Annual Financial Report
26/07/2024 07:00
LEGAL ENTITY IDENTIFIER: 549300YM9USHRKIET173
Invesco Asia Trust plc
Annual Financial Report Announcement for the Year Ended 30 April 2024
The following text is extracted from the Annual Financial Report of the
Company for the year ended 30 April 2024. 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 (%) 2024 2023
Net asset value (NAV) total return (2) 2.7 1.3
Share price total return (2) 2.2 1.2
Benchmark index total return (3) 7.9 -6.0
Capital Statistics
At 30 April 2024 2023 change %
Net assets (£’000) 238,266 245,004 –2.8
NAV per share 361.51p 366.48p –1.4
Share price (1) 313.00p 321.00p –2.5
Benchmark index (capital) 989.35 938.42 +5.4
Discount (2) per ordinary share: (13.4)% (12.4)%
Average discount over the year (1)(2) (11.3)% (11.6)%
Gearing (2):
– gross 5.3% 5.9%
– net 4.5% 5.3%
Revenue Statistics
Year Ended 30 April 2024 2023 change %
Income (£’000) 7,375 7,601 –3.0
Net revenue available for ordinary shares (£’000) 5,422 5,596 –3.1
Revenue return per ordinary share 8.12p 8.37p –3.0
Dividends per share (4):
– first interim 7.20p 7.20p
– second interim 6.90p 7.60p
Total dividends 14.10p 14.80p –4.7
Ongoing charges ratio (2) 1.03% 0.99%
(1) Source: LSEG Data & Analytics.
(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. The Board are
proposing a minor change to the dividend policy. Further details can be found
in the Chairman’s Statement on page 8.
Chairman’s Statement
Highlights
• NAV total return performance behind benchmark over 1 year; strong
relative performance over 3, 5 and 10 years.
• Asian economies are forecast to grow faster than the West yet their
stockmarkets are at unusually attractive valuation levels. There is then a
double discount of the share price trading at below net asset value.
• On top of this comes a 4.5% annual dividend yield based on the share
price as at 30 April 2024, approximately half of which is effectively a return
of capital at net asset value.
This is the first time in four years that your Company’s NAV has
underperformed the benchmark index over the Company’s year to 30 April. The
year saw a net asset value total return of 2.7%, behind the benchmark
index’s total return of 7.9%. The share price total return was 2.2% with the
discount widening a little from 12.4% at 30 April 2023 to 13.4% at 30 April
2024 and averaging 11.3% over the year. Attribution numbers show that the
year’s underperformance came mainly from stock selection within China and
the underweight allocation to India. Fiona Yang and Ian Hargreaves review
performance in more detail in their Portfolio Managers’ Report.
Despite an underperforming year, the Company’s long term performance record
remains strong with outperformance over three, five and ten years as shown in
the table below. The table also shows performance over four years from 30
April 2020, which is relevant to our performance conditional tender offer
which will be assessed on five-year performance from 30 April 2020. In the
first four years, NAV total return of 11.0% annualised is comfortably ahead of
the benchmark’s 4.5%. Indeed our longer-term performance record has been
recognised in the industry through us winning the Citywire Winners award at
the publication’s Investment Trust Awards 2023 for best risk-adjusted
performance for the Asia Pacific Equities Sector. We were also awarded the
“Kepler Income & Growth Rating 2024” by Kepler Partners and an A-rating by
Square Mile Investment Consulting & Research.
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 plc and the Corporate Proposition that we offer.
In order to stimulate more demand for the Company’s shares, we aim to
provide a strong 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 Fiona Yang and Ian Hargreaves’ team
at Invesco. The team is unchanged and remains strong. We were delighted to
announce that from 1 May 2024, our Co-Portfolio Managers have swapped roles
with Fiona Yang taking the lead from Ian Hargreaves, with both continuing to
work very closely together on the Company’s portfolio. Ian will remain
closely involved for years to come. The Directors have been impressed by
Fiona’s contribution over the past five years and are pleased to support her
promotion.
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 these times of great change, we would argue
that this forward-looking active approach (as opposed to a backward-looking
index tracking style) is exactly what is needed. The team have delivered very
strong relative performance for shareholders over three, five and ten years,
as shown in the table on the below. Like many professional consultants and
shareholders we, as fully independent directors, look for talented stock
pickers, a robust process and consistent outperformance in our investment
manager. We believe we have all three in Fiona, Ian and the team at Invesco.
Annualised Total Return in Sterling Terms to 30 April 2024(1)(2)
1 3 4 5 10
year years years years years
Net Asset Value % (3) 2.7 –1.0 11.0 6.4 10.1
Benchmark % 7.9 –4.1 4.5 2.6 6.8
(1) Source: LSEG Data & Analytics.
(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.
(3) 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.
The Corporate Proposition
The Company’s Corporate Proposition was first introduced in 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 all shareholders. 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 September 2025.
2. Enhanced dividend policy: The Board introduced an enhanced dividend policy
in 2020 which aimed to pay in two instalments, in the absence of unforeseen
circumstances, a regular dividend equivalent to approximately 4.0% of the
Company’s NAV, calculated by reference to the Company’s NAV on the last
business days of September and February. The dividend instalments are paid to
shareholders in November and April. This year the first interim dividend of
7.20p was paid to shareholders on 23 November 2023 and a second interim
dividend of 6.90p was paid to shareholders on 23 April 2024. This gave a total
distribution of approximately 4.0% of NAV over the year and represents a 4.5%
dividend yield on the closing share price on 30 April 2024.
Following feedback from shareholders, the Board will be making a minor
change to the dividend policy. The Company will aim to pay in two instalments,
in the absence of unforeseen circumstances, a regular dividend equivalent to
approximately 4.0% of the Company’s NAV on the last business day of
September. The dividends will continue to be paid to shareholders in November
and April. The change will take effect from 1 May 2024. Please note that the
policy of paying out approximately 4.0% of NAV means that dividend payments
will not necessarily increase every year. This distribution policy as a whole
is put to shareholders at each AGM.
