TIDMAAS
RNS Number : 7363Q
abrdn Asia Focus plc
20 October 2023
ABRDN ASIA FOCUS PLC
Legal Entity Identifier (LEI): 5493000FBZP1J92OQY70
ANNUAL FINANCIAL REPORT FOR THE YEARED 31 JULY 2023
-- Net Asset Value (total return): +7.6% compared to the
Company's benchmark return, the MSCI AC Asia ex-Japan Small Cap
Index, of +8.0%;
-- Share price (total return basis): +7.3%;
-- Since inception (1995):
o Net Asset Value: +2283.6%;
o Share price: +2158.4%;
o Benchmark return, the MSCI AC Asia ex-Japan Small Cap Index:
+261.3%.
-- Dividends: Dividends totalling 6.41p (2022 - Ordinary
dividend 6.4p) have been paid, with a further special dividend of
2.25p, bringing the total distribution for the year to 8.66p (2022
- 8.0p);
-- AIC ISA millionaire: abrdn Asia Focus is one of the top 5
companies that would have made investors GBP1,000,000 if they had
invested their full isa allowance from 1999 to 2023
-- Succession planning of investment managers confirmed: Hugh
Young has confirmed he will be retiring on 31 December 2023. abrdn
Asia Focus's management remains in the experienced hands of Flavia
Cheong, abrdn's Head of Equities, Asia Pacific, Gabriel Sacks and
Xin-Yao Ng.
Performance Highlights
Net asset value total return (diluted)(AB) Net asset value per share (diluted)
+7.6% 308.9p
2022 -2.0% 2022 295.3p
Net asset value total return since Annualised Net asset value total
inception (diluted)(AB) return since inception (diluted)(AB)
+2283.6% +12.1%
2022 +2115.6% 2022 +12.3%
Share price total return(A) Share price
+7.3% 264.0p
2022 -1.7% 2022 254.0p
MSCI AC Asia ex Japan Small Cap Discount to net asset value(AB)
Index total return(C)
+8.0% 14.5%
2022 -5.1% 2022 14.0%
Ongoing charges ratio(A) Dividends per share(D)
0.92% 8.66p
2022 0.88% 2022 8.00p
(A) Alternative Performance Measure (see definition below).
(B) Presented on a diluted basis as the Convertible Unsecured Loan
Stock ("CULS") is "in the money" (2022 - same).
(C) Currency adjusted, capital gains basis.
(D) Dividends include special dividends of 2.25p for 2023 (2022 -
1.6p).
Strategic Report
Chair's Statement
This marks my first annual statement for the Company as Chair,
following Nigel Cayzer's retirement as a Director of the Company at
last year's Annual General Meeting. Once again, the Board and I
would like to reiterate our thanks to him for the enormous
contribution he made in steering this investment trust forward
since its launch.
Overview
The state of flux in global markets continues. Inflation in
Asian economies was more moderate over the review period than
elsewhere, and central banks not as aggressive in their rate hikes.
Even so, the threat of a possible global recession spilling into
the region weighed heavily on investors' minds. As ever, markets
have paid close attention to US Federal Reserve (Fed) policy, which
has put up rates 11 times since March 2022 (with a combined rise of
525 basis points).
As I referenced in the Half Yearly Report, China easing Covid
restrictions raised expectations that a reopening economy would
lead to greater demand across several sectors. This recovery has
proved to be patchier than anticipated. Struggles in the country's
property sector continue and political tensions exacerbated market
volatility (once again rising US-China rhetoric was a notable
feature).
By contrast, India has shown signs of recovery in urban consumer
demand, and has a buoyant housing market. The Reserve Bank of India
(RBI) forecasts GDP growth of 6.5% for the 23/24 fiscal year,
putting India among the fastest-growing economies. Indonesia's
market has also been stronger, with domestic spending particularly
resilient.
Meanwhile, the ASEAN region continues to look attractive. Your
Manager sees the bloc emerging as a key beneficiary of the shifts
in global supply chains amid the evolving geopolitical landscape,
especially between China and the US. In particular, corporate
initiatives to embark on a China plus 1 or China plus 2 strategy as
part of a supply chain diversification move is fuelling investment
across ASEAN, with notable beneficiaries such as Vietnam, given its
niche in apparel and electronics; Thailand, which is drawing
interest from the printed circuit board supply chain because of its
developed infrastructure and industrial parks; and Malaysia, for
its engineering talent in software design companies. The bloc's
supportive policies, cost competitiveness, industrial development,
linkages to existing manufacturing hubs and rising middle-income
consumers are structural drivers that are not only attracting
foreign direct investment but also spurring intra-Asian trade, and
in turn, boosting economic growth.
Investment Performance
Although the weaker global economic environment has continued to
be challenging for investors, over the last 12 months, on a total
return basis, the Company's net asset value ("NAV") rose +7.6% in
sterling terms for the 12 months to the end of July 2023, while the
share price return was +7.3% having been impacted by the widening
of the NAV discount to 14.5%. By comparison, the MSCI AC Asia ex
Japan Small Cap (total return) index returned +8.0% and the MSCI AC
Asia ex Japan rose 0.8%. The outperformance of smaller companies in
Asia against their large cap peers now stretches several years,
with the small cap index outperforming large cap by more than 10%
annually over the past 3 years, testament to the benefits of
investing in this overlooked segment of the equity market. In
addition I am pleased to note that in the two-year period from 1
August 2021 (the date that we set the Company's new Benchmark
against the new investment policy), the NAV total return has been
6.1%, the share price total return has been 5.5% and the Benchmark
return was 2.5%.
It has been especially satisfying to see the high-quality,
cash-generative small companies favoured by your Manager fare well.
This was notably the case in countries like India and Indonesia,
where structural growth, huge consumer markets and rising adoption
of technology led to strong performance from businesses in a
variety of sectors, including banking, industrials, IT, and branded
consumer products. You can read more detail on company-level
performance in the Investment Manager's Report below.
While China has proved to be one of the weaker countries in
terms of its performance, your Manager has taken advantage of
volatility and attractive valuations of certain high-quality
smaller companies to add exposure, from a relatively low base. This
was aided by the change of mandate approved by shareholders last
year (which saw the removal of the limit on company size at
initiation), allowing your Manager greater flexibility in picking
companies in larger markets such as China.
Asia is more than just China and India, however, and your
Company's portfolio is highly diversified across the region,
focusing on businesses with healthy balance sheets and strong
growth prospects. Stock selection was strong in Korea and Taiwan,
where companies involved in cutting-edge technologies and digital
services benefitted from a recovery in sentiment towards the IT
sector globally, supported by a wave of interest in Artificial
Intelligence. Frontier markets such as Vietnam and Sri Lanka also
had a pretty volatile ride due to political and economic pressures
although ended the period on a much stronger footing, with some of
the companies there among the portfolio's strongest performers.
Over the long term, the value of investing in such hand-picked
smaller companies in Asia has proved their worth. GBP1,000 invested
in 1995 is now worth GBP22,580 with dividends reinvested; and your
Company is one of the top five among the Association of Investment
Companies (AIC)'s ISA millionaires: a company that would have made
investors over GBP1,000,000 had they invested their full ISA
allowance from 1999 to 2023.
Dividend and Reserves
The Board recognises the importance of your Company's dividend
income for many shareholders. The Ordinary dividend has been
maintained or raised every year since 1998, and your Board is
firmly committed to the new enhanced and progressive dividend
policy approved by shareholders in 2022.
Three interim dividends of 1.6p and a fourth interim of 1.61p
have been paid in March, June, September and December 2023,
totalling 6.41p (2022 - Ordinary dividend 6.4p). Furthermore, I am
very pleased to report that the continuing strength of dividend
generation from the portfolio has allowed the Company to declare a
further special interim dividend in respect of the year ended 31
July 2023 of 2.25p per Ordinary share which will be paid on 20
December 2023 to shareholders on the register on the record date of
24 November 2023 (ex dividend 23 November 2023). The special
dividend will bring the total distribution for the year to 8.66p
(2022 - 8.0p).
The Board's strategy is to maintain the progressive dividend
policy of the last 25 years (including with the flexibility to pay
dividends out of capital reserves where merited in the future) in
order to provide shareholders with a regular level of income
alongside capital growth prospects. Following payment of the four
interims and special dividend for the year to 31 July 2023, there
remains well over a year's worth of reserves to cover the Ordinary
dividend.
Share Capital and Gearing
One of the disappointing aspects of your Company's performance
is the continuing discount to NAV. During the period the shares
have traded at an average discount of -12.5%, which is higher than
its long-term average. This is in line with the Company's immediate
peers, at a time when investment trust discounts have moved to
historically wide levels.
Your Board is very mindful of the negative impact of large
discounts to NAV to shareholders. As a result, we have started to
buy back Ordinary shares in the market for treasury. In total
500,000 shares have been purchased in the Company's financial year
(2022: nil), 0.3% of the Company's issued shares (excluding
Treasury shares). A further 595,000 shares have been purchased
since the end of the reporting to date.
We will continue to oversee the judicious use of share buy
backs. The shares bought back in this reporting period were at a
weighted average discount to NAV of -13.5%, supporting the twin
aims of reducing the volatility of any discount whilst modestly
enhancing the NAV for shareholders.
The Company's net gearing at 31 July 2023 was 12.1% with the
debt provided by the GBP30m Loan Notes and the GBP36.6 million
Convertible Unsecured Loan Stock redeemable in 2025. As at 18
October 2023, the latest practicable date, the net gearing stood at
10.2%.
Your Investment Manager
When we announced the amended investment policy in November 2021
(and approved by Shareholders in January 2022) we also introduced a
number of other changes; one of which was to deepen the Company's
management team, in particular the addition of Flavia Cheong,
abrdn's Head of Equities, Asia Pacific, as joint lead manager
alongside Hugh Young and Gabriel Sacks and now Xin-Yao Ng, both of
whom have worked alongside Hugh for 15 and 5 years respectively.
This was partially in recognition of the fact that the long-term
success of your Company can be attributed to the strong teamwork at
abrdn and that Hugh Young was nearing retirement.
I can now confirm that Hugh will be retiring on 31 December
2023, the same point at which he retires from the Manager. Hugh has
worked tirelessly on behalf of the Company since its launch and,
both personally and on behalf of the Board, I would like to thank
him and wish him the very best for his well-earned retirement. The
cumulative long term performance disclosed on page 27 of the
published Annual Report and Financial Statements for the year ended
31 July 2023 is testament to Hugh's skill, dedication and
methodology that he has handed down to the management team over the
years. While Hugh leaves us in good hands with a high-quality team
across Asia (over 40 investment personnel across six countries)
continuing the vital on-the-ground research as part of your
Company's investment process, he will be much missed.
I know Hugh still views Asia's rapidly developing economies as
providing a fertile ground for smaller companies. Your Manager
continues to explore opportunities across the region to produce a
genuinely diversified portfolio not reliant on any one market,
looking for businesses with strong balance sheets, exceptional
business models and demonstrating resilience to macro concerns.
Responsible Investment
Your Manager has long been at the forefront of including
environmental, social and governance assessment in their investment
research. Whilst your Company is not a 'sustainable fund', we have
long acknowledged that the best companies are sustainable
companies, and that is very much your Company's investment
philosophy. Although the portfolio's MSCI ESG rating of 'BB' is in
line with that of the benchmark it is pleasing to note that the
Company's portfolio Economic Emission Intensity is only 13.6% of
the benchmark. Further detailed information can be found in the ESG
report on page 106 of the published Annual Report and Financial
Statements for the year ended 31 July 2023.
Active engagement with your investee companies is also a
hallmark of your Manager's long experience of investing in smaller
companies in Asia. You can read more detail on company-level
engagement and responsible investing on page 37 of the published
Annual Report and Financial Statements for the year ended 31 July
2023.
The task force on climate-related financial disclosures
(referred to as "TCFD") is now a global standard for reporting
climate risks and opportunities. As a listed investment company,
the Company is not subject to the FCA Listing Rule requirement to
comply with TCFD reporting. However, the Board is a keen supporter
of the ambitions of TCFD, as it believes it will improve disclosure
of climate related risks. This in turn will help the Investment
Manager and other stakeholders better assess the risks which will
support sound investment decisions. Your Manager is subject to
mandatory requirements to report on the Company as one of its
products and the first abrdn Asia Focus plc TCFD Report, for the
year ended 31 December 2022, is available under the 'Literature'
section at asia-focus.co.uk .
Board Succession
As I indicated at the half-year stage, as part of the Board's
succession plan, Randal McDonnell, the Earl of Antrim, will be
stepping down at this year's AGM having completed his service. I'd
like to thank Randal for his service to the Company. It has been a
pleasure to have him on the Board and his wise contributions will
be much missed.
Following a review of the Board's skills, background and
experience, and with the support of Fletcher Jones, an independent
specialist investment trust recruitment consultant, I am pleased to
announce the appointment of Lucy Macdonald as his replacement who
will be joining the Board immediately following the close of
business of the AGM on 5 December 2023. Lucy has enjoyed a
successful career in asset management and was, until 2020, managing
director, CIO global equities at Allianz Global Investors. Lucy
will bring significant investment experience to the Board. She is
an experienced board director and is currently a member of the
investment committee of the RNLI, a non-executive council member of
the Duchy of Lancaster and senior independent director of JPMorgan
Global Emerging Markets Income Trust Plc
To further diversify the Board's composition and deepen the
bench strength on the Board with future Board succession in mind, I
am also pleased to announce the appointment of Davina Curling with
effect from 1 March 2024. Davina has also enjoyed a successful
career in asset management and was formerly managing director, head
of European equities at Russell Investments. More recently Davina
has consulted on projects for small companies and start-ups in the
financial, manufacturing and retail sectors. Davina is a
non-executive director of Henderson Opportunities Trust plc and
INVESCO Select Trust plc and is a member of the investment
committee of St James's Place Wealth management. Davina will become
Senior Independent Director upon appointment.
Your Board is cognisant of the FCA's diversity and inclusion
Policy Statement PS22/3 and remains committed to corporate
governance best practice as recommended in the Hampton-Alexander
and Davies reviews. I am pleased to confirm that from 1 March 2024,
the Board will be compliant with the new diversity and inclusion
targets set out in Chapter 15 of the FCA's Listing Rules.
Value for Money
We strive to keep the cost of investing low for shareholders to
retain as much of the return on their investment as possible.
Ongoing charges for the year were 0.92% (2022: 0.88%), primarily
made up of the management fee. As you know, the fee was reduced in
2021 to 0.85% for the first GBP250m, 0.6% for the next GBP500m and
0.5% for market capitalisation over GBP750m, to provide even better
value for money for shareholders. Importantly, the management fee
is tied to the share price of the Company, and not the NAV. This
aligns your Manager's fees with shareholder returns, and sets your
Company apart from many of its peers.
In addition, in 2022 the Company introduced a performance-linked
conditional tender offer for up to 25% of the issued capital.
Shareholders will be offered the opportunity to realise a
proportion of their holding for cash at a level close to NAV less
costs in the event of underperformance against the benchmark in the
five year period ending 1 August 2026.
Your Board continues to keep all costs under review but believes
that, given the breadth and depth of on-the-ground research by your
Manager, the very selective stock picking (your Company's portfolio
has an active share of 97.8 at year end) and the long-term
outperformance, the current fees constitute good value for
money.
Migration of abrdn Savings Plans to interactive investor
("ii")
The Company's Manager, abrdn, has been reviewing its current
service provider for its investment trust share plans (abrdn
Savings Plan, Children's Plan and ISA). In May 2022, abrdn
completed the acquisition of ii, the UK's second largest,
award-winning investment platform for self-directing private
investors. Having considered the various options, abrdn has
concluded its review and has decided to migrate its share plan
customers to ii in December 2023, given the strength of the ii
offering, its understanding of and enthusiasm for investment trusts
and the strong representation of investment trusts in its customer
portfolios. Following completion of the migration, plan
participants should contact the Company's registrars, Equiniti
(further details on page 111 of the published Annual Report and
Financial Statements for the year ended 31 July 2023) if they would
like to continue to receive hard copies of shareholder reports and
communications and they will be added to the Company's mailing
list. Plan participants who have queries in respect of the
migration should raise them directly with abrdn's investor services
team by email at inv.trusts@abrdn.com or by telephone on 0808 500
4000 or 00 44 1268 448 222 (Monday to Friday 9am to 5pm - call
charges will vary).
Shareholder Engagement and Annual General Meeting
The Company's Annual General Meeting is scheduled for 11:00 a.m.
on 5 December 2023. The AGM will be preceded by a short
presentation from the management team and following the formal
business there will be a light shareholder buffet lunch and the
opportunity to meet the Directors. In addition to the usual
ordinary business being proposed at the AGM, as special business
the Board is seeking to renew the authority to issue new shares and
sell treasury shares for cash at a premium without pre-emption
rules applying and to renew the authority to buy back shares and
either hold them in treasury for future resale (at a premium to the
prevailing NAV per share) or cancel them. I would encourage all
shareholders to support the Company and lodge proxy voting forms in
advance of the meeting, regardless of whether they intend to attend
in person.
In light of the significant take up from shareholders at the
online presentation held in November 2022, in advance of the AGM,
the Board has decided to hold another interactive Online
Shareholder Presentation which will be held at 11:00 a.m. on 21
November 2023. At the presentation, shareholders will receive
updates from the Chair and Manager and there will be the
opportunity for an interactive question and answer session.
Following the online presentation, shareholders will still have
time to submit their proxy votes prior to the AGM and I would
encourage all shareholders to lodge their votes in advance in this
manner. Full registration details can be found at: asia-focus.co.uk
.
