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Invesco Asia Trust Plc - Half-year ReportInvesco Asia Trust Plc - Half-year Report
PR Newswire
London, December 14
Invesco Asia Trust plc
Half-Yearly Financial Report
For the Six Months to 31 October 2017
KEY FACTS
Invesco Asia Trust plc (the ‘Company’) is an investment trust listed on the London Stock Exchange.
Investment Objective
The Company’s objective is to provide long-term capital growth by investing in a diversified portfolio of Asian and Australasian companies. The Company aims to achieve growth in its net asset value (NAV) in excess of the Benchmark Index, the MSCI AC Asia ex Japan Index (total return, in sterling terms).
Investment Policy
Invesco Asia Trust plc invests primarily in the equity securities of companies listed on the stockmarkets of Asia (ex Japan) including Australasia. It may also invest in unquoted securities up to 10% of the value of the Company’s gross assets, and in warrants and options when it is considered the most economical means of achieving exposure to an asset.
The Company is actively managed and the Manager has broad discretion to invest the Company’s assets to achieve its investment objective. The Manager seeks to ensure that the portfolio is appropriately diversified having regard to the nature and type of securities (such as performance and liquidity) and the geographic and sector composition of the portfolio.
Full details of the Company’s investment limits are on page 6 of the 2017 annual financial report.
Performance Statistics
The Benchmark Index of the Company is the MSCI AC Asia ex Japan Index (total return, in sterling terms).
Terms marked † are defined in the Glossary of Terms on page 65 of the 2017 annual financial report.
| SIX MONTHS | |||
| ENDED | |||
| 31 OCT 2017 | |||
| Total Return Statistics(1): | |||
| – Net asset value† (NAV) | 14.8% | ||
| – Share price | 13.4% | ||
| – Benchmark index† | 15.5% | ||
| Capital Statistics | AT 31 OCT | AT 30 APR | % |
| 2017 | 2017 | CHANGE | |
| NAV† | 330.0p | 291.3p | +13.3 |
| Share price(1) | 287.0p | 257.0p | +11.7 |
| Benchmark index(1) | — | — | +13.5 |
| Discount† per ordinary share: | |||
| – cum income | 13.0% | 11.8% | |
| – ex income | 11.7% | 10.3% | |
| Average discount over the | |||
| six months/year (ex income)(1) | 10.1% | 10.9% | |
| Gearing†: | |||
| – net cash | 2.0% | 2.6% |
(1) Source: Thomson Reuters Datastream.
INTERIM MANAGEMENT REPORT INCORPORATING THE CHAIRMAN’S STATEMENT
Chairman’s Statement
Performance
Asian equity markets have continued to make strong gains over the past six months, underpinned by an upturn in corporate earnings revisions and solid global economic expansion. Sentiment towards Asian equity markets benefited from stable economic growth in China, helped by robust consumer spending, and evidence that the authorities are succeeding in their attempts to rebalance the economy away from investment-led growth. While the markets have risen, Asia continues to be an attractive place to invest for the long-term given our portfolio manager’s perspective and focus on valuations.
I am pleased to report that the Company’s strategy has delivered a solid performance albeit marginally behind the benchmark’s return. Over the six month period to 31 October 2017, the net asset value per ordinary share on a total return basis increased by 14.8% compared to the benchmark index, the MSCI All Countries Asia ex-Japan Index, which returned 15.5% (in sterling terms). Over the same period, the Company’s share price return was less at 13.4%, a direct consequence of the discount to net asset value widening from 10.3% to 11.7%. Rising discounts generally were a feature in the sector, with the average across our peers increasing from 7.6% to 8.0%. Over the six month period under review, the Company’s average discount (ex income) was 10.1%, marginally above the Board’s desired discount of 10%.