3. Performance Conditional Tender: We introduced a performance conditional
tender offer in 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 (net of withholding tax, total return
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.
4. Minimising Ongoing Charges and Fees: Fair and accurate cost disclosure for
investment trust companies has been making headlines over the past year. As a
Board we believe that all costs and charges should be clearly disclosed but
also that it is important to remember that these costs are the ordinary costs
of doing business and that they are already deducted from the net asset value
by which we judge performance net of these costs against our index benchmark.
The Board is 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 ongoing charge of 1.03% p.a. in 2024 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. Other components within the ongoing charges calculation include
company secretarial (£119,000), external auditor (£70,000), directors’
fees (£143,000), custody fees and miscellaneous others (£360,000). Outside
the ongoing charges calculation are the costs of gearing and transaction
charges (the incidental costs of buying and selling shares within the
portfolio) which taken together amounted to £800,000 over the year. All of
these costs have always been included within the net asset value calculation.
5. 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. As previously flagged,
we are more likely to buy back shares when performance is behind the index.
During the financial year we have bought back 945,000 shares into Treasury at
a total cost of £2,915,000, representing 1.26% of the starting number of
shares in issue and which has been accretive to NAV by 0.16%. Discounts across
the whole investment trust sector, not just Asian trusts, remain elevated and
we shall continue to be proactive in our efforts to reduce ours.
6. Environmental, Social and Governance Matters (ESG): The Board recognises
the importance of ESG considerations in delivering value to shareholders and
our approach and that of the Manager is explained in detail later in this
report. We continue to monitor closely developments in this space. We have
asked the Manager to highlight examples of holdings in companies where
improved ESG initiatives that have increased the fair value of companies and
an update on the number of portfolio companies committing to net zero
alignment (‘NZA’). The Manager has sufficient expertise to assess the
risks and opportunities which may result from accelerating ESG-driven change.
Their 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 formally from an ESG
perspective. The Manager is a signatory to the Financial Reporting Council’s
Stewardship Code and is an active member of the UK Sustainable Investment and
Finance Association. In addition, the Manager scored four out of five 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
received an AA ESG rating from MSCI and as a signatory and discloser to the
Carbon Disclosure Project, the Manager supports enhanced, market-wide
environmental disclosure and reports annually on its climate change management
and performance, including comprehensive emissions accounting.
The Board reviews at each board meeting the Manager’s assessment of ESG
considerations on individual stock decisions, and 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
this, we should be able to see progress for many indicators over longer time
periods. Some examples: in the year to 30 April 2024, the Manager engaged with
54 of the 58 portfolio holdings, voting against resolutions for 29 of them.
The Manager met a total of 322 companies over the year, engaging with ESG
issues on 199 of them. A year ago, the Company held 23 companies that had not
yet set a net zero target date. Now that number has risen to 24. Finally,
where data is available, the number of women on investee company boards has
been increasing.
7. Access to Invesco Expertise: Invesco Asia Trust plc is the only vehicle
available to UK retail investors who wish to access the track record of Fiona
and Ian. They manage it with a high degree of commonality to their
institutional portfolios and also add the best smaller company opportunities.
Ian is Invesco’s lead portfolio manager of Asian accounts for institutional
investors and as at 30 June 2024 manages over £5 billion of institutional
assets with Fiona, a key member of the team and a rising star in our opinion.
8. 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 investment
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 will provide access to the thoughts and views of Fiona and
Ian, 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 Edison
Group and Kepler Partners) and monthly factsheets on the Company’s website.
Shareholders can also contact us by email at investmenttrusts@invesco.com.
9. Meeting the Directors and Managers: One of the main attractions of owning
an investment trust over a unit trust or OEIC is that all shareholders have
the opportunity of meeting the Directors and the Managers every year at the
AGM. This year’s meeting will be held in person at Invesco’s London office
at 12pm on 12 September 2024. As well as the Company’s formal business,
there will be a presentation, the opportunity to ask questions of Fiona, who
will be joining the meeting remotely, Ian and the 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.
10. 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 4.5% having started the year at 5.3%.
11. 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, Fiona and Ian 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.
Update
In view of increases in audit fees, the Company recently completed a tender
process and has appointed Ernst & Young LLP (‘EY’) to the role of external
auditor for the financial year ending 30 April 2025. Further details of the
process can be found in the Audit Committee report on page 44.
Since 30 April 2024, the NAV total return has been -0.2%, underperforming the
index return of 2.3%. The share price has returned 2.9% with the discount
narrowing to 10.8%.
Outlook
First thoughts writing this outlook are that not much has changed over the
last six months. Trade friction between the US and China remains, with the US
Presidential election adding noise and uncertainty. China has taken further
steps to stabilise its residential property sector, where overdevelopment has
led to a loss of consumer confidence and also some bank instability. Asian
technology companies such as Taiwan Semiconductor Manufacturing and Samsung
Electronics have performed well on the coattails of the “Magnificent
Seven” tech stocks that have led the US stockmarket rally. India’s economy
has continued to grow without so far threatening the high rating of its
stockmarket. Domestic consumer spending growth is healthy across Asia; for
example 4.8% in China, 5.7% in India, 5.1% in Indonesia and 2.2% in Taiwan
(Morgan Stanley 2024 forecasts). And with overall forecast 2024 economic
growth rates including 4.8% in China, 6.8% in India, 2.7% in South Korea, 5.1%
in Indonesia, 3.7% in Taiwan and 2.2% in Singapore comparing favourably with
the US at 2.2% and the Eurozone at 1.3%, there continues to be grounds for
optimism.
On top of this, Asian stock market valuations are cheap relative to the world
and cheap relative to their own history. Experience proves that this would
normally be a good time to invest. There may be no obvious immediate catalyst
for a sudden recovery but as a long-term investor in Invesco Asia Trust plc we
would argue that you are paid to wait, especially as you currently benefit
from the double discount of the share price relative to the net asset value.
On top of this comes a 4.5% annual dividend yield based on the share price as
at 30 April 2024, approximately half of which is effectively a return of
capital at net asset value.
