Invesco Asia Trust plc Half-Yearly Financial Report For the Six Months to 31 October 2008 KEY FACTS Invesco Asia Trust plc is an investment trust listed on the London Stock Exchange. Objective of the Company The objective of Invesco Asia Trust plc 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 in excess of the Benchmark Index, the Morgan Stanley Capital International All Countries Asia Pacific ex Japan Index, measured in sterling. Investment Policy and Risk Invesco Asia Trust plc invests primarily in the equity securities of companies listed on the stockmarkets of China, Hong Kong, India, Malaysia, Singapore, South Korea, Taiwan, Thailand and 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. Share Capital The Company s issued share capital consists of 93,837,425 ordinary shares of 10p each. Performance Statistics AT AT 31 OCTOBER 30 APRIL % 2008 2008 CHANGE Net assets ( 000) 76,757 118,862 35.4 Actual gearing 100 102 Asset gearing 99 101 Net asset value per ordinary share Balance sheet 81.8p 126.7p 35.4 after charging final dividend (capital NAV) 81.8p 125.2p 34.7 Net asset value (total return) (1) 34.8 Mid-market price per ordinary share 71.5p 112.8p 36.6 Discount per ordinary share on capital NAV 12.6% 9.9% Benchmark index (1) capital return 150.8 247.9 39.2 total return 283.1 455.6 37.9 INTERIM MANAGEMENT REPORT INCORPORATING THE CHAIRMAN S STATEMENT Chairman s Statement Performance and Prospects The six months to the end of October 2008 witnessed a number of unprecedented events across global financial markets, which resulted in extreme levels of volatility and severe share price weakness. As western economies and financial markets suffered the continued fall-out from the credit crisis, including high-profile bank collapses and government rescue packages, risk aversion increased sharply and had an adverse impact on Asian equity markets. While growth among Asian economies remained relatively robust, and significantly stronger than that of western economies, the pace of expansion slowed and a clear moderation in inflation gave policymakers the scope to undertake expansionary measures. Over the period, the Company s net asset value (total return) per ordinary share declined 34.8%, compared to the benchmark index, the MSCI All Countries Asia Pacific ex Japan (total return) index, which fell by 37.9%, adjusted for sterling. The Company s share price fell from 112.8p to 71.5p, while the discount to net asset value at which the shares trade widened to 12.6% from 9.9% at the beginning of the period. At the date of this report, the latest available net asset value (15 December 2008) has risen to 85.0p. Dividend As in previous years, no dividend is being declared in respect of the interim period. Outlook The market and economic background is characterised by great uncertainty. The slowdown in key western economies will have a significant impact on Asia, highlighting that today s issues are global in nature. This is also clearly demonstrated by the co-ordinated interest rate cuts made recently by global central banks and by the stimulus measures planned in Asia and elsewhere. The commitment of governments to support growth and repair confidence is a positive development and should help Asia s key economies to maintain reasonable levels of growth during this challenging period. In the short term, fragile investor sentiment is likely to result in further volatility. Whilst this may lead to further significant swings in share and index values in the months ahead, the Company will maintain its focus on the long term, through investment in those companies that offer sustainable prospects and attractive valuations. David Hinde Chairman (1) Source: Thomson Financial Datastream.