On a longer term basis, the NAV and share price total returns of the Company continue to be excellent, with both comfortably ahead of the benchmark as shown in the table below.
| Total Return | 3 years | 5 years | 10 years |
| NAV | 63.8% | 116.3% | 174.1% |
| Share Price | 61.3% | 114.6% | 180.5% |
| Benchmark | 51.5% | 78.0% | 103.6% |
Tender Offer and Discount
As detailed in my Chairman’s Statement in the 2017 annual financial report, the Company sought and was granted shareholder approval on 10 August 2017 to implement a 15% tender offer. As a result 15% of the Company’s ordinary issued share capital (12,514,241 shares) was bought back at a 2% discount to NAV. The price per share was 312.8857p. Following this share buy back the share capital consisted of 74,999,881 ordinary shares including 4,085,406 shares held in treasury.
As also explained in my Statement, the Board concluded that a continuation of the tender arrangement was not in shareholders’ long term interests and therefore this arrangement has been discontinued. The Board remains committed to seeking to control the discount, and believes that it is desirable that the Company’s shares should trade at a price that, in normal market conditions, represents a discount of less than 10%. Accordingly the Board sought, and obtained, shareholder approval to buy back up to 14.99% of its shares at the AGM, and will use this facility if the Board determines this to be in the best interests of shareholders and the Company.
Dividend
For the six months to 31 October 2017, the revenue per ordinary share was 4.65p (2016: 3.64p). As has been the case in previous years the Board does not intend to pay an interim dividend. At the last AGM held on 10 August 2017, a final dividend of 4.30p per share was approved and this was paid to shareholders on 14 August 2017.
Borrowings
The Manager has the freedom to borrow within a range set by the Board according to the overall limit of the Company’s investment policy which permits gross gearing of up to 25% of net assets. The Board has set a working range of up to 15% of net assets. In practice, borrowings in the period have been minimal so that net gearing was generally less than 1%. At 31 October 2017, the Company, on a net basis, was not geared and held cash of 2.0%. At the date of this report the Company remains ungeared.
Board Composition
Through the Nominations Committee, the Board regularly reviews composition and succession planning for the Company. Following the retirement of the Audit Committee and Management Engagement Committee Chairman James Robinson at the last AGM, Fleur Meijs has taken over the chairmanship of these committees. To further strengthen the Board, an external facilitator, Trust Associates, was engaged to conduct a search for an additional Director and consequently Neil Rogan was appointed as a non-executive Director on 1 September 2017. Mr Rogan has broad experience of investment companies both as an investment manager and as a non-executive director. He was director of Global Equities at Henderson Global Investors and has held senior positions as an investment manager at Gartmore Investment Limited. The Board believes that Mr Rogan will bring a wealth of investment management experience to complement the current skills and experience on the existing Board.
Carol Ferguson
Chairman 14 December 2017
Portfolio Manager’s Report
Market Review
Asian equity markets, as measured by the MSCI AC Asia ex Japan Index (total return), rose 15.5% over the six months to 31 October 2017 in sterling terms. Factors that have improved investor sentiment include: corporate earnings growth forecasts being revised up to 20% for 2017 from 10% at the beginning of the year, a weaker US dollar, and President Trump’s failure to implement disruptive trade policies.
China’s equity markets led the rally, benefiting from increasing earnings expectations. This stemmed not only from the higher growth sectors such as e-commerce, internet and consumer discretionary but also from the more structurally challenged industrial sectors that are experiencing improved pricing power from capacity rationalisation. High debt levels remain a concern in China but the market has reacted positively to the government’s determination to rein in some of the more risky areas of the non-bank financial sector. This has been achieved without a significant negative impact on the liquidity of the broader banking system or on real economic activity.
The South Korean market was among the best performing in the region despite tensions caused by North Korea’s aggressive behaviour and a related Chinese boycott of South Korean products. A key market driver was Samsung Electronics’ share price performance which rose due to the strength of its semiconductor business and the company’s actions to enhance shareholder returns.
