Annual Financial Report
Invesco Asia Trust plc
Annual Financial Report Announcement
for the Financial Year Ended 30 April 2010
FINANCIAL INFORMATION AND PERFORMANCE STATISTICS
The benchmark index of the Company is the MSCI All Countries Asia Pacific ex
Japan Index (adjusted for sterling)
Performance Statistics
At At
30 April 30 April %
2010 2009 change
Net assets (£'000) 150,934 98,667 +53.0
Actual gearing 103 100
Asset gearing 102 100
Net asset value (`NAV') per ordinary share:
- basic 160.8p 105.1p +53.0
- diluted 154.9p 105.1p +47.4
Benchmark Index(i) - capital return 279.5 190.6 +46.6
Mid-market price per ordinary share 138.3p 94.5p +46.3
Subscription shares 26.0p n/a
Discount per ordinary share on diluted NAV 10.7% 10.1%
(cum income)
Discount per ordinary share on diluted NAV 9.6% 8.8%
(ex income)
Total Returns(i):
- Diluted NAV +55.1
- Benchmark Index +50.9
(i) Source: Thomson Financial Datastream.
Revenue
Year Year
Ended Ended
30 April 30 April
2010 2009
Gross income (£'000) 3,066 2,711 +13.1
Net revenue available for ordinary shares 2,184 1,463 +49.3
(£'000)
Dividend per share 2.25p 1.5p +50.0
Total expense ratio 1.1% 1.2%
Return per Ordinary Share
Diluted revenue return 2.3p 1.6p
Diluted capital return 54.9p (21.6)p
Total return 57.2p (20.0)p
CHAIRMAN'S STATEMENT
Performance and Prospects
At the start of the period under review there were indications that the global
downturn was nearing an end. These initial signs proved to be the foundations
from which Asian economies have built what appears to be a sustainable
recovery. While unprecedented government support was required to engineer the
improved outlook, the region is now benefiting from higher levels of internal
demand and an improvement in external trade, which together should generate
growth independent of state support. The rapid improvements across Asian
economies helped the Company to deliver very strong performance. Over the
period, the diluted net asset value (total return) per ordinary share rose by
55.1% compared to the benchmark, the MSCI All Countries Asia Pacific ex-Japan
Index (total return), which increased by 50.9%, adjusted for sterling. The
Company's share price rose from 94.5p to 138.3p, while the discount to diluted
net asset value (ex income) at which the shares traded widened to 9.6%, from
8.8% at the start of the period.
Dividend
In consequence of increased income from investments and a reduction in taxation
due to overseas dividends now being exempt from UK corporation tax, the Board
is pleased to recommend a final dividend of 2.25p per ordinary share (2009:
1.5p). The dividend, which is subject to the approval of shareholders at the
Annual General Meeting, will be payable on 13 August 2010 to shareholders on
the register on 16 July 2010.
Gearing
The Company has an unsecured £15 million credit facility with its Custodian,
The Bank of New York Mellon. The gearing policy is determined by the Board
which has established a gearing limit of a maximum of 25% of net assets. At the
end of the year, the Company had borrowed £5 million. Since the year-end and at
the latest practical time before publication of this document, the borrowing
was £2,500,000.
The Board
As I mentioned in my statement last year, Robin Baillie has decided to retire
from the Board following the 2010 Annual General Meeting. Robin has been a
Director of the Company since 1995 and served as Chairman from 1995 to 2005.
The Board thanks Robin warmly for his significant contribution to the Company's
business during his 15 years of service and wishes him all the best for a long
and happy retirement.
Continuation vote and discount control
Shareholders are given the opportunity to vote on the future of the Company
every three years and at the forthcoming Annual General Meeting an ordinary
resolution is being proposed that the Directors be released from their
obligation to convene an Extraordinary General Meeting proposing a special
resolution that the Company be wound up on a voluntary basis. The Directors
continue to believe that a wind-up would not serve shareholders' best interests
and that the combination of the management expertise of Stuart Parks and his
Henley team and the encouraging prospects we foresee for the markets in which
we invest will be of benefit to shareholders.
In the Board's ongoing discussions with shareholders in advance of the
continuation vote, it became clear that one of the Company's larger
shareholders wished the Board to consider, in the year of the continuation
vote, a tender offer to provide a return of capital to shareholders at close to
NAV as a means of discount control. After careful consideration, the Board has
decided that it would be in the interests of shareholders as a whole to propose
a tender offer at the end of the current financial year (subject to receiving
necessary shareholder approval) for up to 15% of the Company's issued share
capital, at a 2% discount to NAV less the costs of the tender, if the Company's
shares have traded over the year to 30 April 2011 at an average discount of
more than 10% to NAV (fully diluted, ex income).
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 higher than desired and shares are available in the
market. The Board is of the view that the principal purpose of share
repurchases is to enhance net asset value for remaining shareholders, although
it 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.