Outlook
While it has been a tough period for small caps elsewhere,
Asia's domestic growth story means that the region's diverse and
fast-growing small companies are outpacing larger rivals. Asia is
forecast to contribute around 70% of global growth for 2023,
according to the IMF's last World Economic Outlook (published in
April). Growth in Asia and the Pacific is set to accelerate to 4.6%
this year from 3.8% in 2022.
As I have already referenced, although China's post-Covid
recovery has thus far failed to take off and there has been much
talk of the 'Japanification' of China's economy, improved policy
messaging from China's government and more concrete measures could
see an improved backdrop for companies over the longer term.
Meanwhile, India's prime minister Narendra Modi continues to make
the bold claim that India will become one of the world's top three
economies within his third term (should he be re-elected in
2024).
Importantly your Company is able to invest in excellent
companies spread across Asia and it is not dependent on investing
solely in India or China. Recovery in Southeast Asia continues to
gather pace and markets like Vietnam are providing a more positive
environment for small-cap investors, notwithstanding significant
volatility there during the year.
Stronger GDP growth should benefit the smaller companies
targeted by this investment trust over time. But by no means does
this measure alone automatically result in strong share-price
performance. Pinpointing those businesses that can succeed and are
capable of becoming 'multi-baggers' (stocks that deliver returns
many times over the original investment), requires a disciplined,
bottom-up stock picking approach.
Your Company remains positioned around Asia's long-term
structural growth themes, such as greater domestic consumption that
comes with Asia's rising affluence, booming infrastructure, the
growth of digital, moving to a lower-carbon future, advances in
health and wellness technology, and the opportunities offered by
the rollout of 5G, big data and digital interconnectivity.
Relatively under-researched and inefficient markets across the
whole Asian continent mean there is ample potential for unearthing
hidden gems, companies with strong balance sheets and sustainable
earnings prospects that can emerge stronger. I am confident that
with extensive on-the-ground coverage and a highly experienced
management team, your Manager is well positioned to keep finding
quality companies among the hugely varied Asian small cap
universe.
Krishna Shanmuganathan
Chair
19 October 2023
Investment Manager's Review
Performance review
Asian small caps demonstrated strong performance over the
12-month review period to 31 July 2023, despite the volatility
across global markets. The benchmark MSCI AC Asia Ex Japan Small
Cap Index returned +8.0% in sterling terms over the review period.
The Company's net asset value ("NAV") and share price, both in
total return terms, increased by 7.6% and 7.3%, respectively.
As your Chair has highlighted earlier in this report, global
markets have faced numerous challenges over the review period,
including increasing inflation and interest rates (especially in
developed markets), concerns regarding a potential global recession
and a slower-than-expected China recovery. Nevertheless, Asian
small caps have demonstrated remarkable resilience, outperforming
their larger counterparts by a significant margin. Over the past
three years, the cumulative outperformance of smaller companies in
Asia against the large cap index has amounted to a meaningful 38
percentage points (the MSCI Asia ex Japan Small Cap gained 43% in
the three years to 31 July 2023, compared with 4.2% for the MSCI
Asia ex Japan). Heightened market volatility and macroeconomic
uncertainty means our investment process gains even greater
significance and we believe the unwavering rigour in seeking out
quality has proven particularly advantageous over the 12-month
period.
Our stock selection in India and Indonesia contributed to the
positive performance, as both countries enjoyed resilient domestic
spending during the review period. India-based engineering and
technology solutions company Cyient, has seen a strong recovery in
earnings as demand for engineering software and design services
bounced-back in the aerospace industry, while margins benefited
from management's restructuring efforts over the past few years.
Prestige Estates, a property developer, released robust presales
figures thanks to new projects and continued industry consolidation
as they look to accelerate growth and become a national player.
Similarly, Syngene, a contract research organisation working in
pharmaceuticals, biotech and other industries, also benefited from
a series of positive earnings reports.
The company's strategic investments to expand capacity in
biologics manufacturing and discovery services, as well as its
solid balance sheet and a low debt profile, contributed to its
success over the review period. Shares of Indian downstream oil and
gas company Aegis Logistics were especially strong in the last
month of the period, as the company released good quarterly
results. In Indonesia, Bank OCBC NISP announced robust
first-quarter performance, buoyed by asset growth due to an
improving economic climate. Other standout performers in Indonesia
included Ultrajaya Milk Industry , a more consumer-driven business
focused on household dairy products, and fuel distributor AKR
Corporindo.
At a sector level, technology, industrials and financials were
positives for the portfolio. A stabilising tech sector and rising
enthusiasm for generative artificial intelligence (AI) saw strong
performance in both Taiwan and Korea. Positive stock selection in
both countries aided performance over the 12 months. In Korea, Park
Systems , manufacturer of atomic force microscopy (AFM) systems,
was the leading contributor to relative results over the year. AFM
has diverse applications in advanced science and technology labs,
and the size of the addressable market should grow over time given
it is still a relatively new field. Leeno Industrial also generated
strong returns, with an anticipated recovery in demand driven by AI
and testing initiatives. Meanwhile, in Taiwan, Sunonwealth Electric
Machine Industry, which manufactures industrial fans and Taiwan
Union Technology, which distributes copper-clad laminate, also
contributed to relative performance given an improved outlook for
growth. In addition, Vietnam's leading IT group FPT Corporation
advanced over the review period on continued strong results with
the company reporting a 21% profit jump in the second quarter,
driven by a 29% surge in IT service revenues.
Elsewhere, our positioning in several other companies also
proved advantageous. Shares of Thailand-based TISCO Financial Group
performed well as its conservative lending practices over the past
few years proved prescient. Sri Lankan conglomerate John Keells
Holdings, which operates in sectors including transportation,
consumer goods, retail, leisure, property, and financial services,
also advanced as a beneficiary of a recovery in tourism and the
overall domestic economy in Sri Lanka following the implementation
of significant structural reforms.
On the other side, your Company's exposure to China and Hong
Kong, both among the worst-performing markets, dragged on
performance. Consumer-related sectors bore the brunt of the selling
and the property sector continued to languish. Key detractors in
China included JOINN Laboratories., a drug testing business, and
Sinoma Science & Technology, an advanced materials company
focused on green energy solutions. Hong Kong-listed banking group
Dah Sing Financial Holdings Limited and dry-bulk shipper Pacific
Basin Shipping were also weak.
Our stock selection and overweight positioning in Singapore also
weighed on overall performance. Among the main detractors in this
market were investment holding company Yoma Strategic Holdings, a
conglomerate operating in Myanmar, property developer Bukit
Sembawang Estates and nanotechnology solutions provider Nanofilm.
The latter reported weak semi-annual results due to slowing demand
and high operating expenses.
Other detractors of note mainly included companies in the
consumer discretionary, materials and health care sectors.
Malaysian hotel operator Shangri-La Hotels Malaysia Bhd.,
Indonesia-focused M.P. Evans, which produces palm oil, and
Thailand-based Mega Lifesciences PCL came under pressure. In
addition, Taiwan-headquartered e-commerce operator momo.com
underperformed, in part due to disappointing sales growth and
broader concerns about the lacklustre pace of digital sales
expansion following the easing of lockdown measures.
Portfolio Activity
Much the same as we have said in previous reports, market
volatility creates price disconnects, which require managers to
focus on fundamentals. We have a long-term approach to investing
and favour businesses with clearer earnings visibility and stronger
fundamentals, focusing on quality companies that are well placed in
structurally growing areas, such as healthcare and technology. This
approach also helps us mitigate downside risks to growth from
inflationary pressures. As such, over the period we have reduced or
exited positions where we felt there was less certainty in a
company's earnings trajectory or where those earnings could be less
resilient to current macro headwinds.
Keeping in line with the Company's focus on quality, we
purchased shares in Taiwan's Sinbon Electronics, which makes cables
and connectors for niche markets. The company supplies products and
applications to sectors including green energy, industrial
applications, automotive, medical equipment as well as
communication and electronic peripherals. In a highly fragmented
industry, its competitive edge lies in its capabilities to
manufacture highly customised products for its diversified customer
base, as well as its well-entrenched partnerships with its
suppliers and clients. Although its shares were under pressure
after the release of its 2023 first half results, we view it as a
beneficiary of long-term structural trends such as the Internet of
Things, 5G applications and electric vehicles, as well as growing
demand for renewable energy, supported by solid order visibility
over the next two to three years. The company operates a cost
pass-through model which ensures healthy margins and cash-flow.
Another key purchase was Autohome, a dominant Chinese auto
platform with more than 60 million daily active users. It trades at
attractive valuations, with just the cash on its balance sheet
representing more than 75% of the Group's total market value, and
we see latent potential for consumer spending to pick up in China
as the economy re-opens. Autohome has an asset-light business
model, delivering comprehensive, independent and interactive
content to automobile buyers and owners. Its core business benefits
from the powerful network-effect characteristics of a classifieds
business and it is the number one player in the market. Its
original generated content drives high-quality user traffic, which
in turn results in advertising and lead generation. It is also
expanding into new areas of business, such as auto-related
financing for example and used car sales.
As covered in our interim report, we added other Chinese
companies to the portfolio including seeds & nuts producer
ChaCha Food. With well-established brands, the company has high
potential for growth as the largely fragmented snacks industry in
China presents a consolidation opportunity. As an aside, we engaged
with the company over the period to gain visibility on its risk
management policies on key environmental, social and governance
(ESG) topics, and to encourage the company to issue its first ESG
report. We came away with a positive impression given ChaCha's
comprehensive ESG practices in its daily operations, as well as its
efforts to improve disclosure and business integration. We also
added Kerry Logistics, one of Asia's largest integrated logistics
providers. With its diversified customer base, we believe it is
well placed to benefit from supply-chain relocation, e-commerce
growth and intra-regional trade in Asia.
Against these purchases, we exited Pacific Basin Shipping, given
the lack of visibility and momentum on shipping rates (despite the
compelling supply and demand dynamic). The industry is likely to
enter a significant capex cycle, which could also affect
shareholder returns. Elsewhere, we sold Douzone Bizon, due to
concerns over execution and an uncertain growth outlook, and
divested from eCloudvalley Digital Technology, owing to poor
disclosure and a slowdown in growth. Other sales included Absolute
Clean Energy, IPH, Nazara Technologies and Tatva Chintan Pharma;
small positions that we didn't feel compelled to scale up.
Outlook
We expect global market sentiment to remain volatile in the
short term, given concerns regarding global growth, monetary
policies in the US and other developed markets, as well as
developments in China, where macroeconomic data remains soft.
Having said that, at the time of writing the Chinese government has
begun another round of easing measures which should increase
support to the economy at the margin. While we are yet to see more
impactful policy action, there are still good opportunities to
invest in small cap stocks that trade at attractive valuations and
that provide exposure to pockets of growth within China's domestic
market.
Elsewhere, other Asian economies are benefiting from
diversification in global supply chains. Companies are adding
alternative sourcing locations, increasingly adopting "China plus
one" or "plus two" strategies. We have kept a large allocation to
India in the portfolio, where we have exposure to a diverse set of
companies operating in a number of high-growth industries. India is
in the early stages of a cyclical upswing, and enjoys a demographic
dividend, meaning it is well-placed for sustainable long-term
growth. The region will also gain from growing demand for
AI-related apps and chips, especially in the semiconductor and
consumer electronics segments.
Resource-rich Indonesia has a sizeable and dynamic domestic
market with rising post-pandemic consumer demand. There is a more
limited universe of small caps compared with elsewhere, but we
believe the portfolio is invested in well-run businesses with vast
long-term potential. Vietnam, meanwhile, has become a key player in
manufacturing - benefiting from diversification in the global
supply chain and numerous free-trade agreements. The country is on
a growth track, and we continue to like the long-term macro story.
On the other hand, we do see some near-term political risk in some
parts of the region, with political uncertainty in Thailand and
general elections for both India and Indonesia in 2024. Outside of
Thailand though, we generally expect political stability with a
continuity in policy-making which provides a positive backdrop for
the corporate sector.
In summary, we continue to believe Asian small caps offer
significant value. There are attractive opportunities around the
structural themes of aspiration, building Asia, digital future,
going green, health & wellness and tech enablers. Overall, we
have been nimble, taking the opportunity to raise the portfolio's
earnings visibility and reduce exposure to names where this
visibility is less certain. As a result, we continue to favour
quality Asian small-cap companies with solid balance sheets and
sustainable earnings prospects that can emerge stronger and
position the portfolio well in tough times. While performance of
small caps in the region can be volatile, given our in-house
research capabilities, investment management focus and bottom-up
analysis, we expect to deliver for our shareholders in the long
run.
Gabriel Sacks, Flavia Cheong, Xin-Yao Ng & Hugh Young
abrdn Asia Limited
19 October 2023
Overview of Strategy
Business Model
The business of the Company is that of an investment company
which seeks to qualify as an investment trust for UK capital gains
tax purposes.
Investment Objective
On 27 January 2022 shareholders approved an amended investment
objective. The Company aims to maximise total return to
shareholders over the long term from a portfolio made up
predominantly of quoted smaller companies in the economies of Asia
excluding Japan.
Investment Policy
On 27 January 2022 shareholders approved an amended investment
policy. The Company may invest in a diversified portfolio of
securities (including equity shares, preference shares, convertible
securities, warrants and other equity-related securities)
predominantly issued by quoted smaller companies spread across a
range of industries and economies in the Investment Region. The
Investment Region includes Bangladesh, Cambodia, China, Hong Kong,
India, Indonesia, Korea, Laos, Malaysia, Myanmar, Pakistan, The
Philippines, Singapore, Sri Lanka, Taiwan, Thailand and Vietnam,
together with such other economies in Asia as approved by the
Board.
The Company may invest up to 10% of its net assets in collective
investment schemes, and up to 10% of its net assets in unquoted
companies, calculated at the time of investment.
The Company may also invest in companies traded on stock markets
outside the Investment Region provided over 75% of each company's
consolidated revenue, operating income or pre-tax profit is earned
from trading in the Investment Region or the company holds more
than 75% of their consolidated net assets in the Investment
Region.
When the Board considers it in shareholders' interests, the
Company reserves the right to participate in rights issues by an
investee company.
Risk Diversification
The Company will invest no more than 15% of its gross assets in
any single holding including listed investment companies at the
time of investment.
Gearing
The Board is responsible for determining the gearing strategy
for the Company. Gearing is used selectively to leverage the
Company's portfolio in order to enhance returns where and to the
extent this is considered appropriate to do so. Gearing is subject
to a maximum gearing level of 25% of NAV at the time of draw
down.
Investment Manager and Alternate Investment Fund Manager
The Company's Alternative Investment Fund Manager, appointed as
required by EU Directive 2011/61/EU, is abrdn Fund Managers Limited
("aFML") (previously known as Aberdeen Standard Fund Managers
Limited) which is authorised and regulated by the Financial Conduct
Authority. Day to day management of the portfolio is delegated to
abrdn Asia Limited ("abrdn Asia", the "Manager" or the "Investment
Manager"). aFML and abrdn Asia are wholly owned subsidiaries of
abrdn plc.
Delivering the Investment Policy
The Directors are responsible for determining the investment
policy and the investment objective of the Company. Day to day
management of the Company's assets has been delegated, via the
AIFM, to the Investment Manager, abrdn Asia. abrdn Asia invests in
a diversified range of companies throughout the Investment Region
in accordance with the investment policy. abrdn Asia follows a
bottom-up investment process based on a disciplined evaluation of
companies through direct visits by its fund managers. Stock
selection is the major source of added value. No stock is bought
without the fund managers having first met management. abrdn Asia
estimates a company's worth in two stages, quality then price.
Quality is defined by reference to management, business focus, the
balance sheet and corporate governance. Price is calculated by
reference to key financial ratios, the market, the peer group and
business prospects. Top-down investment factors are secondary in
the abrdn Asia's portfolio construction, with diversification
rather than formal controls guiding stock and sector weights.
Whilst the management of the Company's investments is not
undertaken with any specific instructions to exclude certain asset
types or classes, the Investment Manager embeds ESG into the
research of each asset class as part of the investment process. For
the manager, ESG investment is about active engagement, in the
belief that the performance of assets held around the world can be
improved over the longer term.
A detailed description of the investment process and risk
controls employed by abrdn Asia is disclosed on pages 103 to 105 of
the published Annual Report and Financial Statements for the year
ended 31 July 2023. A comprehensive analysis of the Company's
portfolio is disclosed on pages 30 to 40 of the published Annual
Report and Financial Statements for the year ended 31 July 2023
including a description of the ten largest investments, the
portfolio investments by value, sector/geographical analysis and
currency/market performance. At the year end the Company's
portfolio consisted of 62 holdings.
Comparative Indices
From 1 August 2021 the Manager has utilised the MSCI AC Asia ex
Japan Small Cap Index (currency adjusted) as well as peer group
comparisons for Board reporting. For periods prior to 1 August
2021, a composite index is used comprising the MSCI AC Asia Pacific
ex Japan Small Cap Index (currency adjusted) up to 31 July 2021 and
the MSCI AC Asia ex Japan Small Cap Index (currency adjusted)
thereafter. It is likely that performance will diverge, possibly
quite dramatically in either direction, from the comparative index.
The Manager seeks to minimise risk by using in-depth research and
does not see divergence from an index as risk.