Investment Management Report Market and Economic Review The turmoil in financial markets gathered pace over the period, resulting in sharp falls in equity markets amid concerns about imminent global recession. Asian equities suffered sustained selling pressure as investor risk appetite swiftly deteriorated and a flight to the relative safety of cash and government bonds took place. Despite sporadic attempts to rally, equity markets in Asia ended the period significantly lower. Concerns that the faltering global economy could undermine Asian corporate earnings were sufficient to outweigh any potential support that stocks may have found from depressed valuation levels and relatively resilient economic performance. During the period, equities in China, India, Korea, Thailand and Indonesia all declined more than 40% in sterling terms, while the most resilient market was the Philippines, which still fell heavily, ending 24.9% lower, sterling adjusted. Asian equities were driven largely by global factors and with the fall-out from the subprime and credit market crises impacting the performance of some of the world s most influential economies, export dependent Asian countries experienced a period of weaker performance. Even the dominant Chinese economy is not immune to the slowdown in demand from the US and Europe, and whilst trade with emerging market countries helped to limit the declines, the pace of economic growth continued to slow. Despite the steep equity market falls, macroeconomic data during the period was relatively robust. Leading indicators softened from previous levels, but underlying performance in most Asian economies remained significantly stronger than was the case for western peers. Third quarter growth in China eased to 9% year-on-year ( y-o-y ) from 10.1% y-o-y in the second quarter, but annualised export growth remained around 20% and both September s and October s trade balance figures of US$29.3bn and US$35.2bn represented new highs. Falling inflation provided the scope required for interest rates to be cut and monetary policy was eased in the majority of Asian countries by the end of October. Chinese authorities led the way, cutting interest rates, reducing bank reserve requirements and most recently announcing a stimulus plan for the period to the end of 2010 valued at RMB4trn (US$586bn), although the headline figure does include spending that had already been planned. In addition, the Australian government outlined a A$10.4bn package of their own and Korean authorities detailed a US$130bn bank rescue initiative and US$10.8bn of infrastructure spending and tax cuts. Company Performance Over the period, the performance of the Company was impacted by the widespread weakness in financial markets, leaving it 34.8% lower (NAV, total return ), which was a slightly more resilient performance than that of the benchmark MSCI All Countries Asia Pacific ex Japan index, which fell 37.9% (total return, ). Over the period the Company s underweight exposure to those areas most vulnerable to slower global growth, including energy and materials, helped to achieve a stronger performance than that of the benchmark. Among individual stocks, the holding of Datacraft Asia performed well, gaining over 40%, as majority shareholder Dimension Data acquired the remainder of the company. In terms of detractors, the Company s underweight representation in utilities had a negative impact as the sector s defensive qualities provided a degree of downside protection, despite valuations looking expensive relative to the growth outlook and to other market sectors. The underweight position in Malaysia also weighed on returns as the market was among the more resilient during the period. Outlook for Asian economies and markets The lack of visibility surrounding the global economy poses an ongoing challenge to investor sentiment and is likely to result in further equity market volatility in the short term. We expect the weaker economic background to result in a period of slower earnings growth in 2008 and 2009. Although this has now been largely discounted in earnings estimates, forecasts for 2009 may still need to be revised lower. Valuations have now corrected significantly from the levels experienced at the end of 2007 and at around 10x earnings have reached the levels which have historically marked the trough for Asian markets. We continue to hold a positive view on Asian equities. We believe that the long-term outlook is strong and that Asia s performance should remain attractive in the context of a slower global growth environment. The concerted efforts of monetary and fiscal authorities to support growth, both in Asia and globally, are also positive factors. The easing of inflation has given central banks and governments the scope to follow supportive policies, which should help to mitigate part of the impact from lower US and European demand. The relative strength of Asian economies and the region s lack of indebtedness compared to western counterparts also leave Asia well placed to attract investors should any signs of stabilisation in economic conditions emerge. Company strategy The fundamental philosophy behind the Company s investment strategy