Neil Rogan
Chairman
25 July 2024
Portfolio Managers’ Report Q&A
Q How has the Company performed in the year under review?
A The Company’s net asset value grew by 2.7% (total return, in sterling
terms) over the twelve months to 30 April 2024, which compares to the
benchmark MSCI AC Asia ex Japan Index return of 7.9%.
The year began with a degree of optimism surrounding the prospects for Asian
markets as China’s economy reopened post-Covid. However, the strength of
China’s recovery has disappointed while markets have also had to contend
with shifting expectations around the trajectory of US interest rates. Against
this backdrop, the portfolio has benefitted from the positive impact of our
stock selection in markets such as South Korea, Taiwan, Singapore and
Thailand, with enthusiasm for AI having generated strong returns for chip
stocks in particular. This has helped offset the impact of stock selection in
China, where consumer-related stocks that rallied strongly in the prior period
gave back some of that outperformance. Looking at markets more broadly,
performance over the last twelve months has been mixed (as can be seen from
the chart below), and it is frustrating to report that the impact of being
underweight India and overweight markets such as China, Hong Kong and
Indonesia has also counted against us.
What gives us grounds for optimism is that the degree of divergence we have
seen in terms of performance and valuation between the best and worst
performing markets is extreme. This is the kind of backdrop that usually
presents us with great opportunities. Conditions can change, sometimes
rapidly, and although recent performance has disappointed, we are increasingly
confident in the prospects for the portfolio over our investment time horizon.
Q What have been the biggest detractors?
A Chinese consumer stocks were amongst the best performers in the prior
reporting period, amidst optimism surrounding post-Covid reopening. However,
some of those gains have been reversed as the strength of China’s recovery
has disappointed. China Meidong Auto was the biggest single detractor, with
weak demand and increased competition from the electric vehicle (‘EV’)
segment being headwinds for the luxury auto dealership, although business
operations appear to be faring better than feared. Beijing Capital
International Airport has struggled as international routes have been slow to
re-start, especially from the US, while restaurant operator Jiumaojiu faces
pricing pressures in a slower-than-expected recovery. Ming Yang Smart Energy
has also faced competitive pressures, leading to concern over the wind turbine
manufacturers decision to move into wind farm development, a more
capital-intensive business – a development that prompted us to sell.
Exposure to life insurers Ping An Insurance and AIA also detracted, as did
auto parts manufacturer MINTH.
Elsewhere, LG Chemical felt the effect of slowing EV sales as government
subsidies have been reduced in several key markets. Indonesia’s economy has
also been going through a softer patch of growth, which negatively impacted
cement manufacturer Semen Indonesia and auto conglomerate Astra International.
Q And contributors?
A Shriram Transport Finance was the biggest single contributor, as India’s
leading lender for buyers of second-hand commercial vehicles, it continued to
deliver strong earnings growth and improved margins, with evidence of its
extensive branch network being used to good effect with growth in
cross-selling products. Aurobindo Pharma has also added significant value on
the back of an improvement in generics pricing in the US (their largest
market) and strong execution in their injectables business, but we have taken
profits and sold, with the stock appearing fully valued, in our view.
Tech stocks with exposure to the AI server supply-chain have been strong
contributors, with the likes of South Korean chip manufacturer SK Hynix,
Taiwan Semiconductor Manufacturing (‘TSMC’) and Chroma ATE in Taiwan all
making strong gains. More broadly speaking, stock selection in South Korea has
added value, with some excitement over the unveiling of a ‘Corporate
Value-Up’ programme, intended to drive improvements in shareholder returns
and corporate governance. Samsung Fire & Marine is already setting a good
example in this regard, with the insurer’s strong operating performance
being matched by a more progressive dividend policy. Hyundai Motor also
advanced with sales in the US, Europe and India complementing increased
distribution of higher margin vehicles.
Other notable contributions came from South-East Asian gaming and e-commerce
company Sea and Anglo American, after the mining group received a takeover bid
from BHP. We have also started to see selected Chinese companies, like Tencent
Music Entertainment and the digital freight platform Full Truck Alliance,
being well rewarded for demonstrating an ability to grow.
Q Are you able to find any pockets of value in India?
A India appears to be in a macro sweet spot, with a bull market supported by
a strong capital expenditure cycle and robust domestic demand. Our Indian
holdings have generally performed very well, but we have now sold
outperformers like Aurobindo Pharma, Larsen & Toubro and Mahindra & Mahindra,
with valuations appearing increasingly full, implying long term growth rates
we struggle to justify.
The challenge has been to find new ideas that appear undervalued, with the
market trading at 4.0x Price-to-book ratio (‘P/B’), a level last breached
nearly two decades ago (see chart above), at a time when other Asian markets
attracted a similar premium. As the increased underweight position in India
suggests, we have been finding more attractive opportunities elsewhere.
That said, we still have some exposure and have been adding to HDFC Bank,
which has recently merged with its parent, a bumpier journey than the market
expected. Looking through the near-term issues, we have no concerns on their
ability to integrate the two businesses and have been happy to add at trough
valuations. We have also introduced: Delhivery, which is India’s largest
third-party logistics company, making it well positioned to benefit from
growth in e-commerce; and Power Grid of India, the nation’s central
transmission utility, a company with what we consider to be stable, long-term
growth potential and an attractive dividend yield.
Q Has your positioning in Hong Kong/China changed, are green shoots emerging?
A The portfolio continues to have a small overweight position in China and
Hong Kong. Market sentiment for much of the year has been weak, reflecting
concerns over escalating geopolitical tensions, poor consumer confidence and a
troubled property market. We witnessed a degree of capitulation towards the
end of 2023, with indiscriminate markets weakness suggesting little hope for a
recovery and a feeling that the policy response was underwhelming. Our view
has not changed, with a belief that coordinated measures have been put in
place to support the economy, with valuations still deeply discounted, and
equities likely to prove sensitive to signs of improvement in the
fundamentals, which we have started to see.
