Invesco Asia Regulatory News (IAT)

Invesco Asia Trust Plc - Annual Financial Report

PR Newswire

London, June 26

Invesco Asia Trust plc

Annual Financial Report Announcement

For the Financial Year Ended 30 April 2017

FINANCIAL INFORMATION AND PERFORMANCE STATISTICS

The benchmark index of the Company is the MSCI AC Asia ex Japan Index

(1) Source: Thomson Reuters Datastream.

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CHAIRMAN’S STATEMENT

Performance

Asian equity markets have made strong gains over the last twelve months, underpinned by a cyclical upturn in corporate earnings and the robust global economic backdrop. Investment returns for UK investors have also benefited from the weakness of sterling relative to Asian currencies. The political and macroeconomic environment has at times been challenging, with events such as the UK vote to leave the EU and the election of US President Donald Trump seeing a marked increase in uncertainty. However, sentiment towards Asian equity markets has benefited from an easing of concerns over the health of China’s economy and expectations that global central banks will keep interest rates at low levels for longer. Although the market has made a strong recovery, we are confident that Asia will continue to be an attractive place to invest given our portfolio manager’s long-term perspective and focus on valuations.

I am pleased to report that the Company’s strategy has again delivered excellent absolute and relative returns. Over the year to 30 April 2017, the net asset value per ordinary share increased by 40.6% compared to the benchmark index, the MSCI AC Asia ex Japan index, which returned 37.5% (all figures: in total return and sterling terms). The Company’s share price rose from 183p to 257p, while the year end discount to net asset value, excluding income, at which our shares trade narrowed to 10.3%.

On a longer term view, the returns by the Company have been excellent. I refer you to the table on page 3 which shows that over three years the NAV and share price have increased by 67.5% and 65.8%, respectively, versus the benchmark of 44.6%; over 5 years this outperformance increases with returns of 89.3% and 90%, respectively, versus the benchmark of 59.5% (all figures: total return, in sterling terms).

Dividend

Following last year’s dip in revenue return per share, this year it has increased substantially to 4.74p, reflecting the rise in earnings of investee companies as well as the weakness of sterling post Brexit. As a result, the Board is pleased to be recommending a final dividend of 4.30p per ordinary share (2016: 3.65p), an increase of 17.8%. The dividend, which is subject to the approval of shareholders at the Annual General Meeting, will be payable on 14 August 2017 to shareholders on the register on 14 July 2017, and will be marked ex-dividend on 13 July 2017.

Borrowings

The portfolio manager, Ian Hargreaves, has the freedom to borrow within a working range set by the Board within the overall limit of the Company’s investment policy, which permits gross gearing of up to 25% of net assets. During the year Ian used limited gearing at times when he believed it was advantageous to do so, and held cash at other times. At the end of the year the cash level had risen to 2.6% as he reduced or sold some positions, and at the time of writing this report he holds 2.5% cash.

Tender Offer, Discount Control and Share Buy Backs

In recent years, the Board has proposed a tender offer if the Company’s shares traded over any year at an average discount of more than 10% to NAV excluding income. Despite an excellent performance record, the Company’s average discount, excluding income, widened to 10.9% in the year to 30 April 2017 compared with the previous year’s average of 9.7%. Consequently, the Board is now seeking the approval of shareholders to implement a 15% tender offer at a separate general meeting to be held at the conclusion of the Company’s Annual General Meeting (‘AGM’).

As announced on 2 May 2017, the Board has been considering its approach to discount control for future financial periods. The Board considers that the inclusion of a tender offer provision with a specific discount trigger has not been effective in controlling the Company’s share price discount. Despite outperforming both the benchmark and a number its peers in the year to 30 April 2017, the discount widened in line with its peer group over the year. Furthermore, the tender offer will reduce the overall size of the Company and if there were future tenders this could in time give rise to concerns regarding the liquidity of the Company’s shares. An additional consideration is that as the Company shrinks, the ongoing charges ratio rises. Both of these factors potentially make the Company less attractive to both existing and new investors. The Board has therefore concluded that, beyond the current proposed tender offer, a continuation of these tender arrangements that have hitherto been adopted on a year-by-year basis, would not be in shareholders’ long term interests.

Nevertheless, the Board remains committed to seeking to control the discount. Overall, the Board considers it to be desirable that the Company’s shares should trade at a price which, on average, represents a discount of less than 10% to NAV excluding income in normal market conditions. In order to meet this, the Company will utilise the authority sought from shareholders annually at the AGM to buy back shares at its discretion having regard, amongst other matters to factors such as market conditions and the discounts of comparable investment companies.

Shares may be bought back when there is an excess available in the market and the discount is higher than desired. By assisting in addressing any imbalance between supply and demand, the objective is to reduce the scale and volatility of the discount at which the shares trade in relation to the underlying net asset value. Such buy backs will benefit all continuing shareholders as it is the Board’s policy to undertake share buy backs only when they enhance net asset value. Accordingly, authority for the Board to buy back shares is sought at the AGM and Special Resolution 11 seeks shareholders’ approval to renew the Company’s authority to purchase up to 14.99% of its share capital; this is explained in more detail on page in the annual financial report.

During the year to 30 April 2017 a total of 2,033,675 shares were bought back, enhancing the NAV by £504,000 (0.26%). Of these, 808,182 were bought back into treasury. Since the year end, the average share price discount to NAV has been 10.1% and there have been no further buy backs of shares.

Managing the Company’s share price discount remains an important area of focus to the Board and we will actively monitor and evaluate the most appropriate means to address this.

Corporate Broker

The Board announced in February 2017 its decision to appoint Investec Bank plc as the Company’s sole financial adviser and broker. The Board’s decision to change its corporate broker came after a review of corporate broking services and Investec Bank plc was appointed with effect from 1 March 2017. We look forward to working with the team at Investec going forward.

Board Composition

After serving on the Board for over a decade, James Robinson, Chairman of the Audit Committee and the Management Engagement Committee will retire as a Director of the Company at the forthcoming annual general meeting. James has been a hardworking and exemplary Director and as Chairman of the Audit Committee took the lead in conducting the search for our new auditors, KPMG LLP. The Board would like to thank Mr Robinson for his services to the Company and its shareholders and wishes him well for the future.