India’s equity market also rose but underperformed the region as economic activity remained weak. The economy continues to struggle to digest the excess capacity and bad debt created during the last cycle. It is also one of the few markets to experience downward revisions to earnings forecasts. Recently, however, the government’s plan to recapitalise state-owned banks drove the market higher as it is expected to strengthen bank balance sheets, speed up the resolution of bad debts and provide a boost to economic growth over the medium term.
Finally, the Taiwanese equity market outperformed as technology stocks rose on increased pricing power as a result of favourable supply/demand dynamics and anticipation that new Apple products will drive the revenue growth of Apple's suppliers.
Portfolio Review
In the six months to 31 October 2017, the Company’s net asset value increased by 14.8% (total return, £). This performance was marginally behind that of the benchmark which rose by 15.5% (total return, £).
The Company’s exposure to hardware technology companies contributed significantly to performance. For example, MediaTek, a Taiwanese semiconductor design company with substantial cash on its balance sheet, was the largest contributor to relative performance. MediaTek’s profits have been pressured by the weakness of its mobile chip division. However, new products being introduced in 2017 and beyond should improve MediaTek’s competitive and cost position leading to better profitability. The market has begun to take account of this positive change. Given how low MediaTek’s margins have become, small increases in margin will have a significant positive impact on its bottom line. Also in Taiwan, two small cap stocks added considerable value. Yageo’s share price rallied as the passive component manufacturer raised prices across its product range, while Chroma ATE rose due to evidence of strong demand for its test instruments and automated testing products. The attraction of Chroma is its exposure to new growth areas within technology – electric vehicles, lithium batteries, laser diodes (used in facial recognition) and graphics processing units (used in advance computing) - while its consistently high margins highlight its technology advantages that have been hard for competitors to replicate.
Our stock selection in Indian equities also added value this year. For example, the real estate company, Sobha, outperformed as a number of positive regulatory changes are expected to stimulate the market and lead to higher market shares for the leading property companies. Lower mortgage rates are an additional positive for the sector. Also in India, a large private port operator, Adani Ports, benefited from improving volume growth expectations due to increased containerisation of cargo and a ramp-up in volume at new ports. The company has also addressed some of the market concerns about its inter-group transactions. We believe that Adani is one of best ways to play an eventual revival in Indian economic growth.
Elsewhere, Minth, a Chinese auto-parts manufacturer, performed strongly thanks to robust order growth and product upgrades which have driven sales and margin growth. In our view, this company’s large order backlog offers a high level of revenue visibility in the medium term, while its valuation remains reasonable.
Conversely, Korea Electric Power (Kepco) performed poorly over the period. The company saw its share price weaken due to lower utilisation of its nuclear plants, consistently high coal prices and uncertainty about future tariff policy. The shares are trading at close to trough valuations and we believe the market is underappreciating the government’s incentive to ensure that the company generates an acceptable return on capital. Without this, Kepco will be unable to deliver on the government’s desire to transition the power generation mix away from coal and nuclear towards renewables.
In South Korea, the financial holdings detracted from performance during the review period. DGB Financial’s share price suffered from uncertainty surrounding a potential acquisition despite quarterly results showing that core profitability remains stable. Also, Korean Reinsurance was impacted by the high number of typhoons this year. However, we view this as a temporary impact on earnings and believe that the market is underestimating the strength of the underlying profitability of the business. Even after taking into account the typhoon losses, the company trades on 6x earnings with a 4.6% dividend yield.
The Company’s lack of exposure to Alibaba and underweight position in Tencent had a negative impact on index relative performance as both of these companies’ share prices benefited from solid results and positive guidance from the companies. Over the reporting period, some Chinese internet companies that the Company does own in size such as Netease and JD.com experienced a lull in performance. However we view this divergence in performance as temporary.