Outlook
Asia's long-term economic outlook remains positive and its share of global
economic output is set to rise. This reflects not only Asia's inherent
strengths, but also the more subdued performance of developed economies as they
continue to work their way through the consequences of the financial crises. As
we have experienced recently, Asia is not immune to issues emanating from the
West, but its long-term shift from export dependence towards an economic model
more aligned with domestic demand should see that influence decline. The
performance of Asian equities over the past two years has been a clear reminder
that volatility is inherent in these markets and this is likely to remain the
case as the global recovery continues to unfold. However, Asia's fundamental
strengths support the long-term case for investing in these markets, and
businesses in the region should benefit from its strong growth profile.
A year ago, valuations across Asian equity markets were depressed and their
normalisation has been reflected in the Company's strong share price
performance. The mis-pricing of Asian stocks has now been largely corrected,
but this has only seen valuations return to more normal levels. Looking ahead,
stock prices are likely to be supported by an ongoing recovery in corporate
earnings and the region continues to offer opportunities to tap into
fast-growing businesses within dynamic economies. With developed markets widely
expected to see modest growth in the years ahead, Asia's economic advantages
and increasing number of high-quality companies are likely to remain attractive
to long-term investors.
David Hinde
Chairman
6 July 2010
MANAGER'S REPORT
Manager's Review
Market & Economic Review
The twelve months to the end of April 2010 saw a strong rebound in Asian
economies and stockmarkets. The quick, decisive and meaningful supports put in
place by authorities across the region successfully halted the steep declines
in economic growth that had resulted from the West's financial crisis and the
ensuing global recession. Against a backdrop of record low interest rates and
large-scale stimulus spending, Asian economies strengthened throughout the
period and having been heavily sold down, Asian stocks benefited from an abrupt
change in investors' risk appetite.
As Asia's dominant economy, China led the region's economic rebound. Having
seen GDP growth decelerate sharply at the start of 2009, to 6.1% year-on-year
(y-o-y) in the first quarter, the economy posted 11.9% y-o-y expansion by the
first quarter of 2010. In addition to monetary and fiscal support, the gradual
improvement in global conditions, with export demand from developed economies
slowly gaining momentum, spurred China's recovery. More importantly for China's
long-term development was the greater role played by domestic demand.
Government efforts to boost spending and to strengthen the social safety net
saw activity among Chinese consumers steadily improve, and by April of this
year retail sales were growing at 18.5% y-o-y. While not experiencing the same
level of growth, other major Asian economies, including India, Indonesia and
Korea, also achieved robust recoveries. The strength of the upturn resulted in
bank reserve requirements being increased in China and India to slow the pace
of loan growth, with India also increasing interest rates to slow inflationary
pressures. Equities in India were further supported by a decisive election
victory for Prime Minister Manmohan Singh's incumbent government, which was
seen as potentially accelerating economic reform. In Thailand, anti-government
protests saw a rise in market volatility, but the equity market still provided
a robust return over the year as a whole.
With economic activity rising, corporate earnings picked up sharply and a
return of merger and acquisition activity was a further sign of improved
confidence. While year-on-year comparisons were flattered by the weakness of
earnings in the early part of 2009, companies including Samsung Electronics and
Hyundai Motor recorded exceptional increases in profits for the first quarter
of 2010. The strength of economic growth in China and Hong Kong was positive
for real estate companies as home sales and prices rose sharply, reflected in
Hong Kong real estate group Cheung Kong recording a 53% rise in 2009 profits.
Chinese banks were prominent, as they raised fresh capital to strengthen their
balance sheets following the record loan growth achieved in 2009, with China
Construction Bank announcing Asia's largest ever rights issue at a value of
US$11 billion.
Company performance
In the twelve months to the end of April 2010, the Company's net asset value
increased by 55.1% (diluted NAV, total return, adjusted for sterling),
outperforming the benchmark, the MSCI All Countries Asia Pacific ex Japan
Index, which gained 50.9% (total return, adjusted for sterling).
During the period, the Company benefited from strong individual stock
performances within the real estate sector, including the significant position
in Hong Kong-based developer Wharf (Holdings). The company's operating
performance benefited also from an environment of low interest rates and robust
demand, which translated into rising prices and increased activity. Stock
selection within the machinery sector was also beneficial to returns, led by
the holding in Jain Irrigation. The group manufactures irrigation systems which
are a growing requirement of India's agricultural sector. In the period under
review the shares were further supported by news that the Indian government
plans to increase its expenditure on irrigation projects significantly.
Underweight exposure to the commercial banking sector detracted from
performance, as this area of the market experienced a strong rebound as the
economic recovery in Asia gathered pace. The Company's position in the tobacco
sector, through Korean group KT&G Corporation, also had a negative impact, as
the stock trailed the performance of the wider market given its more defensive
earnings profile.
Outlook for Asian economies and markets
Asian equity markets face some very different challenges to those that
prevailed at the beginning of the period. Widespread concerns about the Western
financial sector, global economic weakness and falling asset prices have been
replaced by a focus on policy tightening and worries about the potential for
asset price bubbles. The position today reflects the success that Asian
authorities have had in supporting their economies and with growth now on a
much stronger footing we believe it is appropriate for governments and central
banks to be reconsidering policies and measures that were implemented during
the depths of the downturn.
