Company’s
exposure and sensitivity, and any mitigation that the Manager or Board can
take.
Risk Management Policies and Procedures
The Company’s portfolio is managed in accordance with its investment
objective, which is set out in the Strategic Report on page 20. The Strategic
Report then proceeds to set out the Manager’s investment process and the
Company’s internal control and risk management systems as well as the
Company’s principal and emerging risks and uncertainties. Risk management is
an integral part of the investment management process, and this note expands
on certain of those risks in relation to the Company’s financial
instruments, including market risk.
The accounting policies in note 1 include criteria for the recognition and the
basis of measurement applied for financial instruments. Note 1 also includes
the basis on which income and expenses arising from financial assets and
liabilities are recognised and measured. The Directors have delegated to the
Manager the responsibility for the day-to-day investment activities of the
Company as more fully described in the Strategic Report.
As an investment trust the Company invests in equities and other investments
for the long-term so as to meet its investment objective and policies. In
pursuing its investment objective, the Company is exposed to a variety of
risks that could result in either a reduction in the Company’s net assets or
a reduction of the profits available for dividends. The risks applicable to
the Company and the policies the Company used to manage these are summarised
below and have remained substantially unchanged for the two years under
review.
16.1 Market Risk
Market risk arises from changes in the fair value or future cash flows of a
financial instrument because of movements in market prices. Market risk
comprises three types of risk: currency risk (16.1.1), interest rate risk
(16.1.2) and other price risk (16.1.3).
The Company’s Manager assesses the Company’s exposure when making each
investment decision, and monitors the overall level of market risk on the
whole of the investment portfolio on an ongoing basis. The Board meets at
least quarterly to assess risk and review investment performance, as disclosed
in the Board Responsibilities on page 41. Borrowing is used to enhance
returns; however, this will also increase the Company’s exposure to market
risk and volatility.
16.1.1 Currency Risk
As nearly all of the Company’s assets, liabilities and income are
denominated in currencies other than sterling, movements in exchange rates
will affect the sterling value of those items.
Management of the Currency Risk
The Manager monitors the Company’s exposure to foreign currencies on a daily
basis and reports to the Board on a regular basis. With the exception of
borrowings in foreign currency, the Company does not normally hedge its
currency positions but may do so should the Portfolio Managers or the Board
feel this was appropriate. Contracts are limited to currencies and amounts
commensurate with the asset exposure.
Income denominated in foreign currencies is converted to sterling on receipt.
The Company does not use financial instruments to mitigate the currency
exposure in the period between the time that income is accrued and received.
Foreign Currency Exposure
The fair values of the Company’s monetary items that have currency exposure
at 30 April are shown below. Where the Company's investments (which are not
monetary items) are priced in a foreign currency they have been included
separately in the analysis so as to show the overall level of exposure.
Year ended 30 April 2023
Foreign Investments
Debtors Creditors currency at fair
(due from (due to exposure value Total net
brokers Cash and Overdrafts brokers on net through foreign
and cash and bank and monetary profit currency
dividends) equivalents facility accruals) items or loss exposure
Currency £’000 £’000 £’000 £’000 £’000 £’000 £’000
Australian dollar - - - - - 8,427 8,427
Chinese yuan - - - - - 23,822 23,822
Hong Kong dollar - - - - - 93,836 93,836
Indian rupee - - - - - 24,269 24,269
Indonesian rupiah - - - - - 10,627 10,627
Singapore dollar 58 - - - 58 2,167 2,225
South Korean won 124 - - - 124 43,031 43,155
Taiwan dollar 145 345 - - 490 33,646 34,136
Thai baht 151 - - - 151 6,680 6,831
US dollar - 845 (14,333) - (13,488) 6,702 (6,786)
Vietnamese Dong - - - - - 5,755 5,755
478 1,190 (14,333) - (12,665) 258,962 246,297
Year ended 30 April 2022
Foreign Investments
Debtors Creditors currency at fair
(due from (due to exposure value Total net
brokers Cash and Overdrafts brokers on net through foreign
and cash and bank and monetary profit currency
dividends) equivalents facility accruals) items or loss exposure
Currency £’000 £’000 £’000 £’000 £’000 £’000 £’000
Australian dollar - - - - - 10,941 10,941
Chinese yuan - - - - - 14,990 14,990
Hong Kong dollar 239 - - (7) 232 93,178 93,410
Indian rupee - - - - - 25,802 25,802
Indonesian rupiah 697 - - - 697 17,126 17,823
Singapore dollar 423 - - - 423 6,898 7,321
South Korean won 859 - - (773) 86 34,453 34,539
Taiwan dollar 163 227 - - 390 33,622 34,012
Thai baht 81 - - - 81 4,991 5,072
US dollar - 488 (5,610) - (5,122) 14,685 9,563
2,462 715 (5,610) (780) (3,213) 256,686 253,473
The amounts shown are not representative of the exposure to risk during the
year, because the levels of foreign currency exposure change significantly
throughout the year.