As reported in the Company’s half-yearly financial report, during the year the Nomination Committee carried out a review of the composition of the Board and the Company’s succession plan. Consequently Fleur Meijs was appointed to the Board in December 2016. Ms Meijs will be appointed as Chairman of the Audit Committee and Management Engagement Committee on James’ retirement. The Board believe that her experience as a qualified chartered accountant and former financial services partner at PricewaterhouseCoopers LLP enable her to take the chairmanship of these committees. Through her advisory work for investment banks, brokers, an exchange and a clearing house, Ms Meijs has an excellent understanding of the market players and the infrastructure within which investment trusts operate.

General Meetings

The Company’s AGM will be held at 12 noon on 10 August 2017 at 43-45 Portman Square, London W1H 6LY. Ian Hargreaves will be making a presentation, highlighting the achievements of the past year and the prospects for the year to come. He will also be available to answer shareholders’ questions. A general meeting of the Company follows at the conclusion of the AGM to consider the proposed tender offer.

I hope as many of you as possible will attend. The Board has considered all the resolutions proposed in the Notice of the AGM and believe all are in the interests of shareholders as a whole. The Directors recommend that you vote in favour of each resolution, and confirm that they will be voting for each resolution.

Carol Ferguson

Chairman

28 June 2017

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BUSINESS REVIEW

Invesco Asia Trust plc is an investment company and its investment objective is set out below. The strategy the Board follows to achieve that objective is to set investment policy and risk guidelines, together with investment limits, and to monitor how they are applied. These are also set out below and have been approved by shareholders.

The business model the Company has adopted to achieve its investment objective has been to contract out investment management and administration to appropriate external service providers, which are overseen by the Board. The principal service provider is Invesco Fund Managers Limited, throughout this report is referred to as ‘the Manager’. Invesco Asset Management Limited, an associate company of the Manager, manages the Company’s investments and acts as Company Secretary under delegated authority from the Manager.

The Manager provides company secretarial, marketing and general administration services including accounting and manages the portfolio in accordance with the Board’s strategy. Ian Hargreaves is the portfolio manager responsible for the day-to-day management of the portfolio.

The Company also has contractual arrangements with third parties to act as registrar, corporate broker and depositary. The depositary is BNY Mellon Trust & Depositary (UK) Limited. The depositary has delegated safekeeping of the Company’s investments to The Bank of New York Mellon (London Branch), which was previously the Company’s custodian and retains that function under delegated authority.

Investment Objective

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

Investment Policy

Invesco Asia Trust plc invests primarily in the equity securities of companies listed on the stockmarkets of Asia (ex Japan) including Australasia. It may also invest in unquoted securities up to 10% of the value of the Company’s gross assets, and in warrants and options when it is considered the most economical means of achieving exposure to an asset.

The Company is actively managed and the Manager has broad discretion to invest the Company’s assets to achieve its investment objective. The Manager seeks to ensure that the portfolio is appropriately diversified having regard to the nature and type of securities (such as performance and liquidity) and the geographic and sector composition of the portfolio.

Investment Limits

The Board has prescribed limits on the investment policy, including:

– exposure to any one company may not exceed 10% of total assets;

– exposure to group-related companies may not exceed 15% of total assets;

– the Company may not invest more than 10% of total assets in collective investment funds;

– the Company may not invest more than 10% in aggregate in unquoted investments;

– the Company may invest in warrants and options up to a maximum of 10% of total assets. Apart from these and currency hedges, other derivative instruments are not permitted; and

– the Company may use borrowings up to 25% of net assets.

With the exception of borrowings in foreign currency, the Company does not normally hedge its currency positions but may do so if considered appropriate.

All the above limits are applied at the time of acquisition, except gearing which is monitored on a daily basis.

Borrowing and Debt

The Company’s borrowing policy is determined by the Board. The level of borrowing may be varied in accordance with the portfolio manager’s assessment of risk and reward, subject to the overall limit of 25% of net assets and the availability of suitable finance.

Performance and Key Performance Indicators

The Board reviews performance by reference to a number of Key Performance Indicators which include the following:

• the net asset value (NAV) and share price;

• peer group performance;

• discount;

• dividend; and

• ongoing charges ratio.

A chart showing the total return NAV and share price performance compared to the Company’s benchmark index can be found in the annual financial report.

Peer group performance is monitored in relation to nine other investment trust companies that in the opinion of the Board form the peer group of the Company, being trusts that invest for growth in the Asia excluding Japan sector, as these most closely match the Company’s investment objective and capital structure. As at 30 April 2017, in NAV terms the Company was ranked 3rd over one year, 4th over three years and 3rd over five years.

The discount of the shares is monitored on a daily basis. During the year the shares traded at a discount to NAV (ex income) in a range of 8.1% to 14.2% with an average discount of 10.9%. This is shown in the adjacent graph which plots the discount over the two years to 30 April 2017. At the year end the discount to the NAV (ex income) stood at 10.3%.

The Board considers it desirable that the Company’s shares do not trade at a significant discount to NAV and believes that, in normal market conditions, the shares should trade at a price which on average represents a discount of less than 10% to NAV. To enable the Board to take action to deal with any material overhang of shares in the market it seeks authority from shareholders annually to buy back shares. Shares may be repurchased when, in the opinion of the Board, the discount is wider than desired and shares are available in the market. The Board considers that the repurchase of shares at a discount will enhance net asset value for remaining shareholders and may also assist in addressing the imbalance between the supply of and demand for the Company’s shares and thereby reduce the scale and volatility of the discount at which the shares trade in relation to the underlying net asset value.

The ten year record for dividends and the ongoing charges ratio for the last two years can be found in the annual financial report.

Results and Dividend

For the year ended 30 April 2017 the net asset value total return was 40.6% compared to the return on the benchmark index of 37.5%. The Portfolio Manager’s Report reviews the results.

Subject to approval at the AGM, the proposed final dividend for the year ended 30 April 2017 of 4.30p per share (2016: 3.65p) will be payable on 14 August 2017 to shareholders on the register on 14 July 2017. Shares will be marked ex-dividend on 13 July 2017.

Financial Position and Borrowing

The Company’s balance sheet on page 44 of the annual financial report shows the assets and liabilities at the year end. Details of the Company’s borrowing facility are shown in note 11 to the financial statements, with interest paid (finance costs) shown in note 5.

