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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Invesco Asia Trust Plc | LSE:IAT | London | Ordinary Share | GB0004535307 | ORD 10P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| -1.00 | -0.33% | 301.00 | 299.00 | 304.00 | 299.00 | 299.00 | 299.00 | 31,160 | 16:35:23 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Trust,ex Ed,religious,charty | 6.97M | 2.72M | 0.0407 | 73.46 | 199.89M |
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Invesco Asia Trust plc
Annual Financial Report Announcement
For the Financial Year Ended 30 April 2017
FINANCIAL INFORMATION AND PERFORMANCE STATISTICS
The benchmark index of the Company is the MSCI AC Asia ex Japan Index
Total Return Statistics
Change for the year 2017 2016
Net asset value(1) (NAV) 40.6% -7.1%
Share price(1) 42.9% -10.3%
Benchmark index(1) 37.5% -14.3%
Capital Statistics
At 30 April 2017 2016 Change %
Net assets (GBP'000) 243,025 180,108 +34.9
Gearing:
- gross nil 3.1%
- net nil 1.7%
- net cash 2.6% nil
NAV per share 291.3p 210.7p +38.3
Share price 257.0p 183.0p +40.4
Benchmark index(1) - - +33.9
Discount per ordinary share:
- cum income 11.8% 13.1%
- ex income 10.3% 11.7%
Average discount over the year (ex income) 10.9% 9.7%
Revenue Statistics
Year Ended 30 April 2017 2016 Change %
Income (GBP'000) 5,464 4,256 +28.4
Net revenue available for ordinary shares (GBP'000) 3,978 2,978 +33.6
Revenue return per ordinary share 4.74p 3.42p +38.6
Dividend per share 4.30p 3.65p +17.8
Ongoing charges ratio 1.02 1.02
(1) Source: Thomson Reuters Datastream.
.
CHAIRMAN'S STATEMENT
Performance
Asian equity markets have made strong gains over the last twelve months,
underpinned by a cyclical upturn in corporate earnings and the robust global
economic backdrop. Investment returns for UK investors have also benefited from
the weakness of sterling relative to Asian currencies. The political and
macroeconomic environment has at times been challenging, with events such as
the UK vote to leave the EU and the election of US President Donald Trump
seeing a marked increase in uncertainty. However, sentiment towards Asian
equity markets has benefited from an easing of concerns over the health of
China's economy and expectations that global central banks will keep interest
rates at low levels for longer. Although the market has made a strong recovery,
we are confident that Asia will continue to be an attractive place to invest
given our portfolio manager's long-term perspective and focus on valuations.
I am pleased to report that the Company's strategy has again delivered
excellent absolute and relative returns. Over the year to 30 April 2017, the
net asset value per ordinary share increased by 40.6% compared to the benchmark
index, the MSCI AC Asia ex Japan index, which returned 37.5% (all figures: in
total return and sterling terms). The Company's share price rose from 183p to
257p, while the year end discount to net asset value, excluding income, at
which our shares trade narrowed to 10.3%.
On a longer term view, the returns by the Company have been excellent. I refer
you to the table on page 3 which shows that over three years the NAV and share
price have increased by 67.5% and 65.8%, respectively, versus the benchmark of
44.6%; over 5 years this outperformance increases with returns of 89.3% and
90%, respectively, versus the benchmark of 59.5% (all figures: total return, in
sterling terms).
Dividend
Following last year's dip in revenue return per share, this year it has
increased substantially to 4.74p, reflecting the rise in earnings of investee
companies as well as the weakness of sterling post Brexit. As a result, the
Board is pleased to be recommending a final dividend of 4.30p per ordinary
share (2016: 3.65p), an increase of 17.8%. The dividend, which is subject to
the approval of shareholders at the Annual General Meeting, will be payable on
14 August 2017 to shareholders on the register on 14 July 2017, and will be
marked ex-dividend on 13 July 2017.
Borrowings
The portfolio manager, Ian Hargreaves, has the freedom to borrow within a
working range set by the Board within the overall limit of the Company's
investment policy, which permits gross gearing of up to 25% of net assets.
During the year Ian used limited gearing at times when he believed it was
advantageous to do so, and held cash at other times. At the end of the year the
cash level had risen to 2.6% as he reduced or sold some positions, and at the
time of writing this report he holds 2.5% cash.
Tender Offer, Discount Control and Share Buy Backs
In recent years, the Board has proposed a tender offer if the Company's shares
traded over any year at an average discount of more than 10% to NAV excluding
income. Despite an excellent performance record, the Company's average
discount, excluding income, widened to 10.9% in the year to 30 April 2017
compared with the previous year's average of 9.7%. Consequently, the Board is
now seeking the approval of shareholders to implement a 15% tender offer at a
separate general meeting to be held at the conclusion of the Company's Annual
General Meeting ('AGM').
As announced on 2 May 2017, the Board has been considering its approach to
discount control for future financial periods. The Board considers that the
inclusion of a tender offer provision with a specific discount trigger has not
been effective in controlling the Company's share price discount. Despite
outperforming both the benchmark and a number its peers in the year to 30 April
2017, the discount widened in line with its peer group over the year.
Furthermore, the tender offer will reduce the overall size of the Company and
if there were future tenders this could in time give rise to concerns regarding
the liquidity of the Company's shares. An additional consideration is that as
the Company shrinks, the ongoing charges ratio rises. Both of these factors
potentially make the Company less attractive to both existing and new
investors. The Board has therefore concluded that, beyond the current proposed
tender offer, a continuation of these tender arrangements that have hitherto
been adopted on a year-by-year basis, would not be in shareholders' long term
interests.
Nevertheless, the Board remains committed to seeking to control the discount.
Overall, the Board considers it to be desirable that the Company's shares
should trade at a price which, on average, represents a discount of less than
10% to NAV excluding income in normal market conditions. In order to meet this,
the Company will utilise the authority sought from shareholders annually at the
AGM to buy back shares at its discretion having regard, amongst other matters
to factors such as market conditions and the discounts of comparable investment
companies.
Shares may be bought back when there is an excess available in the market and
the discount is higher than desired. By assisting in addressing any imbalance
between supply and demand, the objective is to reduce the scale and volatility
of the discount at which the shares trade in relation to the underlying net
asset value. Such buy backs will benefit all continuing shareholders as it is
the Board's policy to undertake share buy backs only when they enhance net
asset value. Accordingly, authority for the Board to buy back shares is sought
at the AGM and Special Resolution 11 seeks shareholders' approval to renew the
Company's authority to purchase up to 14.99% of its share capital; this is
explained in more detail on page in the annual financial report.
During the year to 30 April 2017 a total of 2,033,675 shares were bought back,
enhancing the NAV by GBP504,000 (0.26%). Of these, 808,182 were bought back into
treasury. Since the year end, the average share price discount to NAV has been
10.1% and there have been no further buy backs of shares.
Managing the Company's share price discount remains an important area of focus
to the Board and we will actively monitor and evaluate the most appropriate
means to address this.
Corporate Broker
The Board announced in February 2017 its decision to appoint Investec Bank plc
as the Company's sole financial adviser and broker. The Board's decision to
change its corporate broker came after a review of corporate broking services
and Investec Bank plc was appointed with effect from 1 March 2017. We look
forward to working with the team at Investec going forward.
Board Composition
After serving on the Board for over a decade, James Robinson, Chairman of the
Audit Committee and the Management Engagement Committee will retire as a
Director of the Company at the forthcoming annual general meeting. James has
been a hardworking and exemplary Director and as Chairman of the Audit
Committee took the lead in conducting the search for our new auditors, KPMG
LLP. The Board would like to thank Mr Robinson for his services to the Company
and its shareholders and wishes him well for the future.