Against a challenging backdrop, we have been thoroughly reviewing the
portfolio, seeking to upgrade on quality where possible. As already discussed,
we sold wind turbine manufacturer Ming Yang Smart Energy given a change in
strategy that compromised our original investment thesis. We also sold China
BlueChemical and Will Semiconductor, which have performed well in a weak
market, and looked to consolidate the portfolio, exiting some smaller
holdings. In turn, we have sought to introduce or add to stocks that offered
what we consider to be better quality, stable growth potential at discounted
valuations. Names introduced include digital freight platform Full Truck
Alliance, baijiu distiller Wuliangye, China Resources Beer and Tencent Music
Entertainment.
Meanwhile, markets have rebounded nicely from their January lows. Geopolitical
tensions linger, but we have seen signs of stabilisation in the economy and
policy support measures that signal a more determined attempt to support the
property market.
Q What are your thoughts on AI developments and related opportunities?
A There has been a bit of a buying frenzy around any company in NVIDIA’s
supply chain, given how they have raised their guidance on AI-related chip
growth, with their new AI chips being multiple times more powerful than the
previous generation, enabling the launch of awe-inspiring AI applications such
as Sora from OpenAI.
What we have noticed is that AI enthusiasm has started to move into nascent or
niche adopters and beneficiaries. For example, MediaTek, which is a portfolio
holding, announced the launch of a new mobile chip in November 2023 which
facilitates the use of generative AI on smartphones. This is part of a trend
known as ‘edge-AI’ with other high-end Android smartphones having adopted
the chip.
For the tech companies we hold, the current contribution to earnings from new
AI components or devices is negligible, but the market has been placing higher
multiples on these new earnings with the expectation of significant,
structural growth from these products in future years. While these AI
beneficiaries are clearly in-favour, arguably the biggest and most important
change in their fundamentals has been an improvement in the cycle for legacy
semiconductors that go into everyday PCs, smartphones and servers, with
inventory being drawn down and shipments starting to grow, which is helping
drive earnings and margin improvement. We do not need to place high multiples
on AI-related earnings to justify double-digit expected returns for these
stocks.
Q Are you convinced by South Korea’s ‘Corporate Value-Up’ programme?
A It is great to see politicians and regulators co-ordinating on measures to
help narrow the ‘Korea discount’, but this is not a new trend. Initiatives
introduced in 2014 promised similar improvement, since when we have identified
signs of gradual improvement in corporate governance, particularly in the
growth of dividends from South Korean companies.
The recent measures target companies trading on a low P/B, suggesting
management should be accountable for improving governance, that boards should
measure P/B and return-on-equity (‘ROE’) and actively explain to investors
why they are underperforming. Publishing these metrics and creating premium
indices of companies succeeding on that basis (tracked by ETFs) follows the
approach taken in Japan, where the strategy has enjoyed success and continues
to build momentum.
Other reasons for optimism include: the support of South Korea’s National
Pension Service, the world’s third-largest pension fund; and retail share
ownership that continues to climb. There has also been recognition that the
tax system has been hindering stock market development and is in need of
reform, albeit that the election result in April 2024 makes progressive reform
less likely.
Lastly, we should add that our overweight position in South Korea reflects the
strength of the bottom-up opportunities that we can find, rather than any
top-down view or belief in ‘Value-Up’ being a catalyst. That said, we
expect more announcements in the coming months, and that South Korean
corporates will start making more of an effort to improve appearances when it
comes to dividend pay-outs and balance sheets.
Q Are there any other significant portfolio changes to report?
A We have introduced two Singapore listed internet companies, both of which
have market leading positions in the Association of Southeast Asian Nations
(‘ASEAN’) markets they focus on: Sea, the region’s largest e-commerce
company that also owns a gaming studio; and Grab, which is focussed on ride
hailing and food delivery. Both had seen big de-ratings with bearish consensus
narratives, but have compelling long-term fundamentals, strong balance sheets
and underappreciated hidden value.
Overall exposure to financials has increased as we introduced KB Financial in
South Korea and added to ASEAN financials such as Singapore-listed United
Overseas Bank (‘UOB’), PT Bank Negara Indonesia Persero and Thai lender
Kasikornbank. We also introduced Telkom Indonesia, with recent share price
weakness on competition concerns being overdone, in our view.
Lastly there are a few off benchmark-introductions to flag. Anglo American
(‘AA’) is global diversified miner of copper, diamonds, iron ore, platinum
group metals (‘PGMs’), nickel, manganese and met coal. After a near death
experience during the commodity slump of 2015, AA has been through a cycle of
selling high-cost assets, moving down the cost curve, and strengthening the
balance sheet. With the share price down by more than 40% from its 2022 peak,
we felt the balance sheet was in good shape while the valuation was the
cheapest of its peer group on a P/B basis.
Swatch is a Swiss luxury goods company, but more than 50% of sales (and a
higher proportion of profits) are to countries in Asia, led by China. We
believe the shares are excessively discounted, with the company having a very
strong balance sheet and encouraging growth initiatives involving brand
collaborations. Incitec Pivot is an Australian company with two main
businesses, explosives, which has high barriers to entry and intellectual
property protection; and fertilisers, which have low margins and low barriers
to entry, and recently faced profitability pressure due to rising costs and
falling revenues. We believe these issues are reflected in the price and that
the underlying business is strong, with a A$1.4 billion shareholder return
policy giving us further confidence.
Q Final thoughts?
A Since peaking in early 2021, Asian equity markets have struggled amidst a
liquidity tightening cycle and a crescendo of negativity surrounding China.
Valuations for regional indices trade below long-term historic averages, both
in terms of price earnings and price to book ratios, and at a significant
discount to developed markets, particularly the US. We believe there is scope
for this to narrow, with continued divergence in performance and valuations
between different countries and sectors also providing opportunity.
Asian equities are also well placed to benefit from an improvement in
liquidity conditions, as we approach the peak in rate expectations, with US
dollar strength likely to cease being a headwind. Furthermore, inflation in
Asia is less of a concern than in developed markets and economies enjoy
relatively solid fundamentals, suggesting greater monetary policy flexibility
should growth headwinds start to build.