Outlook, including the Future of the Company

The main trends and factors likely to affect the future development, performance and position of the Company’s business can be found in the Portfolio Manager’s Report of this Strategic Report. Further details of the principal risks affecting the Company are set out in the next section: ‘Principal Risks and Uncertainties’.

Past performance has been good and Directors believe that following the tender offer (as detailed in the Chairman’s Statement) the Company will continue in its current form with strong shareholder support.

Investment Process

At the core of the Manager’s philosophy is a belief in active investment management. Fundamental principles drive an active investment approach, which aims to deliver attractive total returns over the long term. The investment process emphasises pragmatism and flexibility, active management, a focus on valuation and the combination of top-down and bottom-up fundamental analysis. Bottom-up analysis forms the basis of the investment process. It is the key driver of stock selection and is expected to be the main contributor to alpha generation within the portfolio. Portfolio construction at sector level is largely determined by this bottom-up process but is also influenced by top-down macro economic views.

Research provides a detailed understanding of a company’s key historical and future business drivers, such as demand for its products, pricing power, market share trends, cash flow and management strategy. This allows the Manager to form an opinion on a company’s competitive position, its strategic advantages/disadvantages and the quality of its management. Each member of the portfolio management team travels to the region between three and four times per year and therefore the team has contact with several hundred companies during each year. The Manager will also use valuation models selectively in order to understand the assumptions that brokers/analysts have incorporated into their valuation conclusions and as a structure into which the Manager can input its own scenarios.

Risk management is an integral part of the investment management process. Core to the process is that risks taken are not incidental but are understood and taken with conviction. The Manager controls stock-specific risk effectively by ensuring that the portfolio is appropriately diversified.

Also, in-depth and constant fundamental analysis of the portfolio’s holdings provide the Manager with a thorough understanding of the individual stock risk taken. The internal Performance & Risk Team, an independent team, ensures that the Manager adheres to the portfolio’s investment objectives, guidelines and parameters. There is also a culture of challenge and debate within the portfolio management team regarding portfolio construction and risk.

Internal Control and Risk Management

The Directors have overall responsibility for the Company’s system of internal controls and are responsible for reviewing the effectiveness of these controls. This includes safeguarding of the Company’s assets. The following sets out how the Directors have carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity.

The Audit Committee (the ‘Committee’), on behalf of the Board, has established an ongoing process for identifying and undertaking a robust assessment of the risks to which the Company is exposed by reference to a risk control summary, which maps the risks, mitigating controls in place, and monitoring and reporting of relevant information to them.

As part of the process, the Committee has identified four risk categories: strategic; investment management; third party service providers; and regulation and corporate governance. An explanation of these categories follows.

Strategic Risk

The Board sets the strategy including objectives of the Company and how these should be achieved. The Board assesses the performance of the Company in the context of the market and macro issues, and gives direction, and monitors, the Manager and other third parties for the actions they take on behalf of the Company.

Investment Management Risk

Investment management covers management of the portfolio together with cash management, gearing and hedging i.e. the items which the portfolio manager has control of, and which generate the Company’s performance.

Third Party Service Providers Risk

The Company has no employees and its Directors are appointed on a non-executive basis. The Company is reliant on third party service providers (TPP) for its executive functions. The Company’s most significant TPP is the Manager – to which portfolio management, company secretarial and administrative services are delegated. Other significant TPPs are the broker, depositary, custodian, registrar and auditor.

Regulation and Corporate Governance Risk

The Company is required to comply with many regulations including the provisions of the Companies Act 2006, the UK Listing Rules, the Alternative Investment Fund Managers Directive, the Market Abuse Regulation, the FCA’s Disclosure Guidance and Transparency Rules, tax regulation as an investment trust, the UK Corporate Governance Code and Accounting Standards.

The resultant ratings of the mitigated risks, in the form of a risk control matrix, enable the Directors to concentrate on those risks that are most significant and also forms the basis of the list of principal risks and uncertainties.

The Company’s oversight and its control environment is based on the Company’s relationship with its third party service providers, all of which have clearly defined lines of responsibility, delegated authority, and control procedures and systems. The Company uses the three lines of defence model, which is also embedded into the Manager’s risk management systems.

The effectiveness of the Company’s internal control and risk management system is reviewed at least annually by the Committee. The Committee has received satisfactory reports on the operations and systems of internal control of the Manager, custodian and registrar from the Manager’s Compliance and Internal Audit Officers. Reports on the Manager encompassed all the areas the Manager is responsible for: investment management, company secretarial and general administration, including accounting. The Committee also received a comprehensive, and satisfactory, report from the depositary at the year end Committee meeting.

Due diligence is undertaken before any contracts are entered into with any third party service provider. The Manager regularly reviews, against agreed service standards, the performance of all third party providers through formal and informal meetings, and by reference to third party independently audited control reports. The results of the Manager’s reviews are reported to and reviewed by the Committee. These various reports did not identify any significant failings or weaknesses during the year and up to the date of this annual financial report. If any had been identified, the required remedial action would have been taken. In particular the Board formally reviews the performance of the Manager annually and informally at every Board meeting. No significant failings or weaknesses occurred throughout the year ended 30 April 2017 and up to the date of this annual financial report.

Reporting to the Board at each board meeting comprises, but is not limited to: financial reports, including any hedging and gearing; performance against the benchmark and the Company’s peer group; the portfolio manager’s review, including of the market, the portfolio, transactions and prospects; revenue forecasts; and investment monitoring against investment guidelines. The portfolio manager is permitted discretion within these guidelines, which are set by the Board. Compliance with the guidelines is monitored daily. Any proposed variation to these guidelines is referred to the Board.

Principal Risks and Uncertainties

The Board has carried out a robust assessment of the risks facing the Company, including those that would threaten its business model, future performance, solvency and liquidity. The principal risks that follow are those identified by the Board after consideration of mitigating factors. In carrying out this assessment, consideration was given to the market uncertainty arising from Brexit.

Strategic Risk

Management Risk

Third Party Service Providers Risk

Regulation and Corporate Governance Risk

Viability Statement

The Company is a collective investment vehicle rather than a commercial business venture and is designed and managed for long term investment. The Company’s investment objective clearly sets out the long-term nature of the returns from the portfolio and this is the view taken by both the Directors and the Portfolio Manager in the running of the portfolio. The Company is required by its Articles to have a vote on its future every three years, the next vote being in 2019. The Directors have no reason to believe that shareholders will not vote to release the Directors from their obligation to propose a wind up resolution at that time. On this basis, the Directors consider that ‘long term’ for the purpose of this viability statement is three years, albeit that the life of the Company is not intended to be limited to this period.