As reported in the Company's half-yearly financial report, during the year the
Nomination Committee carried out a review of the composition of the Board and
the Company's succession plan. Consequently Fleur Meijs was appointed to the
Board in December 2016. Ms Meijs will be appointed as Chairman of the Audit
Committee and Management Engagement Committee on James' retirement. The Board believe that her experience as a qualified chartered accountant and former financial services partner at PricewaterhouseCoopers LLP enable her to take the chairmanship of these committees. Through her advisory work for investment banks, brokers, an exchange and a clearing house, Ms Meijs has an excellent understanding of the market players and the infrastructure within which investment trusts operate. General Meetings The Company's AGM will be held at 12 noon on 10 August 2017 at 43-45 Portman Square, London W1H 6LY. Ian Hargreaves will be making a presentation, highlighting the achievements of the past year and the prospects for the year to come. He will also be available to answer shareholders' questions. A general meeting of the Company follows at the conclusion of the AGM to consider the proposed tender offer. I hope as many of you as possible will attend. The Board has considered all the resolutions proposed in the Notice of the AGM and believe all are in the interests of shareholders as a whole. The Directors recommend that you vote in favour of each resolution, and confirm that they will be voting for each resolution. Carol Ferguson Chairman 28 June 2017 . BUSINESS REVIEW Invesco Asia Trust plc is an investment company and its investment objective is set out below. The strategy the Board follows to achieve that objective is to set investment policy and risk guidelines, together with investment limits, and to monitor how they are applied. These are also set out below and have been approved by shareholders. The business model the Company has adopted to achieve its investment objective has been to contract out investment management and administration to appropriate external service providers, which are overseen by the Board. The principal service provider is Invesco Fund Managers Limited, throughout this report is referred to as 'the Manager'. Invesco Asset Management Limited, an associate company of the Manager, manages the Company's investments and acts as Company Secretary under delegated authority from the Manager. The Manager provides company secretarial, marketing and general administration services including accounting and manages the portfolio in accordance with the Board's strategy. Ian Hargreaves is the portfolio manager responsible for the day-to-day management of the portfolio. The Company also has contractual arrangements with third parties to act as registrar, corporate broker and depositary. The depositary is BNY Mellon Trust & Depositary (UK) Limited. The depositary has delegated safekeeping of the Company's investments to The Bank of New York Mellon (London Branch), which was previously the Company's custodian and retains that function under delegated authority. Investment Objective The Company's objective is to provide long-term capital growth by investing in a diversified portfolio of Asian and Australasian companies. The Company aims to achieve growth in its net asset value (NAV) in excess of the Benchmark Index, the MSCI AC Asia ex Japan Index (total return, in sterling terms). Investment Policy Invesco Asia Trust plc invests primarily in the equity securities of companies listed on the stockmarkets of Asia (ex Japan) including Australasia. It may also invest in unquoted securities up to 10% of the value of the Company's gross assets, and in warrants and options when it is considered the most economical means of achieving exposure to an asset. The Company is actively managed and the Manager has broad discretion to invest the Company's assets to achieve its investment objective. The Manager seeks to ensure that the portfolio is appropriately diversified having regard to the nature and type of securities (such as performance and liquidity) and the geographic and sector composition of the portfolio. Investment Limits The Board has prescribed limits on the investment policy, including: - exposure to any one company may not exceed 10% of total assets; - exposure to group-related companies may not exceed 15% of total assets; - the Company may not invest more than 10% of total assets in collective investment funds; - the Company may not invest more than 10% in aggregate in unquoted investments; - the Company may invest in warrants and options up to a maximum of 10% of total assets. Apart from these and currency hedges, other derivative instruments are not permitted; and - the Company may use borrowings up to 25% of net assets. With the exception of borrowings in foreign currency, the Company does not normally hedge its currency positions but may do so if considered appropriate. All the above limits are applied at the time of acquisition, except gearing which is monitored on a daily basis. Borrowing and Debt The Company's borrowing policy is determined by the Board. The level of borrowing may be varied in accordance with the portfolio manager's assessment of risk and reward, subject to the overall limit of 25% of net assets and the availability of suitable finance. Performance and Key Performance Indicators The Board reviews performance by reference to a number of Key Performance Indicators which include the following: * the net asset value (NAV) and share price; * peer group performance; * discount; * dividend; and * ongoing charges ratio. A chart showing the total return NAV and share price performance compared to the Company's benchmark index can be found in the annual financial report. Peer group performance is monitored in relation to nine other investment trust companies that in the opinion of the Board form the peer group of the Company, being trusts that invest for growth in the Asia excluding Japan sector, as these most closely match the Company's investment objective and capital structure. As at 30 April 2017, in NAV terms the Company was ranked 3rd over one year, 4th over three years and 3rd over five years. The discount of the shares is monitored on a daily basis. During the year the shares traded at a discount to NAV (ex income) in a range of 8.1% to 14.2% with an average discount of 10.9%. This is shown in the adjacent graph which plots the discount over the two years to 30 April 2017. At the year end the discount to the NAV (ex income) stood at 10.3%. The Board considers it desirable that the Company's shares do not trade at a significant discount to NAV and believes that, in normal market conditions, the shares should trade at a price which on average represents a discount of less than 10% to NAV. To enable the Board to take action to deal with any material overhang of shares in the market it seeks authority from shareholders annually to buy back shares. Shares may be repurchased when, in the opinion of the Board, the discount is wider than desired and shares are available in the market. The Board considers that the repurchase of shares at a discount will enhance net asset value for remaining shareholders and may also assist in addressing the imbalance between the supply of and demand for the Company's shares and thereby reduce the scale and volatility of the discount at which the shares trade in relation to the underlying net asset value. The ten year record for dividends and the ongoing charges ratio for the last two years can be found in the annual financial report. Results and Dividend For the year ended 30 April 2017 the net asset value total return was 40.6% compared to the return on the benchmark index of 37.5%. The Portfolio Manager's Report reviews the results. Subject to approval at the AGM, the proposed final dividend for the year ended 30 April 2017 of 4.30p per share (2016: 3.65p) will be payable on 14 August 2017 to shareholders on the register on 14 July 2017. Shares will be marked ex-dividend on 13 July 2017. Financial Position and Borrowing The Company's balance sheet on page 44 of the annual financial report shows the assets and liabilities at the year end. Details of the Company's borrowing facility are shown in note 11 to the financial statements, with interest paid (finance costs) shown in note 5. Outlook, including the Future of the Company The main trends and factors likely to affect the future development, performance and position of the Company's business can be found in the Portfolio Manager's Report of this Strategic Report. Further details of the principal risks affecting the Company are set out in the next section: 'Principal Risks and Uncertainties'. Past performance has been good and Directors believe that following the tender offer (as detailed in the Chairman's Statement) the Company will continue in its current form with strong shareholder support. Investment Process At the core of the Manager's philosophy is a belief in active investment management. Fundamental principles drive an active investment approach, which aims to deliver attractive total returns over the long term. The investment process emphasises pragmatism and flexibility, active management, a focus on valuation and the combination of top-down and bottom-up fundamental analysis. Bottom-up analysis forms the basis of the investment process. It is the key driver of stock selection and is expected to be the main contributor to alpha generation within the portfolio. Portfolio construction at sector level is largely determined by this bottom-up process but is also influenced by top-down macro economic views. Research provides a detailed understanding of a company's key historical and future business drivers, such as demand for its products, pricing power, market share trends, cash flow and management strategy. This allows the Manager to form an opinion on a company's competitive position, its strategic advantages/ disadvantages and the quality of its management. Each member of the portfolio
management team travels to the region between three and four times per year and
therefore the team has contact with several hundred companies during each year.
The Manager will also use valuation models selectively in order to understand
the assumptions that brokers/analysts have incorporated into their valuation
conclusions and as a structure into which the Manager can input its own
scenarios.
Risk management is an integral part of the investment management process. Core
to the process is that risks taken are not incidental but are understood and
taken with conviction. The Manager controls stock-specific risk effectively by
ensuring that the portfolio is appropriately diversified.
Also, in-depth and constant fundamental analysis of the portfolio's holdings
provide the Manager with a thorough understanding of the individual stock risk
taken. The internal Performance & Risk Team, an independent team, ensures that
the Manager adheres to the portfolio's investment objectives, guidelines and
parameters. There is also a culture of challenge and debate within the
portfolio management team regarding portfolio construction and risk.
Internal Control and Risk Management
The Directors have overall responsibility for the Company's system of internal
controls and are responsible for reviewing the effectiveness of these controls.
This includes safeguarding of the Company's assets. The following sets out how
the Directors have carried out a robust assessment of the principal risks
facing the Company, including those that would threaten its business model,
future performance, solvency or liquidity.
The Audit Committee (the 'Committee'), on behalf of the Board, has established
an ongoing process for identifying and undertaking a robust assessment of the
risks to which the Company is exposed by reference to a risk control summary,
which maps the risks, mitigating controls in place, and monitoring and
reporting of relevant information to them.
As part of the process, the Committee has identified four risk categories:
strategic; investment management; third party service providers; and regulation
and corporate governance. An explanation of these categories follows.
Strategic Risk
The Board sets the strategy including objectives of the Company and how these
should be achieved. The Board assesses the performance of the Company in the
context of the market and macro issues, and gives direction, and monitors, the
Manager and other third parties for the actions they take on behalf of the
Company.