Foreign Currency Sensitivity
The following table illustrates the sensitivity of the returns after taxation
for the year with respect to the Company’s financial assets and liabilities.
If sterling had strengthened by the amounts shown in the second table below,
the effect on the assets and liabilities held in non-sterling currency would
have been as follows:
2023 2022
Total Total
Revenue Capital loss Revenue Capital loss
return return after tax return return after tax
£’000 £’000 £’000 £’000 £’000 £’000
Australian dollar (9) (219) (228) (4) (263) (267)
Chinese yuan (25) (572) (597) (22) (435) (457)
Hong Kong dollar (62) (3,097) (3,159) (32) (2,143) (2,175)
Indian rupee 19 (849) (830) 7 (387) (380)
Indonesian rupiah (11) (340) (351) (6) (446) (452)
Singapore dollar (5) (52) (57) (6) (137) (143)
South Korean won (24) (990) (1,014) (14) (447) (461)
Taiwan dollar (24) (748) (772) (22) (643) (665)
Thai baht (4) (147) (151) (2) (95) (97)
US dollar 434 (225) 209 (3) (239) (242)
Vietnamese Dong - (161) (161) - - -
289 (7,400) (7,111) (104) (5,235) (5,339)
If sterling had weakened by the same amounts, the effect would have been the
converse.
The following movements in the assumed exchange rates are used in the above
sensitivity analysis:
2023 2022
% %
£/Australian dollar +/–2.6 +/–2.4
£/Chinese yuan +/–2.4 +/–2.9
£/Hong Kong dollar +/–3.3 +/–2.3
£/Indian rupee +/–3.5 +/–1.5
£/Indonesian rupiah +/–3.2 +/–2.5
£/Singapore dollar +/–2.4 +/–1.9
£/South Korean won +/–2.3 +/–1.3
£/Taiwan dollar +/–2.2 +/–1.9
£/Thai baht +/–2.2 +/–1.9
£/US dollar +/–3.3 +/–2.5
£/Vietnamese Dong +/–2.8 -
These percentages have been determined based on the market volatility in
exchange rates during the year. The sensitivity analysis is based on the
Company’s foreign currency financial instruments held at each balance sheet
date and takes account of forward foreign exchange contracts that offset the
effects of changes in currency exchange rates. The effect of the strengthening
or weakening of sterling against foreign currencies is calculated by reference
to the volatility of exchange rates during the year using one standard
deviation of currency fluctuations from the average exchange rate.
In the opinion of the Directors, the above sensitivity analyses are not
representative of the year as a whole since the level of foreign currency
exposure varies.
16.1.2 Interest Rate Risk
The Company is exposed to interest rate risk through income receivable on cash
deposits and interest payable on variable rate borrowings. When the Company
has cash balances, they are held in variable rate bank accounts yielding rates
of interest dependent on the base rate of the custodian, Bank of New York
Mellon (International) Limited.