The pace at which these stimulus measures are withdrawn will be an important
theme throughout the remainder of the year. While there is a risk that
tightening may happen too quickly, placing the sustainability of the recovery
in doubt, this is not a scenario we anticipate. We expect to see further
gradual removal of fiscal and monetary supports, a strategy that has already
begun in some countries, most notably in China and India. The central reason
for our expectation that tightening will take place over an extended period is
that export performance, while undoubtedly stronger, has yet to demonstrate
sustainable growth. Authorities are unlikely to tighten aggressively with the
medium-term recovery in developed economies still uncertain, highlighted by the
recent issues in the Eurozone, and a lack of clarity still surrounding Western
demand.
With economic fundamentals continuing to improve, valuations among Asian equity
markets have moved well above the undervalued levels that existed for much of
last year. However, markets have de-rated recently due to global concerns,
making Asian stocks look attractively valued again and they are now trading
slightly below their historical averages. Looking ahead, our expectations for
this year are positive, but more modest compared with the exceptional returns
achieved over the last twelve months. Encouragingly, we continue to find
attractive long-term opportunities in specific areas. Volatility is likely to
remain a factor in the short-term, particularly with sovereign debt concerns
rising in Europe, but we would view any periods of weakness as opportunities to
build positions in undervalued and high-quality Asian companies. Consensus
estimates indicate earnings growth in the region of 30% to 40% in 2010 which
would be very supportive of valuations. We also believe that this kind of
earnings growth is achievable, as many Asian companies have aggressively cut
costs and are now experiencing a healthy pick-up in demand. Longer-term, the
key supports of high savings rates, a young and motivated population and
generally low government deficits remain in place. In our view, this should
translate into continued outperformance over Western peers and we are
optimistic about Asia's long-term potential.
Strategy
We believe that domestic demand in Asia is likely to be a defining theme for
equity markets in the region in the years ahead and the Company is positioned
to exploit this opportunity. Currently, we have exposure to high-growth Chinese
internet companies which are trading at discounts to the wider market. We
remain overweight in the food & beverages sector, as in our view these
businesses trade on undemanding valuations and will be able to capitalise on
greater demand as both incomes and living standards in Asia rise. We also
favour the real estate sector as consumer debt is low, monetary policy remains
loose and affordability levels are acceptable. In addition, the long-term shift
from rural to urban lifestyles in Asia provides a powerful structural support.
Insurance companies make up a significant element of the Company's assets, as
we are able to find businesses with strong growth prospects trading on
attractive valuations. We also hold selected information technology companies
which have come through the downturn with stronger competitive advantages and
lower cost bases, enhancing their profitability.
We believe too that robust economic growth coupled with supportive monetary
conditions will be positive for businesses in China and Hong Kong which
together represent our largest geographic exposure. We have a lower exposure to
Australia than the benchmark as we believe that the country's growth prospects
will lag those of its Asian counterparts and we see limited value in materials
and Australian banks which represent a large proportion of the Australian
market. We are also underweight in some of the smaller Asian markets, including
Singapore, Thailand and Malaysia, where valuation levels, although not
expensive, should remain low as a result of political uncertainty (in Thailand)
or which offer less compelling growth potential relative to that available in
the larger Asian countries.
Stuart Parks
Investment Manager
6 July 2010
INVESTMENTS IN ORDER OF VALUATION
at 30 April 2010
Ordinary shares unless stated otherwise
R: Red Chip Holdings
H: H-Shares
At Market % of
Value Portfolio
Company Principal Activity Country £'000
Samsung Electronics Technology Hardware South Korea 8,874 5.7
Equipment
Jardine Matheson Capital Goods Hong Kong 6,815 4.4
China Taiping Insurance Hong Kong 4,447 2.9
InsuranceR
Taiwan Semiconductor
Manufacturing Semiconductors Taiwan 4,196 2.7
West China Cement Materials United 4,031 2.6
Kingdom
Hutchison Whampoa Capital Goods Hong Kong 3,687 2.4
United Phosphorus Materials India 3,386 2.3
Wharf Diversified Financials Hong Kong 3,068 2.0
Jain Irrigation Capital Goods India 2,849 1.8
Petrochina Energy China 2,847 1.8
Top Ten Holdings 44,200 28.6
Infosys Technologies Software & Services India 2,847 1.8