Investment Management Risk
Investment management covers management of the portfolio together with cash
management, gearing and hedging i.e. the items which the portfolio manager has
control of, and which generate the Company's performance.
Third Party Service Providers Risk
The Company has no employees and its Directors are appointed on a non-executive
basis. The Company is reliant on third party service providers (TPP) for its
executive functions. The Company's most significant TPP is the Manager - to
which portfolio management, company secretarial and administrative services are
delegated. Other significant TPPs are the broker, depositary, custodian,
registrar and auditor.
Regulation and Corporate Governance Risk
The Company is required to comply with many regulations including the
provisions of the Companies Act 2006, the UK Listing Rules, the Alternative
Investment Fund Managers Directive, the Market Abuse Regulation, the FCA's
Disclosure Guidance and Transparency Rules, tax regulation as an investment
trust, the UK Corporate Governance Code and Accounting Standards.
The resultant ratings of the mitigated risks, in the form of a risk control
matrix, enable the Directors to concentrate on those risks that are most
significant and also forms the basis of the list of principal risks and
uncertainties.
The Company's oversight and its control environment is based on the Company's
relationship with its third party service providers, all of which have clearly
defined lines of responsibility, delegated authority, and control procedures
and systems. The Company uses the three lines of defence model, which is also
embedded into the Manager's risk management systems.
The effectiveness of the Company's internal control and risk management system
is reviewed at least annually by the Committee. The Committee has received
satisfactory reports on the operations and systems of internal control of the
Manager, custodian and registrar from the Manager's Compliance and Internal
Audit Officers. Reports on the Manager encompassed all the areas the Manager is
responsible for: investment management, company secretarial and general
administration, including accounting. The Committee also received a
comprehensive, and satisfactory, report from the depositary at the year end
Committee meeting.
Due diligence is undertaken before any contracts are entered into with any
third party service provider. The Manager regularly reviews, against agreed
service standards, the performance of all third party providers through formal
and informal meetings, and by reference to third party independently audited
control reports. The results of the Manager's reviews are reported to and
reviewed by the Committee. These various reports did not identify any
significant failings or weaknesses during the year and up to the date of this
annual financial report. If any had been identified, the required remedial
action would have been taken. In particular the Board formally reviews the
performance of the Manager annually and informally at every Board meeting. No
significant failings or weaknesses occurred throughout the year ended 30 April
2017 and up to the date of this annual financial report.
Reporting to the Board at each board meeting comprises, but is not limited to:
financial reports, including any hedging and gearing; performance against the
benchmark and the Company's peer group; the portfolio manager's review,
including of the market, the portfolio, transactions and prospects; revenue
forecasts; and investment monitoring against investment guidelines. The
portfolio manager is permitted discretion within these guidelines, which are
set by the Board. Compliance with the guidelines is monitored daily. Any
proposed variation to these guidelines is referred to the Board.
Principal Risks and Uncertainties
The Board has carried out a robust assessment of the risks facing the Company,
including those that would threaten its business model, future performance,
solvency and liquidity. The principal risks that follow are those identified by
the Board after consideration of mitigating factors. In carrying out this
assessment, consideration was given to the market uncertainty arising from
Brexit.
CATEGORY AND PRINCIPAL RISK DESCRIPTION MITIGATING PROCEDURES AND CONTROLS
Strategic Risk
Market Risk There are few ways to mitigate market risk
The Company's investments are traded on Asian because it is influenced by factors which are
and Australasian stock markets as well as the outside the control of the Board and the
UK. The principal risk for investors in the Manager. These factors include the general
Company is a significant fall and/or a health of the world economy, interest rates,
prolonged period of decline in these markets. inflation, government policies, industry
This could be triggered by unfavourable conditions, political and diplomatic events,
developments within the region or events tax laws, environmental laws, and by changing
outside it. investor demand. Such factors may give rise
to high levels of volatility in the prices of
investments held by the Company.
Investment Objectives The Board receives regular reports reviewing
The Company's investment objectives and the Company's investment performance against
structure are no longer meeting investors' its stated objectives and peer group, and
demands. reports from discussion with its brokers and
major shareholders. The Board also has a
separate annual strategy meeting.
Wide Discount The Board receives regular reports from both
Lack of liquidity and lack of marketability the Manager and the Company's broker on the
of the Company's shares leading to stagnant Company's share price performance and level
share price and wide discount. of discount, together with regular reports on
Persistently high discount leads to continual marketing and meetings with shareholders and
buy backs of the Company's shares and prospective investors. The Board recognises
shrinkage of Company. the importance of a wide shareholder base and
continues with efforts to broaden this,
including active marketing and solid
investment performance.
Management Risk
Performance The Board regularly compares the Company's
Portfolio manager consistently underperforms NAV performance over both the short and long
the benchmark and/or peer group over 3-5 term to that of the benchmark and peer group
years. as well as reviewing the portfolio's
performance against benchmark (attribution)
and risk adjusted performance (volatility,
beta, tracking error, Sharpe ratio) of the
Company and its peers. The Board also
receives reports on and reviews: the
portfolio, transactions in the period, active
positions, gearing position and, if
applicable, hedging.
Key Person Dependancy The portfolio manager works within, and is
The portfolio manager (Ian Hargreaves) ceases supported by, the wider Invesco Perpetual
to be portfolio manager or is incapacitated Asian Equities Team, including Stuart Parks -
or otherwise unavailable. the Company's previous portfolio manager.
Currency Fluctuation Risk With the exception of borrowings in foreign
Exposure to currency fluctuation risk currency, the Company does not normally hedge
negatively impacts the Company's NAV. The its currency positions but may do so should
movement of exchange rates may have an the portfolio manager or the Board feel this
unfavourable or favourable impact on returns was appropriate. Contracts are limited to
as nearly all of the Company's assets are currencies and amounts commensurate with the
non-sterling denominated. asset exposure. The foreign currency exposure
of the Company is reviewed at Board meetings.
Third Party Service Providers Risk
Unsatisfactory Performance of Third Party Details of how the Board monitors the
Service Providers services provided by the Manager and the
Failure by any service provider to carry out other third party service providers, and the
its obligations to the Company in accordance key elements designed to provide effective
with the terms of its appointment could have internal control, are included in the
a materially detrimental impact on the internal control and risk management section.
operations of the Company and could affect
the ability of the Company to successfully
pursue its investment policy and expose the
Company to reputational risk. Disruption to
the accounting, payment systems or custody
records could prevent the accurate reporting
and monitoring of the Company's financial
position.
Information Technology Resilience and As well as regular review of TPPs' audited
Security service organisation control reports by the
The Company's operational structure means Audit Committee, the Board receives regular
that all cyber risk (information and physical updates on the Manager's information
security) arises at its third party service security. The Board monitors TPPs' business
providers (TPPs). This cyber risk includes continuity plans and testing - including
fraud, sabotage or crime perpetrated against their regular 'live' testing of workplace
the Company or any of its TPPs. recovery arrangements.
Regulation and Corporate Governance Risk
Failure to Comply With Relevant Law and The company secretary and the Company's
Regulations advisers will report any regulatory and
This could damage the Company and its ability fiscal changes to the Board. The Board and
to continue in business. the Manager will monitor changes in
Adverse regulatory or fiscal changes. government policy and legislation which may
have an impact on the Company.
Viability Statement
The Company is a collective investment vehicle rather than a commercial
business venture and is designed and managed for long term investment. The
Company's investment objective clearly sets out the long-term nature of the
returns from the portfolio and this is the view taken by both the Directors and
the Portfolio Manager in the running of the portfolio. The Company is required
by its Articles to have a vote on its future every three years, the next vote
being in 2019. The Directors have no reason to believe that shareholders will
not vote to release the Directors from their obligation to propose a wind up
resolution at that time. On this basis, the Directors consider that 'long term'
for the purpose of this viability statement is three years, albeit that the
life of the Company is not intended to be limited to this period.
In their assessment of the Company's viability, the Directors considered the
risks to which it is exposed, as set out above, 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, demand for and buy backs of the Company's shares, the
Company's borrowing structure, the liquidity of the portfolio and the Company's
future income and annual operating costs. The Directors also considered the
impact of the 15% tender offer but believe the Company remains viable after
this event and that liquidity will not be an issue. Lastly, whilst past
performance may not be indicative of performance in the future, the
sustainability of the Company can be demonstrated to date by there being no
material change in the Company's investment objective since its launch in 1995.
The Directors confirm that they have a reasonable expectation that the Company
will be able to continue in operation and meet its liabilities as they fall due
over the three year period of assessment.
