LEGAL ENTITY IDENTIFIER: 549300YM9USHRKIET173

Invesco Asia Trust plc

Annual Financial Report Announcement for the Year Ended 30 April 2022

This announcement contains regulated information

Investment Objective

The Company’s objective is to provide long-term capital growth and income by investing in a diversified portfolio of Asian and Australasian companies. The Company aims to achieve growth in its net asset value (NAV) total return in excess of the Benchmark Index, the MSCI AC Asia ex Japan Index (total return net of withholding tax, in sterling terms).

Financial Information and Performance Statistics

The benchmark index of the Company is the MSCI AC Asia ex Japan Index (total return, net of withholding tax, in sterling terms)

Total Return Statistics(1) with dividends reinvested

Change for the year (%) 2022 2021
Net asset value (‘NAV’)(2) -6.7 56.4
Share price(2) -10.0 58.5
Benchmark Index(3) -12.9 34.8

Capital Statistics

At 30 April 2022 2021 change %
Net assets (£’000) 252,176 281,252 –10.3
NAV per share(2) 377.21p 420.70p –10.3
Share price(1) 332.50p 386.00p –13.9
Benchmark index (capital)  1,023.11  1,195.23 –14.4
Discount(2) per ordinary share: (11.9)% (8.2)%
Average discount over the year(1)(2) (9.5)% (10.7)%
Gearing(2):
  – gross 2.2% 0.7%
  – net 1.6% nil
  – net cash nil (0.9)%
Revenue Statistics
Year Ended 30 April 2022 2021 change %
Income (£’000) 6,228 5,600 +11.2
Net revenue available for ordinary shares (£’000) 4,469 3,863 +15.7
Revenue return per ordinary share 6.68p 5.78p +15.7
Dividends per share(4):
  – first interim 7.70p 6.70p
  – second interim 7.60p 8.40p
Total dividends 15.30p 15.10p +1.3
Ongoing charges ratio(2) 0.97% 1.00%

(1)       Source: Refinitiv.

(2)       Alternative Performance Measure (APM). See Glossary of Terms and Alternative Performance Measures section in the Annual Financial Report for details of the explanation and reconciliations of APMs.

(3)       Index returns are shown on a total return basis, with dividends reinvested net of withholding taxes.

(4)       The Company’s dividend policy aims to pay a regular six-monthly dividend calculated at 2% of the Company’s NAV on the last business day of September and February. Dividends are paid from a combination of the Company’s revenue reserves and capital reserves, as required.

Chairman’s Statement

Highlights

•  Strong relative performance over 1,3,5 and 10 years.

•  Investment Style: “Valuation not value”.

•  Asian markets look cheap, for good but probably temporary reasons

•  Appointment of Fiona Yang as Co-Portfolio Manager of the Company.

•  Appointment of Myriam Madden and Sonya Huen Rogerson as Non-Executive Directors of the Company.

After spectacular performance in the Company’s year to 30 April 2021 (NAV up 56.4% vs the MSCI AC Asia ex Japan Index up 34.8%), I referred at the interim stage to a period of consolidation. The subsequent six months to 30 April 2022 have seen stock markets fall in response to Russia’s invasion of Ukraine, a surge of Covid-19 within China and a sharp rise in inflation in many countries. So it was a surprise even to me that our NAV was down only 1.2% (total return basis, in sterling for the six months to 30 April 2022). That compares favourably to our benchmark index which returned –6.7% (MSCI AC Asia ex-Japan, total return, net of withholding tax, in sterling terms). Your share price delivered a total return of –5.1% as the discount widened from 7.6% to 11.9%.

For the full year to 30 April 2022, NAV total return was -6.7% and the share price total return was -10.0%, both outperforming the Index total return of –12.9%. The average discount of the share price to net asset value was 9.5% over the year, within the Board’s tolerance but higher than we would prefer.

Attribution numbers show that the year’s outperformance came mainly from stock selection. Ian Hargreaves and Fiona Yang review performance in detail in their Portfolio Managers’ Report.

As indicated at the interim stage, Fleur Meijs has taken on additional responsibilities at UWC (United World College, an international education group) and will step down from our Board on 2 August 2022. We wish her well in her new, time-consuming role. Myriam Madden, who joined the Board on 4 November 2021, will take over from Fleur as Audit Chair. Owen Jonathan, our Senior Independent Director, will retire at the forthcoming Annual General Meeting (‘AGM’) after serving nine full years. We will miss his wise counsel, particularly on Hong Kong, China and general legal matters. Fleur and Owen have served us strongly over their respective terms and leave with the Company in very good shape. Vanessa Donegan will take over as Senior Independent Director and as Chair of the Remuneration Committee. We are delighted that Sonya Huen Rogerson joined us on 26 July 2022 as a Non-Executive Director. Sonya is an International General Counsel at Novartis and previously worked as General Counsel and Head of Legal and Compliance at Bank of China (UK). After the AGM the Board will settle back to its normal number of four Directors.

Shareholders will know that we believe that the discount is determined by a combination of demand for Asian equity investment vehicles, the Investment Case for Invesco Asia and the Corporate Proposition that we offer. In order to stimulate more demand for the Company’s shares, we aim to provide a strong investment case and a strong corporate proposition at the same time.

The Investment Case

The investment case rests on accessing the attractions of Asian equity markets through the institutional expertise of Ian’s team at Invesco. The team is strong and our new Co-Portfolio Manager, Fiona, relocated to Invesco’s Singapore office in February. She works very closely with Ian both on our portfolio and in meeting shareholders and potential investors. Their investment process can be summarised as “valuation not value” and has been very successful with institutional clients such as pension funds and sovereign wealth investors. In times like these of great change, we would argue that this forward-looking active approach (as opposed to a backward-looking index or passive style) is exactly what is needed. The team have delivered very strong relative performance for shareholders over 1,3,5 and 10 years, as shown in the Annual Financial Report.

Like many professional consultants and clients, we, as independent directors, look for talented stock pickers, a robust process and consistent outperformance in our investment manager. We believe we have all three in Ian, Fiona and the team at Invesco.

The Corporate Proposition

The Company’s Corporate Proposition was first introduced in the Half-Yearly Financial Report to 31 October 2018. Since then the Board has continued to review and adopt measures intended to create additional demand for the Company’s shares, both from existing and new shareholders, and to reduce the discount. We have been careful to ensure that the measures chosen are in the best interests of all shareholders. The intention is that the gains from each will combine to make the corporate proposition as compelling as the investment case.

There are multiple elements to our Corporate Proposition, including:

1.    Continuation Vote: Every three years the future of the Company is subject to a continuation vote, the next one is due at the forthcoming AGM. We believe that the outlook for the Company is strong and so unanimously recommend that shareholders vote for continuation.

2.    Enhanced dividend policy: The Board introduced a new enhanced dividend policy in August 2020 which aims to pay, in the absence of unforeseen circumstances, a regular six-monthly dividend equivalent to 2.0% of the Company’s NAV, calculated on the last business day of September and February. The dividends will be paid to shareholders in November and April. This means that the two interim dividends will not be subject to a resolution at the AGM but that the distribution policy as a whole will be put to shareholders at each AGM. This year the first interim dividend of 7.70p was paid to shareholders on 25 November 2021 and a second interim dividend of 7.60p was paid to shareholders on 26 April 2022. This gave a total distribution of approximately 4.0% of NAV over the year and represents a 4.6% dividend yield on the closing share price on 30 April 2022. Please note that the policy of paying out approximately 4.0% of NAV means that dividend payments can fall in down years. At the time of writing this looks likely to be the case for the forthcoming year.

3.    Performance Conditional Tender: We introduced a performance conditional tender offer in August 2020 through which the Board has undertaken to effect a tender offer for up to 25.0% of the Company’s issued share capital at a discount of 2.0% to the prevailing NAV per share (after deduction of tender costs) in the event that the Company’s NAV cum-income total return performance over the five year period to 30 April 2025 fails to exceed the Company’s comparator index, the MSCI AC Asia ex Japan Index (net of withholding tax, total return in sterling terms) by 0.5% per annum over the five years on a cumulative basis. Shareholders already have the opportunity to vote on the continuation of the Company every three years, but the Board believes that also providing shareholders with the option to tender a proportion of their shares for a cash price close to NAV, if the Company underperforms, constitutes a pragmatic and attractive initiative, particularly if the shares were to be trading at a material discount at the time.

4.    Environmental, Social and Governance Matters (ESG): The Board recognises the importance of ESG considerations in delivering value to shareholders and in the Annual Financial Report we explain our approach. We continue to monitor closely developments in this space and noting the growing public discourse on climate change we have asked the Manager to highlight examples of holdings in companies that are helping facilitate the journey towards Net Zero Alignment (’NZA’). The Manager is well-placed with adequate resources to assess the risks and opportunities which may result from accelerating ESG-driven change. The Manager’s Global ESG function, based in Henley, inputs into the research process and provides a formal ESG oversight process including meetings with the Portfolio Managers and analysts to review the portfolio from an ESG perspective. The Manager is a signatory of the Financial Reporting Council’s Stewardship Code and maintains an active seat on the Board of the UK Sustainable Investment and Finance Association. In addition, the Manager achieved an ‘A+’ rating for its overall approach to responsible investment (Strategy and Governance) for the last four years as well as achieving an ‘A’ or ‘A+’ across all other categories in the latest available assessment period from Principles of Responsible Investment ('PRI'). In 2019 the MSCI upgraded the Manager’s ESG rating from BBB to A and as a signatory and discloser to the Carbon Disclosure Project it supports enhanced, market-wide environmental disclosure and reports annually on its climate change management and performance, including comprehensive emissions accounting.

5.    Access to Invesco Expertise: Ian Hargreaves is Invesco’s lead portfolio manager of Asian accounts for institutional investors and manages over £3 billion of institutional assets. Fiona Yang, in our opinion, is a future star in their team. Invesco Asia Trust plc is the only vehicle available to UK retail investors who wish to access their track record. They manage it with a high degree of commonality to their institutional portfolios although they also add the best smaller company opportunities.

6.    Engaging more individual shareholders: We are encouraged that an increasing proportion of our shareholders are individuals, with the proportion of investors who hold shares of Invesco Asia Trust plc via execution-only platforms continuing to increase. The Board aims to engage more directly with individual investors. Working closely with the Manager, we continue to raise the profile of the Company through new direct investor information, commentary and events, which will provide access to the thoughts and views of Ian and Fiona, their team and the Directors. These activities complement the ongoing engagement with a broad range of professional investors. Please take a look at the video clip of Vanessa Donegan interviewing Fiona Yang; this video and others can be found on our homepage www.invesco.co.uk/invescoasia where you can also find presentations, read updates or register to receive printed copies of the Half-Yearly and Annual Financial Reports. You can also see third party research (by Kepler Partners) and monthly factsheets on the Company's website. Shareholders can also contact us by email at investmenttrusts@invesco.com.