Outlook and Strategy
Asian markets have recovered strongly from the lows in February 2016, rising by close to 70% in sterling terms. There are several reasons to expect returns to be more modest in future. Firstly, valuations are now less attractive than before. The MSCI AC Asia ex Japan Index is now trading at 13.2x 2018 expected earnings and 1.8x trailing book value. While reasonable against other global equity markets, these valuation multiples are above their long-term averages. Secondly, as a result of higher valuations, further sustainable market performance is likely to become more reliant on a continuation of positive earnings momentum. However, two important drivers of the improved macro environment for earnings, Asian export growth and Chinese economic growth, have now peaked. In a number of Asian countries, export growth has accelerated to over 20% year on year. This is unsustainable in the current global demand environment. There is also clear evidence that Chinese economic momentum is now slowing as a result of policy tightening and slower credit growth. While consumption has been quite resilient so far, property sales, infrastructure investment and exports are all now slowing. So, while there are always exceptions to be found, it is unlikely that Asia can experience a broad-based acceleration of earnings against this backdrop. Thirdly, Asian market performance has been quite narrow in 2017 with returns coming disproportionately from the technology sector, both internet and technology hardware. This is similar to trends seen in other global equity markets. The technology sector has also dominated Asia’s earnings revisions so the good performance has been based on sound fundamentals. However, we feel less optimistic about future returns given the record valuations seen in some internet stocks and the risk that we are nearing the cyclical earnings peak in some areas of technology hardware.
Our response to this has been to gradually reduce the Company’s longstanding overweight exposure to the technology sector. Since the beginning of the financial year, we have moved from being 4.8% overweight technology to 1% underweight. By contrast we have reinvested in stocks that, in our view, remain attractively valued and have the potential to grow further.
For example, we have added exposure in the energy sector. While we do not have a strongly bullish view on oil prices, we observe that the industry is under significant pressure below $50 per barrel. As a result, we have focused on energy companies that are profitable at $50 or above. We introduced Inpex, a Japanese oil and gas company, whose most important asset is about to start producing liquefied natural gas (LNG) in Australia. We expect this will make a dramatic change to its earnings capability over the next few years. We also added to CNOOC - we believe its oil reserves, as well as management's focus on profitability and asset returns, are being underappreciated by the market. CNOOC has a free cash yield of 6% at $50 per barrel.
From a country perspective, India remains the largest overweight in the portfolio. India is differentiated by the fact that it is at the bottom of its business and credit cycles. Meanwhile, under Prime Minister Modi, India has begun to deliver on its economic reform agenda. The implementation of the Goods & Services Tax, the approval of the new Bankruptcy Code and the recapitalisation of the state-owned banks are forming a solid foundation for future economic growth. It is notable that after a long period of disappointing economic and earning trends, there are recent signs that the economy has started to accelerate. Our preferred way to gain exposure is through the financial sector. In particular, we have added to ICICI Bank. ICICI Bank has been impacted by asset quality problems in the large corporate sector but we now believe that we have passed the peak of this problem and that the bank’s return on equity will gradually normalise. This should lead to an increase in valuation.
Another source for attractive investment ideas is South Korea which is amongst the cheapest markets in Asia. This discount partly results from the high representation of cyclical stocks in the market and the uncertainty caused by aggressive behaviour of the North Korean regime. However, South Korea’s history of poor corporate governance has also been a significant factor in the discount. This is best demonstrated by the low average dividend pay-out ratio which is about 20% lower than the average for Asia ex Japan. However, we believe that this is beginning to change for the better with positive implications for valuations. Firstly, Samsung Electronics has moved to a capital return policy which outlines that at least 50% of free cash flow will be returned to shareholders in the form of dividends and share buybacks. As South Korea’s most successful company, Samsung’s more shareholder-friendly actions are likely to be copied by other business groups. Secondly, the Korea National Pension Service, a large shareholder in many South Korean companies, has become more forceful in demanding better shareholder returns. We see value in a number of sectors in South Korea such as banks, insurance, autos and utilities.
Ian Hargreaves
Portfolio Manager 14 December 2017
RELATED PARTY TRANSACTIONS
Under United Kingdom Generally Accepted Accounting Practice (UK Accounting Standards and applicable law), the Company has identified the Directors as related parties. No other related parties have been identified. No transactions with related parties have taken place which have materially affected the financial position or the performance of the Company.