The Company has a revolving credit facility (the ‘bank facility’) for
which details and year end drawn down amounts are shown in note 11. The
Company uses the facility when required at levels approved and monitored by
the Board. At the maximum possible gearing of £20 million, the effect of a 1%
increase/decrease in the interest rate would result in a decrease/increase to
the Company’s total income of £200,000. At the year end, US dollars with a
sterling equivalent of £13,593,000 of the bank facility was drawn down (2022:
£5,610,000).
The Company also has available an uncommitted bank overdraft arrangement with
the custodian for settlement purposes. At the year end, there was a US dollar
overdraft with a sterling equivalent of £740,000 (2022: £nil). Interest on
the bank overdraft is payable at the custodian’s variable rate.
The Company’s portfolio is not directly exposed to interest rate risk.
16.1.3 Other Price Risk
Other price risks (i.e. changes in market prices other than those arising from
interest rate risk or currency risk) may affect the value of the equity
investments, but it is the business of the Manager to manage the portfolio to
achieve the best possible return.
The Directors manage the market price risks inherent in the investment
portfolio by meeting regularly to monitor on a formal basis the Manager’s
compliance with the Company’s stated objectives and policies and to review
investment performance.
The Company’s portfolio is the result of the Manager’s investment process
and as a result is not wholly correlated with the Company’s benchmark or the
markets in which the Company invests. The value of the portfolio will not move
in line with the markets but will move as a result of the performance of the
shares within the portfolio.
If the value of the portfolio rose or fell by 10% at the balance sheet date,
the profit after tax for the year would increase or decrease by £25.9 million
(2022: £25.7 million) respectively.
16.2 Liquidity Risk
This is the risk that the Company may encounter difficulty in meeting its
obligations associated with financial liabilities i.e. when realising assets
or raising finance to meet financial commitments.
A lack of liquidity in the portfolio may make it difficult for the Company to
realise assets at or near their purported value in the event of a forced sale.
This is minimised as the majority of the Company’s investments comprise a
diversified portfolio of readily realisable securities which can be sold to
meet funding commitments as necessary, cash held and the bank facility
provides for additional funding flexibility. The financial liabilities of the
Company at the balance sheet date are shown in note 11.
16.3 Credit Risk
Credit risk comprises the potential failure by counterparties to deliver
securities which the Company has paid for, or to pay for securities which the
Company has delivered; it includes but is not limited to: lost principal and
interest, disruption to cash flows or the failure to pay interest.
Credit risk is minimised by using:
(a) only approved counterparties, covering both brokers and deposit takers;
(b) a custodian that operates under BASEL III guidelines. The Board reviews
the custodian’s annual, externally audited, service organisation controls
report and the Manager’s management of the relationship with the custodian.
Following the appointment of a depositary, assets held at the custodian are
covered by the depositary’s restitution obligation, accordingly the risk of
loss is remote; and
(c) the Invesco Liquidity Funds plc – US Dollar, a money market fund, which
is rated AAAm by Standard & Poor’s and AAAmmf by Fitch.
Cash balances are limited to a maximum of 5% of net assets with the custodian,
2.5% of net assets with any other deposit taker and a maximum of 6% of net
assets in the Invesco Liquidity Funds plc. These limits are at the discretion
of the Board and are reviewed on a regular basis. As at the year end, the
sterling equivalent of £1,337,000 (2022: £738,000) was held at the
custodian, in addition a balance had been held in Invesco Liquidity Funds plc
during the year and the balance was £nil at the year end (2022: £846,000).
17. Fair Value of Financial Assets and Financial Liabilities
‘Fair value’ in accounting terms is the amount at which an asset can be
bought or sold in a transaction between willing parties, i.e. a market-based,
independent measure of value. Under accounting standards there are three
levels of fair value based on whether there is an active market (Level 1) or,
if not, Levels 2 and 3 where other methods have been employed to establish a
fair value. This note sets out the aggregate amount of the portfolio in each
level, and why.
Financial assets and financial liabilities are either carried at their fair
value (investments), or at a reasonable approximation of their fair value.