7.    Meeting the Directors and Managers: One of the main attractions of an investment trust over a unit trust or OEIC is that all shareholders have the opportunity of meeting the Directors and the Managers every year at the AGM. This year’s meeting will be held in person at Invesco’s London office at 12 noon on Thursday 8 September 2022. As well as the Company’s formal business, there will be a presentation from Ian and Fiona, the opportunity to ask questions to the Portfolio Managers and Directors and then to chat informally with all of us over lunch. Shareholders may bring a guest to these meetings. For me this is one of the highlights of being Chairman, I look forward to meeting as many of you as possible. For those unable to make it in person, we will record a special version of the presentation and post it onto our website after the AGM. Shareholders wishing to lodge questions in advance of the AGM should do so by email to the Company Secretary at investmenttrusts@invesco.com or, by letter, to 43-45 Portman Square, London W1H 6LY.

8.    Ongoing Charges and Fees: As a Board we are responsible for managing the level of charges to shareholders. Our intention is to seek to reduce gradually the level of ongoing charges over time. The main component of the 0.97% p.a. ongoing charge is the investment management fee paid to Invesco. The investment management fee is 0.75% on assets up to £250m reducing to 0.65% on net assets over this amount.

9.    Gearing: The Company intends to use gearing (or borrowings) actively to take advantage of its closed-end structure. At the year end the Company had net gearing of 1.6% having started the year at an overall net cash position of 0.9%. Net gearing ranged from 1.9% to a net cash position of 4.8% over the year.

10.  Directors’ Shareholdings: Institutional investors often follow and ask for information on Directors’ holdings of shares in the Company. These are shown in the Directors’ Remuneration Report in the Annual Financial Report and we are required to notify any changes to the stock market by regulatory announcement. Additionally, our Portfolio Managers, Ian and Fiona are both shareholders in the Company and can confirm that their remuneration by the Manager is partly determined by the performance of the Company.

11.  Buyback Authority: The Board has a stated average discount target of less than 10% of NAV calculated on a cum-income basis (formerly ex-income) over the Company’s financial year, although the Directors are cognisant of the fact that the Company’s share rating at any particular time will reflect a combination of various factors, a number of which are beyond the Board’s control. Share buybacks will occur where and when we consider (in conjunction with our broker) that such buybacks will be effective, taking into account market factors and the discounts of comparable funds.

Update

Since 30 April 2022, the NAV total return has been -0.6%, outperforming the index return of -2.2%. The share price has returned -0.2% with the discount narrowing to 11.5%.

Outlook

Asian markets continue to face the headwinds of a stronger dollar and tightening liquidity in response to accelerating inflationary pressures. However, there may be light at the end of the tunnel as economic activity in the region remains stronger than in the developed world, corporate balance sheets are in good shape and, most importantly, equity market valuations are looking increasingly attractive, with positive earnings growth for the region still intact. The catalyst to realise the value on offer is likely to come when the peak of the US monetary tightening is in sight. In the meantime, relatively more subdued inflationary pressure across much of Asia gives scope for a less aggressive interest rate tightening cycle than in many western economies.

Our Portfolio Managers have navigated the shift in investor focus from growth to value relatively well over the past year. With the sell-off in growth stocks globally now well advanced, Ian and Fiona have the opportunity to pick up attractively priced high quality growth stocks, while staying true to their disciplined focus on valuation, not value. We are still in the downcycle for Asian earnings revisions as higher input costs get factored into corporate margins. But as equity markets historically bottom before EPS revisions, we are starting to see the region and China in particular re-emerging onto the radar screens of savvy investors.

In their report the Portfolio Managers highlight a more optimistic stance on China than a year ago. China’s macro fundamentals appear to be improving with adjustments to the authorities’ Covid-zero tolerance policy combined with scope for monetary easing and fiscal support to be deployed to offset growth headwinds from the extended Covid lockdowns. After sharply underperforming global markets in 2021 China looks well positioned to play catch-up on the back of its relative macro resilience, regulatory stabilisation and undemanding equity valuations.

Neil Rogan

Chairman

1 August 2022

Portfolio Managers’ Report Q&A

Portfolio Manager

Ian Hargreaves was promoted to Co-Head of the Asian & Emerging Markets Equities team in September 2018. Ian manages pan-Asian portfolios and covers the entire Asian region in his remit. He started his investment career with Invesco Asia Pacific in Hong Kong in 1994 as an investment analyst where he was responsible for coverage of Indonesia, South Korea and the Indian sub-continent, as well as managing several regional institutional client accounts. Ian returned to the UK to join Invesco’s Asian Equities team in 2005, working on the portfolio as part of the investment team. He was appointed as joint Portfolio Manager in 2011 and became the sole Portfolio Manager on 1 January 2015, up until the appointment of Fiona Yang as Co–Portfolio Manager in January 2022.

Portfolio Manager

Fiona Yang joined Invesco in August 2017 and is a member of the Henley-based Asian & Emerging Markets Equities team. Currently, Fiona is the lead fund manager on the Invesco Asian Equity Income Fund and provides stock and sector research covering the wider Asia ex-Japan region with a focus on China H and A share markets. She started her career with Goldman Sachs in July 2012, initially within their graduate programme, before becoming a member of their Asian Equity sales team, where she was a China product specialist. Fiona moved to Invesco’s Singapore office in February 2022, whilst still remaining an integral part of the Henley-based team. In recognition of her skill, growing experience and achievements, Fiona was appointed Co–Portfolio Manager of the Invesco Asia Trust plc in January 2022.

Q How has the company performed in the period under review?

The Company’s NAV total return decreased by 6.7% over the twelve months to 30 April 2022, which compares favourably to the benchmark MSCI AC Asia ex Japan Index total return of –12.9% (net of withholding tax, in sterling terms).

Portfolio performance has proven to be relatively resilient in a challenging environment as Asian equity markets have trended lower from their post-pandemic peak. Market weakness has been largely attributable to China-related concerns, which have more than offset positive momentum from India and south-east Asian markets that have benefited from a lifting of Covid-19 restrictions and vaccination programmes being rolled out. This has seen an unusually large divergence in performance between the best and worst performing markets in our region (see below). Stock selection has had significant positive impact on relative performance, particularly in Hong Kong/China and Indonesia, which has helped offset the impact of some of our underperformers in India and Taiwan.

The portfolio has also been well positioned for a big rotation in markets, away from expensive ‘growth’ towards ‘value’ stocks and more cyclical areas that were expected to benefit from reflation and reopening trends. This was triggered by the US Federal Reserve’s hawkish turn in early January, which led to a rapid upward adjustment in US treasury yields, and some high-profile earnings disappointments from profitless technology companies in the US.

Market volatility often leads to moments of great opportunity, and the significant divergence in valuation and performance between different countries and sectors in Asia continues to provide us with opportunities to reposition the portfolio in more attractive areas. One consequence of this is that we have been uncharacteristically active, with higher portfolio turnover than usual, as we have been adhering to our investment process, selling stocks when they appear fully valued and investing in companies that are worth more than the market believes.

Q What have been the biggest contributors?

The portfolio’s exposure to Indonesia – the best performing country in the region over the period – has been a key driver of performance, with PT Bank Negara Indonesia Persero the biggest single contributor, while Astra International and Telkom Indonesia also added significant value. Indonesia is now one of our biggest overweight positions, with the economy appearing to have scope for better growth after a weak period. Indian bank ICICI Bank and conglomerate Larsen & Toubro (L&T) also outperformed notably, supported by the improved macro backdrop.

In China, wind turbine manufacturer MingYang Smart Energy made strong gains in the first half of the period, as an expected beneficiary of the authorities’ plans to reduce carbon emissions. Real-estate developers CK Asset and China Overseas Land and Investment have outperformed in a time of turbulence, with strong balance sheets leaving them well placed to gain market share from weaker developers. Other notable contributors included Pacific Basin Shipping, while Singaporean bank United Overseas Bank and QBE Insurance demonstrated a positive sensitivity to rising US rates.

Q And detractors?

Autohome was the biggest detractor, as advertising revenues slowed given the slowdown in auto sales, while competition between digital media platforms has intensified. We believe Autohome’s competitive advantages remain underappreciated, with its net cash balance sheet (over 80% of market capitalisation) and free cash flow generation additional sources of comfort. Meanwhile, Tencent Music Entertainment lowered its revenue guidance in response to increased regulation of social entertainment and live streaming, which fundamentally impacted the original investment thesis, and led us to exit.

Concerns related to collateral damage from over-leveraged Chinese property developers impacted stocks such as Ping An Insurance, A-Living Smart City Services, air-conditioning manufacturer Gree Electrical Appliances and fitted furniture designer and manufacturer Suofeiya Home Collection. We have been adding on weakness, encouraged by these companies’ relatively strong balance sheets and valuations that appear undemanding given their future growth prospects.

Other key detractors include LG, with concerns related to portfolio companies’ performance and a restructuring of stakeholders’ interests appearing to be fully priced in, with potential for a narrowing of the discount to NAV. Meanwhile, Covid-related chip and component shortages have disrupted supply chains, particularly for miniature lens manufacturer Largan Precision, although its medium-term outlook remains bright.

Q Are you concerned about the threat of growth slowdown and higher inflation?

The Russia-Ukraine conflict has complicated central banks’ plans to tackle post-pandemic inflationary pressures via rates hikes, raising concerns that the US Federal Reserve may have to keep tightening policy, even after growth has started to slow. Whilst a rising yield environment has historically been tough for Asian market performance, we remain calm about the prospect.

Firstly, inflation in Asia remains at more comfortable levels. As can be seen in the chart in the Annual Financial Report, this largely remains – for now – a developed market problem. Furthermore, compared to when Asian countries last faced the prospect of tightening conditions in the ‘taper tantrum’ of 2013, they are generally much earlier in their economic cycles. Warning signs such as high credit growth and deteriorating external accounts were, and still are, absent.

However, the prospect of higher inflation and slower growth has ramifications for market leadership in Asia, as well as country and sector allocation. In terms of market leadership, long duration assets have been particularly vulnerable, but the lower valuation of the portfolio compared to the market has benefited relative performance.

Higher commodity prices mean energy and commodity producers take a greater share of consumer wallets at the expense of other industries’ revenues and margins – but there are few winners in this environment. Companies with strong pricing power should do better, but realistically most companies will feel some pressure.

We have been evaluating the earnings risk of financials and autos sectors, where we are overweight. These may struggle in the short-term if risk aversion takes hold and if there is greater uncertainty over economic growth. However, financials stand to benefit from rising interest rates, have capital buffers, and have some support from overprovisioning after being overly cautious during Covid-19. Growth expectations in Asia also appear less vulnerable, as we continue to expect a re-opening dividend as Covid becomes endemic. For car manufacturers, we expect some margin pressure and can foresee big ticket items like car purchases being delayed if consumers are nervous about the outlook. However, the sector has yet to fully take advantage of pent-up demand, limited supplies and low inventory levels, suggesting less need to offer the usual discounts.