PRINCIPAL RISKS AND UNCERTAINTIES
The principal risk factors relating to the Company can be summarised as follows:
Strategic Risk
Market Risk
A significant fall and/or a prolonged period of decline in the markets is which this Company invests will negatively affect the performance of the portfolio, as could other macro events including Brexit.
Investment Objectives
The Company’s investment objectives and structure are no longer meeting investors’ demands.
Wide Discount
Lack of liquidity and lack of marketability of the Company’s shares may lead to a stagnant share price and wide discount, with a persistently high discount leading to continual buy backs of the Company’s shares and shrinkage of Company.
Management Risk
Performance
The risk that as a result of the portfolio manager’s decisions, the Company could consistently underperform the benchmark and/or peer group over 3-5 years.
Key Person Dependency
The risk that the portfolio manager (Ian Hargreaves) ceased to be portfolio manager or is incapacitated or otherwise unavailable.
Currency Fluctuation Risk
The movement of exchange rates may have an unfavourable impact on returns as nearly all of the Company’s assets are non-sterling denominated.
Third Party Service Providers Risk
Unsatisfactory Performance of Third Party Service Providers
Failure by any service provider to carry out its obligations to the Company could have a materially detrimental impact on operations; could affect the ability of the Company to successfully pursue its investment policy; and expose the Company to reputational risk.
Information Technology Resilience and Security
The Company’s operational structure means that all cyber risk (information and physical security) emanates from its third party service providers (TPPs). This cyber risk could include fraud, sabotage or crime perpetrated against the Company or any of its TPPs.
Regulation and Corporate Governance Risk
Failure to Comply With Relevant Law and Regulations
The failure to ensure regulatory compliance, or adverse regulatory or fiscal changes, could damage the Company and its ability to continue in business.
In the view of the Board, these principal risks and uncertainties are as much applicable to the remaining six months of the financial year as they were to the six months under review.
GOING CONCERN
The financial statements have been prepared on a going concern basis. The Directors consider this is the appropriate basis as they have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future, being at least 12 months after the approval of this half-yearly financial report. In considering this, the Directors took into account the diversified portfolio of readily realisable securities which can be used to meet short-term funding commitments, the ability of the Company to meet all of its liabilities and ongoing expenses from its assets, and revenue forecasts.
DIRECTORS’ RESPONSIBILITY STATEMENT
in respect of the preparation of the half-yearly financial report
The Directors are responsible for preparing the half-yearly financial report using accounting policies consistent with applicable law and UK Accounting Standards.
The Directors confirm that to the best of their knowledge:
– the condensed set of financial statements contained within the half-yearly financial report have been prepared in accordance with the FRC’s FRS 104 Interim Financial Reporting;
– the interim management report includes a fair review of the information required by 4.2.7R and 4.2.8R of the FCA’s Disclosure Guidance and Transparency Rules; and
– the interim management report includes a fair review of the information required on related party transactions.
The half-yearly financial report has not been audited or reviewed by the Company’s auditor.
Signed on behalf of the Board of Directors.
Owen Jonathan
Director 14 December 2017
TWENTY-FIVE LARGEST HOLDINGS AT 31 OCTOBER 2017
Ordinary shares unless otherwise stated
The industry group is based on MSCI and Standard & Poor’s Global Industry Classification Standard.