In their assessment of the Company’s viability, the Directors considered the risks to which it is exposed, as set out above, together with mitigating factors. Their assessment considered these risks, as well as the Company’s investment objective, investment policy and strategy, the investment capabilities of the Manager and the business model of the Company, which has withstood several major market downcycles since the Company’s inception in 1995. Their assessment also covered the current outlook for the Asian economies and equity markets, demand for and buy backs of the Company’s shares, the Company’s borrowing structure, the liquidity of the portfolio and the Company’s future income and annual operating costs. The Directors also considered the impact of the 15% tender offer but believe the Company remains viable after this event and that liquidity will not be an issue. Lastly, whilst past performance may not be indicative of performance in the future, the sustainability of the Company can be demonstrated to date by there being no material change in the Company’s investment objective since its launch in 1995.

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

Board Diversity

The Board takes into account many factors, including the balance of skills, knowledge, diversity (including gender) and experience, amongst other factors when reviewing its composition and appointing new directors, but does not consider it appropriate to establish targets or quotas in this regard. The Board comprises five non-executive directors, three of whom are male. There are no set targets in respect of diversity, including gender. However, diversity forms part of both the Nominations Committee and main Board’s deliberations when considering new appointments. The Company’s success depends on suitably qualified candidates who are willing, and have the time, to be a director of the Company. Summary biographical details of the Directors are set out in the annual financial report. The Company has no employees.

Social and Environmental Matters

As an investment company with no employees, property or activities outside investment, environmental policy has limited application. The Manager considers various factors when evaluating potential investments. While a company’s policy towards the environment and social responsibility, including with regard to human rights, is considered as part of the overall assessment of risk and suitability for the portfolio, the Manager does not necessarily decide to make or not to make an investment on environmental and social grounds. The Manager applies the United Nations Principles for Responsible Investment.

As an investment vehicle the Company does not provide goods or services in the normal course of business, and does not have customers. Accordingly, the Directors consider that the Company is not within the scope of the Modern Slavery Act 2015.

PORTFOLIO MANAGER’S REPORT

Market Review

Asian equity markets, as measured by the MSCI AC Asia ex Japan Index (total return, in sterling terms), rose by 37.5% over the 12 months to 30 April 2017. Factors that have improved investor sentiment include: corporate earnings revisions turning up, an improved outlook for global growth and an easing in fears about potential US trade sanctions. More importantly, strong economic data in China drove the outperformance of its equity market as well as those of Taiwan and Korea which benefited from an export recovery. India recovered its underperformance following demonetisation whilst markets in South East Asia such as Malaysia and the Philippines lagged. Finally, investment returns for UK investors were aided by sterling’s depreciation relative to Asian currencies after the unexpected Brexit vote.

China’s equity markets benefited from the combination of economic stabilisation, a property market recovery and fading concerns surrounding capital outflows. Consumption growth remains robust and the full year GDP data showed that progress had been made in rebalancing the economy away from investment-led growth. However, high credit growth continues to be a concern for the market with renewed expectation that credit conditions will need to be tightened further as the authorities shift their focus to credit risks rather than economic growth.

The market in India was among the best performers aided by the ruling Bharatiya Janata Party’s victory in state elections and credible progress on its reform agenda. The approval of the Bankruptcy Code was a significant step towards cleaning up bank balance sheets, while the goods and services tax constitutional amendment bill is expected to widen the tax net and help boost productivity. The government’s demonetisation of high-value currency was initially expected to negatively impact economic activity but we are now seeing such concerns recede.

Turning to other markets, South Korea’s equity market rose despite political tensions including President Park Geun-hye’s impeachment, tensions caused by North Korean belligerence, and a related Chinese boycott of South Korean products as retaliation to the unpopular US-Korea defence system. The market was focused on positive earnings revisions, low market valuations and improvements in corporate governance. The end of the political limbo on the election of the new president also helped. In particular, Samsung Electronics was one of the best performing stocks as positive earnings revisions drove its share price higher. Sentiment towards this company also benefited from the successful launch of the Galaxy S8 smartphone and continued positive actions to improve shareholder returns. Finally, the Taiwanese equity market was the best performing market as technology stocks offer strong free cash flow characteristics and rose on anticipation that the new iPhone 8 will drive the revenue growth of Apple’s suppliers.

Portfolio Review

In the year to 30 April 2017, the Company’s net asset value increased by 40.6% (total return, in sterling terms). This performance was ahead of the benchmark which rose by 37.5% (total return, in sterling terms).

The Company’s exposure to the technology sector contributed significantly to relative outperformance. In particular, the Chinese internet company NetEase enjoyed strong share price gains on earnings upgrades stemming from its continued success in mobile games in China and the first signs of their international expansion bearing fruit. We gradually trimmed the holding, reflecting the large size of the position in the portfolio. However, the shares remain reasonably valued in our view, given NetEase’s track record of launching successful new games in a fast-growing industry. Also, Chinese online retailer JD.com performed strongly. Even though this company was not generating profits until last quarter, we were attracted to the strong cashflow generation of the business that we felt was not being appropriately valued by the market. We maintain a positive view of this company’s outlook. In particular, we believe that as the company grows, its greater buying power will allow it to capture higher product rebates and discounts which will drive margins higher and enhance its price competitiveness.

Our exposure to Indian equities added considerable value this year. For example, the agrochemical company UPL continued to perform well as the market has become more convinced of its ability to sustain mid-teen earnings growth. Given the diversity of its product and geographical mix, UPL has delivered stable profitability despite fluctuations in weather and commodity prices. Importantly, its successful new product pipeline has allowed it to grow at above the industry rate. We gradually took profits in the latter half of the year as the shares continued to outperform. The share price of Adani Ports and Special Economic Zone, the largest private port operator in India, recovered over the year with the rebound in its cargo volumes acting as a catalyst. The market also rewarded management’s efforts to unwind related party loans and reduce capital expenditure. We retain a position in the company as we believe it is a good way to play economic revival in India. Smaller Indian companies also provided a source of opportunity, with Gujarat Gas and real estate company Sobha outperforming significantly. A new government policy to lower corporation tax on affordable housing projects could potentially revive what has been a dull property market in many cities, helping developers such as Sobha to tap into this large market. Lower mortgage rates and the government’s interest subsidy scheme should help drive demand.