Q Has your country allocation changed at all?

In terms of country exposure, the main thrust of portfolio activity over the last twelve months has been to reduce exposure to Taiwan and India, and to increase China and Indonesia. The current macro backdrop strengthens the case for this shift, in our view.

In Taiwan, there is a strong underlying technology cycle that is benefiting some, but the pandemic brought forward an element of demand, with margin gains likely to be given back, putting valuations at risk in some areas. As such, we’ve sold ASUSTeK Computer and reduced exposure to others such as Delta Electronics and MediaTek. While we remain positive on the medium-term outlook for India, we have reduced exposure, taking profits from outperformers such as ICICI Bank and Larsen & Toubro, which have had a very strong run of performance.

Indonesia shares some of India’s positive attributes, but at a lower valuation (forward price-earnings ratio of 15x vs 22x). Its economy has had a long period of sub-trend growth, with few signs of economic excess. The Covid-19 pandemic has had a larger than average negative economic impact, but the economy looks set for recovery, which the market is only beginning to price in. It is also a more commodity-orientated economy, and thus relatively better positioned for this scenario than India, which remains reliant on imports of oil and coal.

Q You have been adding to China?

For context, the valuation of the Chinese equity market in early 2021 was well above its historic average, and in some places appeared over-extended. Some of our holdings in Chinese internet companies had done very well in the initial pandemic recovery, and we had been taking profits, such that we started the reporting period with a significant underweight position in Hong Kong/China.

This felt right to us, not just on valuation terms, but given signs that the authorities in China were starting to tighten policy. The economy had recovered strongly from initial Covid-related lockdowns, without the need for significant stimulus. This enabled policymakers to re-focus on reducing financial risk in the system, particularly in the real-estate sector. There has also been a period of regulatory tightening, with an emphasis on the need for more inclusive economic growth and ‘common prosperity’. This surprised the market negatively and combined with a moderation in economic growth triggered a period of underperformance for Chinese equities. We have been gradually reducing the portfolio’s underweight position as investment risk appears to be better rewarded, particularly given government policy is now at the point of reversal.

It is also worth pointing out that while there has been a significant reduction in the portfolio’s underweight position in Hong Kong/China relative to the benchmark, such that we now have a small overweight, the absolute portfolio weighting has been fairly consistent, with some change in the stock composition of this part of the portfolio.

Q Do you have some examples of recently introduced stocks?

As well as adding to existing Chinese holdings that we like, we have several new holdings. For example, Hansoh Pharmaceutical which is making good progress in pivoting away from being a generics manufacturer, to becoming an innovative R&D-driven company. The industry has endured a challenging couple of years, but we believe share price weakness has more than priced in the decline in revenues from generics, with little value being ascribed to a pipeline of new drugs in development.

We have also introduced Sands China, which along with other Macau gaming stocks has been deeply out of favour given the pandemic. However, the balance between risk and reward is now skewed to the upside, in our view, with concerns over concession renewals and border controls more than reflected in the share price, as both move ever closer to the point of resolution.

Tingyi is China’s largest instant noodle producer and one of the country’s largest beverage companies. The investment case for Tingyi revolves around continued innovation in their noodle business enabling better growth than the market expects and improving margins in their beverage business following previous overexpansion. Tingyi also pay 100% of free cash flow as dividends, giving the stock an 8% yield, while the company also has a net cash balance sheet.

Finally, we introduced Worley, an engineering services company with significant exposure to the energy, chemical and resources mining industries. Worley is expected to see a healthy recovery in revenues, with medium-term growth increasingly being driven by energy transition capital expenditure, with progress towards sustainability targets likely to support a valuation re-rating.

Q How about China’s geopolitical risk premium?

The conflict in Ukraine has tested the extent of China’s “no limits partnership” relationship with Russia. It is hard to get complete comfort on geopolitical risk for China, but we feel comfortable being slightly overweight in the current environment given the attractive valuations on offer. China could now be said to have a greater degree of leverage in asserting its conditions for trade and finance relations with Russia, while at the same time ensuring that it does not jeopardise its relations with Ukraine’s key allies, given that the US, EU and UK remain key export markets.

Regarding tensions between China and Taiwan, we have historically felt that the probability of some sort of military conflict between the two was very low on a medium-term view. If anything, we now feel there is even less chance of anything happening on this front any time soon. China’s chief concern is trying to contain the spread of the omicron variant, with recent lockdowns in major cities (such as Shanghai and Shenzhen) making the country’s 5.5% growth target for 2022 appear increasingly ambitious. In our view, China will be doing everything it can to avoid targeted sanctions from the US and Europe.

Q What is the impact of China’s zero Covid policy?

China’s determination to adhere to a zero-Covid policy amidst an outbreak of the omicron variant has raised concerns that extensive lockdowns will lead to a sharp slowdown in economic activity and presents significant near-term policy uncertainty. This is the reason we have not gone further in adding to China.

Xi Jinping has closely associated himself with China’s initial success in containing Covid, avoiding the significant death tolls seen elsewhere. Low vaccination coverage amongst the elderly is a sensitive issue (only half of over-80s fully vaccinated), with 2022 being an important transition year for China’s leadership team. Encouragingly, there are positive signs from Hong Kong where domestically sourced vaccines did a good job in keeping hospitalisations and deaths to bearable levels.

On a 2-3 year view it is easier to get comfort that China will learn to live with Covid. The key question for us is how much of this is already in the price. The valuation of China’s equity market is near the bottom of its long-term historic range. Despite widespread lockdowns still being in place, the authorities have remained committed to an increasingly optimistic 5.5% growth target. As and when lockdowns are lifted, we can be fairly confident that a policy response is coming – likely focused on consumption and infrastructure – and the market will be quick to respond.

Q Can you share any examples of engagements with companies on ESG matters?

75% of our company meetings over the last twelve months included engagement on ESG issues, and it continues to be an integral part of our investment process. MingYang Smart Energy and Worley make for good examples, details of which, together with our approach, are provided in the ESG Monitoring and Engagement section in the Annual Financial report.

Q Have you adjusted the portfolio’s gearing?

The use of gearing is a function of our valuation-led investment process. This provides an opportunity to increase exposure to the markets when we believe it is the right time to do so. As can be seen in the chart in the Annual Financial Report, the valuation of the overall market has moved from being meaningfully above its long-term historic average in terms of price-to-book (‘P/B’), to a point that is now below that level.

While the portfolio has had a net cash position for much of the period, earlier this year we decided to add a modest amount of gearing. The other part of our framework for considering whether to add or reduce gearing is earnings growth momentum. While we expect some further downward revisions to Asian earnings expectations, we are closer to an inflexion point, which would warrant additional gearing.

Q It sounds like you feel now is a good time to be investing in Asia?

Markets are right to be concerned about inflation, policy normalisation, the war in Ukraine and the resurgence of Covid-19 in China. However, Asian equity markets are already a year into their pull back from post-pandemic highs, with valuations now appearing increasingly attractive in both absolute and relative terms.

We feel there is a strong case for Asia’s discount to US and World markets to narrow. While fundamentals in developed markets are deteriorating, there is scope for improvement in Asia. Consumption growth in Asia still lags its pre-pandemic trend. While there was some fiscal and monetary stimulus in Asian economies, the policy response was nowhere near as aggressive as that seen in the US and other developed markets. Most emerging markets took longer to contain the pandemic and rollout vaccine programmes, with potential for consumption to pick-up as economies reopen after the pandemic, which is likely to support corporate earnings and profitability.

Inflationary pressures are less of a concern than in the developed markets, suggesting greater policy flexibility, which should also be supportive for markets. The current account balances of Asian economies are also in better shape than when they last faced the prospect of tightening conditions in the ‘taper tantrum’ of 2013. We also have a situation where China is close to the bottom of its cycle, and is starting to ease policy, while the US and other developed market appear to have reached the peak of the cycle and are starting to tighten. Combined, we feel this makes Asia an attractive place to be investing over the medium-term.

Ian Hargreaves & Fiona Yang

Portfolio Managers

1 August 2022

Principal and Emerging Risks and Uncertainties

The Board has carried out a robust assessment of the principal and emerging risks facing the Company. These include those that would threaten its business model, future performance, solvency and liquidity. In carrying out this assessment, the Board together with the Manager have considered emerging risks such as geopolitical risks, evolving cyber threats and climate related risks. These risks also form part of the principal risks identified and the mitigating action are detailed below.