| MARKET | |||||
| VALUE | % OF | ||||
| COMPANY | INDUSTRY GROUP | COUNTRY | £’000 | PORTFOLIO | |
| Samsung Electronics – ordinary shares | Technology Hardware & Equipment | South Korea | 9,980 | 6.7 | |
| Samsung Electronics – preference shares | 5,310 | ||||
| Baidu – ADR | Software & Services | China | 8,968 | 3.9 | |
| Taiwan Semiconductor Manufacturing | Semiconductors & Semiconductor Equipment | Taiwan | 8,434 | 3.7 | |
| HDFC Bank | Banks | India | 7,704 | 3.4 | |
| Hyundai Motor – preference shares | Automobiles & Components | South Korea | 7,663 | 3.3 | |
| AIA | Insurance | Hong Kong | 7,169 | 3.1 | |
| MediaTek | Semiconductors & Semiconductor Equipment | Taiwan | 6,945 | 3.0 | |
| CNOOCR | Energy | China | 6,337 | 2.8 | |
| NetEase – ADR | Software & Services | China | 6,312 | 2.8 | |
| JD.com – ADR | Retailing | China | 6,307 | 2.8 | |
| Chroma ATE | Technology Hardware & Equipment | Taiwan | 5,947 | 2.6 | |
| Industrial & Commercial Bank Of ChinaH | Banks | China | 5,813 | 2.5 | |
| Tencent | Software & Services | Hong Kong | 5,791 | 2.5 | |
| China MobileR | Telecommunication Services | China | 5,665 | 2.5 | |
| CK Hutchison | Capital Goods | Hong Kong | 5,565 | 2.4 | |
| Qingdao Port International | Transportation | China | 5,159 | 2.3 | |
| United Overseas Bank | Banks | Singapore | 4,649 | 2.0 | |
| HSBC | Banks | Hong Kong | 4,604 | 2.0 | |
| Korea Electric Power | Utilities | South Korea | 4,580 | 2.0 | |
| MINTH | Automobiles & Components | China | 4,489 | 2.0 | |
| UPL | Materials | India | 4,453 | 1.9 | |
| Samsonite International | Consumer Durables & Apparel | Hong Kong | 4,029 | 1.8 | |
| Sobha | Real Estate | India | 3,957 | 1.7 | |
| ICICI | Banks | India | 3,955 | 1.7 | |
| Hon Hai Precision Industry | Technology Hardware & Equipment | Taiwan | 3,856 | 1.7 | |
| 153,641 | 67.1 | ||||
| Other investments | 75,379 | 32.9 | |||
| Total investments | 229,020 | 100.0 |
ADR: American Depositary Receipts – are certificates that represent shares in the relevant stock and are issued by a US bank. They are denominated and pay dividends in US dollars.
H: H-Shares – shares issued by companies incorporated in the People’s Republic of China (PRC) and listed on the Hong Kong Stock Exchange.
R: Red Chip Holdings – holdings in companies incorporated outside the PRC, listed on the Hong Kong Stock Exchange, and controlled by PRC entities by way of direct or indirect shareholding and/or representation on the board.
CONDENSED INCOME STATEMENT
| SIX MONTHS TO | SIX MONTHS TO | ||||||
| 31 OCTOBER 2017 | 31 OCTOBER 2016 | ||||||
| REVENUE | CAPITAL | TOTAL | REVENUE | CAPITAL | TOTAL | ||
| RETURN | RETURN | RETURN | RETURN | RETURN | RETURN | ||
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | ||
| Gains on investments at fair value | — | 31,477 | 31,477 | — | 55,416 | 55,416 | |
| Losses on foreign currency revaluation | — | (256) | (256) | — | (274) | (274) | |
| Income – note 2 | 4,505 | — | 4,505 | 3,807 | — | 3,807 | |
| Gross return | 4,505 | 31,221 | 35,726 | 3,807 | 55,142 | 58,949 | |
| Investment management fee – note 3 | (236) | (709) | (945) | (205) | (615) | (820) | |
| Other expenses | (286) | (4) | (290) | (270) | (1) | (271) | |
| Net return before finance costs and taxation | 3,983 | 30,508 | 34,491 | 3,332 | 54,526 | 57,858 | |
| Finance costs – note 3 | (5) | (15) | (20) | (8) | (24) | (32) | |
| Return on ordinary activities before taxation | 3,978 | 30,493 | 34,471 | 3,324 | 54,502 | 57,826 | |
| Tax on ordinary activities – note 4 | (359) | — | (359) | (249) | — | (249) | |
| Return on ordinary activities after taxation for the | |||||||
| financial period | 3,619 | 30,493 | 34,112 | 3,075 | 54,502 | 57,577 | |
| Return per ordinary share | |||||||
| Basic | 4.65p | 39.17p | 43.82p | 3.64p | 64.57p | 68.21p | |
| Weighted average number of ordinary shares in issue | 77,851,717 | 84,405,678 | |||||
The total column of this statement represents the Company’s profit and loss account prepared in accordance with UK Accounting Standards. The return on ordinary activities after taxation is the total comprehensive income and therefore no statement of comprehensive income is presented. The supplementary revenue and capital columns are presented for information purposes in accordance with the Statement of Recommended Practice issued by the Association of Investment Companies. All items in the above statement derive from continuing operations of the Company. No operations were acquired or discontinued in the period.