Finally, consensus earnings growth expectations for 2024 are around 20% and we
believe that Asian corporates may see less earnings vulnerability from a
global slowdown relative to what is being implied in valuations, although
India appears to be the exception given elevated expectations.
Fiona Yang & Ian Hargreaves
Portfolio Managers
25 July 2024
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 including AI 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, Ukraine and the Middle East, 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. There is also the risk of increased trade sanctions and the challenging regulatory environment that could adversely affect imports and Foreign Direct Investment (‘FDI’) into China and financial decoupling could cause significant 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
disruption to global markets. 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 to unsustainable levels. 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 ► Unchanged
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.
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
Information Technology Resilience and Security The Company’s operational structure means that all cyber risk (integrity or availability of data or information control systems and physical security) arises at its Third Party Providers (‘TPP’). This cyber risk could result in adverse impacts including 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 ▲ Increased
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, global technology incidents and emerging cyber threats. 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.
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 and 24,
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 conflicts in
Ukraine, the Middle East and US-China relations; 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 2024
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 23,983 9.5
Samsung Electronics Technology Hardware and Equipment South Korea
– ordinary shares 12,617 5.0
– ADS 6,404 2.6
19,021 7.6
Tencent R Media and Entertainment China 17,947 7.1
HDFC Bank Banks India 11,736 4.7
AIA Insurance Hong Kong 9,600 3.8
Alibaba R Consumer Discretionary Distribution and Retail China 7,944 3.2
Kasikornbank F Banks Thailand 6,994 2.8
Anglo American Materials United Kingdom 6,171 2.5
SK Hynix Semiconductors and Semiconductor Equipment South Korea 6,045 2.4
Shriram Transport Finance Financial Services India 5,760 2.3
Top Ten Holdings 115,201 45.9
United Overseas Bank Banks Singapore 5,407 2.2
Samsung Fire & Marine Insurance South Korea 5,399 2.1
Yili A Food, Beverage and Tobacco China 5,120 2.0
JD.com R Consumer Discretionary Distribution and Retail China 4,814 1.9
Yageo Technology Hardware and Equipment Taiwan 4,326 1.7
Largan Precision Technology Hardware and Equipment Taiwan 4,236 1.7
NetEase R Media & Entertainment China 3,989 1.6
Full Truck Alliance – ADS Transportation China 3,933 1.6
ICICI Bank – ADR Banks India 3,862 1.5
Grab Transportation Singapore 3,810 1.5
Top Twenty Holdings 160,097 63.7
LG Chemical Materials South Korea 3,776 1.5
Delhivery Transportation India 3,751 1.5
Link REIT Equity Real Estate Investment Trusts (REITs) Hong Kong 3,469 1.4
CK Asset Real Estate Management and Development Hong Kong 3,463 1.4
Hansoh Pharmaceutical R Pharmaceuticals, Biotechnology and Life Sciences China 3,371 1.3
MINTH Automobiles and Components Hong Kong 3,337 1.3
Wuliangye A Food, Beverage and Tobacco China 3,320 1.3
Gree Electrical Appliances A Consumer Durables and Apparel China 3,198 1.3
PT Bank Negara Indonesia Persero Banks Indonesia 3,154 1.3
Beijing Capital International Airport H Transportation China 3,060 1.2
Top Thirty Holdings 193,996 77.2
ENN Energy R Utilities China 2,981 1.2
Astra International Capital Goods Indonesia 2,942 1.2
Vinamilk Food, Beverage and Tobacco Vietnam 2,908 1.2
Swatch Consumer Durables and Apparel Switzerland 2,845 1.1
Sea – ADS Media and Entertainment Singapore 2,756 1.1
Suofeiya Home Collection A Consumer Durables and Apparel China 2,714 1.1
KB Financial Banks South Korea 2,631 1.0
Hyundai Motor – preference shares Automobiles and Components South Korea 2,532 1.0
Tingyi R Food, Beverage and Tobacco China 2,505 1.0
Semen Indonesia Materials Indonesia 2,320 0.9
Top Forty Holdings 221,130 88.0
MediaTek Semiconductors and Semiconductor Equipment Taiwan 2,215 0.9
Hoa Phat Materials Vietnam 2,211 0.9
Yue Yuen Industrial Consumer Durables and Apparel Hong Kong 2,186 0.9
Chroma ATE Technology Hardware and Equipment Taiwan 2,106 0.8
Ping An Insurance H Insurance China 2,070 0.8
QBE Insurance Insurance Australia 1,970 0.8
Telkom Indonesia Telecommunication Services Indonesia 1,916 0.7
Power Grid Utilities India 1,737 0.7
China Resources Beer Food, Beverage and Tobacco Hong Kong 1,735 0.7
Uni-President Food, Beverage and Tobacco Taiwan 1,724 0.7
Top Fifty Holdings 241,000 95.9
Incitec Pivot Materials Australia 1,721 0.7
Tencent Music Entertainment – ADS Media and Entertainment China 1,588 0.6
LG Household & Health Care Household and Personal Products South Korea 1,572 0.6
Invesco Liquidity Funds – US Dollar Money Market Fund Ireland 1,494 0.6
China MeiDong Auto R Consumer Discretionary Distribution and Retail China 1,353 0.6
China Overseas Land and Investment Real Estate Management and Development Hong Kong 1,283 0.5
Jiumaojiu R Consumer Services China 1,199 0.5
Lime Co UQ Capital Goods South Korea 37 –
Total Holdings 58 (2023: 57) 251,247 100.0
A: A-shares – shares that are denominated in Renminbi and traded on the
Shanghai and Shenzhen stock exchanges.
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.
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.
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.
UQ: Unquoted investment.