Promoting the Company's Success
In accordance with corporate governance best practice, the Board
is now required to describe to the Company's shareholders how the
Directors have discharged their duties and responsibilities over
the course of the financial year following the guidelines set out
under section 172 (1) of the Companies Act 2006 (the "s172
Statement"). This Statement, from 'Promoting the Success of the
Company' to "Long Term Investment", provides an explanation of how
the Directors have promoted the success of the Company for the
benefit of its members as a whole, taking into account the likely
long term consequences of decisions, the need to foster
relationships with all stakeholders and the impact of the Company's
operations on the environment.
The purpose of the Company is to act as a vehicle to provide,
over time, financial returns to its shareholders. The Company's
Investment Objective is disclosed above. The activities of the
Company are overseen by the Board of Directors of the Company.
The Board's philosophy is that the Company should operate in a
transparent culture where all parties are treated with respect and
provided with the opportunity to offer practical challenge and
participate in positive debate which is focused on the aim of
achieving the expectations of shareholders and other stakeholders
alike. The Board reviews the culture and manner in which the
Manager operates at its regular meetings and receives regular
reporting and feedback from the other key service providers.
Investment trusts, such as the Company, are long-term investment
vehicles, with a recommended holding period of five or more years.
Typically, investment trusts are externally managed, have no
employees, and are overseen by an independent non-executive board
of directors. Your Company's Board of Directors sets the investment
mandate, monitors the performance of all service providers
(including the Manager) and is responsible for reviewing strategy
on a regular basis. All this is done with the aim of preserving
and, indeed, enhancing shareholder value over the longer term.
Stakeholders
The Company's main stakeholders have been identified as its
shareholders, the Manager (and Investment Manager), service
providers, investee companies and debt providers. More broadly, the
environment and community at large are also stakeholders in the
Company. The Board is responsible for managing the competing
interests of these stakeholders. Ensuring that the Manager delivers
out performance for Ordinary shareholders over the longer term
without adversely affecting the risk profile of the Company which
is known and understood by the loan note holders and CULS holders.
This is achieved by ensuring that the Manager stays within the
agreed investment policy.
Shareholders
Shareholders are key stakeholders in the Company - they look to
the Manager to achieve the investment objective over time. The
following table describes some of the ways we engage with our
shareholders:
AGM The AGM normally provides an opportunity for the
Directors to engage with shareholders, answer
their questions and meet them informally. The
next AGM will take place on 5 December 2023 in
London. We encourage shareholders to lodge their
vote by proxy on all the resolutions put forward.
Online Shareholder In November 2022 the Board held an online shareholder
Presentation presentation which was attended by over 250 shareholders
and prospective investors. Based on the success
of this event a further online presentation will
be held on 21 November 2023 at 11:00 a.m.
Annual Report We publish a full annual report each year that
contains a strategic report, governance section,
financial statements and additional information.
The report is available online and in paper format.
Company Announcements We issue announcements for all substantive news
relating to the Company. You can find these announcements
on the website.
Results Announcements We release a full set of financial results at
the half year and full year stage. Updated net
asset value figures are announced on a daily basis.
Monthly Factsheets The Manager publishes monthly factsheets on the
Company's website including commentary on portfolio
and market performance.
Website Our website contains a range of information on
the Company and includes a full monthly portfolio
listing of our investments as well as podcasts
by the Investment Manager. Details of financial
results, the investment process and Investment
can be found at asia-focus.co.uk
Investor Relations The Company subscribes to the Manager's Investor
Relations programme (further details are on page
22 of the published Annual Report and Financial
Statements for the year ended 31 July 2023).
The Manager
The key service provider for the Company is the Alternative
Investment Fund Manager and the performance of the Manager is
reviewed in detail at each Board meeting. The Manager's investment
process is outlined on pages 103 to 105 and further information
about the Manager is given on page 102 of the published Annual
Report and Financial Statements for the year ended 31 July 2023.
Shareholders are key stakeholders in the Company - they are looking
to the Manager to achieve the investment objective over time and to
maximise total return to shareholders over the long term from a
portfolio made up predominantly of quoted smaller companies in the
economies of Asia excluding Japan. The Board is available to meet
at least annually with shareholders at the Annual General Meeting
and this includes informal meetings with them over lunch following
the formal business of the AGM. This is seen as a very useful
opportunity to understand the needs and views of the shareholders.
In between AGMs, the Directors and Manager also conduct programmes
of investor meetings with larger institutional, private wealth and
other shareholders to ensure that the Company is meeting their
needs. Such regular meetings may take the form of joint
presentations with the Investment Manager or meetings directly with
a Director where any matters of concern may be raised directly.
Other Service Providers
The other key stakeholder group is that of the Company's third
party service providers. The Board is responsible for selecting the
most appropriate outsourced service providers and monitoring the
relationships with these suppliers regularly in order to ensure a
constructive working relationship. Our service providers look to
the Company to provide them with a clear understanding of the
Company's needs in order that those requirements can be delivered
efficiently and fairly. The Board, via the Management Engagement
Committee, ensures that the arrangements with service providers are
reviewed at least annually in detail. The aim is to ensure that
contractual arrangements remain in line with best practice,
services being offered meet the requirements and needs of the
Company and performance is in line with the expectations of the
Board, Manager, Investment Manager and other relevant stakeholders.
Reviews include those of the Company's depositary and custodian,
share registrar, broker and auditors.
Principal Decisions
Pursuant to the Board's aim of promoting the long term success
of the Company, the following principal decisions have been taken
during the year:
Portfolio The Investment Manager's Review details the key
investment decisions taken during the year and subsequently. The
Investment Manager has continued to monitor the investment
portfolio throughout the year under the supervision of the Board. A
list of the key portfolio changes can be found in the Investment
Manager's Report.
Directorate During the year the Board has initiated a search for
a new independent Director as part of the continuing Board
succession plans culminating in the decision to appoint two new
Directors as explained in the Chair's Statement above.
Long Term Investment
The Investment Manager's investment process seeks to outperform
over the longer term. The Board has in place the necessary
procedures and processes to continue to promote the long term
success of the Company. The Board will continue to monitor,
evaluate and seek to improve these processes as the Company
continues to grow over time, to ensure that the investment
proposition is delivered to shareholders and other stakeholders in
line with their expectations.
Key Performance Indicators (KPIs)
The Board uses a number of financial performance measures to
assess the Company's success in achieving its objective and to
determine the progress of the Company in pursuing its investment
policy. The main KPIs identified by the Board in relation to the
Company, which are considered at each Board meeting, are as
follows:
KPI Description
NAV Return (per The Board considers the Company's NAV total return
share) figures to be the best indicator of performance over
time and is therefore the main indicator of performance
used by the Board. The figures for this year and
for the past 1, 3, 5, 10 years and since inception
are set out on page 24 of the published Annual Report
and Financial Statements for the year ended 31 July
2023.
Performance against The Board also measures performance against the MSCI
comparative indices AC Asia ex Japan Small Cap Index (currency adjusted)
as well as peer group comparisons for Board reporting.
For periods prior to 1 August 2021, a composite index
is used comprising the MSCI AC Asia Pacific ex Japan
Small Cap Index (currency adjusted) up to 31 July
2021 and the MSCI AC Asia ex Japan Small Cap Index
(currency adjusted) thereafter. Graphs showing performance
are shown on pages 25 to 27 of the published Annual
Report and Financial Statements for the year ended
31 July 2023. At its regular Board meetings the Board
also monitors share price performance relative to
competitor investment trusts over a range of time
periods, taking into consideration the differing
investment policies and objectives employed by those
companies.
Share price The Board also monitors the price at which the Company's
(on a total return shares trade relative to the MSCI Asia ex Japan Small
basis) Cap Index (sterling adjusted) on a total return basis
over time. A graph showing the total NAV return and
the share price performance against the comparative
index is shown on pages 27 and 56 of the published
Annual Report and Financial Statements for the year
ended 31 July 2023.
Discount/Premium The discount/premium relative to the NAV per share
to NAV represented by the share price is closely monitored
by the Board. The objective is to avoid large fluctuations
in the discount relative to similar investment companies
investing in the region by the use of share buy backs
subject to market conditions. A graph showing the
share price premium/(discount) relative to the NAV
is also shown on page 25 of the published Annual
Report and Financial Statements for the year ended
31 July 2023.
Dividend In 2022 the Board set a target dividend of 6.4p per
share which was achieved for the year ended 31 July
2022. The aim is to maintain a progressive Ordinary
dividend so that shareholders can rely on a consistent
stream of income. Dividends paid over the past 10
years are set out on page 24 of the published Annual
Report and Financial Statements for the year ended
31 July 2023.
Principal Risks and Uncertainties
There are a number of risks which, if realised, could have a
material adverse effect on the Company and its financial condition,
performance and prospects. Risks are identified and documented
through a risk management framework and further details on the risk
matrix are provided in the Directors' Report. The Board, through
the Audit Committee, has undertaken a robust review of the
principal risks and uncertainties facing the Company including
those that would threaten its business model, future performance,
solvency or liquidity. Those principal risks are disclosed in the
table below together with a description of the mitigating actions
taken by the Board. The principal risks associated with an
investment in the Company's Shares are published monthly on the
Company's factsheet or they can be found in the pre-investment
disclosure document published by the Manager, both of which are
available on the Company's website.
The Board also has a process to review longer term risks and
consider emerging risks and if any of these are deemed to be
significant these risks are categorised, rated and added to the
risk matrix.
Macroeconomic risks arising from geo political uncertainty has
been a significant risk during the year leading to rising interest
rates and higher inflation. In addition to the risks listed below,
the Board is also very conscious of the risks emanating from
increased environmental, social and governance challenges. As
climate change pressures mount, the Board continues to monitor,
through its Manager, the potential risk that investee companies may
fail to keep pace with the appropriate rates of change and
adaption.
The Board does not consider that the principal risks and
uncertainties identified have changed during the Year or since the
date of this Annual Report and are not expected to change
materially for the current financial year.
Description Mitigating Action
Shareholder and Stakeholder The Company's strategy and objectives are
Risk regularly reviewed to ensure that they remain
Risk Unchanged during Year appropriate and effective. The Board monitors
the discount level of the Company's shares
and has in place a buyback mechanism whereby
the Manager is authorised to buy back shares
within certain limits. The macroeconomic
and geopolitical challenges during the year
led to volatility in equity markets and
a widening of the Company's share price
discount to NAV. As a result, the Company
has started to buy back shares into treasury.
The Broker and Manager communicate with
major shareholders regularly to gauge their
views on the Company, including discount
volatility. There are additional direct
meetings undertaken by the Chair and other
Directors. The Board monitors shareholder
and market reaction to Company news flow.
Investment Risk The Board sets, and monitors, its investment
Risk Unchanged during Year restrictions and guidelines, and receives
regular board reports which include performance
reporting on the implementation of the investment
policy, the investment process and application
of the guidelines and concentration/liquidity
analysis of the portfolio. abrdn provides
a team of experienced portfolio managers
with detailed knowledge of the Asian markets.
The Investment Manager is in attendance
at all Board meetings. The Board also monitors
the Company's share price relative to the
NAV.
The Board recognises that investing in unlisted
securities carries a higher risk/reward
profile. Accordingly it seeks to mitigate
this risk by limiting investment into such
securities to 10% of the Company's net assets
(calculated at the time of investment).
For the year ended 31 July 2023 no unlisted
investments were made.
The Manager's risk department reviews investment
risk and a review of credit worthiness of
counterparties is undertaken by its Counterparty
Credit Risk team. The Company does not hedge
foreign currency exposure but it may, from
time to time, partially mitigate it by borrowing
in foreign currencies.
Gearing is provided at attractive rates,
the Board and Manager monitor gearing levels
regularly and covenant reports are provided
to lenders bi-monthly.
The Investment Manager embeds ESG and the
impact of climate change into the research
of each asset class as part of the investment
process. ESG investment is about active
engagement, in the belief that the performance
of assets held around the world can be improved
over the longer term.
Operational Risk The Board receives reports from the Manager
Risk Unchanged during Year on internal controls and risk management
at each Board meeting. It receives assurances
from all its significant service providers,
as well as back to back assurances where
activities are themselves sub-delegated
to other third party providers with which
the Company has no direct contractual relationship
eg accounting. The assurance reports include
an independent assessment of the effectiveness
of risks and internal controls at the service
providers including their planning for business
continuity and disaster recovery scenarios,
together with their policies and procedures
designed to address the risks posed to the
Company's operations by cyber-crime. Further
details of the internal controls which are
in place are set out in the Directors' Report
on page 50 of the published Annual Report
and Financial Statements for the year ended
31 July 2023.
The Manager has documented succession planning
in place for key personnel. There is a team
approach to portfolio management of the
Company and this has been clearly communicated
to shareholders
Governance & Regulatory The Board receives assurance from the Manager
Risk and Company Secretary and third party service
Risk Unchanged during Year providers on all aspects of regulatory compliance
as well as drawing upon the significant
experience of individual Directors. Upon
appointment Directors receive a detailed
induction covering relevant regulatory matters
such as Corporate Governance, the Companies
Act and Listing Rules and further training
is available if required.
Major Events & Geo Political External risks over which the Company has
Risk no control are always a risk. The Manager
Risk Unchanged during Year monitors the Company's portfolio and is
in close communication with the underlying
investee companies in order to navigate
and guide the Company through macroeconomic
and geopolitical risks. The Manager continues
to assess and review legacy pandemic risks
as well as investment risks arising from
the impact of events such as the Invasion
of Ukraine and increased military tension
in East Asia on companies in the portfolio
and takes the necessary investment decisions.
The Manager monitors the potential impact
of potential regional conflict and the risk
of sanctions being imposed which limit the
free flow of trade.
Promoting the Company
The Board recognises the importance of promoting the Company to
prospective investors both for improving liquidity and enhancing
the value and rating of the Company's shares. The Board believes an
effective way to achieve this is through subscription to and
participation in the promotional programme run by the Manager on
behalf of a number of investment trusts under its management. The
Company's financial contribution to the programme is matched by the
Manager. The Manager reports quarterly to the Board giving analysis
of the promotional activities as well as updates on the shareholder
register and any changes in the make-up of that register.
The purpose of the programme is both to communicate effectively
with existing shareholders and to gain new shareholders with the
aim of improving liquidity and enhancing the value and rating of
the Company's shares. Communicating the long-term attractions of
your Company is key and therefore the Company also supports the
Manager's investor relations programme which involves regional
roadshows, promotional and public relations campaigns.
Board Diversity
The Board recognises the importance of having a range of
skilled, experienced individuals with the right knowledge
represented on the Board in order to allow the Board to fulfil its
obligations. The Board also recognises the benefits and is
supportive of the principle of diversity in its recruitment of new
Board members. The Board will not display any bias for age, gender,
race, sexual orientation, religion, ethnic or national origins, or
disability in considering the appointment of its Directors.
Although the Board does not set diversity targets, it is mindful of
best practice in this area, and the Board will continue to evolve
in 2023/2024, with the stated aim of improving its diversity. At 31
July 2023, there were four male Directors and one female Director
on the Board. Following the appointments of Lucy Macdonald and
Davina Curling the Board will comprise three male Directors and
three female Directors and will be compliant with the new diversity
and inclusion targets set out in Chapter 15 of the FCA's Listing
Rules.
Environmental, Social and Governance ("ESG") Engagement
Whilst the management of the Company's investments is not
undertaken with any specific instructions to exclude certain asset
types or classes, the Investment Manager embeds ESG into the
research of each asset class as part of the investment process. ESG
investment is about active engagement, with the goal of improving
the performance of assets held around the world.
The Investment Manager aims to make the best possible
investments for the Company, by understanding the whole picture of
the investments - before, during and after an investment is made.
That includes understanding the environmental, social and
governance risks and opportunities they present - and how these
could affect longer-term performance. Environmental, social and
governance considerations underpin all investment activities. With
1,000+ investment professionals, the Investment Manager is able to
take account of ESG factors in its company research, stock
selection and portfolio construction - supported by more than 30
ESG specialists around the world. Please refer to pages 106 to 110
of the published Annual Report and Financial Statements for the
year ended 31 July 2023 for further detail on the Investment
Manager's ESG policies applicable to the Company.
The Company has no employees as the Board has delegated day to
day management and administrative functions to abrdn Fund Managers
Limited. There are therefore no disclosures to be made in respect
of employees. The Company's socially responsible investment policy
is outlined above.
Due to the nature of the Company's business, being a company
that does not offer goods and services to customers, the Board
considers that it is not within the scope of the Modern Slavery Act
2015 because it has no turnover. The Company is therefore not
required to make a slavery and human trafficking statement. The
Board considers the Company's supply chains, dealing predominantly
with professional advisors and service providers in the financial
services industry, to be low risk in relation to this matter.
The Company has no greenhouse gas emissions to report from the
operations of its business, nor does it have responsibility for any
other emissions producing sources under the Companies Act 2006
(Strategic Report and Directors' Reports) Regulations 2013.
Viability Statement
The Company does not have a formal fixed period strategic plan
but the Board formally considers risks and strategy at least
annually. The Board considers the Company, with no fixed life, to
be a long term investment vehicle, but for the purposes of this
viability statement has decided that a period of three years is an
appropriate period over which to report. The Board considers that
this period reflects a balance between looking out over a long term
horizon and the inherent uncertainties of looking out further than
three years.
-- In assessing the viability of the Company over the review
period the Directors have conducted a robust review of the
principal risks, focusing upon the following factors:
-- The principal risks detailed in the Strategic Report;
-- The ongoing relevance of the Company's investment objective in the current environment;
-- The demand for the Company's Shares evidenced by the
historical level of premium and or discount;
-- The level of income generated by the Company;
-- The level of gearing provided by the Company's Loan Stock and
Loan Notes (including the flexibility afforded by the additional
GBP35m available for drawing under the Loan Note Facility to repay
CULS if required in 2025); and
-- In the event of triggering the conditional Tender Offer in
2026, the liquidity of the Company's portfolio including the
results of stress test analysis performed by the Manager under a
wide number of market scenarios.