Board Diversity
The Board takes into account many factors, including the balance of skills,
knowledge, diversity (including gender) and experience, amongst other factors
when reviewing its composition and appointing new directors, but does not
consider it appropriate to establish targets or quotas in this regard. The
Board comprises five non-executive directors, three of whom are male. There are
no set targets in respect of diversity, including gender. However, diversity
forms part of both the Nominations Committee and main Board's deliberations
when considering new appointments. The Company's success depends on suitably
qualified candidates who are willing, and have the time, to be a director of
the Company. Summary biographical details of the Directors are set out in the
annual financial report. The Company has no employees.
Social and Environmental Matters
As an investment company with no employees, property or activities outside
investment, environmental policy has limited application. The Manager considers
various factors when evaluating potential investments. While a company's policy
towards the environment and social responsibility, including with regard to
human rights, is considered as part of the overall assessment of risk and
suitability for the portfolio, the Manager does not necessarily decide to make
or not to make an investment on environmental and social grounds. The Manager
applies the United Nations Principles for Responsible Investment.
As an investment vehicle the Company does not provide goods or services in the
normal course of business, and does not have customers. Accordingly, the
Directors consider that the Company is not within the scope of the Modern
Slavery Act 2015.
PORTFOLIO MANAGER'S REPORT
Market Review
Asian equity markets, as measured by the MSCI AC Asia ex Japan Index (total
return, in sterling terms), rose by 37.5% over the 12 months to 30 April 2017.
Factors that have improved investor sentiment include: corporate earnings
revisions turning up, an improved outlook for global growth and an easing in
fears about potential US trade sanctions. More importantly, strong economic
data in China drove the outperformance of its equity market as well as those of
Taiwan and Korea which benefited from an export recovery. India recovered its
underperformance following demonetisation whilst markets in South East Asia
such as Malaysia and the Philippines lagged. Finally, investment returns for UK
investors were aided by sterling's depreciation relative to Asian currencies
after the unexpected Brexit vote.
China's equity markets benefited from the combination of economic
stabilisation, a property market recovery and fading concerns surrounding
capital outflows. Consumption growth remains robust and the full year GDP data
showed that progress had been made in rebalancing the economy away from
investment-led growth. However, high credit growth continues to be a concern
for the market with renewed expectation that credit conditions will need to be
tightened further as the authorities shift their focus to credit risks rather
than economic growth.
The market in India was among the best performers aided by the ruling Bharatiya
Janata Party's victory in state elections and credible progress on its reform
agenda. The approval of the Bankruptcy Code was a significant step towards
cleaning up bank balance sheets, while the goods and services tax
constitutional amendment bill is expected to widen the tax net and help boost
productivity. The government's demonetisation of high-value currency was
initially expected to negatively impact economic activity but we are now seeing
such concerns recede.
Turning to other markets, South Korea's equity market rose despite political
tensions including President Park Geun-hye's impeachment, tensions caused by
North Korean belligerence, and a related Chinese boycott of South Korean
products as retaliation to the unpopular US-Korea defence system. The market
was focused on positive earnings revisions, low market valuations and
improvements in corporate governance. The end of the political limbo on the
election of the new president also helped. In particular, Samsung Electronics
was one of the best performing stocks as positive earnings revisions drove its
share price higher. Sentiment towards this company also benefited from the successful launch of the Galaxy S8 smartphone and continued positive actions to improve shareholder returns. Finally, the Taiwanese equity market was the best performing market as technology stocks offer strong free cash flow characteristics and rose on anticipation that the new iPhone 8 will drive the revenue growth of Apple's suppliers. Portfolio Review In the year to 30 April 2017, the Company's net asset value increased by 40.6% (total return, in sterling terms). This performance was ahead of the benchmark which rose by 37.5% (total return, in sterling terms). The Company's exposure to the technology sector contributed significantly to relative outperformance. In particular, the Chinese internet company NetEase enjoyed strong share price gains on earnings upgrades stemming from its continued success in mobile games in China and the first signs of their international expansion bearing fruit. We gradually trimmed the holding, reflecting the large size of the position in the portfolio. However, the shares remain reasonably valued in our view, given NetEase's track record of launching successful new games in a fast-growing industry. Also, Chinese online retailer JD.com performed strongly. Even though this company was not generating profits until last quarter, we were attracted to the strong cashflow generation of the business that we felt was not being appropriately valued by the market. We maintain a positive view of this company's outlook. In particular, we believe that as the company grows, its greater buying power will allow it to capture higher product rebates and discounts which will drive margins higher and enhance its price competitiveness. Our exposure to Indian equities added considerable value this year. For example, the agrochemical company UPL continued to perform well as the market has become more convinced of its ability to sustain mid-teen earnings growth. Given the diversity of its product and geographical mix, UPL has delivered stable profitability despite fluctuations in weather and commodity prices. Importantly, its successful new product pipeline has allowed it to grow at above the industry rate. We gradually took profits in the latter half of the year as the shares continued to outperform. The share price of Adani Ports and Special Economic Zone, the largest private port operator in India, recovered over the year with the rebound in its cargo volumes acting as a catalyst. The market also rewarded management's efforts to unwind related party loans and reduce capital expenditure. We retain a position in the company as we believe it is a good way to play economic revival in India. Smaller Indian companies also provided a source of opportunity, with Gujarat Gas and real estate company Sobha outperforming significantly. A new government policy to lower corporation tax on affordable housing projects could potentially revive what has been a dull property market in many cities, helping developers such as Sobha to tap into this large market. Lower mortgage rates and the government's interest subsidy scheme should help drive demand. Amongst other holdings in the small and mid-cap space, MINTH, a Chinese auto-parts manufacturer, added notable value on stronger than expected sales growth both in China and export markets. Importantly, the company also demonstrated margin expansion as its investments in Europe and the US have begun to bear fruit and it successfully takes market share in higher margin products such as aluminium trims. This led to a re-rating of the shares. The positive investment case for this company was reinforced by the recent full year results and management's confidence in the outlook for 2017 revenue. We believe the company is still attractive given the growth visibility provided by its order book over the next few years. Conversely, having been a strong performer in recent years, the holding in Korea Electric Power (Kepco) was the largest drag on performance during the fiscal year due to a sharp recovery in coal prices, a major cost item for the company. There have also been concerns about potentially adverse policy changes post the presidential election. However, we believe that the market is overestimating the risk of tariff cuts and is underappreciating the government's incentive to ensure that Kepco generates an acceptable return on capital. Without this, Kepco will be unable to deliver on the government's commitment to transition the power generation mix away from coal and nuclear towards renewables. Finally, Baidu's share price was held back partly due to new search-advertising rules which negatively impacted its earnings. To meet the new requirements, the company engaged in a clean-up exercise of its customer base to ensure that all customers had the correct certificate to advertise online. This initially led to a decline in customer numbers and pricing. However, we viewed this as a short term issue and we are pleased that the new Chief Operating Officer has moved to de-emphasise the transaction services business, which requires large subsidies in order to gain market share. As these issues fade, margins should increase as the company focuses its attention on the core search business whilst investing in areas such as online video and newsfeed where it has an established competitive advantage. Outlook With Asian markets having recovered strongly since the lows in February 2016, valuations are now less attractive than before. In particular equal-weighted average valuations in Asia ex Japan are now close to 17x 2017 earnings. This is towards the upper end of the range since the global financial crisis. In our view, this means that further sustainable market performance will be more reliant on an improvement in earnings momentum. Since late 2016, consensus 2017 earnings for Asia ex Japan have been revised up by 7%. To date, the earnings improvement has been mainly concentrated in the materials, energy and technology sectors and to a lesser extent financials. With the exception of technology, where insufficient supply of memory chips is the cause, the re-acceleration of the Chinese economy has been the dominant driving force. This, in turn, has resulted from an easing in monetary policy and rapid credit growth. Since the end of 2016, however, the Chinese government has expressed increased concern about overheating in areas of the property market and high leverage in parts of the non-bank financial sector. An important factor is credit impulse relative to GDP and as figure 1 in the annual financial report shows, the authorities have already tightened credit conditions. This will likely lead to a moderate slowing in Chinese economic growth in coming months and a peak in earnings momentum for the sectors that rely heavily on Chinese growth. The strength in a number of Asian currencies versus the US Dollar since the beginning of 2017 will be an additional drag on future earnings growth. As a result of this view, the Company has gradually been reducing its exposure to the more cyclical areas of the market and, as figure 2 in the annual financial report demonstrates, the allocation to Hong Kong and China has been reduced over the last 12 months. We have also allowed cash levels in the Company to rise (2.6% at the end of April 2017) by not fully reinvesting the proceeds. Within the Hong Kong and China portfolio we continue to favour sectors (figure 3 in the annual financial report) that we believe will become more important economically in the long run. The Company's holdings in NetEase (mobile gaming), JD.com (ecommerce), Baidu (artificial intelligence), AIA (life insurance) and Samsonite International (travel) are examples of this. India remains the largest overweight market for the Company. In our opinion, India is differentiated in two ways from other Asian economies. Firstly, it is one of the only economies at the trough of its credit cycle. It has seen a negligible increase in leverage over the last 10 years, a period during which most other Asian economies have seen large increases in debt levels. It currently has the lowest credit growth for 30 years as the banks deal with bad debts resulting from the infrastructure lending boom of the last decade. This is leading to relatively subdued economic activity, weak private investment and low earnings momentum. However, India's position in the credit cycle suggests there are fewer constraints to growth in the longer term as compared to other Asian economies. Secondly, under the stewardship of Prime Minister Modi, India has the best reform momentum amongst the countries we invest in. There are headline grabbing reforms such as the introduction of a unified goods and service tax, demonetisation, the use of technology to distribute subsidies and reforms in the real estate sector. However, there is also evidence of better execution in the day to day operation of the bureaucracy and a gradual assault on the small scale corruption that acts as a friction to economic activity. We continue to like the private banks in India. HDFC Bank is the largest holding in our India portfolio. Representing only 30% of lending in India, these banks still have great potential to gain market share from the government banks which struggle to compete on customer service, efficiency and credit appraisal. In an economic environment which may have seen the best of the cyclical upturn and where valuation levels have caught up with events, our focus remains on trying to uncover companies that have sustainable earnings growth prospects but where valuations are reasonable. Some of the best contributors to the Company's performance over the last few years, like NetEase and UPL, are examples of where the market has been under-estimating the earnings power and quality of these businesses. Although we have been taking profits in these companies, the largest reductions have been in the more cyclical sectors such as Materials and
Industrials, where some of the Company's holdings, such as Origin Energy in
Australia or Jardine Matheson in Hong Kong, saw their share prices reach levels
that fully priced in the fundamental improvements in our view. We have added to
the technology sector in China and Taiwan in companies with defensive
characteristics: strong balance sheets and free cash flow generation. We
continue to cast the net as wide as possible by looking at small and mid-sized
companies, which is typically a less well researched segment of the market
frequently trading at discounts to larger companies. Companies below GBP3 billion
now represent 20% of the portfolio.