Amongst other holdings in the small and mid-cap space, MINTH, a Chinese auto-parts manufacturer, added notable value on stronger than expected sales growth both in China and export markets. Importantly, the company also demonstrated margin expansion as its investments in Europe and the US have begun to bear fruit and it successfully takes market share in higher margin products such as aluminium trims. This led to a re-rating of the shares. The positive investment case for this company was reinforced by the recent full year results and management’s confidence in the outlook for 2017 revenue. We believe the company is still attractive given the growth visibility provided by its order book over the next few years.

Conversely, having been a strong performer in recent years, the holding in Korea Electric Power (Kepco) was the largest drag on performance during the fiscal year due to a sharp recovery in coal prices, a major cost item for the company. There have also been concerns about potentially adverse policy changes post the presidential election. However, we believe that the market is overestimating the risk of tariff cuts and is underappreciating the government’s incentive to ensure that Kepco generates an acceptable return on capital. Without this, Kepco will be unable to deliver on the government’s commitment to transition the power generation mix away from coal and nuclear towards renewables.

Finally, Baidu’s share price was held back partly due to new search-advertising rules which negatively impacted its earnings. To meet the new requirements, the company engaged in a clean-up exercise of its customer base to ensure that all customers had the correct certificate to advertise online. This initially led to a decline in customer numbers and pricing. However, we viewed this as a short term issue and we are pleased that the new Chief Operating Officer has moved to de-emphasise the transaction services business, which requires large subsidies in order to gain market share. As these issues fade, margins should increase as the company focuses its attention on the core search business whilst investing in areas such as online video and newsfeed where it has an established competitive advantage.

Outlook

With Asian markets having recovered strongly since the lows in February 2016, valuations are now less attractive than before. In particular equal-weighted average valuations in Asia ex Japan are now close to 17x 2017 earnings. This is towards the upper end of the range since the global financial crisis. In our view, this means that further sustainable market performance will be more reliant on an improvement in earnings momentum. Since late 2016, consensus 2017 earnings for Asia ex Japan have been revised up by 7%. To date, the earnings improvement has been mainly concentrated in the materials, energy and technology sectors and to a lesser extent financials. With the exception of technology, where insufficient supply of memory chips is the cause, the re-acceleration of the Chinese economy has been the dominant driving force. This, in turn, has resulted from an easing in monetary policy and rapid credit growth. Since the end of 2016, however, the Chinese government has expressed increased concern about overheating in areas of the property market and high leverage in parts of the non-bank financial sector. An important factor is credit impulse relative to GDP and as figure 1 in the annual financial report shows, the authorities have already tightened credit conditions. This will likely lead to a moderate slowing in Chinese economic growth in coming months and a peak in earnings momentum for the sectors that rely heavily on Chinese growth. The strength in a number of Asian currencies versus the US Dollar since the beginning of 2017 will be an additional drag on future earnings growth.

As a result of this view, the Company has gradually been reducing its exposure to the more cyclical areas of the market and, as figure 2 in the annual financial report demonstrates, the allocation to Hong Kong and China has been reduced over the last 12 months. We have also allowed cash levels in the Company to rise (2.6% at the end of April 2017) by not fully reinvesting the proceeds.

Within the Hong Kong and China portfolio we continue to favour sectors (figure 3 in the annual financial report) that we believe will become more important economically in the long run. The Company’s holdings in NetEase (mobile gaming), JD.com (ecommerce), Baidu (artificial intelligence), AIA (life insurance) and Samsonite International (travel) are examples of this.

India remains the largest overweight market for the Company. In our opinion, India is differentiated in two ways from other Asian economies. Firstly, it is one of the only economies at the trough of its credit cycle. It has seen a negligible increase in leverage over the last 10 years, a period during which most other Asian economies have seen large increases in debt levels. It currently has the lowest credit growth for 30 years as the banks deal with bad debts resulting from the infrastructure lending boom of the last decade. This is leading to relatively subdued economic activity, weak private investment and low earnings momentum. However, India’s position in the credit cycle suggests there are fewer constraints to growth in the longer term as compared to other Asian economies. Secondly, under the stewardship of Prime Minister Modi, India has the best reform momentum amongst the countries we invest in. There are headline grabbing reforms such as the introduction of a unified goods and service tax, demonetisation, the use of technology to distribute subsidies and reforms in the real estate sector. However, there is also evidence of better execution in the day to day operation of the bureaucracy and a gradual assault on the small scale corruption that acts as a friction to economic activity. We continue to like the private banks in India. HDFC Bank is the largest holding in our India portfolio. Representing only 30% of lending in India, these banks still have great potential to gain market share from the government banks which struggle to compete on customer service, efficiency and credit appraisal.

In an economic environment which may have seen the best of the cyclical upturn and where valuation levels have caught up with events, our focus remains on trying to uncover companies that have sustainable earnings growth prospects but where valuations are reasonable. Some of the best contributors to the Company’s performance over the last few years, like NetEase and UPL, are examples of where the market has been under-estimating the earnings power and quality of these businesses. Although we have been taking profits in these companies, the largest reductions have been in the more cyclical sectors such as Materials and Industrials, where some of the Company’s holdings, such as Origin Energy in Australia or Jardine Matheson in Hong Kong, saw their share prices reach levels that fully priced in the fundamental improvements in our view. We have added to the technology sector in China and Taiwan in companies with defensive characteristics: strong balance sheets and free cash flow generation. We continue to cast the net as wide as possible by looking at small and mid-sized companies, which is typically a less well researched segment of the market frequently trading at discounts to larger companies. Companies below £3 billion now represent 20% of the portfolio.

Ian Hargreaves

Portfolio Manager

The Strategic Report was approved by the Board of Directors on 28 June 2017.

Invesco Asset Management Limited

Company Secretary

.