The valuation techniques used by the Company are explained in the accounting
policy note. FRS 102 sets out three fair value levels for the fair value for
the hierarchy disclosures. Categorisation into a level is determined on the
basis of the lowest level input that is significant to the fair value
measurement of each relevant asset/liability.
The investments held by the Company at the year end are shown on pages 29 and
30. Except for one Level 2 and one Level 3 investments described below, all of
the Company’s investments at the year end were deemed to be Level 1 with
fair values for all based on unadjusted quoted prices in active markets for
identical assets totalling £252,244,000 (2022: £250,748,000).
Level 2 investments are investments for which inputs are other than quoted
prices included within Level 1 that are observable (i.e. developed using
market data). At the year end there was one Level 2 investment held with a
total fair value of £6,680,000 (2022: £5,837,000), comprising of
Kasikornbank, valued at £6,680,000 (2022: £4,991,000) and in the prior year,
Invesco Liquidity Funds – US Dollar money market fund, valued at £nil
(2022: £846,000).
There have been no other transfers or movements between fair value categories
during the year.
Level 3 investments are investments for which inputs are unobservable (i.e.
for which market data is unavailable). Lime Co. was the only Level 3
investment in the portfolio at the year end and was valued at £38,000 using a
price which was in line with trades in the OTC market (2022: one investment:
Lime Co. valued at £101,000 based on prices of trades in the OTC market).
18. Capital Management
This note is designed to set out the Company’s objectives, policies and
processes for managing its capital. This capital being funded by monies
invested in the Company by shareholders (both initial investment and retained
amount) and any borrowings by the Company.
The Company’s total capital employed at 30 April 2023 was £258,597,000
(2022: £257,786,000) comprising borrowings of £13,593,000 (2022:
£5,610,000) and equity share capital and other reserves of £245,004,000
(2022: £252,176,000).
The Company’s total capital employed is managed to achieve the Company’s
investment objective and investment policy as set out on page 20. Borrowings
may be used to provide gearing up to the lower of £20 million or 25% of net
asset value. The Company’s policies and processes for managing capital were
unchanged throughout the year and the preceding year.
The main risks to the Company’s investments are shown in the Directors’
Report under the ‘Principal and Emerging Risks and Uncertainties’ section
on pages 23 to 25. These also explain that the Company is able to gear and
that gearing will amplify the effect on equity of changes in the value of the
portfolio.
The Board can also manage the capital structure directly since it has taken
the powers, which it is seeking to renew, to issue and buy-back shares and it
also determines dividend payments.
The Company is subject to externally imposed capital requirements with respect
to the obligation and ability to pay dividends by section 1158 Corporation Tax
Act 2010 and by the Companies Act 2006, respectively, and with respect to the
availability of the bank facility, by the terms imposed by the lender, details
of which are given in note 11. The Board regularly monitors, and the Company
has complied with, these externally imposed capital requirements.
19. Contingencies, Guarantees and Financial Commitments
Any liabilities the Company is committed to honour, and which are dependent on
future circumstances or events occurring, would be disclosed in this note if
any existed.
There were no contingencies, guarantees or other financial commitments of the
Company as at 30 April 2023 (2021: nil).
20. 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 and their dependents
as related parties. The Directors’ remuneration and interests have been
disclosed on page 46 with additional disclosure in note 4. No other related
parties have been identified.
Details of the Manager’s services and fees are disclosed in the Director’s
Report on page 35, note 3 and note 4(iii) to the financial statements.
21. Post Balance Sheet Events
Any significant events that occurred after the balance sheet date but before
the signing of the balance sheet will be shown here.
There are no significant events after the end of the reporting period
requiring disclosure.
22. 2023 Financial Information
The figures and financial information for the year ended 30 April 2023 are
extracted from the Company's annual financial statements for that year and do
not constitute statutory accounts. The Company's annual financial statements
for the year to 30 April 2023 have been audited but have not yet been
delivered to the Registrar of Companies. The Auditor's report on the 2023
annual financial statements was i) unqualified, ii) did not include a
reference to any matters to which the auditor drew attention by way of
emphasis without qualifying their report and (iii) did not contain a statement
under section 498 (2) or (3) of the Companies Act 2006.