In making this assessment, the Board has examined scenario
analysis covering the impact of significant historical market
events such as the 2008 Global Financial Crisis, Covid-19 and the
Chinese Devaluation on the liquidity of the portfolio, as well as
future scenarios such as geo-political tensions in East Asia, and
how these factors might affect the Company's prospects and
viability in the future.
Accordingly, taking into account the Company's current position,
the fact that the Company's investments are mostly liquid and the
potential impact of its principal risks and uncertainties, the
Directors have a reasonable expectation that the Company will be
able to continue in operation and meet its liabilities as they fall
due for a period of three years from the date of this Report. In
making this assessment, the Board has considered that matters such
as significant economic or stock market volatility, a substantial
reduction in the liquidity of the portfolio or changes in investor
sentiment could have an impact on its assessment of the Company's
prospects and viability in the future.
Future
The Board's view on the general outlook for the Company can be
found in my Chair's Statement whilst the Investment Manager's views
on the outlook for the portfolio are included in the Investment
Manager's Review.
The Strategic Report has been approved by the Board and signed
on its behalf by:
Krishna Shanmuganathan,
Chair
19 October 2023
Results
Performance (total return)
1 year 3 year 5 year 10 year Since
% return % return % return % return inception
Share price(A) +7.3 +45.9 +41.0 +59.1 +2158.4
Net asset value per Ordinary share
- diluted(AB) +7.6 +49.6 +38.5 +83.7 +2283.6
MSCI AC Asia ex Japan Small Cap
Index (currency adjusted) +8.0 +43.2 +36.4 +102.0 +261.3
(A) Considered to be an Alternative Performance Measure (see definition
below for more information).
(B) 1 year return calculated on a diluted basis as CULS is "in the
money". All other returns are calculated on a diluted basis.
Source: abrdn, Morningstar, Lipper & MSCI
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As at 31 July 2023
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Total assets and biotechnology. Total assets
Cyient Aegis Logistics
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to clients in developed and liquids logistics
markets, competing primarily sector, with a first
on quality of service mover advantage in key
and cost of delivery. ports and a fair amount
of capacity expansion
to come. The government's
push for the adoption
of cleaner energy is
3.6% 3.1% also boosting its liquefied
Total assets Total assets natural gas business.
FPT Corporation AKR Corporindo
FPT is a diversified AKR is one of the main
technology group with players in industrial
a fast-growing software fuel in Indonesia, which
outsourcing business. has a high entry barrier.
It also owns a telecoms Its key strength is
unit, an electronics its extensive infrastructure
retailing company, and and logistic facilities
3.0% has interests in other 3.0% throughout the country.
Total assets sectors, such as education. Total assets
AEM Holdings Taiwan Union
A Singapore-based provider Taiwan Union Technology
of advanced semiconductor Corp is a leading maker
chip testing services of copper clad laminate
that has embedded itself (CCL), a key base material
in chipmaker Intel's used to make printed
global supply chain. circuit boards. With
a strong commitment
to R&D, it has moved
2.7% 2.7% up the value chain through
Total assets Total assets the years..
Nam Long Invest Corporation
John Keells Holdings A reputable Vietnamese
A respected and reputable developer in Ho Chi
Sri Lanka conglomerate Minh City that focuses
with a healthy balance on the affordable housing
sheet and good execution, segment, with decent
John Keells has a hotels land bank and promising
and leisure segment that project pipeline.
includes properties in
the Maldives. It has
other interests in consumer,
2.6% transportation and financial 2.6%
Total assets services. Total assets
Portfolio
As at 31 July 2023
Valuation Total Valuation
2023 assets 2022
Company Industry Country GBP'000 % GBP'000
Electronic Equipment,
Park Systems Corporation Instruments & Components South Korea 28,924 5.2 17,120
Bank OCBC NISP Banks Indonesia 23,675 4.2 13,356
Cyient Software India 19,980 3.6 14,016
Oil, Gas & Consumable
Aegis Logistics Fuels India 16,974 3.1 13,716
FPT Corporation IT Services Vietnam 16,849 3.0 15,444
Oil, Gas & Consumable
AKR Corporindo Fuels Indonesia 16,518 3.0 18,389
Semiconductors &
AEM Holdings Semiconductor Equipment Singapore 15,213 2.7 17,802
Electronic Equipment,
Taiwan Union Instruments & Components Taiwan 14,928 2.7 5,778
John Keells Industrial Conglomerates Sri Lanka 14,586 2.6 7,640
Real Estate Management
Nam Long Invest Corporation & Development Vietnam 14,312 2.6 15,030
Top ten investments 181,959 32.7
Sinoma Science & Technology
- A Chemicals China 13,936 2.5 15,756
Mega Lifesciences (Foreign) Pharmaceuticals Thailand 13,715 2.5 13,524
Affle India Media India 13,612 2.4 18,847
Sporton International Professional Services Taiwan 13,280 2.4 9,123
Health Care Providers
Medikaloka Hermina & Services Indonesia 12,728 2.3 14,656
M.P. Evans Group Food Products United Kingdom 12,293 2.2 13,857
Dah Sing Financial Banks Hong Kong 12,225 2.2 13,682
Semiconductors &
LEENO Industrial Semiconductor Equipment South Korea 11,610 2.1 6,322
Interactive Media
Autohome - ADR & Services China 11,462 2.1 -
Oriental Holdings Automobiles Malaysia 11,202 2.0 12,281
Top twenty investments 308,022 55.4
Ultrajaya Milk Industry
& Trading Food Products Indonesia 11,124 2.0 9,030
UIE Food Products Denmark 10,937 2.0 12,352
Precision Tsugami China Machinery China 10,931 2.0 11,973
Real Estate Management
Prestige Estates Projects & Development India 10,887 1.9 7,162
Joinn Laboratories China Life Sciences Tools
- H & Services China 10,472 1.9 12,745
Asian Terminals Transportation Infrastructure Philippines 10,329 1.8 10,161
Sunonwealth Electric
Machinery Industry Machinery Taiwan 10,029 1.8 11,071
Real Estate Management
Cebu & Development Philippines 9,958 1.8 9,664
Hana Microelectronics Electronic Equipment,
(Foreign) Instruments & Components Thailand 9,911 1.8 8,736
Internet & Direct
MOMO.com Marketing Retail Taiwan 9,222 1.6 16,160
Top thirty investments 411,822 74.0
Millenium & Copthorne Hotels, Restaurants
Hotels New Zealand (A) & Leisure New Zealand 8,546 1.5 9,808
Life Sciences Tools
Syngene International & Services India 8,333 1.5 6,521
Health Care Providers
Vijaya Diagnostic Centre & Services India 8,027 1.5 5,645
ChaCha Food - A Food Products China 7,903 1.4 -
AEON Credit Service
(M) Consumer Finance Malaysia 7,677 1.4 9,701
Real Estate Management
Bukit Sembawang Estates & Development Singapore 7,541 1.4 9,322
Electronic Equipment,
SINBON Electronics Instruments & Components Taiwan 6,824 1.2 -
Sanofi India Pharmaceuticals India 6,823 1.2 6,770
Semiconductors &
Pentamaster International Semiconductor Equipment Malaysia 6,782 1.2 4,850
KMC Kuei Meng International Leisure Products Taiwan 6,236 1.1 4,560
Top forty investments 486,514 87.4
United Plantations Food Products Malaysia 6,067 1.1 5,815
Semiconductors &
Koh Young Technology Semiconductor Equipment South Korea 5,697 1.0 4,879
Tisco Financial (Foreign) Banks Thailand 5,547 1.0 4,827
CE Info Systems Software India 4,774 0.9 2,421
Kerry Logistics Air Freight & Logistics Hong Kong 4,544 0.8 -
Hotels, Restaurants
Shangri-La Hotels Malaysia & Leisure Malaysia 4,542 0.8 5,867
Semiconductors &
Andes Technology Semiconductor Equipment Taiwan 4,513 0.8 3,470
Real Estate Management
Yoma Strategic & Development Myanmar 4,282 0.8 5,943
NZX Capital Markets New Zealand 4,059 0.8 4,253
Convenience Retail Asia Food & Staples Retailing Hong Kong 4,013 0.7 4,314
Top fifty investments 534,552 96.1
Semiconductors &
Aspeed Technology Semiconductor Equipment Taiwan 3,976 0.6 3,652
Thai Stanley Electric
(Foreign) Auto Components Thailand 3,470 0.6 2,912
Credit Bureau Asia Professional Services Singapore 2,953 0.6 3,228
Nanofilm Technologies
International Chemicals Singapore 2,868 0.5 4,856
Manulife Insurance Malaysia 1,339 0.3 1,675
First Sponsor Group Real Estate Management
(Warrants 21/03/2029) & Development Singapore 247 0.1 276
AEON Stores Hong Kong Multiline Retail Hong Kong 150 - 279
First Sponsor Group Real Estate Management
(Warrants 30/05/2024) & Development Singapore 117 - 158
Total investments 549,672 98.8
Net current assets 6,794 1.2
Total assets(B) 556,466 100.0
(A) Holding includes investment in both common and preference lines.
(B) Total assets less current liabilities.
Investment and ESG Case Studies
Sinoma Science
In which year did we first invest?
2022
% Holding:
2.5%
Where is their head office?
Beijing, China
What is their web address?
www.sinomatech.com/en/p_s/
What does the company do?
Sinoma is one of the largest wind turbine blade producers in
China and the third largest battery separator maker, which is
backed by strong R&D capability and support from its parent
group.
Why do we like the investment?
We view the stock as a proxy for growth of wind energy. Sinoma
is also one of the best state-owned enterprises (SOEs) in China
focusing on the development of
new materials.
Among the company's key strengths is its research and
development (R&D) capability. Upon its Shenzhen listing in
2006, Sinoma had inherited a few R&D institutes, including a
national laboratory that was focused on developing fibreglass
materials. The company has continued to build on its solid R&D
foundation.
Sinoma's capable management deserves mention. It has
demonstrated strong entrepreneurship in developing downstream
applications including wind turbine blades and battery separators.
The team has also been stable and runs the company like a privately
owned enterprise despite its SOE roots.
As a result, the company is now the largest wind blade producer,
second-largest fibreglass maker and the No.3 separator maker in
China. It also has a large trove of new materials waiting to be
commercialised including hydrogen storage tanks. The hydrogen
storage tank segment is a small but rapidly growing business, with
potential for growth. The industry has policy support because it is
a key development area for the
central government.
When did we engage Sinoma on ESG?
We last met Sinoma in November 2022.
What were the key areas of engagement?
We have engaged Sinoma mostly around climate change, especially
on disclosure of its ESG efforts. Its disclosure around water
management and carbon emission given its exposure in fibreglass
production is still subpar. However, we expect further ESG
improvements ahead because of the parent group's consolidation of
its wind turbine blade business into Sinoma. Also, as its revenue
contribution from the separator business increases, this should
also enhance its ESG credentials.
The company has also demonstrated leadership in wind turbine
blade disposal by forming an alliance which it leads with its
largest customer Goldwind to collect decommissioned wind turbine
blades. Owing to technology constraints, the current blade recycle
rate
is low (less than 10%), but Sinoma is well positioned to
take on future opportunities as and when the right technology
emerges.
On the fibreglass front, the company believes its carbon
emissions per tonne for this business is at least 20% lower than
peers, thus it believes that it can gain market share once clients
start to focus more on ESG.
What is the result of our engagement?
We continue our ongoing engagement with Sinoma and
encouragingly, MSCI upgraded the company's ESG rating from B to BB
in August 2022, citing its increasing involvement in clean tech and
peer-leading R&D investment. MSCI also highlighted improvements
in Sinoma's carbon mitigation practices, including use of renewable
energy.
When do we next meet the company and what will be on the ESG
agenda?
We recently met Sinoma during a research trip to China and we
will look to engage the company in December to discuss the
restructuring of its glass fibre business, including the timeline
and impact on its operations from an ESG perspective, including
carbon emissions and water usage and management.
Medikaloka Hermina
In which year did we first invest?
2021
% Holding:
2.3%
Where is their head office?
Jakarta, Indonesia
What is their web address?
https://herminahospitals.com/en
What does Medikaloka Hermina do?
The Indonesian hospital operator started out as a maternity
clinic with seven inpatient beds in east Jakarta in 1985. Since
then, it has grown into the country's largest private hospital
group by number of operational beds, with 45 hospitals across 31
cities.
Why do we like the company?
Hermina is the lowest-cost hospital operator in Indonesia, best
positioned to provide healthcare coverage for the masses in the
country, that benefits from the roll-out of BJPS (Indo's universal
healthcare scheme) and structural rise in healthcare demand.
It is very clear in their positioning, targeting the mass
market, and has a key competitive strength in cost leadership to
serve this target customer segment. Of the company's founding
members, some continue to run the hospital and have executed well
on the strategy.
Hermina's core strength is in women's and children's health-care
services, given its beginnings in maternity services. It has strong
brand equity in obstetrics, gynaecology and paediatrics. More than
73,000 babies are born in Hermina hospitals every year.
Interests are generally aligned, with management owning shares
and key doctors incentivised by a partner-model, where they own
shares in the hospitals they work in.
Overall, we regard Hermina as a good quality operator in its
field.
When did we engage Medikaloka Hermina on ESG?
We last met Hermina in May 2023.
What were the key areas of engagement?
Our focus remains on engaging Hermina to disclose more around
its sustainability efforts, especially around carbon emissions with
the company having a high weighted average carbon intensity due to
its geographic spread across Indonesia. We have discussed
electricity usage, which is the main way that the company
contributes to carbon emissions, given that power is mostly
generated from coal.
We also track its progress in terms of alignment with the UN
SDGs, in particular, SDG 3.8, achieve universal health coverage,
including financial risk protection, access to quality essential
healthcare services and access to safe, effective, quality, and
affordable essential medicines and vaccines for all.
Being the lowest cost operator, Hermina is in a good position to
make healthcare affordable to the masses in a country where a large
proportion of the population is still relatively poor.
What is the result of our engagement?
Hermina is making an effort to disclose more around
sustainability in its annual reports. It has publicised its efforts
in the following areas.
On the environmental front, all its hospitals have implemented
the green hospital concept, leading to a significant reduction in
its environmental footprint (e.g., waste, energy use, water use,
and greenhouse gas emissions). Recently, it introduced solar energy
to two of its hospitals, in Depok and Bogor.
In terms of social impact, Hermina focuses on public health
efforts and assisting underprivileged local communities around its
hospitals. It routinely conducts events to provide free medical
services.
On governance, it has created a unique and favourable structure,
where the shareholders, management and key doctors are incentivised
and aligned to minority interests.
We view Hermina as one of the investments whereby business and
social good come together well. We have been invested in Hermina
for years for abrdn portfolios well before it turned profitable,
and we have been engaging the company consistently on its
performance delivery. If Hermina does well, it will contribute to
the greater good of society in Indonesia in the end.
When do we next meet the company and what will be on the ESG
agenda?
We are planning to meet the company in January 2024 and get an
update on potential health-care policy changes, tariffs as well as
the roll-out of JKN (National Health Insurance) programme, given
that these areas would drive mass health-care penetration.
Vijaya Diagnostic Centre
In which year did we first invest?
2021
% Holding:
1.5%
Where is their head office?
Hyderabad, India
What is their web address?
https://www.vijayadiagnostic.com/
What does Vijaya Diagnostic Centre do?
Founded in 1981, Vijaya Diagnostic Centre has grown to become
the largest diagnostics provider in South India.
Why do we like the company?
Vijaya has a long growth runway ahead despite its regional
market leadership in South India. A large part of this is due to a
structural change seen in India: Historically, the country has
underspent in healthcare, resulting in under penetration of
essential medical diagnostics services. Now, with an expanding and
increasingly more affluent middle class, demand for healthcare
services is rising alongside greater insurance penetration. Vijaya
is well-placed to benefit as medical services become better
developed across the board, and costs turn more affordable for the
masses.
Compared to its peers, the company draws 95% of revenue from the
end consumer segment (patients), which is typically less price
sensitive and more driven by brand strength. Also, Vijaya's
one-stop shop model, with radiology and pathology in every centre,
makes it more convenient for patients and increases the barrier to
entry for competitors, including the new-age digital disrupters -
as the capital requirement for radiology machines is relatively
high. Vijaya is free-cash-flow generative and has a business model
that looks as good as its peers, with nationwide reach.
When did we engage Vijaya on ESG?
We last met Vijaya in April 2023.
What were the key areas of engagement?
Since its initial public offering in 2021, there has not been
much in terms of disclosures around ESG and sustainability from the
company. So, in the April meeting, our key topics of discussion
included labour management, especially around employee engagement,
training and turnover, corporate behaviour as well as corporate
governance and disclosure. In particular, we are keen to encourage
Vijaya on greater reporting of alignment with the United Nations'
Sustainable Development Goals (SDGs) by companies, given this is an
area of increasing investor interest. In particular, UN SDG 3,
which focuses on ensuring healthy lives and promoting well-being
for all at all ages. Medical diagnostics testing is an essential
part of healthcare, which drives better outcomes for patients.
Despite this, access to diagnostics across India remains mixed.