China MobileR Telecommunication Hong Kong 2,822 1.8
Services
QBE Insurance Insurance Australia 2,808 1.8
Hon Hai Precision Technology Hardware Taiwan 2,690 1.8
Equipment
BHP Billiton Materials Australia 2,688 1.8
Daegu Bank Banking South Korea 2,680 1.7
Industrial &
Commercial
Bank of ChinaH Banking China 2,664 1.7
Hyundai Motor Automobiles & Components South Korea 2,638 1.7
Shinhan Financial Banking South Korea 2,611 1.7
Bank of ChinaH Banking China 2,593 1.7
Top Twenty Holdings 71,241 46.1
Downer Edi Commercial & Professional
Services Australia 2,473 1.6
Cheung Kong Real Estate Hong Kong 2,432 1.6
Shanda Interactive Software & Services China 2,421 1.6
Posco Materials South Korea 2,319 1.5
Mediatek Semiconductors Taiwan 2,311 1.5
Daphne International Consumer Durables and Hong Kong 2,302 1.5
Apparel
China Pacific Insurance China 2,224 1.4
InsuranceH
China Life Insurance Insurance Taiwan 2,161 1.4
Wumart StoresH Food & Staples Retailing China 2,137 1.4
Zehjiang ExpresswayH Transportation China 2,137 1.4
Top Thirty Holdings 94,158 61.0
Newcrest Mining Materials Australia 2,080 1.3
Hengan International Household & Personal Hong Kong 2,045 1.3
Products
Beijing EnterprisesR Capital Goods Hong Kong 2,026 1.3
Venture Technology Hardware Singapore 2,025 1.3
Equipment
Perusahaan Gas Utilities Indonesia 2,018 1.3
Far Eastern New Capital Goods Taiwan 1,921 1.3
Century
Filinvest Land Real Estate Philippines 1,910 1.2
Standard Chartered Banking United 1,890 1.2
Kingdom
Hyundai Mobis Automobiles & Components South Korea 1,800 1.2
Cimb Group Holding Banking Malaysia 1,799 1.2
Top Forty Holdings 113,672 73.6
At Market % of
Value Portfolio
Company Principal Activity Country £'000
Iluka Resources Materials Australia 1,797 1.2
Westpac Bank Banking Australia 1,753 1.1
Unilever Indonesia Household & Personal Indonesia 1,741 1.1
Products
HKR International Real Estate Hong Kong 1,718 1.1
Polaris Securities Diversified Financials Taiwan 1,700 1.1
Metro Bank & Trust Banking Philippines 1,686 1.1
Dah Sing Banking Hong Kong 1,676 1.1
Housing Development Banking India 1,673 1.1
Finance
Delta Electronics Technology Hardware Taiwan 1,669 1.1
Equipment
Shinsegae Food & Staples Retailing South Korea 1,573 1.0
Top Fifty Holdings 130,658 84.6
Yingde Gases Materials Hong Kong 1,543 1.0
Samsung Fire & Marine Non-life Insurance South Korea 1,468 1.0
Noble Capital Goods Hong Kong 1,350 0.9
KWG Property Holdings Real Estate Hong Kong 1,282 0.8
Sina Corporation Software & Services China 1,274 0.8
Parkway Life Real Real Estate Singapore 1,249 0.8
Korean Reinsurance Insurance South Korea 1,230 0.8
GS Engineering Capital Goods South Korea 1,207 0.8
Fosters Food, Beverages & Tobacco Australia 1,158 0.8
Chunghwa Telecom Telecommunication Taiwan 1,136 0.7
Services
Top Sixty Holdings 143,555 93.0
CPN Retail Growth Real Estate Thailand 995 0.6
Bank of Baroda Banking India 977 0.6
Metro Pacific Diversified Financials Philippines 976 0.6
Investments
Ehouse China Real Estate China 963 0.6
M.P. Evans Food, Beverages & Tobacco United 922 0.6
Kingdom
Bandar Raya Real Estate Malaysia
Development
- Ords 735 0.5
- Warrants 132 0.1
867 0.6
Petra Foods Food, Beverages & Tobacco Singapore 832 0.6
BK Rakyat Banking Indonesia 831 0.6
China Real Estate Real Estate United 824 0.5
Opportunities Kingdom
Hong Kong Aircraft Transportation Hong Kong 769 0.5
Top Seventy Holdings 152,511 98.8
Dickson Concept Retailing Hong Kong 655 0.4
International
Wah Lee Industrial Capital Goods Taiwan 390 0.3
Dabur India Household & Personal India 360 0.2
Products
Jardine Strategic Capital Goods Hong Kong 318 0.2
Krisassets Holdings Capital Goods Malaysia 111 0.1
TOTAL 154,345 100.0
Classification of Investments by Country/Sector
at 30 April
2010 2009
At % of At % of
Valuation Portfolio Valuation Portfolio
£'000 £'000
Australia
Consumer Staples 1,158 0.8 - -
Materials 6,565 4.2 3,860 4.0
Industrials 2,473 1.6 1,204 1.2
Financials 4,561 3.0 4,022 4.1
Utilities - - 1,160 1.2
14,757 9.6 10,246 10.5
China
Energy 2,847 1.9 2,443 2.5
Consumer Staples 2,137 1.4 904 0.9
Industrials 2,137 1.4 748 0.8
Healthcare - - 76 0.1
Financials 8,444 5.4 5,642 5.7
Information Technology 3,695 2.4 1,311 1.3
19,260 12.5 11,124 11.3
Hong Kong
Consumer Staples 2,045 1.3 3,273 3.3
Materials 1,543 1.0 493 0.5
Consumer Discretionary 2,957 1.9 348 0.3
Industrials 14,965 9.7 8,068 8.2
Financials 14,623 9.5 10,268 10.4
Telecommunication 2,822 1.8 2,550 2.6
Services
38,955 25.2 25,000 25.3
India
Consumer Staples 360 0.2 188 0.2
Materials 3,386 2.3 2,337 2.4
Industrials 2,849 1.8 1,451 1.5
Financials 2,650 1.7 1,967 2.0
Information Technology - - 1,422 1.4
Telecommunication 2,847 1.8 1,698 1.7
Services
12,092 7.8 9,063 9.2
Indonesia
Consumer Staples 1,741 1.1 851 0.9
Materials - - 433 0.4
Financials 831 0.6 - -
Utilities 2,018 1.3 - -
4,590 3.0 1,284 1.3
Malaysia
Industrials 111 0.1 87 0.1
Financials 2,666 1.7 521 0.6
2,777 1.8 608 0.7
2010 2009
At % of At % of
Valuation Portfolio Valuation Portfolio
£'000 £'000
Philippines
Financials 4,572 3.0 1,302 1.4
4,572 3.0 1,302 1.4