Classification of Investments by Country/Sector
at 30 April
2024 2023
Market Value % of Market Value % of
£’000 Portfolio £’000 Portfolio
Australia
Capital Goods – – 2,345 0.9
Insurance 1,970 0.8 2,380 0.9
Materials 1,721 0.7 3,702 1.4
3,691 1.5 8,427 3.2
China
Capital Goods – – 6,692 2.5
Consumer Discretionary Distribution and Retail 14,111 5.7 18,341 7.1
Consumer Durables and Apparel 5,912 2.4 10,414 4.0
Consumer Services 1,199 0.5 2,673 1.0
Food, Beverage and Tobacco 10,945 4.3 7,673 3.0
Insurance 2,070 0.8 6,353 2.5
Materials – – 1,593 0.6
Media and Entertainment 23,524 9.3 23,073 8.9
Pharmaceuticals, Biotechnology and Life Sciences 3,371 1.3 3,227 1.2
Real Estate Management and Development – – 487 0.2
Semiconductors and Semiconductor Equipment – – 3,773 1.5
Transportation 6,993 2.8 4,258 1.6
Utilities 2,981 1.2 3,123 1.2
71,106 28.3 91,680 35.3
Hong Kong
Automobiles and Components 3,337 1.3 5,357 2.1
Consumer Durables and Apparel 2,186 0.9 3,886 1.5
Consumer Services – – 1,234 0.5
Equity Real Estate Investment Trusts (REITs) 3,469 1.4 – –
Food, Beverage and Tobacco 1,735 0.7 – –
Insurance 9,600 3.8 9,373 3.6
Real Estate Management and Development 4,746 1.9 9,208 3.6
25,073 10.0 29,058 11.3
India
Automobiles and Components – – 1,656 0.6
Banks 15,598 6.2 3,622 1.4
Capital Goods – – 3,212 1.2
Financial Services 5,760 2.3 14,406 5.5
Pharmaceuticals, Biotechnology and Life Sciences – – 4,995 1.9
Transportation 3,751 1.5 – –
Utilities 1,737 0.7 – –
26,846 10.7 27,891 10.6
Indonesia
Banks 3,154 1.3 1,314 0.5
Capital Goods 2,942 1.2 6,606 2.6
Materials 2,320 0.9 2,707 1.0
Telecommunication Services 1,916 0.7 – –
10,332 4.1 10,627 4.1
Ireland
Money Market Fund 1,494 0.6 – –
1,494 0.6 – –
Singapore
Banks 5,407 2.2 2,167 0.8
Media and Entertainment 2,756 1.1 – –
Transportation 3,810 1.5 – –
11,973 4.8 2,167 0.8
South Korea
Automobiles and Components 2,532 1.0 4,346 1.7
Banks 2,631 1.0 – –
Capital Goods 37 – 38 –
Household and Personal Products 1,572 0.6 3,503 1.4
Insurance 5,399 2.1 3,883 1.5
Materials 3,776 1.5 8,587 3.4
Semiconductors and Semiconductor Equipment 6,045 2.4 6,123 2.4
Technology Hardware and Equipment 19,021 7.6 16,551 6.4
41,013 16.2 43,031 16.8
Switzerland
Consumer Durables & Apparel 2,845 1.1 – –
2,845 1.1 – –
Taiwan
Food, Beverage and Tobacco 1,724 0.7 3,273 1.3
Semiconductors and Semiconductor Equipment 26,198 10.4 24,085 9.3
Technology Hardware and Equipment 10,668 4.2 6,288 2.5
38,590 15.3 33,646 13.1
Thailand
Banks 6,994 2.8 6,680 2.6
6,994 2.8 6,680 2.6
United Kingdom
Materials 6,171 2.5 – –
6,171 2.5 – –
Vietnam
Food, Beverage and Tobacco 2,908 1.2 3,356 1.3
Materials 2,211 0.9 2,399 0.9
5,119 2.1 5,755 2.2
Total 251,247 100.0 258,962 100.0
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 2024
Income Statement
Year ended 30 April 2024 Year ended 30 April 2023
Revenue £’000 Capital £’000 Total £’000 Revenue £’000 Capital £’000 Total £’000
Notes
Gains/(losses) on investments held at
fair value 9 — 2,420 2,420 — (1,309) (1,309)
(Losses)/gains on foreign exchange – (30) (30) — 625 625
Income 2 7,375 79 7,454 7,601 51 7,652
Investment management fee 3 (441) (1,322) (1,763) (460) (1,381) (1,841)
Other expenses 4 (692) (4) (696) (681) (3) (684)
Net return before finance costs and taxation 6,242 1,143 7,385 6,460 (2,017) 4,443
Finance costs 5 (126) (375) (501) (108) (325) (433)
Net return on ordinary activities before
taxation 6,116 768 6,884 6,352 (2,342) 4,010
Tax on ordinary activities 6 (694) (626) (1,320) (756) (532) (1,288)
Net return on ordinary activities after
taxation for the financial year 5,422 142 5,564 5,596 (2,874) 2,722
Net return per ordinary share:
Basic 7 8.12p 0.22p 8.34p 8.37p (4.30)p 4.07p
The total columns of this statement represent 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 2022 7,500 5,624 34,827 202,814 1,411 252,176
Net 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
Net return on ordinary activities – – – 142 5,422 5,564
Dividends paid 8 – – – (4,491) (4,896) (9,387)
Shares bought back and held in treasury 13 – – (2,915) – – (2,915)
At Year ended 30 April 2024 7,500 5,624 31,912 191,364 1,866 238,266
(1) These reserves form the distributable reserves of the Company and may be
used to fund distributions by way of dividends.
The accompanying accounting policies and notes are an integral part of these
financial statements.
Balance Sheet
At 30 April At 30 April
2024 2023
Notes £’000 £’000
Fixed assets
Investments held at fair value through profit or loss 9 251,247 258,962
Current assets
Debtors 10 927 522
Cash and cash equivalents 537 1,337
1,464 1,859
Creditors: amounts falling due within one year
Bank overdraft (50) (740)
Other Creditors 11 (13,625) (14,261)
(13,675) (15,001)
Net current liabilities (12,211) (13,142)
Total assets less current liabilities 239,036 245,820
Provision for deferred tax liabilities 12 (770) (816)
Net assets 238,266 245,004
Capital and reserves
Share capital 13 7,500 7,500
Other reserves:
Capital redemption reserve 14 5,624 5,624
Special reserve 14 31,912 34,827
Capital reserve 14 191,364 195,713
Revenue reserve 14 1,866 1,340
Total shareholders’ funds 238,266 245,004
Net asset value per ordinary share
Basic 15 361.51p 366.48p
The financial statements were approved and authorised for issue by the Board
of Directors on 25 July 2024.