CONDENSED RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS’ FUNDS
| CAPITAL | ||||||
| SHARE | REDEMPTION | SPECIAL | CAPITAL | REVENUE | ||
| CAPITAL | RESERVE | RESERVE | RESERVE | RESERVE | TOTAL | |
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
| For the six months ended 31 October 2017 | ||||||
| At 30 April 2017 | 8,751 | 4,373 | 85,722 | 137,616 | 6,563 | 243,025 |
| Final dividend for 2017 | — | — | — | — | (3,587) | (3,587) |
| Net return on ordinary activities | — | — | — | 30,493 | 3,619 | 34,112 |
| Tendered shares bought back and cancelled – note 6 | (1,251) | 1,251 | (39,520) | — | — | (39,520) |
| At 31 October 2017 | 7,500 | 5,624 | 46,202 | 168,109 | 6,595 | 234,030 |
| For the six months ended 31 October 2016 | ||||||
| At 30 April 2016 | 8,874 | 4,250 | 89,965 | 71,348 | 5,671 | 180,108 |
| Final dividend for 2016 | — | — | — | — | (3,086) | (3,086) |
| Net return on ordinary activities | — | — | — | 54,502 | 3,075 | 57,577 |
| Shares bought back and cancelled/held in Treasury | (123) | 123 | (3,633) | — | — | (3,633) |
| At 31 October 2016 | 8,751 | 4,373 | 86,332 | 125,850 | 5,660 | 230,966 |
CONDENSED BALANCE SHEET
Registered Number 03011768
| AT | AT | |
| 31 OCTOBER | 30 APRIL | |
| 2017 | 2017 | |
| £’000 | £’000 | |
| Fixed assets | ||
| Investments held at fair value through | ||
| profit or loss – note 5 | 229,020 | 236,238 |
| Current assets | ||
| Amounts due from brokers | 788 | 917 |
| Tax recoverable | 227 | 167 |
| VAT recoverable | 19 | 15 |
| Prepayments and accrued income | 129 | 308 |
| Cash and cash equivalents | 4,589 | 6,236 |
| 5,752 | 7,643 | |
| Creditors: amounts falling | ||
| due within one year | ||
| Amounts due to brokers | (124) | (240) |
| Accruals | (618) | (616) |
| (742) | (856) | |
| Net current assets | 5,010 | 6,787 |
| Net assets | 234,030 | 243,025 |
| Capital and reserves | ||
| Share capital | 7,500 | 8,751 |
| Capital redemption reserve | 5,624 | 4,373 |
| Special reserve | 46,202 | 85,722 |
| Capital reserve | 168,109 | 137,616 |
| Revenue reserve | 6,595 | 6,563 |
| 234,030 | 243,025 | |
| Net asset value per share – basic | 330.0p | 291.3p |
| Number of 10p ordinary shares in | ||
| issue at the period end – note 6 | 70,914,475 | 83,428,716 |
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
1. Accounting Policies
The condensed financial statements have been prepared in accordance with applicable United Kingdom Accounting Standards and applicable law (UK Generally Accepted Accounting Practice), including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland, FRS 104 Interim Financial Reporting and the Statement of Recommended Practice Financial Statements of Investment Trust Companies and Venture Capital Trusts, issued by the Association of Investment Companies in November 2014 as updated in January 2017. The financial statements are issued on a going concern basis.