Ian Hargreaves
Portfolio Manager
The Strategic Report was approved by the Board of Directors on 28 June 2017.
Invesco Asset Management Limited
Company Secretary
.
INVESTMENTS IN ORDER OF VALUATION
at 30 April 2017
Ordinary shares unless stated otherwise
The industry group is based on MSCI and Standard & Poor's Global Industry
Classification Standard.
AT MARKET % OF
VALUE PORT-
COMPANY INDUSTRY GROUP? COUNTRY GBP'000 FOLIO
Samsung Electronics Technology Hardware & South Korea
- ordinary shares Equipment 10,465 } 8.2
- preference shares 8,940
NetEase - ADR Software & Services China 9,285 3.9
Baidu - ADR Software & Services China 8,610 3.6
HDFC Bank Banks India 8,450 3.6
Taiwan Semiconductor Semiconductors & Taiwan 8,449 3.6
Manufacturing Semiconductor
Equipment
AIA Insurance Hong Kong 8,275 3.5
UPL Materials India 8,176 3.5
Hyundai Motor - preference Automobiles & South Korea 8,009 3.4
shares Components
China MobileR Telecommunication China 7,559 3.2
Services
MINTH Automobiles & China 6,411 2.7
Components
Top Ten Holdings 92,629 39.2
CK Hutchison Capital Goods Hong Kong 6,393 2.7
Samsonite International Consumer Durables & Hong Kong 5,836 2.5
Apparel
Korea Electric Power Utilities South Korea 5,629 2.4
Hon Hai Precision Industry Technology Hardware & Taiwan 5,570 2.3
Equipment
Tencent Software & Services Hong Kong 5,075 2.1
MediaTek Semiconductors & Taiwan 5,014 2.1
Semiconductor
Equipment
Chroma ATE Technology Hardware & Taiwan 4,962 2.1
Equipment
United Overseas Bank Banks Singapore 4,845 2.1
JD.com - ADR Retailing China 4,735 2.0
HSBC Banks Hong Kong 4,407 1.9
Top Twenty Holdings 145,095 61.4
ASUSTeK Computer Technology Hardware & Taiwan 4,277 1.8
Equipment
China Life Insurance (Taiwan) Insurance Taiwan 4,213 1.8
Shinhan Financial Banks South Korea 4,047 1.7
Telekomunikasi Indonesia Telecommunication Indonesia 3,726 1.6
Services
Sobha Real Estate India 3,509 1.5
Aurobindo Pharma Pharmaceuticals, India 3,495 1.5
Biotechnology
& Life Sciences
DGB Financial Banks South Korea 3,473 1.5
Tata Consultancy Software & Services India 3,372 1.4
PT Bank Negara Indonesia Banks Indonesia 3,339 1.4
Persero
HKR International Real Estate Hong Kong 3,338 1.4
Top Thirty Holdings 181,884 77.0
Industrial & Commercial Banks China 3,331 1.4
Bank Of ChinaH
Yageo Technology Hardware & Taiwan 3,235 1.4
Equipment
Asaleo Care Household & Personal Australia 3,180 1.3
Products
POSCO Materials South Korea 3,148 1.3
Adani Ports & Special Transportation India 3,147 1.3
Economic Zone
Filinvest Land Real Estate Philippines 3,027 1.3
Housing Development Finance Banks India 2,974 1.2
FIH Mobile Technology Hardware & Hong Kong 2,867 1.2
Equipment
Cheung Kong Property Real Estate Hong Kong 2,734 1.2
Petrochina - ADR Energy China 2,733 1.2
Top Forty Holdings 212,260 89.8
Qingling MotorsH Automobiles & China 2,704 1.2
Components
EVA Precision Industrial Capital Goods Hong Kong 2,697 1.1
51job - ADR Commercial & China 2,445 1.1
Professional
Services
Nexon Software & Services Japan 2,418 1.0
Korean Reinsurance Insurance South Korea 2,319 1.0
ICICI Banks India 2,214 0.9
Gujarat Gas Utilities India 2,104 0.9
Finetex EnE Capital Goods South Korea 2,017 0.9
Hyundai Home Retailing South Korea 1,982 0.8
CNOOCR Energy China 1,859 0.8
Top Fifty Holdings 235,019 99.5
Pacific Basin Shipping Transportation Hong Kong 1,219 0.5
Total holdings of 51 (2016: 236,238 100.0
57)
ADR: American Depositary Receipts - are certificates that represent shares in
the relevant stock and are issued by a US bank. They are denominated and pay
dividends in US dollars.
H: H-Shares - shares issued by companies incorporated in the
People's Republic of China (PRC) and listed on the Hong Kong Stock Exchange.
R: Red Chip Holdings - holdings in companies incorporated outside
the PRC, listed on the Hong Kong Stock Exchange, and controlled by PRC entities
by way of direct or indirect shareholding and/or representation on the board.