One of the focus areas for Vijaya is in making diagnostic
services affordable for Indians who have historically underspent on
medical care, for a range of reasons, including affordability. This
runs parallel to their aim of expanding into India's Tier 2 and
Tier 3 cities that have a longer runway for growth and expansion
compared to the metropolises, which they expect to be at least 50%
of their capital expenditure for the next 3 years. For example, in
a previous meeting, the company explained how it has acquired
high-end CT scan machines that cost significantly more than the
standard models to do mammography tests without compromising
patients' health. Vijaya is not charging a premium for this
service, rather it is relying on higher rate of utilisation to make
money.
In encouraging the company to do more around its disclosures so
that the market can recognise the company's efforts and understand
its role in delivery diagnostics, we engaged Vijaya and provided a
summary of disclosures that we would like them to make in their
forthcoming sustainability report. This included a range of
granular disclosures, as well as the company's alignment with UN
SDG 3. On the environment front, we have also sought to assess the
company's impact in terms of carbon emissions impact, mainly
through checking on its energy and electricity usage.
What is the result of our engagement?
In response, the company told us it has started taking steps to
engage an agency to help Vijaya capture the necessary data that we
have suggested through our engagement. We will continue to monitor
and engage with Vijaya once the sustainability report is made
available to explore ways to further improve disclosures around ESG
and sustainability such that it is recognised by the market and
external ratings agencies.
When do we next meet the company and what will be on the ESG
agenda?
We would look to follow up on issues such as employee
engagement, turnover and corporate behaviour.
John Keells
In which year did we first invest?
1997
% Holding:
2.6%
Where is their head office?
Colombo, Sri Lanka
What is their web address?
https://www.keells.com
What does the company do?
John Keells (JKH) has been in business for 153 years. It is Sri
Lanka's largest conglomerate operating in several sectors including
leisure (hotels & resorts in Sri Lanka and Maldives),
transportation (ports and logistics infrastructure), consumer foods
(beverages and ice cream), retail (supermarket chain) and property
and financial services (banking and insurance).
Why do we like the investment?
JKH is a diversified group with high-quality assets that serves
as a good proxy for the Sri Lankan economy. It is essentially a
large company operating in a small market. Management have executed
well and the group has been able to attract the best talent locally
which should ensure that it continues to thrive over the long term,
especially given the exciting potential for Sri Lanka in areas such
as tourism and transhipment.
Many of John Keells' businesses are capital-intensive and the
group is nearing the tail end of a long investment cycle. In
particular, Cinnamon Life Integrated Resort in Colombo (pictured
below) is costing about US$1 billion, with just US$100 million to
go, versus its market capitalisation of around US$600 million. It
is the first integrated resort in Sri Lanka and the largest private
investment project. This big project is finally in the harvesting
stage, with revenues from most of the residential units sold
already recognised in FY2021. From FY2024 onwards, we expect the
mall and casino to start operating, which is likely to contribute
substantially to the group.
More broadly, the group has also been able to ride through Sri
Lanka's debt crisis because a large part of its business is earned
in overseas currencies, especially the US dollar. As a result, the
group was not overly affected by the depreciation of the Sri Lankan
rupee, while its businesses that were more exposed to overseas
customers, such as ports and its hospitality segment in the
Maldives, held up well, mitigating the impact from the domestic
uncertainty on its local operations. Now, the economy is off from
its trough and so John Keells' domestic business is stabilising as
well. The currency is fluid again and tourism should slowly
recover, which bodes well for spending at the hotels, mall and
casino at its integrated resort.
How do we assess John Keells on its ESG efforts?
We view John Keells as one of the best governed groups in Sri
Lanka with good disclosures on the environmental and social
aspects, although the group is not rated by MSCI. Domestically,
John Keells was ranked first in the Transparency in Corporate
Reporting (TRAC) Assessment by Transparency International Sri Lanka
(TISL) for the third consecutive year, with a 100% score for
transparency in disclosure practices.
As a part of the group's ongoing efforts towards increasing
emphasis on its ESG aspects, John Keells reformulated its ESG
framework in collaboration with an international third-party
consulting firm, by setting revised group-wide ESG ambitions and
translating such ambitions to ESG-related targets.
A key area of focus has been the environmental impact. For
FY2022/23, the group's carbon footprint per million rupees of
revenue decreased by 29% and water withdrawn per million rupees of
revenue decreased by 31%, respectively compared to the previous
year. A project to highlight would be "Plasticcyle", its initiative
to reduce usage of single-use plastics, support responsible
disposal, and promote recycling initiatives and innovation to
support a circular economy. Despite the challenges posed by the
economic crisis, 'Plasticcycle' has collected 127,000 kg of
recyclable plastic waste since its inception in 2017/18.
When do we next meet the company and what will be on the ESG
agenda?
We have been engaging with John Keells on material ESG risks,
specifically around anti-money laundering (AML) controls and
counter-terrorism financing. Looking ahead, we will continue to
engage with John Keells on these fronts. With the casino set to
start operating in FY2024, we plan to meet the company early in the
new year to focus on the selection process for the casino operator
and that operator's credibility, as well as their stance towards
AML practices and counter-terrorism financing.
Directors' Report
The Directors present their Report and the audited financial
statements for the year ended 31 July 2023.
Results and Dividends
Details of the Company's results and proposed dividends are
shown above.
Investment Trust Status
The Company (registered in England & Wales No. 03106339) has
been accepted by HM Revenue & Customs as an investment trust
subject to the Company continuing to meet the relevant eligibility
conditions of Section 1158 of the Corporation Tax Act 2010 and the
ongoing requirements of Part 2 Chapter 3 Statutory Instrument
2011/2999 for all financial years commencing on or after 1 August
2012. The Directors are of the opinion that the Company has
conducted its affairs for the year ended 31 July 2023 so as to
enable it to comply with the ongoing requirements for investment
trust status.
Individual Savings Accounts
The Company has conducted its affairs so as to satisfy the
requirements as a qualifying security for Individual Savings
Accounts. The Directors intend that the Company will continue to
conduct its affairs in this manner.
Capital Structure, Buybacks and Issuance
The Company's capital structure is summarised in note 14 to the
financial statements.
At 31 July 2023, there were 156,457,978 fully paid Ordinary
shares of 5p each (2022 - 156,953,631 Ordinary shares of 5p each)
in issue with a further 52,244,590 Ordinary shares of 5p held in
treasury (2022 - 51,744,590 Ordinary shares of 5p each held in
treasury). During the year 500,000 Ordinary shares were purchased
in the market for treasury (2022 - nil). During the period and up
to the date of this report no Ordinary shares were issued for cash
and no shares were sold from or purchased into treasury.
On 14 December 2022, 6,334 units of Convertible Unsecured Loan
Stock 2025 were converted into 2,158 new Ordinary shares of 5p
each. On 14 June 2023 6,419 units of Convertible Unsecured Loan
Stock 2025 were converted into 2,189 new Ordinary shares of 5p
each. In accordance with the terms of the CULS Issue, (as adjusted
to reflect the five for one share subdivision in February 2022),
the conversion price of the CULS for both conversions was
determined at 293.0p nominal of CULS for one Ordinary share of
5p.
Voting Rights
Ordinary shareholders are entitled to vote on all resolutions
which are proposed at general meetings of the Company. The Ordinary
shares carry a right to receive dividends. On a winding up, after
meeting the liabilities of the Company, the surplus assets will be
paid to Ordinary shareholders in proportion to their
shareholdings.
CULS holders have the right to attend but not vote at general
meetings of the Company. A separate resolution of CULS holders
would be required to be passed before any modification or
compromise of the rights attaching to the CULS can be made.
Gearing
On 1 December 2020 the Company issued a GBP30 million Senior
Unsecured Loan Note (the "Loan Note") at an annualised interest
rate of 3.05%. The Loan Note is unsecured, unlisted and denominated
in sterling and due to mature in 2035. The Loan Note ranks pari
passu with the Company's other unsecured and unsubordinated
financial indebtedness.
Management Agreement
The Company has appointed abrdn Fund Managers Limited ("aFML"),
a wholly owned subsidiary of abrdn plc, as its alternative
investment fund manager. aFML has been appointed to provide
investment management, risk management, administration and company
secretarial services and promotional activities to the Company. The
Company's portfolio is managed by abrdn Asia Limited ("abrdn Asia")
by way of a group delegation agreement in place between aFML and
abrdn Asia. In addition, aFML has sub-delegated administrative and
secretarial services to abrdn Holdings Limited and promotional
activities to abrdn Investments Limited ("aIL").
Management Fee
With effect from 1 August 2021 the annual management fee has
been charged at 0.85% for the first GBP250,000,000, 0.60% for the
next GBP500,000,000 and 0.50% over GBP750,000,000. Investment
management fees are charged 25% to revenue and 75% to capital.
The management agreement may be terminated by either the Company
or the Manager on the expiry of three months' written notice. On
termination, the Manager would be entitled to receive fees which
would otherwise have been due to that date.
The Management Engagement Committee reviews the terms of the
management agreement on a regular basis and have confirmed that,
due to the long-term relative performance, investment skills,
experience and commitment of the investment management team, in
their opinion the continuing appointment of aFML and abrdn Asia is
in the interests of shareholders as a whole.
Political and Charitable Donations
The Company does not make political donations (2022 - nil) and
has not made any charitable donations during the year (2022 -
nil).
Risk Management
Details of the financial risk management policies and objectives
relative to the use of financial instruments by the Company are set
out in note 19 to the financial statements.
The Board
The current Directors, Randal Dunluce (The Earl of Antrim), C
Black, K Shanmuganathan, L Cooper and A Finn, together with N
Cayzer who retired on 30 November 2022, were the only Directors who
served during the year. Pursuant to Principle 23 of the AIC's Code
of Corporate Governance which recommends that all directors should
be subject to annual re-election by shareholders, all the members
of the Board will retire at the AGM scheduled for 5 December 2022
and, with the exception of the Earl of Antrim, will offer
themselves for re-election. Details of each Director's contribution
to the long term success of the Company are provided on page 49 of
the published Annual Report and Financial Statements for the year
ended 31 July 2023.
The Board considers that there is a balance of skills and
experience within the Board relevant to the leadership and
direction of the Company and that all the Directors contribute
effectively.
In common with most investment trusts, the Company has no
employees. Directors' & Officers' liability insurance cover has
been maintained throughout the year at the expense of the
Company.
The Role of the Chair
The Chair is responsible for providing effective leadership to
the Board, by setting the tone of the Company, demonstrating
objective judgement and promoting a culture of openness and debate.
The Chair facilitates the effective contribution, and encourages
active engagement, by each Director. In conjunction with the
Company Secretary, the Chair ensures that Directors receive
accurate, timely and clear information to assist them with
effective decision-making. The Chair leads the evaluation of the
Board and individual Directors, and acts upon the results of the
evaluation process by recognising strengths and addressing any
weaknesses. The Chair also engages with major shareholders and
ensures that all Directors understand shareholder views.
The Company has announced that Davina Curling will become Senior
Independent Director with effect from her appointment to the Board
on 1 March 2024. Prior to then the Audit Committee Chairman in
combination with the other independent Directors will continue to
fulfil the duties of the senior independent director, acting as a
sounding board for the Chair and acting as an intermediary for
other Directors as applicable. The Audit Committee Chairman and,
following appointment, Senior Independent Director are both
available to shareholders to discuss any concerns they may
have.
Board Diversity
The Board recognises the importance of having a range of
skilled, experienced individuals with the right knowledge
represented on the Board in order to allow it to fulfil its
obligations. The Board also recognises the benefits and is
supportive of, and will give due regard to, the principle of
diversity in its recruitment of new Board members. The Board will
not display any bias for age, gender, race, sexual orientation,
socio-economic background, religion, ethnic or national origins or
disability in considering the appointment of Directors. The Board
will continue to ensure that all appointments are made on the basis
of merit against the specification prepared for each appointment.
The Board will take account of the targets set out in the FCA's
Listing Rules, which are set out overleaf.
The Board has resolved that the Company's year-end date is the
most appropriate date for disclosure purposes. The following
information has been provided by each Director through the
completion of questionnaires.
Table for reporting on gender as at 31 July 2023
Number Percentage Number of senior Number in Percentage
of board of the positions executive of executive
members board on the board management management
(CEO, CFO,
Chair and SID)
n/a n/a n/a
Men 4 80% (note 3) (note 4) (note 4)
Women 1 20%
(note 1)
Not specified/prefer - -
not to say
Table for reporting on e thnic background as at 31 July 2023
Number Percentage Number of senior Number Percentage
of board of the positions in executive of executive
members board on the board management management
(CEO, CFO,
Chair and SID)
White British or other
White n/a
(including minority-white n/a (note n/a
groups) 4 80% (note 3) 4) (note 4)
Mixed / Multiple Ethnic - -
Groups
Asian/Asian British 1 20%
Black/African/Caribbean/Black - -
British
Other ethnic group, - -
including Arab
Not specified/prefer - -
not to say
Notes:
1. The Company did not m eet the target that at least 40% of
Directors are women as set out in LR 9.8.6R (9)(a)(i) for the year
ended 31 July 2023. However, following the appointments of Ms
Macdonald and Ms Curling on 5 December 2023 and 1 March 2024 the
Board expects to be compliant for the year ending 31 July 2024.
2. The Company meets the target that at least one Director is
from a minority ethnic background as set out in LR 9.8.6R
(9)(a)(iii)
3. The Company does not meet the target for the year to 31 July
2023 as the Chair is not a woman and the Company did not have a
Senior Independent Director. However, with effect from 1 March
2024, Ms Davina Curling will join the Board as an independent non
executive Director and as Senior independent Director and the
Company will therefore be compliant for the year ending 31 July
2024. The Company is externally managed and does not have any
executive staff specifically it does not have either a CEO or
CFO.
4. This column is not applicable as the Company is externally
managed and does not have any executive staff .
Corporate Governance
The Company is committed to high standards of corporate
governance. The Board is accountable to the Company's shareholders
for good governance and this statement describes how the Company
has applied the principles identified in the UK Corporate
Governance Code as published in July 2018 (the "UK Code"), which is
available on the Financial Reporting Council's (the "FRC") website:
frc.org.uk.
The Board has also considered the principles and provisions of
the AIC Code of Corporate Governance as published in February 2019
(the "AIC Code"). The AIC Code addresses the principles and
provisions set out in the UK Code, as well as setting out
additional provisions on issues that are of specific relevance to
the Company. The AIC Code is available on the AIC's website:
theaic.co.uk .
The Board considers that reporting against the principles and
provisions of the AIC Code, which has been endorsed by the FRC
provides more relevant information to shareholders.
The Board confirms that, during the year, the Company complied
with the principles and provisions of the AIC Code and the relevant
provisions of the UK Code, except as set out below.
1. Interaction with the workforce (provisions 2, 5 and 6);
2. the role and responsibility of the chief executive (provisions 9 and 14);
3. previous experience of the chairman of a remuneration committee (provision 32);
4. executive directors' remuneration (provisions 33 and 36 to 40); and
5. senior independent director (provision 12) (see below);
For the reasons set out in the AIC Code, and as explained in the
UK Corporate Governance Code, the Board considers that provisions 1
to 4 above are not relevant to the position of the Company, being
an externally-managed investment company. In particular, all of the
Company's day-to-day management and administrative functions are
outsourced to third parties. As a result, the Company has no
executive directors, employees or internal operations. The Company
has therefore not reported further in respect of provisions 1 to 4
above. See 'Nomination Committee' below for further details on the
appointment of a new Senior Independent Director. The full text of
the Company's Corporate Governance Statement can be found on the
Company's website:
asia-focus.co.uk .
During the year ended 31 July 2023, the Board had five scheduled
meetings. In addition, the Audit Committee met twice and the
Management Engagement Committee met once and there has been a
number of ad hoc Board meetings. Between meetings the Board
maintains regular contact with the Manager. Directors have attended
the following scheduled Board meetings and Committee meetings
during the year ended 31 July 2023 (with their eligibility to
attend the relevant meeting in brackets):
Director Board Audit Nomination Management Engagement
Committee Committee Committee
K Shanmuganathan
(B) 5 (5) 1 (1) 4 (4) 1 (1)
Earl of Antrim 5 (5) 2 (2) 4 (4) 1 (1)
C Black 5 (5) 2 (2) 4 (4) 1 (1)
L. Cooper 5 (5) 2 (2) 4 (4) 1 (1)
A Finn 5 (5) 2 (2) 4 (4) 1 (1)
N Cayzer (A) 2 (2) n/a 1 (1) 1 (1)
(A) Mr Cayzer retired on 30 November 2022
(B) Mr Shanmuganathan was appointed Chair on 30 November 2022
and resigned from membership of the Audit Committee from that date
Policy on Tenure
In compliance with the provisions of the AIC Code, it is
expected that Directors will serve in accordance with the nine year
time limits laid down by the AIC Code.
Board Committees
Audit Committee
The Audit Committee Report is on pages 59 to 61 of the published
Annual Report and Financial Statements for the year ended 31 July
2023.
Nomination Committee
All appointments to the Board of Directors are considered by the
Nomination Committee which comprises all of the Directors. The
Board's overriding priority in appointing new Directors to the
Board is to identify the candidate with the best range of skills
and experience to complement existing Directors. The Board also
recognises the benefits of diversity and its policy on diversity is
referred to in the Strategic Report on page 22 of the published
Annual Report and Financial Statements for the year ended 31 July
2023.