INVESTMENTS IN ORDER OF VALUATION

at 30 April 2017

Ordinary shares unless stated otherwise

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

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

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

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

CLASSIFICATION OF INVESTMENTS BY COUNTRY/SECTOR

at 30 April

DIRECTORS’ RESPONSIBILITIES STATEMENT

in respect of the preparation of the annual financial report

The Directors are responsible for preparing the annual financial report in accordance with applicable law and regulations.

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

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

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

• select suitable accounting policies and then apply them consistently;

• make judgments and estimates that are reasonable and prudent;

• state whether applicable accounting standards have been followed; and

• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records which are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and which enable them to ensure that the financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

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

The Directors of the Company each confirm to the best of their knowledge that:

• the financial statements, prepared in accordance with UK Generally Accepted Accounting Practice, give a true and fair view of the assets, liabilities, financial position and profit of the Company taken as a whole; and

• this annual financial report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

The Directors consider that this annual financial report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s position and performance, business model and strategy.

Carol Ferguson

Chairman

Signed on behalf of the Board of Directors

28 June 2017

.

INCOME STATEMENT

FOR THE YEAR ENDED 30 APRIL

The total column of this statement represents the Company’s profit and loss account, prepared in accordance with UK Accounting Standards. The return on ordinary activities after taxation is the total comprehensive income and therefore no statement of comprehensive income is presented. The supplementary revenue and capital columns are presented for information purposes in accordance with the Statement of Recommended Practice issued by the Association of Investment Companies. All items in the above statement derive from continuing operations. No operations were acquired or discontinued in the year.

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS’ FUNDS

FOR THE YEAR ENDED 30 APRIL

.

BALANCE SHEET

at 30 April­

These financial statements were approved and authorised for issue by the Board of Directors on 28 June 2017.

Carol Ferguson

Chairman

Signed on behalf of the Board of Directors

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 APRIL 2017

1. Accounting Policies

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

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

(a) Basis of Preparation

(i) Accounting Standards Applied

The financial statements have been prepared in accordance with applicable United Kingdom Accounting Standards and applicable law (UK Generally Accepted Accounting Practice) and with the Statement of Recommended Practice Financial Statements of Investment Trust Companies and Venture Capital Trusts, issued by the Association of Investment Companies in November 2014, as amended in January 2017. The financial statements are issued on a going concern basis.

As an investment fund the Company has the option, which it has taken, not to present a cash flow statement. A cash flow statement is not required when an investment fund meets the following conditions:

• substantially all investments are highly liquid;

• substantially all investments are carried at market value, and

• a statement of changes in equity is provided (in these financial statements it is called the Reconciliation of Movements in Shareholders’ Funds).

(ii) Going Concern

The financial statements have been drawn up on the going concern basis.

(b) Foreign currency

(i) Functional and presentation currency

The financial statements are presented in sterling, which is the Company’s functional and presentation currency and is the currency of the Company’s share capital and the predominant currency in which the Company’s shares are traded.

(ii) Transactions and balances

Transactions in foreign currency, whether of a revenue or capital nature, are translated to sterling at the rates of exchange ruling on the dates of such transactions. Foreign currency assets and liabilities are translated to sterling at the rates of exchange ruling at the balance sheet date. Any gains or losses, whether realised or unrealised, are taken to the capital reserve or to the revenue account, depending on whether the gain or loss is of a capital or revenue nature. All gains and losses are recognised in the income statement.

(c) Financial instruments

The Company has chosen to apply the provisions of Sections 11 and 12 of FRS 102 in full in respect of the financial instruments.

(i) Recognition of financial assets and financial liabilities

The Company recognises financial assets and financial liabilities when the Company becomes a party to the contractual provisions of the instrument. The Company offsets financial assets and financial liabilities in the financial statements if the Company has a legally enforceable right to set off the recognised amounts and interests and intends to settle on a net basis.

(ii) Derecognition of financial assets

The Company derecognises a financial asset when the contractual rights to the cash flows from the asset expire or it transfers the right to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in the transferred financial asset that is created or retained by the Company is recognised as an asset.

 (iii) Derecognition of financial liabilities

The Company derecognises financial liabilities when its obligations are discharged, cancelled or expired.

(iv) Trade date accounting

Purchases and sales of financial assets are recognised on trade date, being the date on which the Company commits to purchase or sell the assets.

(v) Classification and measurement of financial assets and financial liabilities

Financial assets

The Company’s investments are held at fair value through profit or loss as the investments are managed and their performance evaluated on a fair value basis in accordance with documented investment strategy and this is also the basis on which information about the investments is provided internally to the Board. Financial assets held at fair value through profit or loss are initially recognised at fair value, which is taken to be their cost, with transaction costs expensed in the income statement, and are subsequently valued at fair value.

Fair value for investments that are actively traded in organised financial markets, is determined by reference to stock exchange quoted bid prices at the balance sheet date. For investments that are not actively traded and where active stock exchange quoted bid prices are not available, fair value is determined by reference to a variety of valuation techniques including broker quotes and price modelling.

Financial liabilities

Financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs and are subsequently measured at amortised cost using the effective interest method.

(d) Cash and cash equivalents

Cash and cash equivalents may comprise short term deposits which are readily convertible to a known amount of cash and are subject to an insignificant risk of change in value, including money market funds. Investments are regarded as cash equivalents if they meet all of the following criteria: highly liquid investments held in the Company’s base currency that are readily convertible to a known amount of cash, are subject to an insignificant risk of change in value and provide a return no greater than the rate of a three-month high quality government bond.

(e) Income

All dividends are taken into account on the date investments are marked ex-dividend, and UK dividends are shown net of any associated tax credit. Where the Company elects to receive dividends in the form of additional shares rather than cash, the equivalent of the cash dividend is recognised as income in the revenue account and any excess in value of the shares received over the amount of the cash dividend is recognised in capital. Interest income and expenses are accounted for on an accruals basis. Other income from investments is accounted for on an accruals basis. Deposit interest receivable is accounted for on an accruals basis.

(f) Expenses and finance costs

Expenses are recognised on an accruals basis and finance costs are recognised using the effective interest method in the income statement.

The investment management fee and finance costs are allocated 75% to capital and 25% to revenue. This is in accordance with the Board’s expected long-term split of returns, in the form of capital gains and income respectively, from the portfolio.

Investment transaction costs are recognised in capital in the income statement. All other expenses are allocated to revenue in the income statement.