Category and Principal
Risk Description
Mitigating Procedures
and Controls
Risk trend
during the year
Strategic Risk
Market Risk
The Company’s investments are traded on Asian and Australasian stock markets as well as the UK. The principal risk for investors in the Company is a significant fall and/or a prolonged period of decline in these markets. This could be triggered by unfavourable developments within the region or events outside it.
The Company has a diversified investment portfolio by country and by stock. Its investment trust structure means no forced sales need to take place and investments can be held over a longer term horizon. However, there are few ways to mitigate absolute market risk because it is engendered by factors which are outside the control of the Board and the Manager. These factors include the general health of the world economy, interest rates, inflation, government policies, industry conditions, and changing investor demand and sentiment. Such factors may give rise to high levels of volatility in the prices of investments held by the Company. Increased
Geopolitical Risk
Political developments can create risks to the value of the Company’s assets, such as political changes in the US and Asia regions including the regulatory tightening by the Chinese government, which surprised the market negatively, and more recently the conflict in Ukraine. Political risk has always been a feature of investing in stock markets and it is particularly so in Asia. Asia encompasses a variety of political systems and there are many examples of diplomatic skirmishes and military tensions, and sometimes these resort to military engagement. Moreover, the involvement in Asia of the United States and European countries can reduce or raise tensions.
The Manager evaluates and assesses political risk as part of the stock selection and asset allocation policy which is monitored at every Board meeting. This includes political, military and diplomatic events and changes to legislation. Increased
Investment Objectives and Strategy
The Company’s investment objectives and strategy are no longer meeting investors’ demands.
The Board receives regular reports reviewing the Company’s investment performance against its stated objectives and peer group, and reports from discussions with its brokers and major shareholders. The Board also has a separate annual strategy meeting. Unchanged
Wide Discount
Lack of liquidity and lack of marketability of the Company’s shares leading to stagnant share price and wide discount.
A persistently high discount may lead to buybacks of the Company’s shares and result in the shrinkage of the Company.
The Board receives regular reports from both the Manager and the Company’s broker on the Company’s share price performance, level of share price discount to NAV and recent trading activity in the Company’s shares. The Board has introduced initiatives to help address the Company’s share rating including a performance conditional tender in 2025 and the enhanced dividend policy. It may seek to reduce the volatility and absolute level of the share price discount to NAV for shareholders through buying back shares within the stated limit (outlined in Resolution 13 in the Notice of Meeting). The Board also receives regular reports on marketing meetings with shareholders and prospective investors and works to ensure that the Company’s investment proposition is actively marketed through relevant messaging across many distribution channels. Increased
Performance
Portfolio Managers consistently underperform the benchmark and/or peer group over 3-5 years.
The Board regularly compares the Company’s NAV performance over both the short and long term to that of the benchmark and peer group as well as reviewing the portfolio’s performance against benchmark (attribution) and risk adjusted performance (volatility, beta, tracking error, Sharpe ratio) of the Company and its peers. Unchanged
ESG including climate risk
Risks associated with climate change and ESG considerations could affect the valuation.
ESG considerations are integrated as part of the investment decision-making in constructing the portfolio. Such investment decisions include the transactions undertaken in the period, the review of active portfolio positions and consideration of the gearing position and, if applicable, hedging. The process around ESG is described in the ESG Monitoring and Engagement section in the Annual Financial Report. Increased
Key Person Dependency
Either or both of the Portfolio Managers (Ian Hargreaves and Fiona Yang) ceases to be Portfolio Manager or are incapacitated or otherwise unavailable.
The appointment of Fiona Yang as Co-Portfolio Manager has mitigated the risk of key person dependency. Also, the Portfolio Managers work within and are supported by the wider Invesco Asian and Emerging Markets Equities team, with Ian Hargreaves and William Lam as Co-Heads of this team. Decreased
Currency Fluctuation Risk
Exposure to currency fluctuation risk negatively impacts the Company’s NAV. The movement of exchange rates may have an unfavourable or favourable impact on returns as nearly all of the Company’s assets are non-sterling denominated.
With the exception of borrowings in foreign currency, the Company does not normally hedge its currency positions but may do so should the Portfolio Managers or the Board feel this to be appropriate. Contracts are limited to currencies and amounts commensurate with the asset exposure. The foreign currency exposure of the Company is reviewed at Board meetings. Unchanged
Third Party Service Providers Risk
Unsatisfactory Performance of Third Party Service Providers
Failure by any third-party service provider to carry out its obligations to the Company in accordance with the terms of its appointment could have a materially detrimental impact on the 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.
Details of how the Board monitors the services provided by the Manager and other third party service providers, and the key elements designed to provide effective internal control, are included in the internal control and risk management section in the Annual Financial Report. Unchanged
Information Technology Resilience and Security
The Company’s operational structure means that all cyber risk (information and physical security) arises at its Third Party Service Providers (‘TPPs’). This cyber risk includes fraud, sabotage or crime perpetrated against the Company or any of its TPPs.
The Board receives regular updates on the Manager’s information and cyber security. This includes updates on the cyber security framework, staff resource and training, and the testing of its security systems designed to protect against a cyber security attack.
As well as conducting a regular review of TPPs’ audited service organisation control reports by the Audit Committee, the Board monitors TPPs’ business continuity plans and testing including the TPPs’ and Manager’s regular ‘live’ testing of workplace recovery arrangements should a cyber event occur.
Further details on the TPP’s business continuity plans are detailed below.
Unchanged
Operational Resilience
The Company’s operational capability relies upon the ability of its TPPs to continue working throughout the disruption caused by a major event such as the Covid-19 pandemic.
The Manager’s business continuity plans are reviewed on an ongoing basis and the Directors are satisfied that the Manager has in place robust plans and infrastructure to minimise the impact on its operations so that the Company can continue to trade, meet regulatory obligations, report and meet shareholder requirements.
The Manager has arrangements and prioritises between work deemed necessary to be carried out on business premises and work from home arrangements should it be necessary, for instance due to further restrictions. Any meetings are held in person, virtually or via conference calls. Other similar working arrangements are in place for the Company’s third-party service providers. The Board receives regular update reports from the Manager and TPPs on business continuity processes.
Decreased

Viability Statement

The Company is a collective investment vehicle rather than a commercial business venture and is designed and managed for long term investment. The Company’s investment objective clearly sets out the long-term nature of the returns from the portfolio and this is the view taken by both the Directors and the Portfolio Managers in the running of the portfolio. The Company is required by its Articles to have a vote on its future every three years, the next vote being at the forthcoming AGM on 8 September 2022. The Directors remain confident in the Company’s Investment Case and Corporate Proposition, as detailed in the Chairman’s Statement to deliver against the Company’s investment objectives. On this basis and notwithstanding the continuation vote at the forthcoming AGM, 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. After making enquiries and taking into account the relative outperformance compared to the Company's benchmark over ten years and in the absence of unforeseen circumstances the Directors have no reason to believe that such a resolution will not receive shareholder approval.

In their assessment of the Company’s viability, the Directors have performed a robust assessment of the emerging and principal risks. The Directors considered the risks to which it is exposed, as set out in the Principal and Emerging Risks and Uncertainties table 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, especially so during the Covid-19 disruption since March 2020, the ongoing conflict in Ukraine; the demand for and buybacks of the Company’s shares; the Company’s borrowing structure and level of gearing; the liquidity of the portfolio; and the Company’s future income and annual operating costs, including stressed scenario testing for both income and loan covenants. Although the current outlook for Asian markets is challenging, the Directors and the Manager are cautiously optimistic that Asia remains a region with sound economic and corporate fundamentals. Lastly, whilst past performance may not be indicative of performance in the future, the sustainability of the Company can be demonstrated to date by there having been no material change in the Company’s investment objective since its launch in 1995.

The Directors confirm that they have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due for the three year period from the signing of the balance sheet.

Investments in Order of Valuation

at 30 April 2022

Ordinary shares unless stated otherwise

† The sector group is based on MSCI and Standard & Poor’s Global Industry Classification Standard.

At Market
Value % of
Company Sector Country £’000 Portfolio
Taiwan Semiconductor Manufacturing Semiconductors and Semiconductor Equipment Taiwan 16,877  6.7
Samsung Electronics Technology Hardware and Equipment South Korea  15,242  6.0
TencentR Media and Entertainment China  14,877  5.8
AlibabaRordinary share Retailing China  9,680  3.8
AlibabaRADS  717  0.3
 10,397  4.1
JD.comRordinary share Retailing China  7,848  3.1
JD.comRADS  2,359  0.9
 10,207  4.0
Housing Development Finance Corporation Banks India  8,843  3.4
ICICI Bank – ADR Banks India  8,622  3.4
Astra International Automobiles and Components Indonesia  8,111  3.2
AIA Insurance Hong Kong  7,693  3.0
NetEaseR Media and Entertainment China  6,786  2.6
Top Ten Holdings 107,655 42.2
PT Bank Negara Indonesia Persero Banks Indonesia  6,278  2.4
MingYang Smart EnergyA Capital Goods China  6,004  2.3
POSCO Materials South Korea  5,726  2.2
QBE Insurance Insurance Australia  5,702  2.2
United Overseas Bank Banks Singapore  5,661  2.2
Ping An InsuranceH Insurance China  5,374  2.1
China Overseas Land and Investment Real Estate Hong Kong  5,042  2.0
KasikornbankF Banks Thailand  4,991  1.9
CK Asset Real Estate Hong Kong  4,947  1.9
Aurobindo Pharma Pharmaceuticals, Biotechnology and Life Sciences India  4,830  1.9
Top Twenty Holdings 162,210 63.3
Hyundai Motor – preference shares Automobiles and Components South Korea  4,578  1.8
Suofeiya Home CollectionA Consumer Durables and Apparel China  4,511  1.8
Gree Electrical AppliancesA Consumer Durables and Apparel China  4,475  1.7
Uni-President Food, Beverage and Tobacco Taiwan  4,416  1.7
Shriram Transport Finance Diversified Financials India  4,372  1.7
Larsen & Toubro Capital Goods India  4,229  1.6
CK Hutchison Capital Goods Hong Kong  3,771  1.5
Mahindra & Mahindra Automobiles and Components India  3,528  1.4
Dongfeng MotorH Automobiles and Components China  3,525  1.4
Samsonite International Consumer Durables and Apparel Hong Kong  3,424  1.3
Top Thirty Holdings 203,039 79.2
Samsung Fire & Marine Insurance South Korea  3,364  1.3
Chroma ATE Technology Hardware and Equipment Taiwan  3,308  1.3
Hon Hai Precision Industry Technology Hardware and Equipment Taiwan  3,225  1.3
Worley Energy Australia  3,157  1.2
LG Capital Goods South Korea  2,964  1.2
Telkom Indonesia Telecommunication Services Indonesia  2,737  1.1
MediaTek Semiconductors and Semiconductor Equipment Taiwan  2,622  1.0
ENN EnergyR Utilities China  2,561  1.0
China BlueChemicalH Materials China  2,531  1.0
Largan Precision Technology Hardware and Equipment Taiwan  2,373  0.9
Top Forty Holdings 231,881 90.5
Sands China Consumer Services Hong Kong  2,371  0.9
Autohome – ADS Media and Entertainment China  2,140  0.8
MINTH Automobiles and Components Hong Kong  2,126  0.8
Newcrest Mining Materials Australia  2,082  0.8
TingyiR Food, Beverage and Tobacco China  1,884  0.7
Yue Yuen Industrial Consumer Durables and Apparel Hong Kong  1,838  0.7
Hansoh PharmaceuticalR Pharmaceuticals, Biotechnology and Life Sciences China  1,801  0.7
Beijing Capital International AirportH Transportation China  1,726  0.7
KB Financial Banks South Korea  1,710  0.7
Pacific Basin Shipping Transportation Hong Kong  1,409  0.5
Top Fifty Holdings 250,968 97.8
Genting Singapore Consumer Services Singapore  1,237  0.5
HKR International Real Estate Hong Kong  988  0.4
A-Living Smart City ServicesH Real Estate China  976  0.4
Invesco Liquidity Funds – US Dollar Money Market Fund Ireland  846  0.3
Delta Electronics Technology Hardware and Equipment Taiwan  801  0.3
LG Chemical Materials South Korea  769  0.3
Lime Co.UQ Capital Goods South Korea  101
Total Holdings 57 (2021: 52) 256,686 100.0

UQ            Unquoted investment.

ADR/ADS: American Depositary Receipts/Shares – are certificates that represent shares in the relevant stock and are issued by a US bank. They are denominated and pay dividends in US dollars.

H:              H-Shares – shares issued by companies incorporated in the People’s Republic of China (‘PRC’) and listed on the Hong Kong Stock Exchange.

R:              Red Chip Holdings – holdings in companies incorporated outside the PRC, listed on the Hong Kong Stock Exchange, and controlled by PRC entities by way of direct or indirect shareholding and/or representation on the board.

A:              A-shares – shares that are denominated in Renminbi and traded on the Shanghai and Shenzhen stock exchanges.

F:              F-Shares – shares issued by companies incorporated in Thailand that are available to foreign investors only. Thai laws have imposed restrictions on foreign ownership of Thai companies so there is a pre-determined limit of these shares. Voting rights are retained with these shares.