As part of the continuing Board succession and refreshment
plans, the Earl of Antrim will be retiring from the Board at the
AGM to be held on 5 December 2023. Therefore, during the year the
Nomination Committee commenced a search for a new independent non
executive Director using the services of Fletcher Jones Limited, an
independent recruitment consultant. As part of the search a
specification of desired attributes and qualities was prepared and
the recruitment process culminated in the decision to appoint Ms
Lucy Macdonald and Ms Davina Curling as independent non-executive
Directors with effect from the close of business of the AGM on 5
December 2023 and 1 March 2024, respectively and Ms Curling has
agreed to become Senior Independent Director.
The Board undertakes an annual evaluation of the Board,
Directors, the Chair and the Audit Committee which is conducted by
questionnaires. The 2023 evaluation was conducted using
questionnaires and highlighted certain areas of further focus such
as continuing professional development which will be addressed with
input where necessary from the Company's advisors. Overall, the
Committee has concluded that the Board has an excellent balance of
experience, knowledge of investment markets, legal regulation and
financial accounting and continues to work in a collegiate and
effective manner.
The Nomination Committee has reviewed the contributions of each
Director ahead of their proposed re-elections at the AGM on 5
December 2023. Ms Black has continued to bring significant
financial promotion, marketing and communications expertise to the
Board and has been closely involved in the ongoing development of
the Company's website; Mr Shanmuganathan has continued to bring his
deep experience of Asia and has seamlessly assumed the role of
Chair during the year to great effect; Mr Cooper has brought the
weight of his significant local Asian market experience to the
Board's discussions; and Mr Finn has brought relevant and recent
accounting and financial experience to the board and has led the
Audit Committee with expertise. For the foregoing reasons, with the
exception of the Earl of Antrim who will be retiring from the Board
at the forthcoming AGM, the independent members of the Nomination
Committee have no hesitation in recommending the re-election of
each Director who will be submitting themselves for re-election at
the AGM on 5 December 2023.
Management Engagement Committee
The Management Engagement Committee comprises all of the
Directors and is chaired by Mr Finn. The Committee is responsible
for reviewing the performance of the Investment Manager and its
compliance with the terms of the management and secretarial
agreement. The terms and conditions of the Investment Manager's
appointment, including an evaluation of fees, are reviewed by the
Committee on an annual basis. The Committee believes that the
continuing appointment of the Manager on the terms agreed is in the
interests of shareholders as a whole.
Remuneration Committee
Under the UK Listing Authority rules, where an investment trust
has only non-executive directors, the Code principles relating to
directors' remuneration do not apply. Accordingly, matters relating
to remuneration are dealt with by the full Board, which acts as the
Remuneration Committee, and is chaired by the Chair.
The Company's remuneration policy is to set remuneration at a
level to attract individuals of a calibre appropriate to the
Company's future development. Further information on remuneration
is disclosed in the Directors' Remuneration Report on pages 55 to
57 of the published Annual Report and Financial Statements for the
year ended 31 July 2023.
Terms of Reference
The terms of reference of all the Board Committees may be found
on the Company's website asia-focus.co.uk and copies are available
from the Company Secretary upon request. The terms of reference are
reviewed and re-assessed by the Board for their adequacy on an
annual basis.
Internal Control
In accordance with the Disclosure and Transparency Rules (DTR
7.2.5), the Board is ultimately responsible for the Company's
system of internal control and for reviewing its effectiveness and
confirms that there is an ongoing process for identifying,
evaluating and managing the significant risks faced by the Company.
This process has been in place for the year under review and up to
the date of approval of this Annual Report and Financial
Statements. It is regularly reviewed by the Board and accords with
the FRC Guidance.
The Board has reviewed the effectiveness of the system of
internal control. In particular, it has reviewed and updated the
process for identifying and evaluating the significant risks
affecting the Company and policies by which these risks are
managed.
The Directors have delegated the investment management of the
Company's assets to the abrdn Group within overall guidelines, and
this embraces implementation of the system of internal control,
including financial, operational and compliance controls and risk
management. Internal control systems are monitored and supported by
the abrdn Group's internal audit function which undertakes periodic
examination of business processes, including compliance with the
terms of the management agreement, and ensures that recommendations
to improve controls are implemented.
Risks are identified and documented through a risk management
framework by each function within the abrdn Group's activities.
Risk includes financial, regulatory, market, operational and
reputational risk. This helps the internal audit risk assessment
model identify those functions for review. Any weaknesses
identified are reported to the Board, and timetables are agreed for
implementing improvements to systems. The implementation of any
remedial action required is monitored and feedback provided to the
Board.
The significant risks faced by the Company have been identified
as being financial; operational; and compliance-related.
The key components of the process designed by the Directors to
provide effective internal control are
outlined below:
-- the Manager prepares forecasts and management accounts which
allow the Board to assess the Company's activities and review its
performance;
-- the Board and Manager have agreed clearly defined investment
criteria, specified levels of authority and exposure limits.
Reports on these issues, including performance statistics and
investment valuations, are regularly submitted to the Board and
there are meetings with the Manager and Investment Manager
as appropriate;
-- as a matter of course the Manager's compliance department
continually reviews abrdn's operations and reports to the Board on
a six monthly basis;
-- written agreements are in place which specifically define the
roles and responsibilities of the Manager and other third party
service providers and, where relevant, ISAE3402 Reports, a global
assurance standard for reporting on internal controls for service
organisations, or their equivalents are reviewed;
-- the Board has considered the need for an internal audit
function but, because of the compliance and internal control
systems in place within abrdn, has decided to place reliance on the
Manager's systems and internal audit procedures; and
-- at its October 2023 meeting, the Audit Committee carried out
an annual assessment of internal controls for the year ended 31
July 2023 by considering documentation from the Manager, Investment
Manager and the Depositary, including the internal audit and
compliance functions and taking account of events since 31 July
2023. The results of the assessment, that internal controls are
satisfactory, were then reported to the Board at the next Board
meeting.
Internal control systems are designed to meet the Company's
particular needs and the risks to which it is exposed. Accordingly,
the internal control systems are designed to manage rather than
eliminate the risk of failure to achieve business objectives and by
their nature can only provide reasonable and not absolute assurance
against mis-statement and loss.
Going Concern
In accordance with the Financial Reporting Council's guidance
the Directors have undertaken a rigorous review of the Company's
ability to continue as a going concern. The Company's assets
consist of equity shares in companies listed on recognised stock
exchanges and are considered by the Board to be realisable within a
relatively short timescale under normal market conditions. The
Board has set overall limits for borrowing and reviews regularly
the Company's level of gearing, cash flow projections and
compliance with banking covenants. The Board has also reviewed
stress testing and liquidity analysis to ensure that even in
significant negative markets the Company would still be able to
raise sufficient capital to repay its liabilities.
The Directors are mindful of the Principal Risks and
Uncertainties disclosed in the Strategic Report on pages 20 and 21
of the published Annual Report and Financial Statements for the
year ended 31 July 2023and they believe that the Company has
adequate financial resources to continue its operational existence
for a period of 12 months from the date of approval of this Annual
Report. They have arrived at this conclusion having confirmed that
the Company's diversified portfolio of realisable securities is
sufficiently liquid and could be used to meet short-term funding
requirements were they to arise, including in potentially less
favourable market conditions. The Directors have also reviewed the
revenue and ongoing expenses forecasts for the coming year.
Accordingly, the Directors believe that it is appropriate to
continue to adopt the going concern basis in preparing the
financial statements.
Management of Conflicts of Interest
The Board has a procedure in place to deal with a situation
where a Director has a conflict of interest. As part of this
process, the Directors prepare a list of other positions held and
all other conflict situations that may need to be authorised either
in relation to the Director concerned or his connected persons. The
Board considers each Director's situation and decides whether to
approve any conflict, taking into consideration what is in the best
interests of the Company and whether the Director's ability to act
in accordance with his or her wider duties is affected. Each
Director is required to notify the Company Secretary of any
potential, or actual, conflict situations that will need
authorising by the Board. Authorisations given by the Board are
reviewed at each Board meeting.
No Director has a service contract with the Company although
Directors are issued with letters of appointment upon appointment.
The Directors' interests in contractual arrangements with the
Company are as shown in note 18 to the financial statements. No
other Directors had any interest in contracts with the Company
during the period or subsequently.
The Board has adopted appropriate procedures designed to prevent
bribery. The Company receives periodic reports from its service
providers on the anti-bribery policies of these third parties. It
also receives regular compliance reports from the Manager.
The Criminal Finances Act 2017 introduced a new corporate
criminal offence of "failing to take reasonable steps to prevent
the facilitation of tax evasion". The Board has confirmed that it
is the Company's policy to conduct all of its business in an honest
and ethical manner. The Board takes a zero-tolerance approach to
facilitation of tax evasion, whether under UK law or under the law
of any foreign country.
Accountability and Audit
The respective responsibilities of the Directors and the
auditors in connection with the financial statements are set out on
pages 58 and 69 of the published Annual Report and Financial
Statements for the year ended 31 July 2023respectively.
Each Director confirms that:
-- so far as he or she is aware, there is no relevant audit
information of which the Company's auditors are unaware; and,
-- each Director has taken all the steps that they could
reasonably be expected to have taken as a Director in order to make
themselves aware of any relevant audit information and to establish
that the Company's auditors are aware of that information.
Additionally there have been no important events since the year
end that impact this Annual Report.
The Directors have reviewed the independent auditors' procedures
in connection with the provision of non-audit services. No
non-audit services were provided by the independent auditors during
the year and the Directors remain satisfied that the auditors'
objectivity and independence has been safeguarded.
Independent Auditors
At the November 2022 AGM shareholders approved the
re-appointment of PricewaterhouseCoopers LLP ("PwC") as independent
auditors to the Company. PwC has expressed its willingness to
continue to be the Company's auditors and a Resolution to
re-appoint PwC as the Company's auditors and to authorise the
Directors to fix the auditors' remuneration will be put to the
forthcoming Annual General Meeting.
Substantial Interests
The Board has been advised that the following shareholders owned
3% or more of the issued Ordinary share capital of the Company at
31 July 2023:
Shareholder No. of % held
Ordinary
shares
held
City of London Investment
Management Company 37,115,489 23.7
AllSpring Global Investments 20,431,685 13.1
Interactive Investor
(non-beneficial) 12,756,311 8.2
abrdn Savings Scheme
(non-beneficial) 11,586,710 7.4
Hargreaves Lansdown
(non-beneficial) 11,010,815 7.0
Funds managed by abrdn 5,523,368 3.5
1607 Capital Partners 5,340,300 3.4
Charles Stanley 5,060,341 3.2
There have been no significant changes notified in respect of
the above holdings between 31 July 2023 and 19 October 2023.
The UK Stewardship Code and Proxy Voting
Responsibility for actively monitoring the activities of
portfolio companies has been delegated by the Board to the AIFM
which has sub-delegated that authority to the Manager.
The Manager is a tier 1 signatory of the UK Stewardship Code
which aims to enhance the quality of engagement by investors with
investee companies in order to improve their socially responsible
performance.
Relations with Shareholders
The Directors place a great deal of importance on communication
with shareholders. The Annual Report is widely distributed to other
parties who have an interest in the Company's performance.
Shareholders and investors may obtain up to date information on the
Company through the Manager's freephone information service and the
Company's website asia-focus.co.uk. The Company responds to letters
from shareholders on a wide range
of issues.
The Board's policy is to communicate directly with shareholders
and their representative bodies without the involvement of the
abrdn Group (either the Company Secretary or the Manager) in
situations where direct communication is required and usually a
representative from the Board meets with major shareholders on an
annual basis in order to gauge their views.
The Notice of the Annual General Meeting, included within the
Annual Report and financial statements, is sent out at least 20
working days in advance of the meeting. All shareholders have the
opportunity to put questions to the Board or the Manager, either
formally at the Company's Annual General Meeting or, where
possible, at the subsequent buffet luncheon for shareholders. The
Company Secretary is available to answer general shareholder
queries at any time throughout the year.
Consumer Duty
The FCA's Consumer Duty rules were published in July 2022. The
rules comprise a fundamental component of the FCA's consumer
protection strategy and aim to improve outcomes for retail
customers across the entire financial services industry through the
assessment of various outcomes, one of which is an assessment of
whether a product provides value. Under the Consumer Duty, the
Manager is the product 'manufacturer' of the Company and therefore
the Manager was required to publish its assessment of value from
April 2023. Using a newly developed assessment methodology, the
Manager assessed the Company as 'expected to provide fair value for
the reasonably foreseeable future'. As this was the first year of
assessment, the Board gained an understanding of the Manager's
basis of assessment and no concerns were identified with either the
assessment method or the outcome of the assessment.
Special Business at the Annual General Meeting
Directors' Authority to Allot Relevant Securities
Approval is sought in Resolution 10, an ordinary resolution, to
renew the Directors' existing general power to allot securities but
will also, provide a further authority (subject to certain limits),
to allot shares under a fully pre-emptive rights issue. The effect
of Resolution 10 is to authorise the Directors to allot up to a
maximum of 103.9m shares in total (representing approximately 2/3
of the existing issued capital of the Company), of which a maximum
of 51.9m shares (approximately 1/3 of the existing issued share
capital) may only be applied to fully pre-emptive rights issues.
This authority is renewable annually and will expire at the
conclusion of the next Annual General Meeting. The Board has no
present intention to utilise this authority.
Disapplication of Pre-emption Rights
Resolution 11 is a special resolution that seeks to renew the
Directors' existing authority until the conclusion of the next
Annual General Meeting to make limited allotments of shares for
cash of up to 10% of the issued share capital other than according
to the statutory pre-emption rights which require all shares issued
for cash to be offered first to all existing shareholders. This
authority includes the ability to sell shares that have been held
in treasury (if any), having previously been bought back by the
Company. The Board has established guidelines for treasury shares
and will only consider buying in shares for treasury at a discount
to their prevailing NAV and selling them from treasury at or above
the then prevailing NAV.
New shares issued in accordance with Resolution 11 and subject
to the authority to be conferred by Resolution 10 will always be
issued at a premium to the NAV per Ordinary share at the time of
issue. The Board will issue new Ordinary shares or sell Ordinary
shares from treasury for cash when it is appropriate to do so, in
accordance with its current policy. It is therefore possible that
the issued share capital of the Company may change between the date
of this document and the Annual General Meeting and therefore the
authority sought will be in respect of 10% of the issued share
capital as at the date of the Annual General Meeting rather than
the date of this document.
Purchase of the Company's Shares
Resolution 12 is a special resolution proposing to renew the
Directors' authority to make market purchases of the Company's
shares in accordance with the provisions contained in the Companies
Act 2006 and the Listing Rules of the Financial Conduct Authority.
The minimum price to be paid per Ordinary share by the Company will
not be less than 5p per share (being the nominal value) and the
maximum price should not be more than the higher of (i) 5% above
the average of the middle market quotations for the shares for the
preceding five business days; and (ii) the higher of the last
independent trade and the current highest independent bid on the
trading venue where the purchase is carried out.
The Directors do not intend to use this authority to purchase
the Company's Ordinary shares unless to do so would result in an
increase in NAV per share and would be in the interests of
shareholders generally. The authority sought will be in respect of
14.99% of the issued share capital as at the date of the Annual
General Meeting rather than the date of this document.
The authority being sought in Resolution 12 will expire at the
conclusion of the next Annual General Meeting unless it is renewed
before that date. Any Ordinary shares purchased in this way will
either be cancelled and the number of Ordinary shares will be
reduced accordingly or under the authority granted in Resolution 11
above, may be held in treasury. During the year the Company has not
bought back any Ordinary shares for Treasury.
If Resolutions 10 to 12 are passed then an announcement will be
made on the date of the Annual General Meeting which will detail
the exact number of Ordinary shares to which each of these
authorities relate.
These powers will give the Directors additional flexibility
going forward and the Board considers that it will be in the
interests of the Company that such powers be available. Such powers
will only be implemented when, in the view of the Directors, to do
so will be to the benefit of shareholders as a whole.
Notice of Meetings
Resolution 13 is a special resolution seeking to authorise the
Directors to call general meetings of the Company (other than
Annual General Meetings) on 14 days' notice. This approval will be
effective until the Company's next Annual General Meeting in 2024.
In order to utilise this shorter notice period, the Company is
required to ensure that shareholders are able to vote
electronically at the general meeting called on such short notice.
The Directors confirm that, in the event that a general meeting is
called, they will give as much notice as practicable and will only
utilise the authority granted by Resolution 13 in limited and time
sensitive circumstances.
Dividend Policy
As a result of the timing of the payment of the Company's
quarterly dividends, the Company's Shareholders are unable to
approve a final dividend each year. In line with good corporate
governance, the Board therefore proposes to put the Company's
dividend policy to Shareholders for approval at the Annual General
Meeting and on an annual basis thereafter.
The Company's dividend policy shall be that dividends on the
Ordinary Shares are payable quarterly in relation to periods ending
October, January, April and July. It is intended that the Company
will pay quarterly dividends consistent with the expected annual
underlying portfolio yield. The Company has the flexibility in
accordance with its Articles to make distributions from capital.
Resolution 4, an ordinary resolution, will seek shareholder
approval for the dividend policy.
Recommendation
Your Board considers Resolutions 10 to 13 to be in the best
interests of the Company and its members as a whole and most likely
to promote the success of the Company for the benefit of its
members as a whole. Accordingly, your Board unanimously recommends
that shareholders should vote in favour of Resolutions 10 to 13 to
be proposed at the AGM, as they intend to do in respect of their
own beneficial shareholdings amounting to 14,060 Ordinary
shares.