Singapore
Energy - - 345 0.3
Consumer Staples 832 0.6 374 0.4
Industrials - - 1,267 1.3
Financials 1,249 0.8 679 0.7
Information Technology - - 1,171 1.2
Telecommunication 2,025 1.3 - -
Services
4,106 2.7 3,836 3.9
South Korea
Consumer Staples 1,573 1.0 3,813 3.9
Materials 2,319 1.5 985 1.0
Industrials 1,207 0.8 1,283 1.3
Consumer Discretionary 4,438 2.9 - -
Financials 7,989 5.2 1,942 2.0
Information Technology 8,874 5.7 5,528 5.6
Telecommunication - - 1,404 1.4
Services
Utilities - - 1,228 1.2
26,400 17.1 16,183 16.4
Taiwan
Industrials 2,311 1.5 3,839 3.9
Financials 3,861 2.5 3,180 3.2
Information Technology 10,866 7.1 8,094 8.3
Telecommunication 1,136 0.7 - -
Services
18,174 11.8 15,113 15.4
Thailand
Energy - - 900 0.9
Financials 995 0.6 724 0.7
995 0.6 1,624 1.6
Other
Materials 4,031 2.6 1,816 1.8
Financials 2,714 1.7 358 0.4
Consumer Staples 922 0.6 759 0.8
7,667 4.9 2,933 3.0
Total 154,345 100.0 98,316 100.0
PRINCIPAL RISKS AND UNCERTAINTIES
The principal risk factors relating to the Company can be divided into the
following areas:
Investment Objective
The Company's investment objective is described in the annual financial report.
There is no guarantee that the Company's investment objective will be achieved
or will provide the returns sought by the Company.
Investment Process
At the core of the investment manager's philosophy is a belief in active
investment management. Fundamental principles drive a genuinely unconstrained
investment approach, which aims to deliver attractive total returns over the
long term. The investment process emphasises pragmatism and flexibility, active
management, a focus on valuation and the combination of top-down and bottom-up
fundamental analysis. Bottom-up analysis forms the basis of the investment
process. It is the key driver of stock selection and is expected to be the main
contributor to alpha generation within the portfolio. Portfolio construction at
sector level is largely determined by this bottom-up process but is also
influenced by top-down macro economic views.
Research is structured to provide 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 investment management team travels to the region between three
and four times per year. In total the team has contact with around 700
companies a 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 his 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 portfolios are always 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 between managers regarding
portfolio construction and risk.
Portfolio performance is substantially dependent on the performance of Asian
and Australasian equities. Stocks are influenced by the general health of the
economies in the Far Eastern region. The Board recognises that market
conditions will affect portfolio performance. For a fuller discussion of the
economic and market conditions facing the Company and the prospects for future
performance, please see the Chairman's Statement and the Manager's Report in
the annual financial report.
Market Movement and Portfolio Performance
The Company's investments are traded on the Far Eastern, Indian and
Australasian stockmarkets. The principal risk for investors in the Company is
of a significant fall and/or a prolonged period of decline in the markets. This
could be triggered by unfavourable developments within the region or events
outside it. Additionally, performance can be geared by bank borrowings which
may accentuate any decline in performance. Other significant risks include
consistent underperformance by the Manager, or the market rating of the Company
failing to reflect good performance.
The value of investments held within the portfolio is influenced by many
factors including the general health of the world economy, interest rates,
inflation, government policies, industry conditions, political and diplomatic
events, tax laws, environmental laws, and by changing investor demand. The
Manager strives to maximise the return from the investments held, but these
investments are influenced by market conditions and the Board acknowledges the
external influences on portfolio performance.
While the Board obviously cannot influence market movements, it is vigilant in
monitoring and taking steps to mitigate the effects of falls in markets when
they occur. As has been indicated, the Manager's performance is carefully
monitored by the Board, and the continuation of the Manager's mandate is
revisited annually. The Board has established guidelines to ensure that the
investment policy that it has approved is pursued by the Manager. The Board and
the Manager maintain an active dialogue with the aim of ensuring that the
market rating of the Company's shares reflects the underlying net asset value,
and buy-back facilities are in place to assist in the management of this
process. Share issuance facilities were rejected by shareholders at the AGM
held in 2009.
The past performance of the Company, and all of the investments in the
portfolio, are not necessarily indicative of future performance.