23. 2022 Financial Information
The figures and financial information for the year ended 30 April 2022 are
compiled from an extract of the published accounts for that year and do not
constitute statutory accounts. Those accounts have been delivered to the
Registrar of Companies. The Auditor's report on the 2022 annual financial
statements was (i) unqualified, (ii) did not include a reference to any
matters to which the auditor drew attention by way of emphasis without
qualifying their report and (iii) did not contain a statement under section
498 (2) or (3) of the Companies Act 2006.
24. Annual Financial Report
The Annual Report for the year-ended 30 April 2023 will be posted to
shareholders in August 2023 and will be available thereafter at
www.invesco.co.uk/invescoasia or from the Corporate Secretary at the Company's
correspondence address, 43-45 Portman Square, London W1H 6LY. A copy of the
Annual Financial Report will be submitted shortly to the National Storage
Mechanism ("NSM") and will be available for inspection at the NSM, which is
situated at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
Notice of Annual General Meeting
THIS NOTICE OF ANNUAL GENERAL MEETING IS IMPORTANT AND REQUIRES YOUR IMMEDIATE
ATTENTION. If you are in any doubt as to what action to take, you should
consult your stockbroker, solicitor, accountant or other appropriate
independent professional adviser authorised under the Financial Services and
Markets Act 2000. If you have sold or otherwise transferred all your shares in
Invesco Asia Trust plc, please forward this document and the accompanying Form
of Proxy to the person through whom the sale or transfer was effected, for
transmission to the purchaser or transferee.
Notice is given that the Annual General Meeting of Invesco Asia Trust plc will
be held at 43-45 Portman Square, London W1H 6LY, on 21 September 2023 at
12pm for the following purposes:
Ordinary Business
To consider and, if thought fit, to pass the following resolutions all of
which will be proposed as ordinary resolutions:
1. To receive and consider the Annual Financial Report for the year ended 30
April 2023.
2. To approve the Company’s Dividend Payment Policy. This is an advisory
vote.
3. To approve the Directors’ Remuneration Policy.
4. To approve the Annual Statement and Report on Remuneration for the year
ended 30 April 2023.
5. To re-elect Neil Rogan as a Director of the Company.
6. To re-elect Vanessa Donegan as a Director of the Company.
7. To re-elect Myriam Madden as a Director of the Company.
8. To re-elect Sonya Rogerson as a Director of the Company.
9. To re-appoint KPMG LLP as auditor of the Company.
10. To authorise the Audit Committee to determine the remuneration of the
auditor.
Special Business
To consider and, if thought fit, pass the following resolutions of which
resolution 11 will be proposed as an ordinary resolution and resolutions 12 to
14 as special resolutions:
Authority to Allot Shares
11. That:
in substitution for any existing authority under section 551 of the Companies
Act 2006 (the ‘Act’) but without prejudice to the exercise of any such
authority prior to the date of this resolution the Directors of the Company be
generally and unconditionally authorised in accordance with section 551 of the
Act as amended from time to time prior to the date of the passing of this
resolution, to exercise all powers of the Company to allot shares and grant
rights to subscribe for, or convert any securities into, shares up to an
aggregate nominal amount (within the meaning of sections 551(3) and (6) of
the Act) of £668,532, this being 10% of the Company’s issued ordinary share
capital as at 25 July 2023, such authority to expire at the conclusion of the
next Annual General Meeting of the Company or the date 15 months after the
passing of this resolution, whichever is the earlier unless the authority is
renewed or revoked at any other general meeting prior to such time, but so
that this authority shall allow the Company to make offers or agreements
before the expiry of this authority which would or might require shares to be
allotted, or rights to be granted, after such expiry as if the authority
conferred by this resolution had not expired.