CLASSIFICATION OF INVESTMENTS BY COUNTRY/SECTOR
at 30 April
2017 2016
AT % OF AT % OF
VALUATION PORTFOLIO VALUATION PORTFOLIO
GBP'000 GBP'000
Australia
Commercial & Professional Services - - 3,781 2.1
Energy - - 1,861 1.0
Household & Personal Products 3,180 1.3 - -
Materials - - 1,799 1.0
3,180 1.3 7,441 4.1
China
Automobiles & Components 9,115 3.9 7,109 3.9
Banks 3,331 1.4 3,713 2.0
Commercial & Professional Services 2,445 1.1 2,123 1.1
Energy 4,592 2.0 4,255 2.4
Retailing 4,735 2.0 - -
Software & Services 17,895 7.5 13,762 7.5
Telecommunication Services 7,559 3.2 7,593 4.1
49,672 21.1 38,555 21.0
Hong Kong
Banks 4,407 1.9 3,663 2.0
Capital Goods 9,090 3.8 8,398 4.6
Consumer Durables & Apparel 5,836 2.5 4,052 2.2
Insurance 8,275 3.5 5,421 2.9
Materials - - 3,360 1.8
Real Estate 6,072 2.6 5,319 2.9
Software & Services 5,075 2.1 2,168 1.2
Technology Hardware & Equipment 2,867 1.2 3,171 1.8
Transportation 1,219 0.5 1,468 0.8
Utilities - - 2,382 1.3
42,841 18.1 39,402 21.5
India
Automobiles & Components - - 2,994 1.6
Banks 13,638 5.7 7,858 4.3
Materials 8,176 3.5 5,481 3.0
Pharmaceuticals, Biotechnology
& Life Sciences 3,495 1.5 - -
Real Estate 3,509 1.5 2,376 1.3
Software & Services 3,372 1.4 6,348 3.4
Transportation 3,147 1.3 1,587 0.9
Utilities 2,104 0.9 2,760 1.5
37,441 15.8 29,404 16.0
Indonesia
Banks 3,339 1.4 2,436 1.3
Telecommunication Services 3,726 1.6 3,539 2.0
7,065 3.0 5,975 3.3
Japan
Software & Services 2,418 1.0 - -
2,418 1.0 - -
Philippines
Consumer Services - - 392 0.2
Real Estate 3,027 1.3 3,019 1.7
3,027 1.3 3,411 1.9
Singapore
Banks 4,845 2.1 3,466 1.9
Capital Goods - - 595 0.3
4,845 2.1 4,061 2.2
South Korea
Automobiles & Components 8,009 3.4 7,802 4.3
Banks 7,520 3.2 5,559 3.0
Capital Goods 2,017 0.9 - -
Insurance 2,319 1.0 - -
Materials 3,148 1.3 3,076 1.7
Retailing 1,982 0.8 1,749 0.9
Technology Hardware & Equipment 19,405 8.2 10,856 5.9
Utilities 5,629 2.4 4,225 2.3
50,029 21.2 33,267 18.1
Taiwan
Insurance 4,213 1.8 4,484 2.5
Semiconductors & Semiconductor
Equipment 13,463 5.7 5,388 2.9
Technology Hardware & Equipment 18,044 7.6 11,957 6.5
35,720 15.1 21,829 11.9
236,238 100.0 183,345 100.0
DIRECTORS' RESPONSIBILITIES STATEMENT
in respect of the preparation of the annual financial report
The Directors are responsible for preparing the annual financial report in
accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under the law the Directors have elected to prepare financial
statements in accordance with UK Accounting Standards, including FRS 102 The
Financial Reporting Standard applicable in the UK and Republic of Ireland.
Under company law, the Directors must not approve the accounts unless they are
satisfied that they give a true and fair view of the state of affairs of the
Company and of the profit or loss of the Company for that period.
In preparing these financial statements, the Directors are required to:
* select suitable accounting policies and then apply them
consistently;
* make judgments and estimates that are reasonable and prudent;
* state whether applicable accounting standards have been
followed; and
* prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will continue in
business.
The Directors are responsible for keeping adequate accounting records which are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and which
enable them to ensure that the financial statements comply with the Companies
Act 2006. They have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the Company and to prevent
and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for
preparing a Strategic Report, a Directors' Report, a Directors' Remuneration
Report and a Corporate Governance Statement that complies with that law and
those regulations.
The Directors of the Company each confirm to the best of their knowledge that:
* the financial statements, prepared in accordance with UK Generally
Accepted Accounting Practice, give a true and fair view of the assets,
liabilities, financial position and profit of the Company taken as a whole; and
* this annual financial report includes a fair review of the development
and performance of the business and the position of the Company, together with
a description of the principal risks and uncertainties that it faces.
The Directors consider that this annual financial report, taken as a whole, is
fair, balanced and understandable and provides the information necessary for
shareholders to assess the Company's position and performance, business model
and strategy.
Carol Ferguson
Chairman
Signed on behalf of the Board of Directors
28 June 2017
.
INCOME STATEMENT
FOR THE YEARED 30 APRIL
2017 2016
REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL
RETURN RETURN RETURN RETURN RETURN RETURN
NOTES GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Gains/(losses) on
investments at
fair value 9 - 68,112 68,112 - (16,739) (16,739)
Losses on foreign
currency revaluation - (539) (539) - (234) (234)
Income 2 5,464 - 5,464 4,256 - 4,256
Investment management
fee 3 (420) (1,261) (1,681) (325) (975) (1,300)
Other expenses 4 (529) (3) (532) (503) (5) (508)
Net return before finance
costs and taxation 4,515 66,309 70,824 3,428 (17,953) (14,525)
Finance costs 5 (14) (41) (55) (17) (51) (68)
Return on ordinary
activities before
taxation 4,501 66,268 70,769 3,411 (18,004) (14,593)
Taxation on ordinary activities 6 (523) - (523) (433) - (433)
Return on ordinary
activities after taxation
for the financial year 3,978 66,268 70,246 2,978 (18,004) (15,026)
Return per ordinary share:
Basic 7 4.74p 78.93p 83.67p 3.42p (20.70p) (17.28p)
The total column of this statement represents the Company's profit and loss
account, prepared in accordance with UK Accounting Standards. The return on
ordinary activities after taxation is the total comprehensive income and
therefore no statement of comprehensive income is presented. The supplementary
revenue and capital columns are presented for information purposes in
accordance with the Statement of Recommended Practice issued by the Association
of Investment Companies. All items in the above statement derive from
continuing operations. No operations were acquired or discontinued in the year.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
FOR THE YEARED 30 APRIL
CAPITAL
SHARE REDEMPTION SPECIAL CAPITAL REVENUE
CAPITAL RESERVE RESERVE RESERVE RESERVE TOTAL
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 30 April 2015 9,092 4,032 93,803 89,352 5,888 202,167
Return on ordinary activities - - - (18,004) 2,978 (15,026)
Final dividend - note 8 - - - - (3,195) (3,195)
Shares bought back and cancelled (218) 218 (3,838) - - (3,838)
At 30 April 2016 8,874 4,250 89,965 71,348 5,671 180,108
Return on ordinary activities - - - 66,268 3,978 70,246
Final dividend - note 8 - - - - (3,086) (3,086)
Shares bought back and cancelled (123) 123 (2,375) - - (2,375)
Shares bought back and held in - - (1,868) - - (1,868)
treasury
At 30 April 2017 8,751 4,373 85,722 137,616 6,563 243,025
.
BALANCE SHEET
at 30 April
2017 2016
NOTES GBP'000 GBP'000
Fixed assets
Investments at fair value through profit or loss 9 236,238 183,345
Current assets
Debtors 10 1,407 378
Cash and cash equivalents 6,236 2,391
7,643 2,769
Creditors: amounts falling due within one year 11 (856) (6,006)
Net current assets/(liabilities) 6,787 (3,237)
Net assets 243,025 180,108
Capital and reserves
Share capital 12 8,751 8,874
Other reserves:
Capital redemption reserve 13 4,373 4,250
Special reserve 13 85,722 89,965
Capital reserve 13 137,616 71,348
Revenue reserve 13 6,563 5,671
Shareholders' funds 243,025 180,108
Net asset value per ordinary share
- Basic 14 291.3p 210.7p
These financial statements were approved and authorised for issue by the Board
of Directors on 28 June 2017.
Carol Ferguson
Chairman
Signed on behalf of the Board of Directors
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARED 30 APRIL 2017
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) and with the Statement of Recommended Practice Financial
Statements of Investment Trust Companies and Venture Capital Trusts, issued by
the Association of Investment Companies in November 2014, as amended in January
2017. The financial statements are issued 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. A cash flow statement is not required when an
investment fund meets the following conditions:
* substantially all investments are highly liquid;
* substantially all investments are carried at market value, and
* a statement of changes in equity is provided (in these financial
statements it is called the Reconciliation of Movements in Shareholders'
Funds).
(ii) Going Concern
The financial statements have been drawn up on the going concern basis.
(b) Foreign currency
(i) Functional and presentation currency
The financial statements are presented in sterling, which is the Company's
functional and presentation currency and is the currency of the Company's share
capital and the predominant currency in which the Company's shares are traded.
(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.
(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.
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 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, including money market funds. 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 provide a return no greater than the rate of a three-month high quality
government bond.
(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. 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 net revenue for the period. The
tax charge is allocated between the revenue and capital account 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 as the Company is unlikely to have sufficient future taxable revenue
to offset against these.
2. Income
This note shows the income generated from the portfolio (investment assets) of
the Company and income received from any other source.
2017 2016
GBP'000 GBP'000
Income from investments
Overseas dividends 4,868 3,709
Scrip dividends 107 218
UK dividends 293 259
Special dividends - overseas 194 70
Total dividend income 5,462 4,256
Other income:
Interest 2 -
Total income 5,464 4,256
No special dividends have been recognised in capital during the year
(2016: nil).