Foreign Exchange Risks
The Company will account for its activities and report its results in sterling,
while investments will be made and realised in other currencies. The net asset
value of the Company will be reported in sterling. It is not generally the
Company's policy to engage in currency hedging. Accordingly, the movement of
exchange rates between sterling and the other currencies in which the Company's
investments are denominated or its borrowings are drawn down may have a
material effect, unfavourable or favourable, on the returns otherwise
experienced on the investments made by the Company.
The Ordinary Shares
The market value of, and the income derived from, the Company's ordinary shares
can fluctuate and may go down as well as up. The market value may not always
reflect the NAV per ordinary share. The market price of an ordinary share may
therefore trade at a discount to its NAV. As at 30 April 2010, an ordinary
share of the Company traded at a discount to the diluted NAV (ex income) of
9.6%.
The market value of the ordinary shares will be affected by a number of
factors, including the dividend yield from time to time of the ordinary shares,
prevailing interest rates and supply and demand for those ordinary shares,
along with wider economic factors and changes in the law, including tax law and
political factors. The market value of an ordinary share may therefore vary
considerably from its underlying value. There can be no guarantee that any
appreciation in the value of the Company's investments will occur and investors
may not get back the full value of their investment.
Although the ordinary shares are listed on the Official List and admitted to
trading on the London Stock Exchange's main market for listed securities, it is
possible that there may not be a liquid market in the ordinary shares and
shareholders may have difficulties in selling them.
Derivatives
The Company may enter into derivative transactions approved by the Board for
efficient portfolio management. Derivative instruments can be highly volatile
and expose investors to a high risk of loss. There is a risk that the returns
on the derivative do not exactly correlate to the returns on the underlying
investment, obligation or market sector being hedged against. If there is an
imperfect correlation, the Company may be exposed to greater loss than if the
derivative had not been entered into.
Gearing
Performance may be geared by way of an unsecured £15 million credit facility
with its Custodian, the Bank of New York Mellon. In current market conditions,
there is no guarantee that the Company's loan facility would be renewable at
maturity or on terms acceptable to the Company. If it were not possible to
renew this facility or replace it with another lender, the amounts owing by the
Company would need to be funded by the sale of securities.
Gearing levels may change from time to time in accordance with the investment
manager's assessment of risk and reward. As a consequence of gearing, any
reduction in the value of the Company's investments would lead to a
correspondingly greater reduction in its net asset value (which is likely to
affect the Company's share price adversely). Any reduction in the number of
shares in issue (for example as a result of buy-backs) will, in the absence of
a corresponding reduction in borrowings, result in an increase in the Company's
gearing.
Regulatory and Tax Related
The Company is subject to various laws and regulations by virtue of its status
as an investment trust and its listing on the London Stock Exchange. A breach
of s1158 CTA (previously s842 ICTA) could lead to the Company being subject to
capital gains tax on the profits arising from the sale of its investments. A
serious breach of other regulatory rules might lead to suspension from the
Stock Exchange or to a qualified Audit Report. Other control failures, either
by the Manager or any other of the Company's service providers, might result in
operational or reputational problems, erroneous disclosures or loss of assets
through fraud, as well as breaches of regulations.
The Manager reviews the level of compliance with s1158 CTA (previously s842
ICTA) and other financial regulatory requirements on a regular basis. All
transactions, income and expenditure are reported to the Board. The Board
regularly considers all perceived risks and the measures in place to control
them. The Board ensures that satisfactory assurances are received from service
providers. The Manager's Compliance and Internal Audit Officers produce regular
reports for review by the Company's Audit Committee. Risks and risk management
policies are also detailed in the notes to the financial statements in the
annual financial report.
RELATED PARTY TRANSACTIONS
David Hinde, the Chairman of the Company, is a non-executive director of Dah
Sing Banking Group, and the Fund holds shares in that company equivalent to
1.1% (2009: 1.1%) of the value of the portfolio. The Board has delegated
authority for investment selection to the Manager and the Manager has selected
this investment independently in accordance with the investment objective set
out in the annual financial report. The Board as a whole reviews the investment
portfolio on a regular basis and is satisfied that the investment was selected
in an objective manner and that no conflict of interest has arisen as a result
of the selection of this stock.
Invesco Asset Management Limited, a wholly-owned subsidiary of Invesco Ltd,
acts as Manager and Company Secretary to the Company. Details of Invesco Asset
Management Limited's services and fees are given in notes 3 and 4 to the
financial statements in the annual financial report. Full details of Directors'
interests are set out in the Report of the Directors in the annual financial
report.
DIRECTORS' RESPONSIBILITY STATEMENT
in respect of the preparation of the annual financial report
The Directors are responsible for preparing the annual financial report in
accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under the law the Directors have elected to prepare financial
statements in accordance with United Kingdom Generally Accepted Accounting
Practice. Under company law, the Directors must not approve the accounts unless
they are satisfied that they give a true and fair view of the state of affairs
of the Company and of the profit or loss of the Company for that period.
In preparing these financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgments and estimates that are reasonable and prudent;
• state whether applicable accounting standards have been followed, subject to
any material departures disclosed and explained in the financial statements;
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 Directors' Report, a Directors' Remuneration Report and a Corporate
Governance Statement that comply with that law and those regulations.