Disapplication of Pre-emption Rights
12. That:
subject to the passing of resolution number 11 set out in the notice of this
meeting (the ‘Section 551 Resolution’) and in substitution for any
existing authority under sections 570 and 573 of the Companies Act 2006 (the
‘Act’) but without prejudice to the exercise of any such authority prior
to the date of this resolution, the Directors be and are hereby empowered, in
accordance with sections 570 and 573 of the Act as amended from time to time
prior to the date of the passing of this resolution to allot equity securities
(within the meaning of section 560(1), (2) and (3) of the Act) for cash,
either pursuant to the authority given by the Section 551 Resolution or (if
such allotment constitutes the sale of relevant shares which, immediately
before the sale, were held by the Company as treasury shares) otherwise, as if
section 561 of the Act did not apply to any such allotment, provided that this
power shall be limited:
(a) to the allotment of equity securities in connection with a rights issue
in favour of all holders of a class of equity securities where the equity
securities attributable respectively to the interests of all holders of
securities of such class are either proportionate (as nearly as may be) to the
respective numbers of relevant equity securities held by them or are otherwise
allotted in accordance with the rights attaching to such equity securities
(subject in either case to such exclusions or other arrangements as the
Directors may deem necessary or expedient in relation to fractional
entitlements or legal, regulatory or practical problems under the laws of, or
the requirements of, any regulatory body or any stock exchange in any
territory or otherwise); and
(b) to the allotment (otherwise than pursuant to a rights issue) of equity
securities up to an aggregate nominal amount of £334,266, this being 5% of
the Company’s issued share capital as at 25 July 2023 and this power shall
expire at the conclusion of the next Annual General Meeting of the Company or
the date 15 months after the passing of this resolution, whichever is the
earlier unless the authority is renewed or revoked at any other general
meeting prior to such time, but so that this power shall allow the Company to
make offers or agreements before the expiry of this power which would or might
require equity securities to be allotted after such expiry as if the power
conferred by this Resolution had not expired; and so that words and
expressions defined in or for the purposes of Part 17 of the Act shall bear
the same meanings in this resolution.
Authority to Make Market Purchases of Shares
13. That:
the Company be generally and subject as hereinafter appears unconditionally
authorised in accordance with Section 701 of the Companies Act 2006 as amended
from time to time prior to the date of the passing of this resolution (the
‘Act’) to make market purchases (within the meaning of Section 693(4) of
the Act) of its issued ordinary shares of 10p each in the capital of the
Company (‘Shares’).
PROVIDED ALWAYS THAT:
(i) the maximum number of Shares hereby authorised to be purchased shall be
10,021,307 or 14.99% of shares in issue as at 25 July 2023;
(ii) the minimum price which may be paid for a Share shall be 10p;
(iii) the maximum price which may be paid for a Share must not be more than
the higher of: (i) 5% above the average of the mid-market values of the
Shares for the five business days before the purchase is made; and (ii) the
higher of the price of the last independent trade in the Shares and the
highest then current independent bid for the Shares on the London Stock
Exchange;
(iv) any purchase of Shares will be made in the market for cash at prices
below the prevailing net asset value per Share (as determined by the
Directors);
(v) the authority hereby conferred shall expire at the conclusion of the next
Annual General Meeting of the Company, or the date 15 months after the passing
of this resolution, whichever is the earlier, unless the authority is renewed
or revoked at any other general meeting prior to such time;
(vi) the Company may make a contract to purchase Shares under the authority
hereby conferred prior to the expiry of such authority which will be executed
wholly or partly after the expiration of such authority and may make a
purchase of Shares pursuant to any such contract; and
(vii) any shares so purchased shall be cancelled or, if the Directors so
determine and subject to the provisions of Sections 724 to 731 of the Act and
any applicable regulations of the United Kingdom Listing Authority, be held
(or otherwise dealt with in accordance with Section 727 or 729 of the Act) as
treasury shares.
Period of Notice Required for General Meetings
14. That:
the period of notice required for general meetings of the Company (other
than AGMs) shall be not less than 14 days.
Dated this 25 July 2023
By order of the Board
Invesco Asset Management Limited
Corporate Company Secretary
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