By order of the Board
abrdn Holdings Limited -Secretaries
280 Bishopsgate
London EC2M 4AG
19 October 2023
Statement of Comprehensive Income
Year ended 31 July Year ended 31 July
2023 2022
Revenue Capital Total Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Gains/(losses) on investments 10 - 25,318 25,318 - (22,324) (22,324)
Income 3 19,984 - 19,984 18,071 - 18,071
Exchange (losses)/gains - (384) (384) - 72 72
Investment management fees 4 (753) (2,259) (3,012) (801) (2,403) (3,204)
Administrative expenses 5 (1,312) (16) (1,328) (1,163) (398) (1,561)
Net return/(loss) before
finance costs and taxation 17,919 22,659 40,578 16,107 (25,053) (8,946)
Finance costs 6 (501) (1,502) (2,003) (499) (1,497) (1,996)
Net return/(loss) before
taxation 17,418 21,157 38,575 15,608 (26,550) (10,942)
Taxation 7 (1,279) (2,107) (3,386) (956) 876 (80)
Net return/(loss) after
taxation 16,139 19,050 35,189 14,652 (25,674) (11,022)
Return/(loss) per share
(pence): 9
Basic 10.29 12.14 22.43 9.34 (16.36) (7.02)
Diluted 9.66 11.65 21.31 8.75 n/a n/a
For the year ended 31 July 2023 the conversion option for potential
Ordinary shares within the Convertible Unsecured Loan Stock was dilutive
to the revenue and capital return per Ordinary share (2022 - dilutive
to revenue but non-dilutive to capital).
The total column of this statement represents the profit and loss account
of the Company. There is no other comprehensive income and therefore
the net return after taxation is also the total comprehensive income
for the year.
All revenue and capital items in the above statement derive from continuing
operations.
The accompanying notes are an integral part of the financial statements.
Statement of Financial Position
As at As at
31 July 2023 31 July 2022
Notes GBP'000 GBP'000
Fixed assets
Investments at fair value through profit
or loss 10 549,672 524,841
Current assets
Debtors and prepayments 11 2,237 1,464
Cash and short term deposits 5,807 9,471
8,044 10,935
Creditors: amounts falling due within
one year
Other creditors 12 (1,250) (2,864)
Net current assets 6,794 8,071
Total assets less current liabilities 556,466 532,912
Non-current liabilities
2.25% Convertible Unsecured Loan Stock
2025 13 (36,175) (35,940)
3.05% Senior Unsecured Loan Note 2035 13 (29,898) (29,892)
Deferred tax liability on Indian capital
gains 13 (4,609) (2,684)
(70,682) (68,516)
Net assets 485,784 464,396
Capital and reserves
Called up share capital 14 10,435 10,435
Capital redemption reserve 2,062 2,062
Share premium account 60,441 60,428
Equity component of 2.25% Convertible
Unsecured Loan Stock 2025 13 1,057 1,057
Capital reserve 15 393,238 375,450
Revenue reserve 18,551 14,964
Total shareholders' funds 485,784 464,396
Net asset value per share (pence):
Basic 16 310.49 295.88
Diluted 16 308.93 295.25
The financial statements were approved by the Board of Directors and
authorised for issue on 19 October 2023 and were signed on behalf of
the Board by:
Krishna Shanmuganathan
Chair
The accompanying notes are an integral
part of the financial statements.
Statement of Changes in Equity
For the year ended 31 July 2023
Capital Share Equity
Share redemption premium Component Capital Revenue
capital reserve account CULS 2025 reserve reserve Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1 August
2022 10,435 2,062 60,428 1,057 375,450 14,964 464,396
Conversion of 2.25%
CULS 2025 13 - - 13 - - - 13
Purchase of own shares
to treasury 14 - - - - (1,262) - (1,262)
Net return after
taxation - - - - 19,050 16,139 35,189
Dividends paid 8 - - - - - (12,552) (12,552)
Balance at 31 July
2023 10,435 2,062 60,441 1,057 393,238 18,551 485,784
For the year ended 31 July 2022
Capital Share Equity
Share redemption premium Component Capital Revenue
capital reserve account CULS 2025 reserve reserve Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1 August
2021 10,435 2,062 60,412 1,057 401,124 12,868 487,958
Conversion of 2.25%
CULS 2025 13 - - 16 - - - 16
Net return/(loss)
after taxation - - - - (25,674) 14,652 (11,022)
Dividends paid 8 - - - - - (12,556) (12,556)
Balance at 31 July
2022 10,435 2,062 60,428 1,057 375,450 14,964 464,396
The accompanying notes are an integral part of the financial statements.
Statement of Cash Flows
Year ended Year ended
31 July 2023 31 July 2022
Notes GBP'000 GBP'000
Cash flows from operating activities
Net return/(loss) before finance costs
and tax 40,578 (8,946)
Adjustments for:
Dividend income 3 (19,798) (18,057)
Interest income 3 (186) (14)
Dividends received 20,094 18,307
Interest received 169 10
Interest paid (1,743) (1,742)
(Gains)/losses on investments 10 (25,318) 22,324
Foreign exchange movements 384 (72)
(Increase)/decrease in prepayments (5) 18
(Increase)/decrease in other debtors (15) 11
(Decrease)/increase in other creditors (1,621) 1,439
Stock dividends included in investment
income (25) (174)
Overseas withholding tax suffered 7 (1,432) (1,439)
Net cash inflow from operating activities 11,082 11,665
Cash flows from investing activities
Purchase of investments (76,870) (81,319)
Sales of investments 76,321 77,032
Net cash outflow from investing activities (549) (4,287)
Cash flows from financing activities
Purchase of own shares for treasury (1,261) -
Equity dividends paid 8 (12,552) (12,556)
Net cash outflow from financing activities (13,813) (12,556)
Decrease in cash and cash equivalents (3,280) (5,178)
Analysis of changes in cash and short
term deposits
Opening balance 9,471 14,577
Decrease in cash and short term deposits (3,280) (5,178)
Foreign exchange movements (384) 72
Closing balance 5,807 9,471
The accompanying notes are an integral part of the financial statements.
Notes to the Financial Statements
For the year ended 31 July 2023
1. Principal activity
The Company is a closed-end investment company, registered in England
& Wales No 03106339, with its Ordinary shares being listed on the
London Stock Exchange.
2. Accounting policies
(a) Basis of preparation . The financial statements have been prepared
in accordance with Financial Reporting Standard 102, the Companies
Act 2006 and the AIC's Statement of Recommended Practice 'Financial
Statements of Investment Trust Companies and Venture Capital
Trusts' issued in July 2022. The financial statements are prepared
in Sterling which is the functional currency of the Company and
rounded to the nearest GBP'000. They have also been prepared
on a going concern basis and on the assumption that approval
as an investment trust will continue to be granted by HMRC.
Going concern. In accordance with the Financial Reporting Council's
guidance the Directors have undertaken a rigorous review of the
Company's ability to continue as a going concern. The Company's
assets consist of equity shares in companies listed on recognised
stock exchanges and are considered by the Board to be realisable
within a relatively short timescale under normal market conditions.
The Board has set overall limits for borrowing and reviews regularly
the Company's level of gearing, cash flow projections and compliance
with banking covenants. The Board has also reviewed stress testing
and liquidity analysis covering the impact of significant historical
market events such as the 2008 Global Financial Crisis, Covid-19
and the Chinese Devaluation on the liquidity of the portfolio
to ensure that even in significant negative markets the Company
would still be able to raise sufficient capital to repay its
liabilities.
The Directors are mindful of the Principal Risks and Uncertainties
disclosed in the Strategic Report on pages 20 and 21 of the published
Annual Report and Financial Statements for the year ended 31
July 2023 and they believe that the Company has adequate financial
resources to continue its operational existence for a period
of 12 months from the date of approval of this Annual Report.
They have arrived at this conclusion having confirmed that the
Company's diversified portfolio of realisable securities is sufficiently
liquid and could be used to meet short-term funding requirements
were they to arise, including in potentially less favourable
market conditions. The Directors have also reviewed the revenue
and ongoing expenses forecasts for the coming year. Accordingly,
the Directors believe that it is appropriate to continue to adopt
the going concern basis in preparing the financial statements.
Significant accounting judgements, estimates and assumptions.
The preparation of financial statements requires the use of certain
significant accounting judgements, estimates and assumptions
which requires management to exercise its judgement in the process
of applying the accounting policies and are continually evaluated.
Special dividends are assessed and credited to capital or revenue
according to their circumstances and are considered to require
significant judgement. The Directors do not consider there to
be any significant estimates within the financial statements.
(b) Valuation of investments. The Company has chosen to apply the
recognition and measurement provisions of IAS 39 Financial Instruments:
Recognition and Measurement and investments have been designated
upon initial recognition at fair value through profit or loss.
Investments are recognised and de-recognised at trade date where
a purchase or sale is under a contract whose terms require delivery
within the time frame established by the market concerned, and
are initially measured at fair value. Subsequent to initial recognition,
investments are measured at fair value. For listed investments,
this is deemed to be bid market prices. Gains and losses arising
from changes in fair value and disposals are included as a capital
item in the Statement of Comprehensive Income and are ultimately
recognised in the capital reserve.
(c) Borrowings. Bank loans are initially recognised at cost, being
the fair value of the consideration received, net of any issue
expenses. Subsequently, they are measured at amortised cost using
the effective interest method. Finance charges are accounted
for on an accruals basis using the effective interest rate method.
The Company charges 25% of finance charges to revenue and 75%
to capital (previously 100% to revenue).
(d) Income . Dividends, including taxes deducted at source, are included
in revenue by reference to the date on which the investment is
quoted ex-dividend. Special dividends are reviewed on a case-by-case
basis and may be credited to capital, if circumstances dictate.
Dividends receivable on equity shares where no ex-dividend date
is quoted are brought into account when the Company's right to
receive payment is established. Fixed returns on non-equity shares
are recognised on a time apportioned basis so as to reflect the
effective yield on shares. Other returns on non-equity shares
are recognised when the right to return is established. Where
the Company has elected to receive its dividends in the form
of additional shares rather than cash, the amount of the cash
dividend is recognised as income. Any excess in the value of
the shares received over the amount of the cash dividend is recognised
in capital reserves. Interest receivable on bank balances is
dealt with on an accruals basis.
(e) Expenses. Expenses are accounted for on an accruals basis. Expenses
are charged through the revenue column of the Statement of Comprehensive
Income except as follows:
- expenses directly relating to the acquisition or disposal of
an investment, which are charged to the capital column of the
Statement of Comprehensive Income and are separately identified
and disclosed in note 10; and
- with effect from 1 August 2021, the Company charges 25% of
investment management fees and finance costs to the revenue column
and 75% to the capital column of the Statement of Comprehensive
Income, in accordance with the Board's expected long term return
in the form of revenue and capital gains respectively from the
investment portfolio of the Company. Previously the allocation
was 100% to revenue.
(f) Taxation. The tax expense represents the sum of tax currently
payable and deferred tax. Any tax payable is based on the taxable
profit for the year. Taxable profit differs from net profit as
reported in the Statement of Comprehensive Income because it
excludes items of income or expense that are taxable or deductible
in other years and it further excludes items that are never taxable
or deductible. The Company's liability for current tax is calculated
using tax rates that were applicable at the Statement of Financial
Position date.
Deferred taxation is recognised in respect of all timing differences
that have originated but not reversed at the Statement of Financial
Position date, where transactions or events that result in an
obligation to pay more tax in the future or right to pay less
tax in the future have occurred at the Statement of Financial
Position date. This is subject to deferred tax assets only being
recognised if it is considered more likely than not that there
will be suitable profits from which the future reversal of the
underlying timing differences can be deducted. Timing differences
are differences arising between the Company's taxable profits
and its results as stated in the financial statements which are
capable of reversal in one or more subsequent periods. Deferred
tax is measured on a non-discounted basis at the tax rates that
are expected to apply in the periods in which timing differences
are expected to reverse, based on tax rates and laws enacted
or substantively enacted at the Statement of Financial Position
date.
The tax effect of different items of income/gain and expenditure/loss
is allocated between capital and revenue within the Statement
of Comprehensive Income on the same basis as the particular item
to which it relates using the Company's effective rate of tax
for the year, based on the marginal basis.
(g) Foreign currency. Assets and liabilities in foreign currencies
are translated at the rates of exchange ruling on the Statement
of Financial Position date. Transactions involving foreign currencies
are converted at the rate ruling on the date of the transaction.
Gains and losses on dividends receivable are recognised in the
Statement of Comprehensive Income and are reflected in the revenue
reserve. Gains and losses on the realisation of investments in
foreign currencies and unrealised gains and losses on investments
in foreign currencies are recognised in the Statement of Comprehensive
Income and are then transferred to the capital reserve.
(h) Convertible Unsecured Loan Stock. Convertible Unsecured Loan
Stock ("CULS") issued by the Company is regarded as a compound
instrument, comprising of a liability component and an equity
component. At the date of issue, the fair value of the liability
component of the 2.25% CULS 2025 was estimated by assuming that
an equivalent non-convertible obligation of the Company would
have an effective interest rate of 3.063%. The fair value of
the equity component, representing the option to convert liability
into equity, is derived from the difference between the issue
proceeds of the CULS and the fair value assigned to the liability.
The liability component is subsequently measured at amortised
cost using the effective interest rate and the equity component
remains unchanged.
Direct expenses associated with the CULS issue are allocated
to the liability and equity components in proportion to the split
of the proceeds of the issue. Expenses allocated to the liability
component are amortised over the life of the instrument using
the effective interest rate.
(i) Cash and cash equivalents. Cash comprises cash in hand and short
term deposits. Cash equivalents includes bank overdrafts repayable
on demand and short term, highly liquid investments, that are
readily convertible to known amounts of cash and that are subject
to an insignificant risk of change in value.
(j) Nature and purpose of reserves
Capital redemption reserve . The capital redemption reserve arose
when Ordinary shares were redeemed and cancelled, at which point
an amount equal to the par value of the Ordinary share capital
was transferred from the share capital account to the capital
redemption reserve. This is not a distributable reserve.
Share premium account . The balance classified as share premium
includes the premium above nominal value from the proceeds on
issue of any equity share capital comprising Ordinary shares
of 5p (2022 - 5p). This is not a distributable reserve.
Capital reserve . This reserve reflects any gains or losses on
investments realised in the period along with any movement in
the fair value of investments held that have been recognised
in the Statement of Comprehensive Income. These include gains
and losses from foreign currency exchange differences arising
on monetary assets and liabilities except for dividend income
receivable. Share buybacks to be held in treasury, which is considered
to be a distribution to shareholders, is also deducted from this
reserve. The realised gains part of this reserve is also distributable
for the purpose of funding dividends.
Revenue reserve . This reserve reflects all income and costs
which are recognised in the revenue column of the Statement of
Comprehensive Income. The revenue reserve is distributable by
way of dividend. The amount of the revenue reserve as at 31 July
2023 may not be available at the time of any future distribution
due to movements between 31 July 2023 and the date of distribution.
(k) Treasury shares. When the Company purchases the Company's equity
share capital as treasury shares, the amount of the consideration
paid, which includes directly attributable costs is recognised
as a deduction from equity. When these shares are sold or reissued
subsequently, the amount received is recognised as an increase
in equity, and the resulting surplus or deficit on the transaction
is transferred to or from the capital reserve.
(l) Dividends payable . Final dividends are recognised in the financial
statements in the period in which Shareholders approve them.
(m) Segmental reporting. The Directors are of the opinion that the
Company is engaged in a single segment of business activity,
being investment business. Consequently, no business segmental
analysis is provided however an analysis of the geographic exposure
of the Company's investments is provided on page 35 of the published
Annual Report and Financial Statements for the year ended 31
July 2023.
3. Income
2023 2022
GBP'000 GBP'000
Income from investments
Overseas dividends 19,055 17,292
UK dividend income 718 591
Stock dividends 25 174
19,798 18,057
Other income
Deposit interest 186 14
Total income 19,984 18,071
4. Investment management fees
2023 2022
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Investment management fees 753 2,259 3,012 801 2,403 3,204
The Company has an agreement with abrdn Fund Managers Limited ("aFML")
for the provision of management services, under which investment
management services have been delegated to abrdn Asia Limited ("abrdn
Asia").
The management fee is payable monthly in arrears, on a tiered basis,
exclusive of VAT where applicable, based on market capitalisation
at an annual rate of 0.85% for the first GBP250 million, 0.6% for
the next GBP500 million and 0.5% thereafter. Market capitalisation
is defined as the Company's closing Ordinary share price quoted
on the London Stock Exchange multiplied by the number of Ordinary
shares in issue (excluding those held in Treasury), as determined
on the last business day of the calendar month to which the remuneration
relates. The balance due to the Manager at the year end was GBP506,000
(2022 - GBP2,138,000) which represents two months' fees (2022 -
nine months).
The management agreement may be terminated by either the Company
or the Manager on the expiry of three months' written notice. On
termination, the Manager would be entitled to receive fees which
would otherwise have been due to that date.
5. Administrative expenses
2023 2022
GBP'000 GBP'000
Administration fees(A) 112 103
Directors' fees(B) 161 144
Promotional activities(C) 219 219
Auditors' remuneration(D)
- fees payable to the auditors for the
audit of the annual financial statements 48 42
Custodian charges 278 293
Depositary fees 46 49
Registrar fees 55 51
Legal and professional fees 93 87
Other expenses 300 175
1,312 1,163
(A) The Company has an agreement with aFML for the provision of
administration services. The administration fee is payable quarterly
in advance and is adjusted annually to reflect the movement in
the Retail Prices Index. The balance due to aFML at the year end
was GBP86,000 (2022 - GBP52,000). The agreement is terminable on
six months' notice.