3. Investment Management Fee
This note shows the investment management fee due to the Manager which is
calculated and paid quarterly.
2017 2016
REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Investment management fee 420 1,261 1,681 325 975 1,300
Details of the investment management and secretarial agreement are given on
page 22 in the Directors' Report in the annual financial report.
At 30 April 2017, GBP444,000 was due for payment in respect of the management fee
(2016: GBP332,000).
4. Expenses
The other expenses of the Company are presented below; those paid to the
Directors and the auditor are separately identified.
2017 2016
REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Directors' remuneration (i) 119 - 119 100 - 100
Auditor's fees (ii):
- for audit of the financial
statements 21 - 21 25 - 25
- for other services relating
to taxation (iii) - - - 10 - 10
Other expenses (iv) 389 3 392 368 5 373
529 3 532 503 5 508
(i) Directors' fees authorised by the Articles of Association are GBP150,000
per annum. The Directors' Remuneration Report provides further information on
Directors' remuneration for the year. Included within other expenses is GBP11,000
(2016: GBP9,000) of employer's national insurance contributions payable on
Directors' remuneration. As at 30 April 2017, the amount outstanding on
Directors' remuneration and employer's national insurance was GBP12,000 (2016: GBP
9,000).
(ii) Auditor's fees are shown excluding VAT.
(iii) Other services relating to taxation are provided by Grant Thornton UK LLP
who were the Company's auditor in 2016. Therefore for 2017 these charges are
included in other expenses and comprise GBP7,000 (2016: GBP6,000) for tax
compliance and GBP3,000 (2016: GBP4,000) for fees in respect of recovery of
Taiwanese withholding tax.
(iv) Other expenses also includes 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 GBP
87,000 (2016: GBP86,000) for these services. Custodian transaction charges of GBP
3,000 (2016: GBP5,000) have been charged to capital.
5. Finance Costs
Finance costs arise on any borrowing the Company has which for this Company is
a GBP20 million revolving credit facility (see more in note 11).
2017 2016
REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Overdraft interest - - - - 1 1
Interest on term loan 14 41 55 17 50 67
14 41 55 17 51 68
6. Taxation
As an investment trust the Company pays no tax on capital gains. The Company
suffers no tax on income arising on UK and certain overseas dividends. The
Company's tax charge arises solely from irrecoverable tax on overseas
(generally non-EU) dividends. This note also clarifies the basis for the
Company having no deferred tax liability.
(a) Current tax charge
2017 2016
REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Overseas tax 523 - 523 433 - 433
The overseas tax charge consists of irrecoverable withholding tax.
(b) Reconciliation of current tax charge
2017 2016
GBP'000 GBP'000
Return on ordinary activities before taxation 70,769 (14,593)
Theoretical tax at UK Corporation tax rate of 19.9%
(2016: 20.0%) 14,097 (2,918)
Effects of:
Non-taxable (gains)/losses on investments (13,568) 3,348
Non-taxable losses on foreign currency revaluation 107 47
Non-taxable UK dividends (58) (52)
Non-taxable scrip dividends (21) (44)
Non-taxable overseas dividends (999) (756)
Effect of overseas tax 523 433
Expenses not allowed 1 1
Expenses in excess of taxable income 441 374
523 433
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 excess management expenses and loan relationship deficits of GBP
14,335,000 (2016: GBP12,120,000) that are available to offset future taxable
revenue.
A deferred tax asset of GBP2,437,000 (2016: GBP2,182,000), measured at the
prospective rate of corporation tax of 17% (2016: 18%), has not been recognised
in respect of these expenses since they are recoverable only to the extent that
the Company has sufficient future taxable revenue which they may be set
against. This is considered unlikely.
7. Return per Ordinary Share
Return per share is the amount of gain or loss generated for the financial year
divided by the weighted average number of ordinary shares in issue.
2017 2016
GBP'000 GBP'000
Return per ordinary share is based on the following:
Revenue return after taxation 3,978 2,978
Capital return after taxation 66,268 (18,004)
Total return after taxation 70,246 (15,026)
2017 2016
Weighted average number of ordinary shares
in issue during the year:
- basic 83,959,135 86,972,224
8. Dividends on Ordinary Shares
Dividends represent a return of income less expenses to shareholders. The
Company pays one dividend a year.
Dividends paid:
2017 2016
PENCE GBP'000 PENCE GBP'000
Final dividend in respect of previous year 3.65 3,086 3.65 3,195
Dividends proposed:
2017 2016
PENCE GBP'000 PENCE GBP'000
Final dividend proposed 4.30 3,587 3.65 3,093
9. Investments at Fair Value
The portfolio comprises investments which are listed and traded on regulated
stock exchanges.
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.
All investments are listed.
(a) Investments
2017 2016
GBP'000 GBP'000
Opening valuation 183,345 202,176
Movements in the year:
Purchases at cost 45,886 47,657
Sales - proceeds (61,105) (49,749)
Sales - gains on sales 14,746 7,106
Movement in investment holding gains during the year 53,366 (23,845)
Closing valuation 236,238 183,345
Closing book cost 158,782 159,255
Closing investment holding gains 77,456 24,090
Closing valuation 236,238 183,345
(b) Gains/(losses) on investments
2017 2016
GBP'000 GBP'000
Realised gains on sales 14,746 7,106
Movement in investment holding gains during the year 53,366 (23,845)
Gains/(losses) on investments 68,112 (16,739)
(c) Registration of investments
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.
(d) Transaction costs
The total transaction costs of GBP308,000 (2016: GBP263,000) included in
gains and losses on investments relate to GBP110,000 (2016: GBP106,000) on
purchases and GBP198,000 (2016: GBP157,000) on sales.
10. Debtors
Debtors are amounts which are due to the Company, such as monies due from
brokers for investments sold and income which has been earned (accrued) but not
yet received.
2017 2016
GBP'000 GBP'000
Amounts due from brokers 917 74
Tax recoverable 167 142
VAT recoverable 15 20
Prepayments and accrued income 308 142
1,407 378
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 loan facility provides a specific amount of capital, up to GBP20
million, over a specified period of time (364 days). Unlike a term loan, the
revolving nature of the facility allows the Company to drawdown, repay and
re-draw loans.
2017 2016
GBP'000 GBP'000
Bank loan - 5,504
Amounts due to brokers 240 -
Accruals 616 502
856 6,006
The Company has an unsecured 364 day multi-currency revolving credit facility
based on the lower of 25% of net asset value and GBP20 million, renewable on 5
August 2017. The facility covenant also requires total assets to not fall below
GBP80 million. At the year end none was drawn down (2016: GBP5.5 million equivalent
of US dollars at an interest rate of 1.2%). The Company also has an overdraft
facility that is available for settlement purposes and is limited to 10% of net
assets; this was unused at the year end (2016: nil).
12. Share Capital
Share capital represents the total number of shares in issue. Any dividends
declared will be paid on the shares in issue on the record date.
(a) Allotted, called-up and fully paid
2017 2016
GBP'000 GBP'000
Ordinary shares of 10p each 8,343 8,546
Treasury shares of 10p each 408 328
8,751 8,874
The Directors' Report on page 24 sets out the share capital structure,
restrictions and voting rights.
(b) Share movements
2017 2016
ORDINARY TREASURY ORDINARY TREASURY
NUMBER NUMBER NUMBER NUMBER
Number at start of year 85,462,391 3,277,224 87,640,064 3,277,224
Shares bought back and cancelled (1,225,493) - (2,177,673) -
Shares bought back and held in
treasury (808,182) 808,182 - -
83,428,716 4,085,406 85,462,391 3,277,224
The total cost of shares bought back in the year was GBP4,243,000 (2016: GBP
3,838,000) and the average price (excluding costs) was 207.18p (2016: 175.00p).
Since the year end no ordinary shares have been bought back.
(c) Winding-up provisions
The Directors are obliged to convene an Extraordinary General Meeting ('EGM')
to consider a special resolution to wind up the Company every third year from
the date of the AGM at which the Directors were released from such obligation.
At the AGM in 2016 the Directors were released from their obligation to convene
an EGM and a resolution to release the Directors from their obligation to
convene an EGM will be put to shareholders at the AGM in 2019.
13. 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
buy backs.
Capital investment gains and losses, both unrealised and realised, are shown in
note 9(a) and form part of the capital reserve. The revenue reserve shows the
net revenue retained after payment of any dividends. The capital and revenue
reserves are distributable by way of dividend.