Classification of Investments by Country/Sector

at 30 April

2022 2021
At At
Market Value % of  Market Value % of
£’000 Portfolio £’000 Portfolio
Australia
Energy  3,157  1.2
Insurance  5,702  2.2  4,093  1.5
Materials  2,082  0.8
 10,941  4.2  4,093  1.5
China
Automobiles and Components  3,525  1.4  3,264  1.2
Capital Goods  6,004  2.3  3,602  1.3
Consumer Durables and Apparel  8,986  3.5  5,125  1.8
Food, Beverage and Tobacco  1,884  0.7
Insurance  5,374  2.1  6,038  2.1
Materials  2,531  1.0  2,080  0.8
Media and Entertainment  23,803  9.2  34,736  12.5
Pharmaceuticals, Biotechnology and Life Sciences  1,801  0.7
Real Estate  976  0.4
Retailing  20,604  8.1  20,404  7.4
Transportation  1,726  0.7  2,072  0.7
Utilities  2,561  1.0  3,383  1.2
 79,775  31.1  80,704  29.0
Hong Kong
Automobiles and Components  2,126  0.8  2,357  0.8
Capital Goods  3,771  1.5  4,304  1.5
Consumer Durables and Apparel  5,262  2.0  4,719  1.7
Consumer Services  2,371  0.9
Insurance  7,693  3.0  8,678  3.1
Real Estate  10,977  4.3  11,771  4.2
Transportation  1,409  0.5  6,728  2.4
 33,609  13.0  38,557  13.7
India
Automobiles and Components  3,528  1.4  3,905  1.4
Banks  17,465  6.8  16,907  6.0
Capital Goods  4,229  1.6  5,253  1.9
Diversified Financials  4,372  1.7  4,514  1.6
Pharmaceuticals, Biotechnology and Life Sciences  4,830  1.9  4,789  1.7
 34,424  13.4  35,368  12.6
Indonesia
Automobiles and Components  8,111  3.2  4,328  1.6
Banks  6,278  2.4  3,321  1.2
Telecommunication Services  2,737  1.1  2,039  0.7
 17,126  6.7  9,688  3.5
Ireland
Money Market Fund  846  0.3
 846  0.3
Singapore
Banks  5,661  2.2  6,093  2.2
Consumer Services  1,237  0.5  1,777  0.6
 6,898  2.7  7,870  2.8
South Korea
Automobiles and Components  4,578  1.8  6,715  2.4
Banks  1,710  0.7  2,617  0.9
Capital Goods  3,065  1.2  5,864  2.1
Insurance  3,364  1.3  3,268  1.2
Materials  6,495  2.5  7,893  2.8
Technology Hardware and Equipment  15,242  6.0  20,481  7.3
 34,454  13.5  46,838  16.7
Taiwan
Food, Beverage and Tobacco  4,416  1.7  3,247  1.2
Semiconductors and Semiconductor Equipment  19,499  7.7  25,446  9.1
Technology Hardware and Equipment  9,707  3.8  22,452  8.1
 33,622  13.2  51,145  18.4
Thailand
Banks  4,991  1.9  4,795  1.8
 4,991  1.9  4,795  1.8
Total  256,686  100.0  279,058  100.0

Statement of Directors’ Responsibilities

IN RESPECT OF THE PREPARATION OF THE ANNUAL FINANCIAL REPORT AND THE FINANCIAL STATEMENTS

The Directors are responsible for preparing the Annual Financial Report and financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with UK accounting standards, and applicable law, including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland.

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of its profit or loss for that period.

In preparing these financial statements, the Directors are required to:

–       select suitable accounting policies and then apply them consistently;

–       make judgements and estimates that are reasonable and prudent;

–       state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements;

–       assess the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and

–       use the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors’ Report, Directors’ Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website, which is maintained by the Company’s Manager. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Responsibility Statement of the Directors in Respect of the Annual Financial Report

We confirm that to the best of our knowledge:

–       the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

–       the Strategic Report includes a fair review of the development and performance of the business and the position of the issuer, together with a description of the principal risks and uncertainties that they face.

We consider the Annual Financial Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s position and performance, business model and strategy.

Signed on behalf of the Board of Directors

Neil Rogan

Chairman

1 August 2022

Income Statement

FOR THE YEAR ENDED 30 APRIL

2022 2021
Revenue Capital Total Revenue Capital Total
Notes £’000 £’000 £’000 £’000 £’000 £’000
(Losses)/gains on investments held at fair value 9 - (20,854) (20,854) 101,295 101,295
(Losses)/gains on foreign exchange - (178) (178) 643 643
Income 2 6,228 62 6,290 5,600 67 5,667
Investment management fee 3 (484) (1,453) (1,937) (465) (1,395) (1,860)
Other expenses 4 (612) (5) (617) (581) (6) (587)
Net return before finance costs and taxation 5,132 (22,428) (17,296) 4,554 100,604 105,158
Finance costs 5 (11) (33) (44) (23) (68) (91)
Return on ordinary activities before taxation 5,121 (22,461) (17,340) 4,531 100,536 105,067
Tax on ordinary activities 6 (652) (855) (1,507) (668) (668)
Return on ordinary activities after taxation for the financial year 4,469 (23,316) (18,847) 3,863 100,536 104,399
Return per ordinary share 7 6.68p (34.87)p (28.19)p 5.78p 150.38p 156.16p

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 (loss)/income and therefore no additional statement of other comprehensive income is presented. The supplementary revenue and capital columns are presented for information purposes in accordance with the Statement of Recommended Practice issued by the Association of Investment Companies. All items in the above statement derive from continuing operations of the Company. No operations were acquired or discontinued in the year.

Statement of Changes in Equity

FOR THE YEAR ENDED 30 APRIL

Capital
Share Redemption Special Capital Revenue
Capital Reserve Reserve Reserve(1) Reserve(1) Total
Notes £’000 £’000 £’000 £’000 £’000 £’000
At 30 April 2020  7,500  5,624  34,827  134,968  4,029  186,948
Return on ordinary activities  100,536  3,863  104,399
Dividends paid 8 (6,066) (4,029) (10,095)
At 30 April 2021  7,500  5,624  34,827 229,438 3,863  281,252
Return on ordinary activities (23,316)  4,469 (18,847)
Dividends paid 8 (3,308) (6,921) (10,229)
At 30 April 2022  7,500  5,624  34,827  202,814  1,411  252,176

(1)   These reserves form the distributable reserves of the Company and may be used to fund distributions by way of dividends.

Balance Sheet

AT 30 APRIL

2022 2021
Notes £’000 £’000
Fixed assets
Investments held at fair value through profit or loss 9  256,686 279,058
Current assets
  Debtors 10  2,492 550
  Cash and cash equivalents  738 4,584
 3,230  5,134
Creditors: amounts falling due within one year 11 (7,047) (2,940)
Net current (liabilities)/assets (3,817) 2,194
Total assets less current (liabilities)/assets 252,869 281,252
Provision for deferred tax liabilities 12 (693)
Net assets 252,176 281,252
Capital and reserves
Share capital 13  7,500  7,500
Other reserves:
  Capital redemption reserve 14  5,624  5,624
  Special reserve 14  34,827  34,827
  Capital reserve 14  202,814  229,438
  Revenue reserve 14  1,411  3,863
Shareholders’ funds  252,176  281,252
Net asset value per ordinary share 15 377.21p 420.70p

The financial statements were approved and authorised for issue by the Board of Directors on 1 August 2022.

Signed on behalf of the Board of Directors

Neil Rogan
Chairman

Notes to the Financial Statements

1.     Accounting Policies

Accounting policies describe the Company’s approach to recognising and measuring transactions during the year and the position of the Company at the year end.

A summary of the principal accounting policies, all of which have been consistently applied throughout this and the preceding year is set out below:

(a)     Basis of Preparation

         (i)      Accounting Standards applied

The financial statements have been prepared in accordance with applicable United Kingdom Accounting Standards and applicable law (UK Generally Accepted Accounting Practice (‘UK GAAP’)), including FRS 102, and with the Statement of Recommended Practice Financial Statements of Investment Trust Companies and Venture Capital Trusts, issued by the Association of Investment Companies in April 2021 (‘SORP’). The financial statements are prepared on a going concern basis.

As an investment fund the Company has the option, which it has taken, not to present a cash flow statement as the following conditions have been met:

•        substantially all investments are highly liquid;

•        substantially all investments are carried at market value, and

•        a statement of changes in equity is provided.

         (ii)     Going concern

The financial statements have been prepared on a going concern basis. The Company’s Articles of Association require that every three years the Directors propose an ordinary resolution to release them from the obligation to wind up the Company, or they must put forward proposals to wind up the Company. Shareholders voted to release the Directors from the obligation to wind up the Company at the 2019 AGM, and therefore the next resolution in respect of this will be at the AGM in 2022. An assessment of the likelihood of the ordinary resolution to release the Directors from the obligation to wind-up the Company has been performed. This included taking account of the relative performance against the benchmark over a period of ten years and after having made enquiries, in the absence of unforeseen circumstances, the Directors have no reason to believe that such a resolution will not receive shareholder approval.

The Directors performed an assessment of the Company’s ability to meet its liabilities as they fall due. In performing this assessment, the Directors took into consideration the continuing uncertain economic outlook in the wake of the Covid-19 pandemic and other geopolitical events including:

•        the level of borrowings, cash balances and the diversified portfolio of readily realisable securities which can be used to meet short-term funding commitments, including repayment of the bank facility;

•        the net current liability position of the Company, after the deduction of drawn-down borrowings, which will be met through the renewal of the existing credit facility or the sale of investments in order to repay any borrowings;

•        the ability of the Company to meet all of its liabilities and ongoing expenses from its assets;

•        revenue and operating cost forecasts for the forthcoming year;

•        the ability of third-party service providers to continue to provide services; and

•        potential downside scenarios including a fall in the valuation of the investment portfolio or levels of investment income.

Based on this assessment, the Directors are satisfied that the Company has adequate resources to continue in operational existence for at least 12 months after signing the balance sheet and the financial statements have therefore been prepared on a going concern basis.

2.     Income

This note shows the income generated from the portfolio (investment assets) of the Company and income received from any other source.

2022 2021
£’000 £’000
Income from investments:
Overseas dividends  5,848  4,995 
Overseas special dividends  380  605 
Total income  6,228  5,600

Special dividends of £62,000 were recognised in capital during the year (2021: £67,000).

3.     Investment Management Fee

This note shows the investment management fee due to the Manager which is calculated and paid quarterly.

2022 2021
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Investment management fee  484 1,453  1,937 465  1,395  1,860

Details of the investment management and secretarial agreement are given in the Directors’ Report in the Annual Financial Report.

At 30 April 2022, £461,000 (2021: £507,000) was accrued in respect of the investment management fee.

4.     Other Expenses

The other expenses, including those paid to Directors and the auditor, of the Company are presented below; those paid to the Directors and the auditor are separately identified.