The accounting policies applied to these condensed financial statements are consistent with those applied in the financial statements for the year ended 30 April 2017.
2. Income
| SIX MONTHS TO | SIX MONTHS TO | |
| 31 OCTOBER | 31 OCTOBER | |
| 2017 | 2016 | |
| £’000 | £’000 | |
| Income from investments | ||
| Overseas dividends | 3,857 | 3,325 |
| Special dividends – overseas | 384 | 194 |
| Scrip dividends | 107 | 107 |
| UK dividends | 152 | 181 |
| Deposit interest | 5 | – |
| Total income | 4,505 | 3,807 |
No special dividends have been recognised in capital (31 October 2016: £nil).
3. Management Fee and Finance Costs
Investment management fees and finance costs on any borrowings are charged 75% to capital and 25% to revenue. A management fee is payable quarterly in arrears and is equal to 0.75% per annum of the value of the Company’s total assets less current liabilities (including any short-term borrowings) under management at the end of the relevant quarter.
4. Investment Trust Status and Tax
It is the intention of the Directors to conduct the affairs of the Company so that it satisfies the conditions for approval as an investment trust company. As such, no tax liability arises on capital gains. The tax charge represents withholding tax suffered on overseas income.
5. Fair Value Hierarchy Disclosures
The fair value hierarchy analysis for investments at fair value at the period end is as follows:
| AT 31 OCTOBER | AT 30 APRIL | |
| 2017 | 2017 | |
| £’000 | £’000 | |
| Level 1 – The unadjusted quoted price in | ||
| an active market for identical assets that | ||
| the entity can access at the | ||
| measurement date. | 229,020 | 236,238 |
6. Share Capital movements
| (a) Ordinary Shares of 10p each | |||
| SIX MONTHS TO | YEAR TO | ||
| 31 OCTOBER | 30 APRIL | ||
| 2017 | 2017 | ||
| Number of ordinary shares: | |||
| Brought forward | 83,428,716 | 85,462,391 | |
| Tendered shares bought back and cancelled | (12,514,241) | — | |
| Shares bought back and cancelled | — | (1,225,493) | |
| Shares bought back and held in Treasury | — | (808,182) | |
| Carried forward | 70,914,475 | 83,428,716 | |
| (b) Treasury Shares | |||
| SIX MONTHS TO | YEAR TO | ||
| 31 OCTOBER | 30 APRIL | ||
| 2017 | 2017 | ||
| Number of treasury shares: | |||
| Brought forward | 4,085,406 | 3,277,224 | |
| Shares bought back into Treasury | — | 808,182 | |
| Carried forward | 4,085,406 | 4,085,406 | |
| Ordinary shares in issue (including treasury) | 74,999,881 | 87,514,122 | |
(c) As announced on 10 August 2017 the Company undertook a tender offer of 15% of its shares in issue at 312.8857p per share. Fixed costs and expenses of the tender offer amounted to £365,000, giving a total cost of £39,520,000. No shares, except for the tender offer shares, were bought back in the period or subsequent to the period end.
7. Dividend per Ordinary Share
The Company paid a final dividend of 4.3p per ordinary share for the year ended 30 April 2017 on 14 August 2017 to shareholders on the register on 14 July 2017.
8. Status of Half-Yearly Financial Report
The financial information contained in this half-yearly report does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The financial information for the half years ended 31 October 2017 and 31 October 2016 has not been audited. The figures and financial information for the year ended 30 April 2017 are extracted and abridged from the latest published accounts and do not constitute the statutory accounts for that year. Those accounts have been delivered to the Registrar of Companies and included the Report of the Independent Auditor, which was unqualified and did not include a statement under section 498 of the Companies Act 2006.
By order of the Board
Invesco Asset Management Limited
Company Secretary
14 December 2017