remains the same: to seek exposure to quality businesses, with positive long-term potential trading at undemanding valuations. The volatile market conditions experienced over the six months to the end of October provided the opportunity to exploit the, at times, indiscriminate selling that took place to either introduce, or increase, exposure to companies where we believe valuations have become disconnected from their future prospects. The Company was significantly underweight in Chinese equities at the start of the period, reflecting what we considered to be expensive valuations. However, as weakness in Chinese markets accelerated, selective investments were made in those companies where share price falls had been excessive. As a result, the Company s exposure to Chinese equities ended the period higher and was supplemented by the continuing overweight position in Hong Kong. The combination of very low US interest rates and the potential for sustained long term growth in China are positive factors for Hong Kong. Valuations are also attractive, both on a standalone basis and relative to Chinese equities, which makes Hong Kong a good vehicle for accessing the long-term Chinese growth story. Throughout the period, we maintained the large underweight representation in Australia. This position is partly a reflection of the Company s underweight exposure to materials, which account for a significant proportion of the Australian market. We also consider that, in addition to its highly leveraged banks, Australia s growth profile is not as strong as that of many other countries in the Asia Pacific region. Sectorally, the Company remains overweight in consumer staples companies, based on favourable demographic and savings trends, and is underweight in some cyclical areas which are vulnerable to a weaker global economy. The Company is also underweight in banks, where capital is being reduced as a result of loan and investment losses, and within financials we prefer insurance companies where many are trading below their embedded value, representing compelling buying opportunities. We also have a marginally overweight position in real estate, which is again based on valuation grounds, as current share prices reflect what we believe is an overly pessimistic outlook. Stuart Parks Manager 2
RELATED PARTY Invesco Asset Management Limited ( IAML ), a wholly-owned subsidiary of Invesco Limited, acts as Manager, Company Secretary and Administrator to the Company. Details of IAML s services and fee arrangements are given in the latest Annual Financial Report, which is available on the Company s website. PRINCIPAL RISKS AND UNCERTAINTIES The principal risks and uncertainties that could affect the Company s business can be divided into the following areas: Investment Objective and Policy; Market Movements and Portfolio Performance; Gearing; and Regulatory and Tax. A detailed explanation of these principal risks and uncertainties can be found on pages 21 to 22 of the latest published Annual Financial Report which is available on the Company s website. In the view of the Board, these principal risks and uncertainties are equally applicable to the remaining six months of the financial year as they were to the six months under review. 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 halfyearly financial report have been prepared in accordance with the Accounting Standards Board s Statement Half-Yearly Financial Report ; the interim management report includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R of the FSA s Disclosure 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 auditors. Signed on behalf of the Board of Directors. David Hinde Chairman 3
TWENTY-FIVE LARGEST HOLDINGS AT 31 October 2008 Ordinary shares unless otherwise stated MARKET VALUE % OF COMPANY PRINCIPAL ACTIVITY COUNTRY 000 PORTFOLIO Samsung Electronics Technology Hardware Equipment South Korea 5,018 6.6 Jardine Matheson Diversified Financials Hong Kong 4,358 5.7 Taiwan Semiconductor Manufacturing Semiconductors Taiwan 4,254 5.6 China Insurance R Insurance Hong Kong 2,648 3.5 QBE Insurance Insurance Australia 2,425 3.2 China Mobile R Telecommunication Services Hong Kong 2,345 3.1 Sina Software & Services China 2,082 2.7 Beijing Enterprise R Capital Goods Hong Kong 1,858 2.4 United Phosphorus Chemicals India 1,692 2.2 Shinsegae Food & Staples Retailing South Korea 1,641 2.2 BHP Billiton Materials Australia 1,612 2.1 Wharf Diversified Financials Hong Kong 1,606 2.1 Petrochina H Energy China 1,593 2.1 China Unicom R Telecommunication Services Hong Kong 1,575 2.1 Far East Textile Consumer Durables & Apparel Taiwan 1,554 2.0 Ping An Insurance H Insurance China 1,546 2.0 China Life Insurance Insurance Taiwan 1,444 1.9 DBS Banking Singapore 1,330 1.8 Bharti Airtel Telecommunication Services India 1,222 1.6 Wing Lung Bank Banking Hong Kong 1,208 1.6 Newcrest Mining Materials Australia 1,163 1.5 Keppel Capital Goods Singapore 1,160 1.5 Noble Capital Goods Hong Kong 1,150 1.5 Cheung Kong Real Estate Hong Kong 1,107 1.5 Cnooc R Energy Hong Kong 1,048 1.4 48,639 63.9 Other investments 27,420 36.1 Total investments 76,059 100.0 R: Red Chip Holdings H: H-Shares CONDENSED INCOME STATEMENT