2022 2021
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Directors’ remuneration (i)  137  137 122  122
Auditor’s fees (ii):
  – for audit of the Company’s
    Annual Financial Statements
 40  40 32 32
Other administration expenses (iii)  435 5  440 427  6  433
 612  5  617 581  6  587

(i)      Directors’ fees authorised by the Articles of Association are £200,000 per annum. The Director’s Remuneration Report in the Annual Financial Report provides further information on Directors’ fees.

(ii)     Auditor’s fees include out of pocket expenses but excludes VAT. The VAT is included in other administration expenses.

(iii)    Other administration expenses include:

  •      £13,000 (2021: £11,000) of employer’s National Insurance payable on Directors’ remuneration. As at 30 April 2022, the amounts outstanding on Directors’ remuneration was £12,000 (2021: £9,000) and the amount outstanding in respect of employer's National Insurance was £1,000 (2021: £1,000).
  •      custodian transaction charges of £5,000 (2021: £6,000). These are charged to capital.
  •      a separate fee paid to the Manager for secretarial and administrative services which is subject to annual adjustment in line with the UK Retail Price Index. During the year the Company paid £102,000 (2021: £98,000) for these services.

5.     Finance Costs

Finance costs arise on any borrowing the Company has utilised in the year. The Company has a committed £20 million revolving credit facility (the ‘bank facility’) (see note 11 for further details).

2022 2021
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Commitment fees due on bank facility  10 31  41 6  19 25
Interest on bank facility  1 2  3 16  47 63
Overdraft interest 1  2
11 33 44 23  68 91

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 from irrecoverable tax on overseas (generally non-EU) dividends and Indian capital gains tax paid and provided for.

(a)     Tax charge

2022 2021
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Overseas tax  652  652 668  668
Indian capital gains tax - paid – note 6(d)  162  162
Indian capital gains tax - provision – note 6(d)  693  693
Tax charge for the year  652   855  1,507  668  668

The overseas tax charge consists of irrecoverable withholding tax.

(b)     Reconciliation of current tax charge

2022 2021
£’000 £’000
Return on ordinary activities before taxation (17,340) 105,067
Theoretical tax at the current UK Corporation Tax rate of 19% (2021: 19%) (3,295)  19,963
Effects of:
  – Non-taxable overseas dividends (1,109) (950)
  – Non-taxable overseas special dividends (84) (128)
  – Non-taxable losses/(gains) on investments  3,962 (19,246)
  – Non-taxable losses/(gains) on foreign exchange  34 (122)
  – Excess of allowable expenses over taxable income  491  482
  – Disallowable expenses  1  1
  – Overseas taxation  652  668
  – Indian capital gains tax - paid  162
  – Indian capital gains tax - provision – see (d) below  693
Tax charge for the year  1,507  668

Given the Company’s status as an investment trust, and the intention to continue meeting the conditions required to obtain the necessary approval in the foreseeable future, the Company has not provided any UK corporation tax on any realised or unrealised capital gains or losses arising on investments.

(c)     Factors that may affect future tax changes

The Company has cumulative excess management expenses of £26,289,000 (2021: £23,706,000) that are available to offset future taxable revenue.

A deferred tax asset of £6,572,000 (2021: £4,504,000) at 25% (2021: 19%) has not been recognised in respect of these expenses since the Directors believe that there will be no taxable profits in the future against which the deferred tax assets can be offset.

The Finance Act 2021 increases the UK corporation tax rate from 19% to 25% effective 1 April 2023. The Act received Royal Assent on 10 June 2021. Deferred tax assets and liabilities on balance sheets prepared after the enactment of the new tax rate must therefore be re-measured accordingly, so as a result the deferred tax asset has been calculated at 25%.

(d)     Indian capital gains tax

Capital gains arising from equity investments in Indian companies are subject to Indian Capital Gains Tax Regulations. Consequently, the Company is subject to both short and long term capital gains tax in India on the growth in value of their investment portfolios.

Although this capital gains tax only becomes payable at the point at which the underlying investments are sold and profits crystallised, the Company has made a provision for this tax liability for the year ended 30 April 2022 (2021: none). See note 12 for further details.

7.     Return per Ordinary Share

Return per share is the amount of gain or loss generated for the financial year divided by the weighted average number of ordinary shares in issue.

2022 2021
Pence £’000 Pence £’000
Return per ordinary share is based on the following:
Revenue return after taxation  6.68  4,469 5.78  3,863
Capital return after taxation (34.87) (23,316) 150.38 100,536
Total return after taxation (28.19) (18,847) 156.16 104,399

   

2022 2021
£’000 £’000
Weighted average number of ordinary shares in issue during the year  66,853,287  66,853,287

8.     Dividends on Ordinary Shares

Dividends represent a return of income to shareholders for investing in the Company’s shares. These are determined by the Directors and paid twice a year.

2022 2021
Pence £’000 Pence £’000
Dividends recognised in the year:
First interim dividend paid  7.70  5,148 6.70  4,479
Second interim dividend paid  7.60  5,081 8.40  5,616
 15.30  10,229 15.10 10,095

Set out above are the total dividends paid in respect of the financial year, which is the basis on which the requirements of Section 1158–1159 of the Corporation Tax Act 2010 are considered. The revenue available for distribution by way of dividend for the year is £4,469,000 (2021: £3,863,000).

9.     Investments at Fair Value

The portfolio comprises investments which are predominantly listed and traded on regulated stock exchanges. The investments of the Company are registered in the name of the Company or in the name of nominees and held to the order of the Company.

Gains and losses are either:

        realised, usually arising when investments are sold; or

        unrealised, being the difference from cost on those investments still held at the year end.

2022 2021
£’000 £’000
Opening valuation  279,058 195,915 
Movements in the year:
  Purchases at cost  85,110 146,614
  Sales (86,628) (164,766)
  (Losses)/gains on investments in the year (20,854) 101,295
Closing valuation  256,686 279,058 
Closing book cost  211,699 197,658 
Closing investment holding gains  44,987  81,400 
Closing valuation  256,686 279,058 

The Company received £86,628,000 (2021: £164,766,000) from investments sold in the year. The book cost of these investments when they were purchased was £71,069,000 (2021: £131,425,000) realising a profit of £15,559,000 (2021: £33,341,000) which when offset against the movement in closing investment holding gains results in net losses on investments in the year of £20,854,000 (2021: net gains of £101,295,000). These investments have been revalued over time and until they were sold any unrealised profits/losses were included in the fair value of the investments.

The transaction costs included in gains on investments amount to £65,000 (2021: £111,000) on purchases and £119,000 (2021: £227,000) for sales.

10.   Debtors

Debtors are amounts which are due to the Company, such as monies due from brokers for investments sold, income which has been earned (accrued) but not yet received and any taxes that are recoverable.

2022 2021
£’000 £’000
Amounts due from brokers  1,746
Overseas withholding tax recoverable  163  237
VAT recoverable  16  21
Prepayments and accrued income  567  292
 2,492  550 

11.   Creditors: amounts falling due within one year

Creditors are amounts which must be paid by the Company and they are all due within 12 months of the balance sheet date.

The bank facility provides a specific amount of capital, up to £20 million, over a specified period of time (364 days). Unlike a term loan, the revolving nature of the bank facility allows the Company to drawdown, repay and re-draw loans.

2022 2021
£’000 £’000
Bank facility 5,610  2,096
Amounts due to brokers 780  136
Accruals 657  708
7,047  2,940 

The committed unsecured 364 day multi-currency revolving credit facility (the ‘bank facility’) with The Bank of New York Mellon, has an interest payable based on the Adjusted Reference Rate (principally SOFR and SONIA respectively in respect of loans drawn in USD and GBP) plus a margin for amounts drawn. Any undrawn amounts under the bank facility attract a commitment fee of 0.2% (2021: 0.2%). The bank facility covenants are based on the lower of 25% of net asset value and £20 million, renewable on 30 July 2022, and require total assets to not fall below £80 million. At the year end, the bank facility drawn down was in US dollars with a sterling equivalent of £5,610,000 (2021: £2,096,000).

12.   Provision for deferred tax liabilities

The Company makes a deferred tax provision when a potential obligation exists that will probably have to settle in cash, but the amount is estimated and only becomes payable at the point at which the underlying investments are sold and profits crystallised.

2022 2021
£’000 £’000
Provision for deferred Indian capital gains tax  693
 693

13.   Share Capital

Share capital represents the total number of shares in issue. Any dividends declared will be paid on the shares in issue on the record date.

The Directors’ Report in the Annual Financial Report sets out the share capital structure, restrictions and voting rights.

Share capital represents the total number of shares in issue, including treasury shares.

(a)     Allotted, called-up and fully paid

2022 2021
£’000 £’000
Share capital:
Ordinary shares of 10p each 6,685  6,685
Treasury shares of 10p each 815  815
7,500  7,500

(b)     Share movements

2022 2021
Ordinary Treasury Ordinary Treasury
number number number number
Number at start of year  66,853,287  8,146,594 66,853,287 8,146,594
Number at the end of the year  66,853,287  8,146,594 66,853,287 8,146,594

During the year the Company has not bought back any shares into treasury (2021: nil shares bought back into treasury).

Since the year end and to the date of this Annual Financial Report, no shares have been bought back or re-issued.

(c)     Winding-up provisions

The Directors are obliged to convene a General Meeting (‘GM’) 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 2019 the Directors were released from their obligation to convene a GM and a resolution to release the Directors from their obligation to convene a GM will be put to shareholders at the AGM in 2022.

14.   Reserves

This note explains the different reserves attributable to shareholders. The aggregate of the reserves and share capital (see previous note) make up total shareholders’ funds.

The capital redemption reserve maintains the equity share capital arising from the buy-back and cancellation of shares and is non-distributable. The special reserve arose from the cancellation of the share premium account and is available as a distributable reserve to fund any future tender offers and share buybacks.

The capital reserve includes investment gains and losses, expenses allocated to capital and special dividends received that are classified as capital in nature. The revenue reserve reflects the income and expenses as shown in the revenue column of the Income Statement. The capital and revenue reserves are distributable by way of dividend. Dividends are first funded from available revenue reserves and then funded from capital reserves at the date of the dividend payment.

15.   Net Asset Value

The Company’s total net assets (total assets less total liabilities) are often termed shareholders’ funds and are converted into net asset value per ordinary share by dividing by the number of shares in issue as at the reporting date.

The net asset values attributable to each share in accordance with the Company’s Articles are set out below.

2022 2021
Ordinary shareholders’ funds £252,176,000 £281,252,000
Number of ordinary shares in issue, excluding treasury shares  66,853,287 66,853,287
Net asset value per ordinary share  377.21p 420.70p

There is no dilution in this or the prior year and therefore no diluted net asset value per ordinary share has been disclosed.

16.   Financial Instruments

Financial instruments comprise the Company’s investment portfolio, derivative financial instruments (if the Company had any), as well as any cash, borrowings, debtors and creditors. This note sets out the risks arising from the Company’s financial instruments in terms of the Company’s exposure and sensitivity, and any mitigation that the Manager or Board can take.