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.
2024 £’000 2023 £’000
Income from investments:
UK dividends 77 –
Overseas dividends 7,208 7,116
Overseas special dividends 51 470
Total dividend income 7,336 7,586
Other income:
Deposit interest 39 15
39 15
Total income 7,375 7,601
Special dividends of £79,000 were recognised in capital during the year (At
30 April 2023: £51,000).
3. Investment Management Fee
This note shows the investment management fee due to the Manager which is
calculated and paid quarterly.
2024 2023
Revenue £’000 Capital £’000 Total £’000 Revenue £’000 Capital £’000 Total £’000
Investment management fee 441 1,322 1,763 460 1,381 1,841
Details of the investment management and secretarial agreement are given on
page 35 in the Directors’ Report.
At 30 April 2024, £440,000 (At 30 April 2023: £448,000) 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.
2024 2023
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Directors’ remuneration (i) 143 – 143 134 — 134
Auditor’s fees (ii):
– for audit of the Company’s Annual
Financial Statements 70 – 70 50 — 50
Other administration expenses (iii) 479 4 483 497 3 500
692 4 696 681 3 684
(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:
* £14,000 (2023: £12,000) of employer’s National Insurance payable on
Directors’ remuneration. As at 30 April 2024, the amounts outstanding on
Directors’ remuneration was £11,000 (2023: £10,000); and the amount
outstanding in respect of employer’s National Insurance was £1,000 (2023:
£1,000).
* custodian transaction charges of £4,000 (2023: £3,000). 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 £119,000 (2023: £118,000) 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).
2024 2023
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Commitment fees due on bank facility 7 19 26 5 17 22
Interest on bank facility 115 344 459 99 298 397
Overdraft interest 4 12 16 4 10 14
126 375 501 108 325 433
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
2024 2023
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Overseas tax 694 4 698 756 — 756
Indian capital gains tax – paid – note 6(d) – 668 668 — 409 409
Total current tax charge 694 672 1,366 756 409 1,165
Indian capital gains tax – movement in
provision – note 6(d) – (46) (46) — 123 123
Total tax charge for the year 694 626 1,320 756 532 1,288
The overseas tax charge consists of irrecoverable withholding tax.
(b) Reconciliation of total tax charge
2024 2023
£’000 £’000
Net return on ordinary activities before taxation 6,884 4,010
Theoretical tax at the current UK Corporation Tax rate of 25%
(At 30 April 2023: 19.5%) 1,721 782
Effects of:
– Non-taxable UK dividends (19) –
– Non-taxable overseas dividends (1,754) (1,425)
– Non-taxable overseas special dividends (33) (64)
– (Gains)/losses on investments not subject to UK corporation tax (605) 255
– Non-taxable losses/(gains) on foreign exchange 8 (122)
– Excess of allowable expenses over taxable income 681 573
– Disallowable expenses 1 1
– Overseas taxation 698 756
– Indian capital gains tax - paid 668 409
– Indian capital gains tax – provision – see (d) below (46) 123
Tax charge for the year 1,320 1,288
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 £30,278,000 (2023:
£28,007,000) and a non-trade loan relationship deficit of £1,675,000 (2023:
£1,220,000) giving total unutilised losses of £31,953,000 (2023:
£29,227,000) that are available to offset future taxable revenue.
A deferred tax asset of £7,988,000 (2023: £7,307,000) at 25% (2023: 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 2024 of
£770,000 (2023: £816,000). See note 12 for further details.
7. Net return per Ordinary Share
Net 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.
2024 2023
Pence £’000 Pence £’000
Net return per ordinary share is based on the following:
Revenue return after taxation 8.12 5,422 8.37 5,596
Capital return after taxation 0.22 142 (4.30) (2,874)
Total return after taxation 8.34 5,564 4.07 2,722
2024 2023
£’000 £’000
Weighted average number of ordinary shares in issue during the year 66,752,781 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.
2024 2023
Pence £’000 Pence £’000
Dividends paid and recognised in the year:
First interim dividend paid 7.20 4,813 7.20 4,813
Second interim dividend paid 6.90 4,574 7.60 5,081
14.10 9,387 14.80 9,894
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 £5,422,000 (2023:
£5,596,000).
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.
2024 2023
£’000 £’000
Opening valuation 258,962 256,686
Movements in the year:
Purchases at cost 104,378 90,297
Sales (114,513) (86,712)
Gains/(losses) on investments in the year 2,420 (1,309)
Closing valuation 251,247 258,962
Closing book cost 232,074 234,875
Closing investment holding gains 19,173 24,087
Closing valuation 251,247 258,962
The Company received £114,513,000 (2023: £86,712,000) from investments sold
in the year. The book cost of these investments when they were purchased was
£107,179,000 (2023: £67,122,000) realising a profit of £7,334,000 (2023:
£19,590,000) which when offset against the movement in closing investment
holding gains results in net gain on investments in the year of £2,420,000
(2023: net losses of £1,309,000). 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 £114,000
(2023: £79,000) on purchases and £185,000 (2023: £134,000) 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.
2024 2023
£’000 £’000
Overseas withholding tax recoverable 227 145
VAT recoverable 14 19
Prepayments and accrued income 686 358
927 522
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.
2024 2023
£’000 £’000
Bank facility 12,626 13,593
Share buybacks awaiting settlement 320 —
Accruals 679 668
13,625 14,261
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%
(2023: 0.2%). The bank facility covenants are based on the lower of 25% of net
asset value and £20 million, renewable on 26 July 2024, 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 £12,626,000 (2023:
£13,593,000).
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.