YEAR TO SIX MONTHS TO SIX MONTHS TO 30 APRIL 31 OCTOBER 2008 31 OCTOBER 2007 2008 REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL TOTAL 000 000 000 000 000 000 000 (Losses)/gains on investments held at fair value through profit or loss (41,508) (41,508) 32,898 32,898 17,239 (Losses)/gains on foreign currency revaluation (122) (122) (67) (67) 50 Income UK dividends 19 19 19 19 19 Overseas dividends 1,813 1,813 1,613 1,613 2,817 Scrip dividends 202 202 385 Deposit interest 28 28 13 13 26 Gross return 1,860 (41,630) (39,770) 1,847 32,831 34,678 20,536 Investment management fee note 2 (84) (252) (336) (137) (411) (548) (1,000) Other expenses (222) (12) (234) (229) (15) (244) (471) Net return before finance costs and taxation 1,554 (41,894) (40,340) 1,481 32,405 33,886 19,065 Interest payable and similar charges note 2 (6) (19) (25) (70) (211) (281) (481) Return on ordinary activities before taxation 1,548 (41,913) (40,365) 1,411 32,194 33,605 18,584 Tax on ordinary activities (408) 76 (332) (466) 187 (279) (492) Net return on ordinary activities after tax for the period 1,140 (41,837) (40,697) 945 32,381 33,326 18,092 Return per ordinary share note 3 Basic 1.2p (44.6)p (43.4)p 0.9p 30.6p 31.5p 18.0p The total column of this statement represents the Company s profit and loss account prepared in accordance with UK Accounting Standards. The supplementary revenue and capital columns are presented for information purposes as recommended by the guidance published by the Association of Investment Companies. All items in the above statement derive from continuing operations and the Company has no other gains or losses, therefore no Statement of Total Recognised Gains and Losses is presented. No operations were acquired or discontinued in the period. 4
CONDENSED BALANCE SHEET AT AT AT 31 OCTOBER 30 APRIL 31 OCTOBER 2008 2008 2007 000 000 000 Fixed assets Investments held at fair value 76,059 120,155 148,738 Current assets Amounts due from brokers 149 28 820 Tax recoverable 185 133 VAT recoverable 7 7 59 Prepayments and accrued income 44 387 60 Cash at bank 1,982 1,123 1,192 2,367 1,678 2,131 Creditors: amounts falling due within one year Amounts owed to brokers (1,024) (1,379) Tax payable (385) (17) (219) Short-term loan (2,500) (3,500) Accruals and deferred income (256) (341) (390) (1,665) (2,858) (5,488) Net current assets/(liabilities) 702 (1,180) (3,357) Total assets less current liabilities 76,761 118,975 145,381 Provisions for liabilities Deferred tax (4) (113) (10) Total net assets 76,757 118,862 145,371 Capital and reserves Share capital 9,383 9,383 10,366 Share premium 74,588 74,588 74,588 Other reserves Capital redemption reserve 1,863 1,863 880 Special reserve 11,798 11,798 23,073 Capital reserve realised (3,467) 707 (3,643) Capital reserve unrealised (19,895) 17,768 38,169 Revenue reserve 2,487 2,755 1,938 76,757 118,862 145,371 Net asset value per share note 4 Basic 81.8p 126.7p 140.2p CONDENSED CASH FLOW STATEMENT SIX MONTHS SIX MONTHS TO YEAR TO TO 31 OCTOBER 30 APRIL 31 OCTOBER 2008 2008 2007 000 000 000 Net return before finance costs and taxation (40,340) 19,065 34,049 Adjustment for losses/(gains) on investments 41,508 (17,239) (33,061) Translation differences 122 (50) 67 Tax on unfranked investment income (125) (251) (83) Scrip dividends received as income (385) Decrease/(increase) in debtors 343 (145) 40 (Decrease)/increase in creditors (88) (16) 34 Cash inflow from operating activities 1,420 979 1,046 Servicing of finance Interest paid on bank loans (22) (483) (283) Taxation (206) Dividends paid (1,408) (1,378) (1,378) Capital expenditure and financial investment Purchase of investments (23,771) (101,033) (62,335) Sale of investments 27,262 121,332 70,072 Net cash inflow before management of liquid resources and financing 3,481 19,211 7,122 Management of liquid resources 56 412 278 Financing (2,500) (19,498) (7,223) Increase in cash in the period 1,037 125 177 Cash flow from movement in debt 2,500 5,500 4,500 Cash movement from decrease in liquid resources (56) (412) (278) Translation difference (122) 50 (67) Movement in net funds/(debt) in the period 3,359 5,263 4,332 Net debt at beginning of period (1,377) (6,640) (6,640) Net funds/(debt) at end of period 1,982 (1,377) (2,308) Analysis of changes in net funds/(debt) Brought forward: Cash at bank 1,067 892 892 Cash placed on short-term deposit 56 468 468 Debt due within one year (2,500) (8,000) (8,000) Net debt brought forward (1,377) (6,640) (6,640) Movements in the period: Cash inflow from bank 1,037 125 177 Exchange movement (122) 50 (67) Cash recalled from short-term deposit (56) (412) (278) Debt due within one year 2,500 5,500 4,500 Net funds/(debt) at end of period 1,982 (1,377) (2,308) CONDENSED RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS FUNDS CAPITAL CAPITAL CAPITAL SHARE SHARE REDEMPTION SPECIAL RESERVE RESERVE REVENUE CAPITAL PREMIUM RESERVE RESERVE REALISED UNREALISED RESERVES TOTAL 000 000 000 000 000 000 000 000 For the six months ended 31 October 2007 Balance as at 1 May 2007 10,596 74,588 650 25,796 (21,256) 23,401 2,371 116,146 Net return from ordinary activities 17,613 14,768 945 33,326 Final dividend for 2007 (1,378) (1,378) Shares bought back and cancelled (230) 230 (2,723) (2,723) At 31 October 2007 10,366 74,588 880 23,073 (3,643) 38,169 1,938 145,371 For the year ended 30 April 2008 Balance as at 1 May 2007 10,596 74,588 650 25,796 (21,256) 23,401 2,371 116,146 Net return from ordinary activities 21,963 (5,633) 1,762 18,092 Final dividend for 2007 (1,378) (1,378) Shares bought back and cancelled (1,213) 1,213 (13,998) (13,998) At 30 April 2008 9,383 74,588 1,863 11,798 707 17,768 2,755 118,862 For the six months ended 31 October 2008 Balance as at 1 May 2008 9,383 74,588 1,863 11,798 707 17,768 2,755 118,862 Net return from ordinary activities (4,174) (37,663) 1,140 (40,697) Final dividend for 2008 (1,408) (1,408) At 31 October 2008 9,383 74,588 1,863 11,798 (3,467) (19,895) 2,487 76,757 5