Risk Management Policies and Procedures

The Company’s portfolio is managed in accordance with its investment objective, which is set out in the Strategic Report in 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 in the Annual Financial Report.

As an investment trust the Company invests in equities and other investments for the long-term so as to meet its investment objective and policies. In pursuing its investment objective, the Company is exposed to a variety of risks that could result in either a reduction in the Company’s net assets or a reduction of the profits available for dividends. The risks applicable to the Company and the policies the Company used to manage these are summarised below and have remained substantially unchanged for the two years under review.

16.1  Market Risk

Market risk arises from changes in the fair value or future cash flows of a financial instrument because of movements in market prices. Market risk comprises three types of risk: currency risk (16.1.1), interest rate risk (16.1.2) and other price risk (16.1.3).

The Company’s Manager assesses the Company’s exposure when making each investment decision, and monitors the overall level of market risk on the whole of the investment portfolio on an ongoing basis. The Board meets at least quarterly to assess risk and review investment performance, as disclosed in the Board Responsibilities in the Annual Financial Report. Borrowing is used to enhance returns, however, this will also increase the Company’s exposure to market risk and volatility.

16.1.1 Currency Risk

As nearly all of the Company’s assets, liabilities and income are denominated in currencies other than sterling, movements in exchange rates will affect the sterling value of those items.

Management of the Currency Risk

The Manager monitors the Company’s exposure to foreign currencies on a daily basis and reports to the Board on a regular basis. With the exception of borrowings in foreign currency, the Company does not normally hedge its currency positions but may do so should the Portfolio 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.

Year ended 30 April 2022
Foreign Investment
Debtors Creditors currency at fair
(due from  (due to exposure value Total net
brokers Cash and Overdrafts brokers on net through foreign
and cash and bank and monetary profit currency
dividends) equivalents facility accruals) items or loss exposure
Currency £’000 £’000 £’000 £’000 £’000 £’000 £’000
Australian dollar  10,941   10,941 
Chinese yuan  14,990   14,990 
Hong Kong dollar  239  (7)  232   93,178   93,410 
Indian rupee (693) (693)  25,802   25,109 
Indonesian rupiah  697   697  17,126 17,823
Singapore dollar  423   423   6,898   7,321 
South Korean won  859  (773)  86   34,453   34,539 
Taiwan dollar  163   227   390  33,622 34,012
Thai baht  81   81   4,991   5,072 
US dollar  488  (5,610) (5,122)  14,685   9,563 
 2,462   715  (5,610) (1,473) (3,906)  256,686   252,780

   

Year ended 30 April 2021
Foreign Investment
Debtors Creditors currency at fair
(due from  (due to exposure value Total net
brokers Cash and Overdrafts brokers on net through foreign
and cash and bank and monetary profit currency
dividends) equivalents facility accruals) items or loss exposure
Currency £’000 £’000 £’000 £’000 £’000 £’000 £’000
Australian dollar 4,093 4,093
Chinese yuan 52 52 8,727 8,779
Hong Kong dollar  136 (136) 88,775  88,775
Indian rupee 26,925  26,925
Indonesian rupiah 16 (16) 9,688 9,688
Singapore dollar 20 20 7,870 7,890
South Korean won 100 100 46,839  46,939
Taiwan dollar 237 237 51,145  51,382
Thai baht 85 85 4,795 4,880
US dollar 4,448 (2,096) 2,352 30,201  32,553
510 4,584 (2,096) (152) 2,846 279,058  281,904 

The amounts shown are not representative of the exposure to risk during the year, because the levels of foreign currency exposure change significantly throughout the year.

Foreign Currency Sensitivity

The following table illustrates the sensitivity of the returns after taxation for the year with respect to the Company’s financial assets and liabilities.

If sterling had strengthened by the amounts shown in the second table below, the effect on the assets and liabilities held in non-sterling currency would have been as follows:

2022 2021
Total Total
Revenue Capital loss Revenue Capital loss
return return after tax return return after tax
£’000 £’000 £’000 £’000 £’000 £’000
Australian dollar (4) (263) (267) (74) (74)
Chinese yuan (22) (435) (457) (14) (140) (154)
Hong Kong dollar (32) (2,143) (2,175) (43) (3,640) (3,683)
Indian rupee  7  (387) (380) (4) (835) (839)
Indonesian rupiah (6) (446) (452) (1) (349) (350)
Singapore dollar (6) (137) (143) (7) (181) (188)
South Korean won (14) (447) (461) (29) (1,077) (1,106)
Taiwan dollar (22) (643) (665) (23) (1,125) (1,148)
Thai baht (2) (95) (97) (3) (149) (152)
US dollar (3) (239) (242) (7) (1,302) (1,309)
(104) (5,235) (5,339) (131) (8,872) (9,003)

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:

2022 2021
% %
£/Australian dollar +/–2.4 +/–1.8
£/Chinese yuan +/–2.9 +/–1.6
£/Hong Kong dollar +/–2.3 +/–4.1
£/Indian rupee +/–1.5 +/–3.1
£/Indonesian rupiah +/–2.5 +/–3.6
£/Singapore dollar +/–1.9 +/–2.3
£/South Korean won +/–1.3 +/–2.3
£/Taiwan dollar +/–1.9 +/–2.2
£/Thai baht +/–1.9 +/–3.1
£/US dollar +/–2.5 +/–4.0

These percentages have been determined based on the market volatility in exchange rates during the year. The sensitivity analysis is based on the Company’s foreign currency financial instruments held at each balance sheet date and takes account of forward foreign exchange contracts that offset the effects of changes in currency exchange rates. The effect of the strengthening or weakening of sterling against foreign currencies is calculated by reference to the volatility of exchange rates during the year using one standard deviation of currency fluctuations from the average exchange rate.

In the opinion of the Directors, the above sensitivity analyses are not representative of the year as a whole since the level of foreign currency exposure varies.

16.1.2 Interest Rate Risk

The Company is exposed to interest rate risk through income receivable on cash deposits and interest payable on variable rate borrowings. When the Company has cash balances, they are held in variable rate bank accounts yielding rates of interest dependent on the base rate of the custodian, Bank of New York Mellon (International) Limited.

The Company has a revolving credit facility (the ‘bank facility’) for which details and year end drawn down amounts are shown in note 11. The Company uses the facility when required at levels approved and monitored by the Board. At the maximum possible gearing of £20 million, the effect of a 1% increase/decrease in the interest rate would result in a decrease/increase to the Company’s total income of £200,000. At the year end, US dollars with a sterling equivalent of £5,610,000 of the bank facility was drawn down (2021: £2,096,000).

The Company also has available an uncommitted bank overdraft arrangement with the custodian for settlement purposes. At the year end there was no overdrawn amount (2021: £nil). Interest on the bank overdraft is payable at the custodian’s variable rate.

The Company’s portfolio is not directly exposed to interest rate risk.

16.1.3 Other Price Risk

Other price risks (i.e. changes in market prices other than those arising from interest rate risk or currency risk) may affect the value of the equity investments, but it is the business of the Manager to manage the portfolio to achieve the best possible return.

The Directors manage the market price risks inherent in the investment portfolio by meeting regularly to monitor on a formal basis the Manager’s compliance with the Company’s stated objectives and policies and to review investment performance.

The Company’s portfolio is the result of the Manager’s investment process and as a result is not wholly correlated with the Company’s benchmark or the markets in which the Company invests. The value of the portfolio will not move in line with the markets but will move as a result of the performance of the shares within the portfolio.

If the value of the portfolio rose or fell by 10% at the balance sheet date, the profit after tax for the year would increase or decrease by £25.7 million (2021: £27.9 million) respectively.

16.2  Liquidity Risk

This is the risk that the Company may encounter difficulty in meeting its obligations associated with financial liabilities i.e. when realising assets or raising finance to meet financial commitments.

A lack of liquidity in the portfolio may make it difficult for the Company to realise assets at or near their purported value in the event of a forced sale. This is minimised as the majority of the Company’s investments comprise a diversified portfolio of readily realisable securities which can be sold to meet funding commitments as necessary, cash held and the bank facility provides for additional funding flexibility. The financial liabilities of the Company at the balance sheet date are shown in note 11.

16.3  Credit Risk

Credit risk comprises the potential failure by counterparties to deliver securities which the Company has paid for, or to pay for securities which the Company has delivered; it includes, but is not limited to: lost principal and interest, disruption to cash flows or the failure to pay interest.

Credit risk is minimised by using:

(a)     only approved counterparties, covering both brokers and deposit takers;

(b)     a custodian that operates under BASEL III guidelines. The Board reviews the custodian’s annual, externally audited, service organisation controls report and the Manager’s management of the relationship with the custodian. Following the appointment of a depositary, assets held at the custodian are covered by the depositary’s restitution obligation, accordingly the risk of loss is remote; and

(c)     the Invesco Liquidity Funds plc – US Dollar, a money market fund, which is rated AAAm by Standard & Poor’s and AAAmmf by Fitch.

Cash balances are limited to a maximum of 5% of net assets with the custodian, 2.5% of net assets with any other deposit taker and a maximum of 6% of net assets in the Invesco Liquidity Funds plc. These limits are at the discretion of the Board and are reviewed on a regular basis. As at the year end, the sterling equivalent of £738,000 (2021: £4,584,000) was held at the custodian, in addition a balance had been held in Invesco Liquidity Funds plc during the year and the balance was £846,000 at the year end (2021: £nil).

17.   Fair Value of Financial Assets and Financial Liabilities

‘Fair value’ in accounting terms is the amount at which an asset can be bought or sold in a transaction between willing parties, i.e. a market-based, independent measure of value. Under accounting standards there are three levels of fair value based on whether there is an active market (Level 1) or, if not, Levels 2 and 3 where other methods have been employed to establish a fair value. This note sets out the aggregate amount of the portfolio in each level, and why.

Financial assets and financial liabilities are either carried at their fair value (investments), or at a reasonable approximation of their fair value. The valuation techniques used by the Company are explained in the accounting policy note. FRS 102 sets out three fair value levels for the fair value for the hierarchy disclosures. Categorisation into a level is determined on the basis of the lowest level input that is significant to the fair value measurement of each relevant asset/liability.

The investments held by the Company at the year end are shown in the Annual Financial Report. Except for two Level 2 and one Level 3 investments described below, all of the Company’s investments at the year end were deemed to be Level 1 with fair values for all based on unadjusted quoted prices in active markets for identical assets.

Level 2 investments are investments for which inputs are other than quoted prices included within Level 1 that are observable (i.e. developed using market data). At the year end there were two Level 2 investments held with a total fair value of £5,837,000 (2021: £846,000), comprising of Invesco Liquidity Funds – US Dollar money market fund, valued at £846,000 (2021: £nil) and Kasikornbank, valued at £4,991,000 (2021: £2,651,000 but classified as Level 1).  This resulted in the transfer of £2,651,000 from Level 1 to Level 2 during the year in respect of Kasikornbank due to the shares held being listed on the foreign section of the Stock Exchange of Thailand (SET), which is considered to be less active than the local market of the SET.