2024 2023
£’000 £’000
Provision for deferred Indian capital gains tax 770 816
770 816
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
2024 2023
£’000 £’000
Share capital:
Ordinary shares of 10p each 6,591 6,685
Treasury shares of 10p each 909 815
7,500 7,500
(b) Share movements
2024 2023
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
Shares bought back and held in treasury (945,000) 945,000 – –
Number at the end of the year 65,908,287 9,091,594 66,853,287 8,146,594
During the year the Company bought back, into treasury, 945,000 ordinary
shares at a total cost of £2,915,000.
A further 290,000 shares have been bought back into treasury, at an average
price of 321.3p, since 30 April 2024.
As explained in the Chairman’s Statement on page 8, the Company introduced a
performance conditional tender offer in 2020 whereby the Board has undertaken
to effect a tender offer for up to 25.0% of the Company’s issued share
capital in the event that certain conditions are met relating to performance
of the net asset value compared to the benchmark index.
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.
2024 2023
Ordinary shareholders’ funds £238,266,000 £245,004,000
Number of ordinary shares in issue, excluding treasury shares 65,908,287 66,853,287
Net asset value per ordinary share 361.51p 366.48p
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 2024
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 – – – – – 3,691 3,691
Chinese yuan – – – – – 14,352 14,352
Hong Kong dollar – – – – – 76,308 76,308
Indian rupee – – – – – 22,984 22,984
Indonesian rupiah – – – – – 10,331 10,331
Singapore dollar 151 – – – 151 5,407 5,558
South Korean won 139 – – – 139 41,011 41,150
Swiss franc – – – – – 2,845 2,845
Taiwan dollar 227 16 – – 243 38,590 38,833
Thai baht 289 – – – 289 6,994 7,283
US dollar 78 521 (12,626) – (12,027) 17,444 5,417
Vietnamese dong – – – – – 5,119 5,119
884 537 (12,626) – (11,205) 245,076 233,871
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
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:
2024 2023
Total Total
Revenue Capital loss Revenue Capital loss
return return after tax return return after tax
£’000 £’000 £’000 £’000 £’000 £’000
Australian dollar (2) (52) (54) (9) (219) (228)
Chinese yuan (15) (244) (259) (25) (572) (597)
Hong Kong dollar (26) (1,221) (1,247) (62) (3,097) (3,159)
Indian rupee (5) (345) (350) 19 (849) (830)
Indonesian rupiah (16) (248) (264) (11) (340) (351)
Singapore dollar (2) (59) (61) (5) (52) (57)
South Korean won (18) (700) (718) (24) (990) (1,014)
Taiwan dollar (15) (656) (671) (24) (748) (772)
Thai baht (7) (147) (154) (4) (147) (151)
US dollar 208 (305) (97) 434 (225) 209
Vietnamese dong (4) (118) (122) — (161) (161)
98 (4,095) (3,997) 289 (7,400) (7,111)
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:
2024 2023
% %
£/Australian dollar +/–1.4 +/–2.6
£/Chinese yuan +/–1.7 +/–2.4
£/Hong Kong dollar +/–1.6 +/–3.3
£/Indian rupee +/–1.5 +/–3.5
£/Indonesian rupiah +/–2.4 +/–3.2
£/Singapore dollar +/–1.1 +/–2.4
£/South Korean won +/–1.7 +/–2.3
£/Taiwan dollar +/–1.7 +/–2.2
£/Thai baht +/–2.1 +/–2.2
£/US dollar +/–1.7 +/–3.3
£/Vietnamese dong +/–2.3 +/–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 £12,626,000 of the bank facility was drawn down (2023:
£13,593,000).
The Company also has available an uncommitted bank overdraft arrangement with
the custodian for settlement purposes. At the year end, there was a sterling
overdraft of £50,000 (2023: US dollar overdraft with a sterling equivalent of
£740,000). 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 £25.1 million
(2023: £25.9 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 £537,000 (2023: £1,337,000) was held at the
custodian, in addition a balance had been held in Invesco Liquidity Funds plc
during the year and the balance was £1,494,000 at the year end (2023: £nil).
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 two 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 £242,722,000 (2023: £252,244,000).
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 were two Level 2 investments held with a
total fair value of £8,488,000 (2023: £6,680,000), comprising of
Kasikornbank, valued at £6,994,000 (2023: £6,880,000) and Invesco Liquidity
Funds – US Dollar money market fund, valued at £1,494,000 (2023: £nil).
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 £37,000 using a
price which was in line with trades in the OTC market (2023: one investment:
Lime Co. valued at £38,000 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 2024 was £250,892,000
(2023: £258,597,000) comprising borrowings of £12,626,000 (2023:
£13,593,000) and equity share capital and other reserves of £238,266,000
(2023: £245,004,000).
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 and 24. 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 2024 (2023: 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. 2024 Financial Information
The figures and financial information for the year ended 30 April 2024 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 2024 have been audited but have not yet been
delivered to the Registrar of Companies. The Auditor's report on the 2024
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. 2023 Financial Information
The figures and financial information for the year ended 30 April 2023 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 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.
24. Annual Financial Report
The Annual Report for the year-ended 30 April 2024 will be posted to
shareholders in August 2024 and will be available 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 12 September 2024 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 2024.
2. To approve the Company’s Dividend Payment Policy. This is an advisory
vote.
3. To approve the Annual Statement and Report on Remuneration for the year
ended 30 April 2024.
4. To re-elect Neil Rogan as a Director of the Company.
5. To re-elect Vanessa Donegan as a Director of the Company.
6. To re-elect Myriam Madden as a Director of the Company.
7. To re-elect Sonya Rogerson as a Director of the Company.
8. To appoint Ernst & Young LLP as auditor of the Company.
9. 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 10 will be proposed as an ordinary resolution and resolutions 11 to
13 as special resolutions:
Authority to Allot Shares
10. 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 £6,561,828, this being 10% of the Company’s issued ordinary
share capital as at 25 July 2024, 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
11. That:
subject to the passing of resolution number 10 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 £3,280,914, this being 5% of
the Company’s issued share capital as at 25 July 2024 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
12. 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
9,836,181 or 14.99% of shares in issue as at 25 July 2024;
(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
13. 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 2024
By order of the Board
Invesco Asset Management Limited
Corporate Company Secretary
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