In so far as each of the Directors is aware:
• there is no relevant audit information of which the Company's Auditors are
unaware; and
• the Directors have taken all steps that they ought to have taken to make
themselves aware of any relevant audit information and to establish that the
Auditors are aware of that information.
The Directors of the Company each confirm to the best of their knowledge that:
• the financial statements, prepared in accordance with the applicable set of
accounting standards, give a true and fair view of the assets, liabilities,
financial position and profit of the Company; and
• this annual financial report includes a fair review of the development and
performance of the business and the position of the Company, together with a
description of the principal risks and uncertainties that it faces.
David Hinde
Chairman
Signed on behalf of the Board of Directors
6 July 2010
Income Statement
for the year ended 30 April
2010 2009
Revenue Capital Total Revenue Capital Total
Return Return Return Return Return Return
£'000 £'000 £'000 £'000 £'000 £'000
Gains/(losses) on
Investments - 52,680 52,680 - (19,748) (19,748)
Losses on foreign
currency - (195) (195) - (98) (98)
revaluation
Income 3,066 - 3,066 2,711 - 2,711
Investment management
Fee (251) (754) (1,005) (165) (496) (661)
Other expenses (466) (12) (478) (437) (23) (460)
Return before finance
costs and taxation 2,349 51,719 54,068 2,109 (20,365) (18,256)
Finance costs (17) (51) (68) (11) (34) (45)
Return on ordinary
activities before 2,332 51,668 54,000 2,098 (20,399) (18,301)
tax
Tax on ordinary (148) 64 (84) (635) 149 (486)
activities
Net return on
ordinary
activities after
tax for
the financial year 2,184 51,732 53,916 1,463 (20,250) (18,787)
Return per ordinary
share:
Basic 2.4p 55.1p 57.5p 1.6p (21.6)p (20.0)p
Diluted 2.3p 54.9p 57.2p 1.6p (21.6)p (20.0)p
The total return column of this statement represents the Company's profit and
loss account prepared in accordance with the accounting polices detailed in
note 1 to the financial statements. The supplementary revenue and capital
columns are prepared in accordance with the Statement of Recommended Practice
issued by the Association of Investment Companies. All items in the above
statement derive from continuing operations and the Company has no other gains
or losses, therefore no statement of total recognised gains and losses is
presented. No operations were acquired or discontinued in the year.
reconciliation of movements in shareholders' funds
for the year ended 30 April
Capital
Share Share Redemption Special Capital Revenue
Capital Premium Reserve Reserve Reserve Reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
At 30 April 2008 9,383 74,588 1,863 11,798 18,475 2,755 118,862
Net return for the - - - - (20,250) 1,463 (18,787)
year
Final dividend - - - - - (1,408) (1,408)
At 30 April 2009 9,383 74,588 1,863 11,798 (1,775) 2,810 98,667
Net return for the - - - - 51,732 2,184 53,916
year
Capitalise share
premium
for payment in full
of
subscription shares 188 (188) - - - - -
Cost of subscription
share
issue - (241) - - - - (241)
Final dividend - - - - - (1,408) (1,408)
At 30 April 2010 9,571 74,159 1,863 11,798 49,957 3,586 150,934
BALANCE SHEET
At 30 April
2010 2009
£'000 £'000
Fixed assets
Investments designated at fair 154,345 98,316
value
Current assets
Debtors 752 651
Cash at bank 1,246 568
1,998 1,219
Creditors: amounts falling due within (5,409) (795)
one year
Net current (liabilities)/assets (3,411) 424
Total assets less current liabilities 150,934 98,740
Provisions - (73)
Total net assets 150,934 98,667
Capital and reserves
Share capital 9,571 9,383
Share premium 74,159 74,588
Other reserves:
Capital redemption reserve 1,863 1,863
Special reserve 11,798 11,798
Capital reserve 49,957 (1,775)
Revenue reserve 3,586 2,810
Total Shareholders' funds 150,934 98,667
Net asset value per ordinary share
Basic 160.8p 105.1p
Diluted 154.9p 105.1p
These financial statements were approved and authorised for issue by the Board
of Directors on 6 July 2010.
David Hinde
Chairman
Signed on behalf of the Board of Directors
Cash Flow Statement
for the year ended 30 April
2010 2009
£'000 £'000
Cash inflow from operating activities 1,203 1,405
Servicing of finance (70) (41)
Taxation (336) (112)
Capital expenditure and financial investment (3,275) 2,199
Dividends paid (1,408) (1,408)
Net cash (outflow)/inflow before management of
liquid
resources and financing (3,886) 2,043
Management of liquid resources - 56
Financing 4,759 (2,500)
Increase/(decrease) in cash in the year 873 (401)
Reconciliation of cash flow to movement in net 2010 2009
(debt)/funds
£'000 £'000
Increase/(decrease) in cash in the year 873 (401)
Cash (inflow)/outflow from movement in debt (5,000) 2,500
Cash inflow from decrease in liquid resources - (56)
Change in net (debt)/funds resulting from cash (4,127) 2,043
flows
Translation differences (195) (98)
Movement in net (debt)/funds in the year (4,322) 1,945
Net funds/(debt) at beginning of year 568 (1,377)
Net (debt)/funds at end of year (3,754) 568
NOTES TO THE FINANCIAL STATEMENTS
1. Basis of Preparation
Accounting Standards Applied
The financial statements have been prepared under the historical cost
convention, except for the measurement at fair value of investments, and in
accordance with applicable United Kingdom Accounting Standards and with the
Statement of Recommended Practice (`SORP') `Financial Statements of Investment
Trust Companies and Venture Capital Trusts' issued by the Association of
Investment Companies in January 2009.