Except for the transfer to Level 2 as noted above, there have been no other transfers or movements between fair value categories during the year.

Level 3 investments are investments for which inputs are unobservable (i.e. for which market data is unavailable). Lime Co. was the only Level 3 investment in the portfolio at the year end and was valued at £101,000 (2021: one investment: Lime Co. valued at £103,000).

There have been no transfers or movements between fair value categories during the year.

18.   Capital Management

This note is designed to set out the Company’s objectives, policies and processes for managing its capital. This capital being funded by monies invested in the Company by shareholders (both initial investment and retained amount) and any borrowings by the Company.

The Company’s total capital employed at 30 April 2022 was £257,786,000 (2021: £283,348,000) comprising borrowings of £5,610,000 (2021: £2,096,000) and equity share capital and other reserves of £252,176,000 (2021: £281,252,000).

The Company’s total capital employed is managed to achieve the Company’s investment objective and investment policy as set out in the Annual Financial Report. Borrowings may be used to provide gearing up to the lower of £20 million or 25% of net asset value. The Company’s policies and processes for managing capital were unchanged throughout the year and the preceding year.

The main risks to the Company’s investments are shown in the Directors’ Report under the ‘Principal and Emerging Risks and Uncertainties’ section. These also explain that the Company is able to gear and that gearing will amplify the effect on equity of changes in the value of the portfolio.

The Board can also manage the capital structure directly since it has taken the powers, which it is seeking to renew, to issue and buy-back shares and it also determines dividend payments.

The Company is subject to externally imposed capital requirements with respect to the obligation and ability to pay dividends by section 1158 Corporation Tax Act 2010 and by the Companies Act 2006, respectively, and with respect to the availability of the bank facility, by the terms imposed by the lender, details of which are given in note 11. The Board regularly monitors, and the Company has complied with, these externally imposed capital requirements.

19.   Contingencies, Guarantees and Financial Commitments

Any liabilities the Company is committed to honour, and which are dependent on future circumstances or events occurring, would be disclosed in this note if any existed.

There were no contingencies, guarantees or other financial commitments of the Company as at 30 April 2022 (2021: nil).

20.   Related Party Transactions and Transactions with the Manager

A related party is a company or individual who has direct or indirect control or who has significant influence over the Company. Under accounting standards, the Manager is not a related party.

Under UK GAAP, the Company has identified the Directors and their dependents as related parties. The Directors’ remuneration and interests have been disclosed in the Annual Report. No other related parties have been identified.

Details of the Manager’s services and fees are disclosed in the Director’s Report in the Annual Financial Report

21.   Post Balance Sheet Events

Any significant events that occurred after the balance sheet date but before the signing of the balance sheet will be shown here.

There are no significant events after the end of the reporting period requiring disclosure.

22.   2022 Financial Information

The figures and financial information for the year ended 30 April 2022 are extracted from the Company's annual financial statements for that year and do not constitute statutory accounts. The Company's annual financial statements for the year to 30 April 2022 have been audited but have not yet been delivered to the Registrar of Companies. The Auditor's report on the 2022 annual financial statements was i) unqualified, ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006

23.   2021 Financial Information

The figures and financial information for the year ended 30 April 2021 are compiled from an extract of the published accounts for that year and do not constitute statutory accounts.  Those accounts have been delivered to the Registrar of Companies. The Auditor's report on the 2021 annual financial statements was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006

24.   Annual Financial Report

The Annual Report for the year-ended 30 April 2022 will be posted to shareholders in August 2022 and will be available thereafter at www.invesco.co.uk/invescoasia or from the Corporate Secretary at the Company's correspondence address, 43-45 Portman Square, London W1H 6LY. A copy of the Annual Financial Report will be submitted shortly to the National Storage Mechanism ("NSM") and will be available for inspection at the NSM, which is situated at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.

Notice of Annual General Meeting

THIS NOTICE OF ANNUAL GENERAL MEETING IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt as to what action to take, you should consult your stockbroker, solicitor, accountant or other appropriate independent professional adviser authorised under the Financial Services and Markets Act 2000. If you have sold or otherwise transferred all your shares in Invesco Asia Trust plc, please forward this document and the accompanying Form of Proxy to the person through whom the sale or transfer was effected, for transmission to the purchaser or transferee.

Notice is given that the Annual General Meeting of Invesco Asia Trust plc will be held at 43-45 Portman Square, London W1H 6LY, on 8 September 2022 at 12 noon for the following purposes:

Ordinary Business

To consider and, if thought fit, to pass the following resolutions all of which will be proposed as ordinary resolutions:

1.      To receive and consider the Annual Financial Report for the year ended 30 April 2022.

2.      To approve the Company’s Dividend Payment Policy. This is an advisory vote.

3.      To approve the Annual Statement and Report on Remuneration for the year ended 30 April 2022.

4.      To re-elect Neil Rogan as a Director of the Company.

5.      To re-elect Vanessa Donegan as a Director of the Company.

6.      To elect Myriam Madden as a Director of the Company.

7.      To elect Sonya Huen Rogerson as a Director of the Company.

8.      To re-appoint KPMG LLP as auditor of the Company.

9.      To authorise the Audit Committee to determine the remuneration of the auditor.

Special Business

To consider and, if thought fit, to pass the following resolutions of which resolutions 10 and 11 will be proposed as ordinary resolutions and resolutions 12 to 14 as special resolutions:

Release from obligation to wind-up the Company

10.    That:

in accordance with Article 147 of the Articles of Association of the Company, the Directors of the Company be and they are hereby released from their obligation pursuant to such Articles to convene a General Meeting of the Company to be held on the business day falling on or within seven days prior to the accounting reference date of the Company falling in 2023 at which a Special Resolution will be proposed providing for the Company to be wound up on a voluntary basis.

Authority to Allot Shares

11.    That:

in substitution for any existing authority under section 551 of the Companies Act 2006 (the ‘Act’) but without prejudice to the exercise of any such authority prior to the date of this resolution the Directors of the Company be generally and unconditionally authorised in accordance with section 551 of the Act as amended from time to time prior to the date of the passing of this resolution, to exercise all powers of the Company to allot shares and grant rights to subscribe for, or convert any securities into, shares up to an aggregate nominal amount (within the meaning of sections 551(3) and (6) of the Act) of £668,532, this being 10% of the Company’s issued ordinary share capital as at 1 August 2022, such authority to expire at the conclusion of the next Annual General Meeting of the Company or the date 15 months after the passing of this resolution, whichever is the earlier unless the authority is renewed or revoked at any other general meeting prior to such time, but so that this authority shall allow the Company to make offers or agreements before the expiry of this authority which would or might require shares to be allotted, or rights to be granted, after such expiry as if the authority conferred by this resolution had not expired.

Disapplication of Pre-emption Rights

12.    That:

subject to the passing of resolution number 11 set out in the notice of this meeting (the ‘Section 551 Resolution’) and in substitution for any existing authority under sections 570 and 573 of the Companies Act 2006 (the ‘Act’) but without prejudice to the exercise of any such authority prior to the date of this resolution, the Directors be and are hereby empowered, in accordance with sections 570 and 573 of the Act as amended from time to time prior to the date of the passing of this resolution to allot equity securities (within the meaning of section 560(1), (2) and (3) of the Act) for cash, either pursuant to the authority given by the Section 551 Resolution or (if such allotment constitutes the sale of relevant shares which, immediately before the sale, were held by the Company as treasury shares) otherwise, as if section 561 of the Act did not apply to any such allotment, provided that this power shall be limited:

(a)     to the allotment of equity securities in connection with a rights issue in favour of all holders of a class of equity securities where the equity securities attributable respectively to the interests of all holders of securities of such class are either proportionate (as nearly as may be) to the respective numbers of relevant equity securities held by them or are otherwise allotted in accordance with the rights attaching to such equity securities (subject in either case to such exclusions or other arrangements as the Directors may deem necessary or expedient in relation to fractional entitlements or legal, regulatory or practical problems under the laws of, or the requirements of, any regulatory body or any stock exchange in any territory or otherwise); and

(b)     to the allotment (otherwise than pursuant to a rights issue) of equity securities up to an aggregate nominal amount of £334,266, this being 5% of the Company’s issued share capital as at 1 August 2022 and this power shall expire at the conclusion of the next Annual General Meeting of the Company or the date 15 months after the passing of this resolution, whichever is the earlier unless the authority is renewed or revoked at any other general meeting prior to such time, but so that this power shall allow the Company to make offers or agreements before the expiry of this power which would or might require equity securities to be allotted after such expiry as if the power conferred by this Resolution had not expired; and so that words and expressions defined in or for the purposes of Part 17 of the Act shall bear the same meanings in this resolution.

Authority to Make Market Purchases of Shares

13.    That:

the Company be generally and subject as hereinafter appears unconditionally authorised in accordance with Section 701 of the Companies Act 2006 as amended from time to time prior to the date of the passing of this resolution (the ‘Act’) to make market purchases (within the meaning of Section 693(4) of the Act) of its issued ordinary shares of 10p each in the capital of the Company (‘Shares’).

PROVIDED ALWAYS THAT:

(i)      the maximum number of Shares hereby authorised to be purchased shall be 10,021,307 or 14.99% of shares in issue as at 1 August 2022;

(ii)     the minimum price which may be paid for a Share shall be 10p;

(iii)    the maximum price which may be paid for a Share must not be more than the higher of: (i) 5% above the average of the mid-market values of the Shares for the five business days before the purchase is made; and (ii) the higher of the price of the last independent trade in the Shares and the highest then current independent bid for the Shares on the London Stock Exchange;

(iv)    any purchase of Shares will be made in the market for cash at prices below the prevailing net asset value per Share (as determined by the Directors);

(v)     the authority hereby conferred shall expire at the conclusion of the next Annual General Meeting of the Company, or the date 15 months after the passing of this resolution, whichever is the earlier, unless the authority is renewed or revoked at any other general meeting prior to such time;

(vi)    the Company may make a contract to purchase Shares under the authority hereby conferred prior to the expiry of such authority which will be executed wholly or partly after the expiration of such authority and may make a purchase of Shares pursuant to any such contract; and

(vii)   any shares so purchased shall be cancelled or, if the Directors so determine and subject to the provisions of Sections 724 to 731 of the Act and any applicable regulations of the United Kingdom Listing Authority, be held (or otherwise dealt with in accordance with Section 727 or 729 of the Act) as treasury shares.

Period of Notice Required for General Meetings

14.    That:

         the period of notice required for general meetings of the Company (other than AGMs) shall be not less than 14 days.

Dated this 1 August 2022

By order of the Board

Invesco Asset Management Limited

Corporate Company Secretary

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