(g) Dividends

Dividends are not recognised in the accounts unless there is an obligation to pay at the balance sheet date. Proposed final dividends are recognised in the period in which they are either approved by or paid to shareholders.

(h) Taxation

The liability to corporation tax is based on net revenue for the period. The tax charge is allocated between the revenue and capital account on the marginal basis whereby revenue expenses are matched first against taxable income in the revenue account.

Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more tax or a right to pay less tax in the future have occurred. Timing differences are differences between the Company’s taxable profits and its results as stated in the financial statements. Deferred taxation assets are recognised where, in the opinion of the Directors, it is more likely than not that these amounts will be realised in future periods.

A deferred tax asset has not been recognised in respect of surplus management expenses as the Company is unlikely to have sufficient future taxable revenue to offset against these.

2. Income

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

3. Investment Management Fee

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

Details of the investment management and secretarial agreement are given on page 22 in the Directors’ Report in the annual financial report.

At 30 April 2017, £444,000 was due for payment in respect of the management fee (2016: £332,000).

4. Expenses

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

(i) Directors’ fees authorised by the Articles of Association are £150,000 per annum. The Directors’ Remuneration Report provides further information on Directors’ remuneration for the year. Included within other expenses is £11,000 (2016: £9,000) of employer’s national insurance contributions payable on Directors’ remuneration. As at 30 April 2017, the amount outstanding on Directors’ remuneration and employer’s national insurance was £12,000 (2016: £9,000).

(ii) Auditor’s fees are shown excluding VAT.

(iii) Other services relating to taxation are provided by Grant Thornton UK LLP who were the Company’s auditor in 2016. Therefore for 2017 these charges are included in other expenses and comprise £7,000 (2016: £6,000) for tax compliance and £3,000 (2016: £4,000) for fees in respect of recovery of Taiwanese withholding tax.

(iv) Other expenses also includes a separate fee paid to the Manager for secretarial and administrative services which is subject to annual adjustment in line with the UK Retail Price Index. During the year the Company paid £87,000 (2016: £86,000) for these services. Custodian transaction charges of £3,000 (2016: £5,000) have been charged to capital.

5. Finance Costs

Finance costs arise on any borrowing the Company has which for this Company is a £20 million revolving credit facility (see more in note 11).

6. Taxation

As an investment trust the Company pays no tax on capital gains. The Company suffers no tax on income arising on UK and certain overseas dividends. The Company’s tax charge arises solely from irrecoverable tax on overseas (generally non-EU) dividends. This note also clarifies the basis for the Company having no deferred tax liability.

(a) Current tax charge

The overseas tax charge consists of irrecoverable withholding tax.

(b) Reconciliation of current tax charge

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

(c) Factors that may affect future tax changes

The Company has excess management expenses and loan relationship deficits of £14,335,000 (2016: £12,120,000) that are available to offset future taxable revenue.

A deferred tax asset of £2,437,000 (2016: £2,182,000), measured at the prospective rate of corporation tax of 17% (2016: 18%), has not been recognised in respect of these expenses since they are recoverable only to the extent that the Company has sufficient future taxable revenue which they may be set against. This is considered unlikely.

7. Return per Ordinary Share

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

8. Dividends on Ordinary Shares

Dividends represent a return of income less expenses to shareholders. The Company pays one dividend a year.

Dividends paid:

9. Investments at Fair Value

The portfolio comprises investments which are listed and traded on regulated stock exchanges.

Gains and losses are either:

• realised, usually arising when investments are sold; or

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

All investments are listed.

(a) Investments

(b) Gains/(losses) on investments

(c) Registration of investments

The investments of the Company are registered in the name of the Company or in the name of nominees and held to the order of the Company.

(d) Transaction costs

The total transaction costs of £308,000 (2016: £263,000) included in gains and losses on investments relate to £110,000 (2016: £106,000) on purchases and £198,000 (2016: £157,000) on sales.

10. Debtors

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

11. Creditors: amounts falling due within one year

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

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

The Company has an unsecured 364 day multi-currency revolving credit facility based on the lower of 25% of net asset value and £20 million, renewable on 5 August 2017. The facility covenant also requires total assets to not fall below £80 million. At the year end none was drawn down (2016: £5.5 million equivalent of US dollars at an interest rate of 1.2%). The Company also has an overdraft facility that is available for settlement purposes and is limited to 10% of net assets; this was unused at the year end (2016: nil).

12. Share Capital

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

(a) Allotted, called-up and fully paid

The Directors’ Report on page 24 sets out the share capital structure, restrictions and voting rights.

(b) Share movements

The total cost of shares bought back in the year was £4,243,000 (2016: £3,838,000) and the average price (excluding costs) was 207.18p (2016: 175.00p).

Since the year end no ordinary shares have been bought back.

(c) Winding-up provisions

The Directors are obliged to convene an Extraordinary General Meeting (‘EGM’) to consider a special resolution to wind up the Company every third year from the date of the AGM at which the Directors were released from such obligation. At the AGM in 2016 the Directors were released from their obligation to convene an EGM and a resolution to release the Directors from their obligation to convene an EGM will be put to shareholders at the AGM in 2019.

13. Reserves

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

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

Capital investment gains and losses, both unrealised and realised, are shown in note 9(a) and form part of the capital reserve. The revenue reserve shows the net revenue retained after payment of any dividends. The capital and revenue reserves are distributable by way of dividend.

14. Net Asset Value

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

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

There is no dilution in this or the previous year.

15. Financial Instruments

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

Risk Management Policies and Procedures

The Company’s portfolio is managed in accordance with its investment objective, which is set out in the Strategic Report on page 6 of the annual financial report. The Strategic Report then proceeds to set out the Manager’s investment process and the Company’s internal control and risk management systems as well as the Company’s principal risks and uncertainties. Risk management is an integral part of the investment management process and this note expands on certain of those risks in relation to the Company’s financial instruments, including market risk.

The accounting policies in note 1 include criteria for the recognition and the basis of measurement applied for financial instruments. Note 1 also includes the basis on which income and expenses arising from financial assets and liabilities are recognised and measured. The Directors have delegated to the Manager the responsibility for the day-to-day investment activities of the Company as more fully described in the Strategic Report.

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

15.1 Market Risk

Market risk arises from changes in the fair value or future cash flows of a financial instrument because of movements in market prices. Market risk comprises three types of risk: currency risk (15.1.1), interest rate risk (15.1.2) and other price risk (15.1.3).