14. Net Asset Value
The Company's total net assets (total assets less total liabilities) are often
termed shareholders' funds and are converted into net asset value per ordinary
share by dividing by the number of shares in issue.
The net asset values attributable to each share in accordance with the
Company's Articles are set out below.
2017 2016
Basic:
Ordinary shareholders' funds GBP243,025,000 GBP180,108,000
Number of ordinary shares in issue, excluding 83,428,716 85,462,391
treasury shares
Net asset value per ordinary share 291.3p 210.7p
There is no dilution in this or the previous year.
15. 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 6 of the annual financial
report. 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 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.
15.1 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 (15.1.1), interest rate risk
(15.1.2) and other price risk (15.1.3).
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 38. Borrowing is used to enhance returns,
however, this will also increase the Company's exposure to market risk and
volatility.
15.1.1 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 manager 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.
YEARED 30 APRIL 2017
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 AND MONETARY PROFIT CURRENCY
DIVIDS) EQUIVALENTS LOANS ACCRUALS) ITEMS OR LOSS EXPOSURE
CURRENCY GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Australian - - - - - 3,180 3,180
dollar
Hong Kong - - - - - 64,705 64,705
dollar
Indian rupee 488 473 - (240) 721 37,441 38,162
Indonesian - - - - - 7,065 7,065
rupiah
Japanese yen - - - - - 2,418 2,418
Phillipine peso - - - - - 3,027 3,027
Singapore 78 - - - 78 4,845 4,923
dollar
South Korean 211 - - - 211 50,029 50,240
won
Taiwan dollar 167 25 - - 192 35,720 35,912
US dollar 428 5,738 - - 6,166 27,808 33,974
1,372 6,236 - (240) 7,368 236,238 243,606
YEARED 30 APRIL 2016
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 AND MONETARY PROFIT CURRENCY
DIVIDS) EQUIVALENTS LOANS ACCRUALS) ITEMS OR LOSS EXPOSURE
CURRENCY GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Australian - - - - - 7,441 7,441
dollar
Hong Kong 20 - - - 20 58,155 58,175
dollar
Indian rupee - - - - - 23,820 23,820
Indonesian 74 1 - - 75 5,975 6,050
rupiah
Philippine peso - - - - - 3,411 3,411
Singapore 65 - - - 65 4,062 4,127
dollar
South Korean - - - - - 33,267 33,267
won
Taiwan dollar 142 - - - 142 21,829 21,971
US dollar 28 2,370 (5,504) - (3,106) 25,385 22,279
329 2,371 (5,504) - (2,804) 183,345 180,541
The above amounts 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:
2017 2016
TOTAL TOTAL
REVENUE CAPITAL LOSS REVENUE CAPITAL LOSS
RETURN RETURN AFTER TAX RETURN RETURN AFTER TAX
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Australian dollar (7) (213) (220) (8) (350) (358)
Hong Kong dollar (116) (3,688) (3,804) (50) (2,094) (2,144)
Indian rupee (15) (2,252) (2,267) (7) (548) (555)
Indonesian rupiah (11) (424) (435) (3) (303) (306)
Japanese yen - (145) (145) - - -
Philippine peso (3) (112) (115) (2) (102) (104)
Singapore dollar (7) (218) (225) (6) (158) (164)
South Korean won (22) (1,151) (1,173) (25) (1,098) (1,123)
Taiwan dollar (84) (2,574) (2,658) (22) (611) (633)
US dollar (9) (1,938) (1,947) (9) (822) (831)
(274) (12,715) (12,989) (132) (6,086) (6,218)
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:
2017 2016
% %
GBP/Australian dollar +/-6.7 +/-4.7
GBP/Hong Kong dollar +/-5.7 +/-3.6
GBP/Indian rupee +/-5.9 +/-2.3
GBP/Indonesian rupiah +/-6.0 +/-5.0
GBP/Japanese yen +/-6.0 -
GBP/Philippine peso +/-3.7 +/-3.0
GBP/Singapore dollar +/-4.5 +/-3.9
GBP/South Korean won +/-2.3 +/-3.3
GBP/Taiwan dollar +/-7.2 +/-2.8
GBP/US dollar +/-5.7 +/-3.7
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 the standard
deviation of currency fluctuations against the mean.
In the opinion of the Directors, the above sensitivity analyses are not
representative of the year as a whole, since the level of exposure changes
frequently as part of the currency risk management process of the Company.
15.1.2 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
(London Branch).
The Company has a credit facility (the '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 GBP20 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 GBP
200,000. At the year end no loan amounts were drawn down (2016: GBP5,504,000).
The Company also has an uncommitted bank overdraft facility of 10% of assets
held by the custodian which it uses for settlement purposes. At the year end
there was no overdrawn amount (2016: GBPnil). 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.
15.1.3 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 GBP23.6 million
(2016: GBP18.3 million) respectively.
15.2 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, and the loan and overdraft facilities
provide for additional funding flexibility. The financial liabilities of the
Company at the balance sheet date are shown in note 11.
15.3 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 II guidelines. The Board reviews the
custodian's annual independent controls assurance report and the Manager's
management of the relationship with the custodian. Following the appointment of
a depositary, assets and cash held at the custodian are covered by the
depositary's restitution obligation, accordingly the risk of loss is remote;
and
(c) the Short Term Investment Companies (Global Series) plc ('STIC') money
market fund, which is rated AAAM by Standard & Poor's and AAAMMF by Fitch.
In addition, cash balances are limited to a maximum of 2.5% of net assets with
any one deposit taker and a maximum of 6% of net assets in STIC. 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 GBP2,394,000 (2016: GBP2,391,000) was held
at the custodian and GBP3,842,000 (2016: nil) was held in STIC.
16. Fair Values 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. This note sets out the fair value hierarchy
comprising three 'levels' and the aggregate amount of the portfolio in each
level.
The fair values of the financial assets and financial liabilities are either
carried in the balance sheet at their fair value (investments), or the balance
sheet amount is a reasonable approximation of fair value.
FRS 102 as amended for fair value hierarchy disclosures (March 2016) sets out
three fair value levels. The investments held by the Company at the year end
are shown as above. All investments, for both this and the previous year, were
deemed to be Level 1 because fair values for all were based on quoted prices in
active markets for identical assets. No investments were held in either Levels
2 or 3.
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 valuation techniques used by the Company are explained in the
accounting policy note.
17. 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 the balance sheet date was GBP243,025,000
(2016: GBP185,612,000) comprising borrowings of GBPnil (2016: GBP5,504,000) and
equity share capital and other reserves of GBP243,025,000 (2016: GBP180,108,000).
The Company's total capital employed is managed to achieve the Company's
investment objective and investment policy as set out on page 6. Borrowings may
be used to provide gearing up to the lower of GBP20 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 Risks and Uncertainties' section above. 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 1159 Corporation Tax
Act 2010 and by the Companies Act 2006, respectively, and with respect to the
availability of the credit 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.
18. 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 financial commitments of the Company
at the year end (2016: GBPnil).
19. Related Party Transactions and Transactions with the Manager
A related party is a company or individual who has direct or indirect control
or who has significant influence over the Company. Under accounting standards,
the Manager is not a related party.
Under UK GAAP, the Company has identified the Directors as related parties. The Directors' remuneration and interests have been disclosed in the annual financial report 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 and note 3. 20. 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. Except for the 15% tender offer announced, there are no other significant events after the end of the reporting year requiring disclosure. This Annual Financial Report Announcement is not the Company's statutory accounts. The above results for the year ended 30 April 2017 have been agreed with the auditors and are an abridged version of the Company's full accounts, which have been approved and audited with an unqualified report. The 2016 and 2017 statutory accounts received unqualified reports from the Company's auditors and did not include any reference to matters to which the auditors drew attention by way of emphasis without qualifying the reports, and did not contain a statement under s498 of the Companies Act 2006. The financial information for 2016 is derived from the statutory accounts for 2016 which have been delivered to the Registrar of Companies. The 2017 accounts will be filed with the Registrar of Companies in due course. The Audited Annual Financial Report will be posted to shareholders shortly. Copies may be obtained during normal business hours from the offices of Invesco Perpetual, 6th Floor, 125 London Wall, EC2Y 5AS. A copy of the Annual Financial Report will be available from Invesco Perpetual on the following website: www.invescoperpetual.co.uk/invescoasia in due course. The Annual General Meeting of the Company will be held at 12.00 noon on 10 August 2017 at 43-45 Portman Square, London, W1H 6LY. END
(END) Dow Jones Newswires
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