NOTES TO THE CONDENSED FINANCIAL STATEMENTS 1. Accounting Policy The condensed financial statements have been prepared using the same accounting policies as those adopted in the Annual Financial Report for the year ended 30 April 2008, which were prepared under the historical cost convention and are consistent with applicable UK Accounting Standards and with the Statement of Recommended Practice Financial Statements of Investment Trust Companies. 2. Management Fee and Interest Payable Investment management fees and interest payable on borrowings are charged 75% to the capital reserve and 25% to the revenue account. 3. Basis of Returns SIX MONTHS TO SIX MONTHS TO YEAR TO 31 OCTOBER 31 OCTOBER 30 APRIL 2008 2007 2008 000 000 000 Returns after tax: Revenue 1,140 945 1,762 Capital (41,837) 32,381 16,330 Total (40,697) 33,326 18,092 Weighted average number of ordinary shares in issue during the period 93,837,425 105,713,658 100,690,977 4. Basis of Net Asset Value AT AT AT 31 OCTOBER 31 OCTOBER 30 APRIL 2008 2007 2008 Shareholders funds 76,757,000 145,371,000 118,862,000 Ordinary shares in issue at the period end 93,837,425 103,662,425 93,837,425 5. Movements in Share Capital SIX MONTHS TO SIX MONTHS TO YEAR TO 31 OCTOBER 31 OCTOBER 30 APRIL 2008 2007 2008 Number of ordinary shares: Brought forward 93,837,425 105,962,425 105,962,425 Shares bought back and cancelled (2,300,000) (12,125,000) In issue at period end 93,837,425 103,662,425 93,837,425 Average price of shares repurchased 117.57p 114.65p Since the period end no shares have been repurchased. 6. Dividends The Company paid a final dividend of 1.5p per ordinary share for the year ended 30 April 2008 on 11 August 2008 to shareholders on the register on 11 July 2008. The Directors do not propose the payment of an interim dividend (2007: nil). 7. Investment Trust Status 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 set out in section 842 of the Income and Corporation Taxes Act 1988. 8. Status of Half-Yearly Financial Report The financial information contained in this half-yearly report, which has not been reviewed or audited by the independent auditors, does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The financial information for the half years ended 31 October 2008 and 31 October 2007 have not been audited. The figures and financial information for the year ended 30 April 2008 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 Auditors, which was unqualified and did not include a statement under either section 237(2) or 237(3) of the Companies Act 1985. By order of the Board Invesco Asset Management Limited Company Secretary DIRECTORS, INVESTMENT MANAGER AND ADMINISTRATION Directors David Hinde (Chairman) Robin Baillie Bryan Lenygon* Sir Robin McLaren James Robinson *Chairman of the Audit Committee and the Management Engagement Committee. All Directors are members of the Audit Committee, the Management Engagement Committee and the Remuneration Committee Manager, Secretary and Registered Office Invesco Asset Management Limited 30 Finsbury Square London EC2A 1AG 020 7065 4000 Company Secretarial contact: Kerstin Rucht Company Number Registered in England and Wales: No. 3011768 Registrars and Transfer Office Capita Registrars Northern House Woodsome Park Fenay Bridge Huddersfield West Yorkshire HD8 0LA If you hold your shares directly rather than through an ISA or savings scheme, and have any queries relating to your shareholding you should contact Capita on: 0871 664 0300. Calls cost 10p per minute plus network extras. Shareholders holding shares directly can also access their holding details via Capita s website www.capitaregistrars.com Capita provide an on-line and telephone share dealing service to existing shareholders who are not seeking advice on buying or selling. This service is available at www.capitadeal.com or 0870 458 4577. Invesco Perpetual Customer Services Invesco Perpetual has a Customer Services Team (available from 8.30 a.m. to 6.30 p.m. every working day) to help you. Please feel free to take advantage of this expertise. 0800 085 8677 www.invescoperpetual.co.uk/investmenttrusts Invesco Asset Management Limited 30 Finsbury Square London EC2A 1AG 020 7065 4000 Invesco Asset Management Limited is a wholly owned subsidiary of Invesco Limited and is authorised and regulated by the Financial Services Authority Invesco Perpetual is a business name of Invesco Asset Management Limited Linkway L15677