2. Income
2010 2009
£'000 £'000
Income from investments
Overseas dividends 2,839 2,599
Scrip dividends 207 58
UK dividends 19 19
Total dividend income 3,065 2,676
Other income
Interest 1 35
Total income 3,066 2,711
3. Investment management fee
2010 2009
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment management 251 754 1,005 167 503 670
fee
VAT recovered on - - - (2) (7) (9)
management fees
251 754 1,005 165 496 661
4. Return per ordinary share
2010 2009
£'000 £'000
Return per ordinary share is based on the following:
Revenue return 2,184 1,463
Capital return 51,732 (20,250)
Total return 53,916 (18,787)
2010 2009
Weighted number of ordinary shares in issue during the 93,837,425 93,837,425
year used for the purpose of the basic calculation
Weighted number of ordinary shares in issue during the 94,261,260 93,837,425
year used for the purpose of the diluted calculation
Basic
Revenue return per share 2.4p 1.6p
Capital return per share 55.1p (21.6)p
Total return per share 57.5p (20.0)p
Diluted
Revenue return per share 2.3p 1.6p
Capital return per share 54.9p (21.6)p
Total return per share 57.2p (20.0)p
The diluted return per ordinary share represents the return on ordinary
activities after taxation divided by the weighted average number of ordinary
share in issue during the year as adjusted for the conversion of all
outstanding subscription shares into ordinary shares at the year-end. For this
purpose, the 125p proceeds from the conversion are regarded as having been
received from the issue of ordinary shares at the average market price of
ordinary shares during the year. The difference between the number of ordinary
shares issued and the number of ordinary shares that would have been issued at
the average market price of ordinary shares during the year is treated as an
issue of ordinary shares for no consideration.
There was no dilution to the returns for the year ended 30 April 2009 as there
were no dilutive potential ordinary shares in issue at that date.
5. Dividends
Dividends on shares paid in the year:
2010 2009
Pence £'000 Pence £'000
Final dividend in respect of previous year 1.5 1,408 1.5 1,408
Dividend on shares payable in respect of the current year:
2010 2009
Pence £'000 Pence £'000
Final dividend proposed 2.25 2,111 1.5 1,408
6. Share capital
2010 2009
£'000 £'000
Authorised:
150,000,000 (2009: 150,000,000) ordinary shares of 10p 15,000 15,000
each
20,000,000 (2009: none) subscription shares of 1p each 200 -
15,200 15,000
Allotted, called-up and fully paid:
93,837,425 (2009: 93,837,425) ordinary shares of 10p each 9,383 9,383
18,767,485 (2009: none) subscription shares of 1p each 188 -
9,571 9,383
Subscription Shares
During the year, the Company increased the issued share capital by the addition
of 20 million subscription shares of 1p each. On 12 August 2009 a total of
18,767,485 subscription shares were allotted to Shareholders on the register on
11 August 2009, on the basis of one subscription share for every five ordinary
shares held as at that date. Each subscription share confers the right to
subscribe for one ordinary share on or around 31August for each of the years
2010 to 2012 at an exercise price of 125p per share.
7. Net asset value
2010 2009
Basic:
Ordinary shareholders' funds £ £
150,934,000 98,667,000
Number of ordinary shares in issue 93,837,425 93,837,425
Net asset value per ordinary share 160.8p 105.1p
Diluted:
Ordinary shareholders' funds £ £
174,394,000 98,667,000
Number of ordinary shares in issue 112,604,910 93,837,425
Net asset value per ordinary share 154.9p 105.1p
The diluted net asset value per ordinary share assumes that all outstanding
subscription shares were converted into ordinary shares at the year end based
on an exercise price for the subscription shares of 125p per share. There was
no dilution to the net asset value at 30 April 2009 as there were no dilutive
potential ordinary shares in issue at that date.
8. This Annual Financial Report Announcement is not the Company's statutory
accounts. The above results for the year ended 30 April 2010 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 2009 and
2010 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 2009 is derived from the statutory accounts for 2009 which have
been delivered to the Registrar of Companies. The 2010 accounts will be filed
with the Registrar of Companies in due course.
9. The Audited Annual Financial Report will be posted to shareholders shortly.
Copies may be obtained during normal business hours from the Company's
registered office, 30 Finsbury Square, London, EC2A 1AG. A copy of the
Annual Financial Report will be available from Invesco Perpetual on the
following website: www.invescoperpetual.co.uk/investmenttrusts
10. The Annual General Meeting of the Company will be held at 12.00 noon on 5
August 2010 at 30 Finsbury Square, London EC2A 1AG.
By order of the Board
Invesco Asset Management Limited - Company Secretary
6 July 2010
Friday, 22nd November 2024
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