The Company’s Manager assesses the Company’s exposure when making each investment decision, and monitors the overall level of market risk on the whole of the investment portfolio on an ongoing basis. The Board meets at least quarterly to assess risk and review investment performance, as disclosed in the Board Responsibilities on page 38. Borrowing is used to enhance returns, however, this will also increase the Company’s exposure to market risk and volatility.

15.1.1 Currency Risk

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

Management of the Currency Risk

The Manager monitors the Company’s exposure to foreign currencies on a daily basis and reports to the Board on a regular basis. With the exception of borrowings in foreign currency, the Company does not normally hedge its currency positions but may do so should the portfolio manager or the Board feel this was appropriate. Contracts are limited to currencies and amounts commensurate with the asset exposure.

Income denominated in foreign currencies is converted to sterling on receipt. The Company does not use financial instruments to mitigate the currency exposure in the period between the time that income is accrued and received.

Foreign Currency Exposure

The fair values of the Company’s monetary items that have currency exposure at 30 April are shown below. Where the Company’s investments (which are not monetary items) are priced in a foreign currency they have been included separately in the analysis so as to show the overall level of exposure.

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

Foreign Currency Sensitivity

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

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

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:

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

In the opinion of the Directors, the above sensitivity analyses are not representative of the year as a whole, since the level of exposure changes frequently as part of the currency risk management process of the Company.

15.1.2 Interest Rate Risk

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

The Company has a credit facility (the ‘facility’) for which details and year end drawn down amounts are shown in note 11. The Company uses the facility when required at levels approved and monitored by the Board. At the maximum possible gearing of £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 no loan amounts were drawn down (2016: £5,504,000).

The Company also has an uncommitted bank overdraft facility of 10% of assets held by the custodian which it uses for settlement purposes. At the year end there was no overdrawn amount (2016: £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.

15.1.3 Other Price Risk

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

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

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

If the value of the portfolio rose or fell by 10% at the balance sheet date, the profit after tax for the year would increase or decrease by £23.6 million (2016: £18.3 million) respectively.

15.2 Liquidity Risk

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

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

15.3 Credit Risk

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

Credit risk is minimised by using:

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

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

(c) the Short Term Investment Companies (Global Series) plc (‘STIC’) money market fund, which is rated AAAM by Standard & Poor’s and AAAMMF by Fitch.

In addition, cash balances are limited to a maximum of 2.5% of net assets with any one deposit taker and a maximum of 6% of net assets in STIC. These limits are at the discretion of the Board and are reviewed on a regular basis. As at the year end, the sterling equivalent of £2,394,000 (2016: £2,391,000) was held at the custodian and £3,842,000 (2016: nil) was held in STIC.

16. Fair Values of Financial Assets and Financial Liabilities

‘Fair value’ in accounting terms is the amount at which an asset can be bought or sold in a transaction between willing parties, i.e. a market-based, independent measure of value. This note sets out the fair value hierarchy comprising three ‘levels’ and the aggregate amount of the portfolio in each level.

The fair values of the financial assets and financial liabilities are either carried in the balance sheet at their fair value (investments), or the balance sheet amount is a reasonable approximation of fair value.

FRS 102 as amended for fair value hierarchy disclosures (March 2016) sets out three fair value levels. The investments held by the Company at the year end are shown as above. All investments, for both this and the previous year, were deemed to be Level 1 because fair values for all were based on quoted prices in active markets for identical assets. No investments were held in either Levels 2 or 3.

Categorisation into a level is determined on the basis of the lowest level input that is significant to the fair value measurement of each relevant asset/liability. The valuation techniques used by the Company are explained in the accounting policy note.

17. Capital Management

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

The Company’s total capital employed at the balance sheet date was £243,025,000 (2016: £185,612,000) comprising borrowings of £nil (2016: £5,504,000) and equity share capital and other reserves of £243,025,000 (2016: £180,108,000).

The Company’s total capital employed is managed to achieve the Company’s investment objective and investment policy as set out on page 6. Borrowings may be used to provide gearing up to the lower of £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 Risks and Uncertainties’ section above. These also explain that the Company is able to gear and that gearing will amplify the effect on equity of changes in the value of the portfolio.

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

The Company is subject to externally imposed capital requirements with respect to the obligation and ability to pay dividends by section 1159 Corporation Tax Act 2010 and by the Companies Act 2006, respectively, and with respect to the availability of the credit facility, by the terms imposed by the lender, details of which are given in note 11. The Board regularly monitors, and the Company has complied with, these externally imposed capital requirements.

18. Contingencies, Guarantees and Financial Commitments

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

There were no contingencies, guarantees or financial commitments of the Company at the year end (2016: £nil).

19. Related Party Transactions and Transactions with the Manager

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

Under UK GAAP, the Company has identified the Directors as related parties. The Directors’ remuneration and interests have been disclosed in the annual financial report with additional disclosure in note 4. No other related parties have been identified.

Details of the Manager's services and fees are disclosed in the Director’s Report and note 3.

20. Post Balance Sheet Events

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

Except for the 15% tender offer announced, there are no other significant events after the end of the reporting year requiring disclosure.

This Annual Financial Report Announcement is not the Company's statutory accounts. The above results for the year ended 30 April 2017 have been agreed with the auditors and are an abridged version of the Company's full accounts, which have been approved and audited with an unqualified report. The 2016 and 2017 statutory accounts received unqualified reports from the Company's auditors and did not include any reference to matters to which the auditors drew attention by way of emphasis without qualifying the reports, and did not contain a statement under s498 of the Companies Act 2006. The financial information for 2016 is derived from the statutory accounts for 2016 which have been delivered to the Registrar of Companies. The 2017 accounts will be filed with the Registrar of Companies in due course.

The Audited Annual Financial Report will be posted to shareholders shortly. Copies may be obtained during normal business hours from the offices of Invesco Perpetual, 6th Floor, 125 London Wall, EC2Y 5AS. A copy of the Annual Financial Report will be available from Invesco Perpetual on the following website: www.invescoperpetual.co.uk/invescoasia in due course.

The Annual General Meeting of the Company will be held at 12.00 noon on 10 August 2017 at 43-45 Portman Square, London, W1H 6LY.