(B) No pension contributions were
made in respect of any of the Directors.
(C) Under the management agreement, the Company has also appointed
aFML to provide promotional activities to the Company by way of
its participation in the abrdn Investment Trust Share Plan and
ISA. aFML has delegated this role to abrdn plc. The total fee paid
and payable under the agreement in relation to promotional activities
was GBP219,000 (2022 - GBP219,000). There was a GBP73,000 (2022
- GBP73,000) balance due to abrdn plc at the year end.
(D) There are no non-audit fees charged.
6. Finance costs
2023 2022
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Bank interest paid 1 2 3 - - -
Interest on 3.05% Senior Unsecured
Loan Note 2035 230 691 921 230 691 921
Interest on 2.25% CULS 2025 208 623 831 207 620 827
Notional interest on 2.25%
CULS 2025 39 115 154 39 115 154
Amortisation of 2.25% CULS
2025 issue expenses 23 71 94 23 71 94
501 1,502 2,003 499 1,497 1,996
Finance costs have been charged 25% to revenue and 75% to capital.
7. Taxation
2023 2022
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
(a) Analysis of charge for the
year
Overseas taxation 1,279 182 1,461 956 71 1,027
Total current tax charge for
the year 1,279 182 1,461 956 71 1,027
Deferred tax charge on Indian
capital gains - 1,925 1,925 - (947) (947)
Total tax charge for the year 1,279 2,107 3,386 956 (876) 80
The Company has recognised a deferred tax liability of GBP4,609,000
(2022 - GBP2,684,000) on capital gains which may arise if Indian
investments are sold.
At 31 July 2023 the Company had surplus management expenses and
loan relationship deficits of GBP76,652,000 (2022 - GBP70,420,000)
in respect of which a deferred tax asset has not been recognised.
This is due to the Company having sufficient excess management
expenses available to cover the potential liability and the Company
is not expected to generate taxable income in the future in excess
of deductible expenses. The Finance Act 2021 received Royal Assent
on 10 June 2021 and the rate of Corporation Tax of 25% effective
from 1 April 2023 has been used to calculate the potential deferred
tax asset of GBP19,163,000 (2022 - GBP17,605,000).
(b) Factors affecting the tax charge for the year. The tax assessed
for the year is lower (2022 - higher) than the current standard
rate of corporation tax in the UK for a large company of 25%
(2022 - 19%). The differences are explained below:
2023 2022
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Return before taxation 17,418 21,157 38,575 15,608 (26,550) (10,942)
Return multiplied by the effective
tax rate of corporation tax
of 21% (2022 - standard rate
of 19%) 3,658 4,443 8,101 2,966 (5,045) (2,079)
Effects of:
(Gains)/losses on investments
not taxable - (5,317) (5,317) - 4,242 4,242
Exchange losses/(gains) - 81 81 - (14) (14)
Overseas tax 1,279 182 1,461 956 71 1,027
Movement in deferred tax liability
on Indian capital gains - 1,925 1,925 - (947) (947)
UK dividend income (151) - (151) (112) - (112)
Non-taxable dividend income (4,007) - (4,007) (3,319) - (3,319)
Expenses not deductible for
tax purposes 4 3 7 25 76 101
Movement in unutilised management
expenses 391 474 865 345 457 802
Movement in unutilised loan
relationship deficits 105 316 421 95 284 379
Total tax charge for the year 1,279 2,107 3,386 956 (876) 80
8. Dividends
2023 2022
GBP'000 GBP'000
Third interim dividend for 2022 - 1.6p
(2021 - nil) 2,511 -
Final dividend for 2022 - nil (2021 - 3.0p) - 4,708
Special dividend for 2022 - 1.6p (2021
- 0.2p) 2,511 314
First interim dividend for 2023 - 1.6p
(2022 - 3.2p) 2,511 5,023
Second interim dividend for 2023 - 1.6p
(2022 - 1.6p) 2,511 2,511
Third interim dividend for 2023 - 1.6p
(2022 - nil) 2,508 -
12,552 12,556
Dividends declared and paid subsequent to the year end are not
included as a liability in the financial statements.
We set out below the total dividends paid and proposed in respect
of the financial year, which is the basis on which the requirements
of Sections 1158 - 1159 of the Corporation Tax Act 2010 are considered.
The revenue available for distribution by way of dividend for the
current year is GBP16,139,000 (2022- GBP14,652,000).
2023 2022
GBP'000 GBP'000
First interim dividend for 2023 - 1.6p
(2022 - 3.2p) 2,511 5,023
Second interim dividend for 2023 - 1.6p
(2022 - 1.6p) 2,511 2,511
Third interim dividend for 2023 - 1.6p
(2022 - 1.6p) 2,508 2,511
Fourth interim dividend for 2023 - 1.61p
(2022 - nil) 2,516 -
Proposed special dividend for 2023 - 2.25p
(2022 - 1.6p) 3,507 2,511
13,553 12,556
The amount reflected above for the cost of the special dividend
for 2023 is based on 155,862,978 Ordinary shares, being the number
of Ordinary shares in issue excluding shares held in treasury at
the date of this Report.
9. Return per share
2023 2022
Revenue Capital Total Revenue Capital Total
Basic
Net return/(loss) after taxation
(GBP'000) 16,139 19,050 35,189 14,652 (25,674) (11,022)
Weighted average number of
shares in issue(A) 156,862,299 156,951,436
Return per share (p) 10.29 12.14 22.43 9.34 (16.36) (7.02)
2023 2022
Diluted Revenue Capital Total Revenue Capital Total
Net return/(loss) after taxation
(GBP'000) 16,366 19,730 36,096 14,831 (25,139) (10,308)
Weighted average number of
shares in issue(AB) 169,366,591 169,459,584
Return per share (p) 9.66 11.65 21.31 8.75 n/a n/a
(A) Calculated excluding shares held in treasury.
(B) The calculation of the diluted total, revenue and capital
returns per Ordinary share is carried out in accordance with IAS
33, "Earnings per Share". For the purpose of calculating total,
revenue and capital returns per Ordinary share, the number of Ordinary
shares used is the weighted average number used in the basic calculation
plus the number of Ordinary shares deemed to be issued for no consideration
on exercise of all 2.25% Convertible Unsecured Loan Stock 2025
("CULS"). The calculations indicate that the exercise of CULS would
result in an increase in the weighted average number of Ordinary
shares of 12,504,292 (2022- 12,508,148) to 169,366,591 (2022 -
169,459,584) Ordinary shares.
For the year ended 31 July 2023 the assumed conversion for potential
Ordinary shares was dilutive to the revenue and the capital return
per Ordinary share (2022 - dilutive to the revenue return but non-dilutive
to the capital return). Where dilution occurs, the net returns
are adjusted for interest charges and issue expenses relating to
the CULS (2023 - GBP907,000; 2022 - GBP714,000). Total earnings
for the period are tested for dilution. Once dilution has been
determined individual revenue and capital earnings are adjusted.
10. Investments at fair value through profit
or loss
2023 2022
GBP'000 GBP'000
Opening book cost 377,733 346,431
Opening investment holding gains 147,108 194,490
Opening fair value 524,841 540,921
Analysis of transactions made during the
year
Purchases at cost 76,896 79,496
Sales proceeds received (77,383) (73,252)
Gains/(losses) on investments 25,318 (22,324)
Closing fair value 549,672 524,841
Closing book cost 397,237 377,733
Closing investment gains 152,435 147,108
Closing fair value 549,672 524,841
2023 2022
GBP'000 GBP'000
Investments listed on an overseas investment
exchange 537,379 510,984
Investments listed on the UK investment
exchange 12,293 13,857
549,672 524,841
The Company received GBP77,383,000 (2022 - GBP73,252,000) from
investments sold in the period. The book cost of these investments
when they were purchased was GBP57,392,000 (2022 - GBP48,194,000).
These investments have been revalued over time and until they were
sold any unrealised gains/losses were included in the fair value
of the investments.
Transaction costs. During the year expenses were incurred in acquiring
or disposing of investments classified as fair value through profit
or loss. These have been expensed through capital and are included
within gains/(losses) on investments in the Statement of Comprehensive
Income. The total costs were as follows:
2023 2022
GBP'000 GBP'000
Purchases 95 91
Sales 159 147
254 238
The above transaction costs are calculated in line with the AIC
SORP. The transaction costs in the Company's Key Information Document
are calculated on a different basis and in line with the PRIIPs
regulations.
11. Debtors: amounts falling due within one year
2023 2022
GBP'000 GBP'000
Amounts due from brokers 1,343 280
Other debtors 754 766
Prepayments and accrued income 140 418
2,237 1,464
None of the above amounts is past their due date or impaired (2022
- same).
12. Creditors
2023 2022
Amounts falling due within one year GBP'000 GBP'000
Other creditors 1,250 2,864
1,250 2,864
13. Non-current liabilities
2023 2022
Number Liability Equity Number Liability Equity
of of
units component component units component component
(a) CULS GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
2.25% CULS 2025
Balance at beginning
of year 36,642 35,940 1,057 36,658 35,708 1,057
Conversion of 2.25% CULS
2025 (13) (13) - (16) (16) -
Notional interest on
CULS transferred to revenue
reserve - 154 - - 154 -
Amortisation and issue
expenses - 94 - - 94 -
Balance at end of year 36,629 36,175 1,057 36,642 35,940 1,057
The 2.25% CULS 2025 can be converted at the election of holders
into Ordinary shares during the months of May and November each
year throughout their life, commencing 30 November 2018 to 31
May 2025 at a rate of 1 Ordinary share for every 293.0p (2022
- 293.0p) nominal of CULS. Interest is payable on the CULS on
31 May and 30 November each year, commencing on 30 November 2018.
The interest is charged 25% to revenue and 75% to capital, in
line with the Board's expected long-term split of returns from
the investment portfolio of the Company.
The CULS has been constituted as an unsecured subordinated obligation
of the Company by the Trust Deed between the Company and the
Trustee, the Law Debenture Trust Corporation p.l.c., dated 23
May 2018. The Trust Deed details the 2025 CULS holders' rights
and the Company's obligations to the CULS holders and the Trustee
oversees the operation of the Trust Deed. In the event of a winding-up
of the Company the rights and claims of the Trustee and CULS
holders would be subordinate to the claims of all creditors in
respect of the Company's secured and unsecured borrowings, under
the terms of the Trust Deed.
In 2023 the Company received elections from CULS holders to convert
GBP12,753 (2022 - GBP15,343) nominal amount of CULS into 4,347
(2022 - 5,211) Ordinary shares.
The fair value of the 2025 CULS at 31 July 2023 was GBP34,890,000
(2022 - GBP37,009,000).
2023 2022
(b) Loan Note GBP'000 GBP'000
3.05% Senior Unsecured
Loan Note 2035 30,000 30,000
Unamortised Loan Note
issue expenses (102) (108)
29,898 29,892
On 1 December 2020 the Company issued GBP30,000,000 of a 15 year
loan note at a fixed rate of 3.05%. Interest is payable in half
yearly instalments in June and December and the Loan Note is
due to be redeemed at par on 1 December 2035. The issue costs
of GBP118,000 will be amortised over the life of the loan note.
There is also a shelf facility of GBP35,000,000 available the
Company for the purpose of repaying the CULS, which has not been
unutilised. The Company has complied with the Note Purchase Agreement
that the ratio of total borrowings to adjusted net assets will
not exceed 0.20 to 1.00, that the ratio of total borrowings to
adjusted net liquid assets will not exceed 0.60 to 1.00, that
net tangible assets will not be less than GBP225,000,000 and
that the minimum number of listed assets will not be less than
40.
The fair value of the Senior Unsecured Loan Note as at 31 July
2023 was GBP26,603,000 (2022 - GBP28,804,000), the value being
based on a comparable quoted debt security.
2023 2022
GBP'000 GBP'000
Deferred tax liability on Indian capital
(c) gains 4,609 2,684
14. Called up share capital
2023 2022
GBP'000 GBP'000
Allotted, called-up and fully
paid
Ordinary shares of 5p (2022
- 5p) 7,823 7,848
Treasury shares 2,612 2,587
10,435 10,435
Ordinary Treasury Total
shares shares shares
Number Number Number
At 31 July 2022 156,953,631 51,744,590 208,698,221
Conversion of CULS 4,347 - 4,347
Buyback of own shares (500,000) 500,000 -
At 31 July 2023 156,457,978 52,244,590 208,702,568
During the year 500,000 Ordinary shares of 5p were purchased (2022
- no Ordinary shares of 5p were purchased) by the Company at a
total cost of GBP1,262,000 (2022 - total cost of GBPnil ), all
of which were held in treasury. At the year end 52,244,590 (2022-
51,744,590) shares were held in treasury, which represents 25.03%
(2022 - 24.79%) of the Company's total issued share capital at
31 July 2023. During the year there were a further 4,347 (2022
- 5,211) Ordinary shares issued as a result of CULS conversions.
Since the year end the Company bought back for treasury a further
595,000 Ordinary shares for a total consideration of GBP1,543,000.
15. Reserves
2023 2022
GBP'000 GBP'000
Capital reserve
At 31 July 2022 375,450 401,124
Movement in investment holdings fair value 5,327 (47,382)
Gains on realisation of investments at
fair value 19,991 25,058
Purchase of own shares to treasury (1,262) -
Movement in deferred liability on Indian
capital gains (1,925) 947
Withholding tax charged on capital dividends (182) (71)
Foreign exchange movement (384) 72
Capital expenses (3,777) (4,298)
At 31 July 2023 393,238 375,450
The capital reserve includes investment holding gains amounting
to GBP152,435,000 (2022 - GBP147,108,000) as disclosed in note
10. The above split in capital reserve is shown in accordance with
provisions of the Statement of Recommended Practice 'Financial
Statements Of Investment Trust Companies and Venture Capital Trusts'.
16. Net asset value per share
2023 2022
Basic
Net assets attributable GBP485,784,000 GBP464,396,000
Number of shares in issue(A) 156,457,978 156,953,631
Net asset value per share 310.49p 295.88p
2023 2022
Diluted
Net assets attributable GBP521,959,000 GBP500,336,000
Number of shares in issue(A) 168,959,568 169,459,574
Net asset value per share(B) 308.93p 295.25p
(A) Calculated excluding shares held in
treasury.
(B) The diluted net asset value per share has been calculated
on the assumption that GBP36,629,659 (2022 - GBP36,642,412) 2.25%
Convertible Unsecured Loan Stock 2025 ("CULS") is converted at
293.0p (2022 - 293.0p) per share, giving a total of 168,959,568
(2022- 169,459,574) shares. Where dilution occurs, the net assets
are adjusted for items relating to the CULS.
Net asset value per share - debt converted. In accordance with
the Company's understanding of the current methodology adopted
by the AIC, convertible financial instruments are deemed to be
"in the money" if the cum income net asset value ("NAV") exceeds
the conversion price of 293.0p (2022 - 293.0p) per share. In such
circumstances a net asset value is produced and disclosed assuming
the convertible debt is fully converted. At 31 July 2023 the cum
income NAV was 310.49p (2022- 295.88p) and thus the CULS were 'in
the money' (2022 - same).
17. Analysis of changes in net debt
At At
31 July Currency Cash Non-cash 31 July
2022 differences flows movements 2023
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cash and short term deposits 9,471 (384) (3,280) - 5,807
Debt due after more than
one year (68,516) - - (2,166) (70,682)
(59,045) (384) (3,280) (2,166) (64,875)
At At
31 July Currency Cash Non-cash 31 July
2021 differences flows movements 2022
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cash and short term deposits 14,577 72 (5,178) - 9,471
Debt due after more than
one year (69,225) - - 709 (68,516)
(54,648) 72 (5,178) 709 (59,045)
A statement reconciling the movement in net funds to the net cash
flow has not been presented as there are no differences from the
above analysis.
18. Related party transactions and transactions with the Manager
Fees payable during the year to the Directors and their interests
in shares of the Company are considered to be related party transactions
and are disclosed within the Directors' Remuneration Report on
pages 56 and 57 of the published Annual Report and Financial Statements
for the year ended 31 July 2023. The balance of fees due to Directors
at the year end was GBPnil (2022 - GBPnil).
During the year a fee of GBP75,000 plus VAT has been paid to Mr
Martin Gilbert, a former Director of the Company who retired in
November 2019, in respect of independent consultancy services provided
to the Company in the three year period ending 31 July 2023.
The Company's Investment Manager, abrdn Asia, is a wholly-owned
subsidiary of abrdn plc, which has been delegated, under an agreement
with aFML, to provide management services to the Company, the terms
of which are outlined in notes 4 and 5 along with details of transactions
during the year and balances outstanding at the year end.
19. Financial instruments
Risk management. The Company's investment activities expose it
to various types of financial risk associated with the financial
instruments and markets in which it invests. The Company's financial
instruments comprise equities and other investments, cash balances,
loans and debtors and creditors that arise directly from its operations;
for example, in respect of sales and purchases awaiting settlement,
and debtors for accrued income.
The Board has delegated the risk management function to aFML under
the terms of its management agreement with aFML (further details
of which are included under note 4 and in the Directors' Report)
however, it remains responsible for the risk and control framework
and operation of third parties. The Board regularly reviews and
agrees policies for managing each of the key financial risks identified
with the Manager. The types of risk and the Manager's approach
to the management of each type of risk, are summarised below. Such
approach has been applied throughout the year and has not changed
since the previous accounting period. The numerical disclosures
exclude short-term debtors and creditors.
Risk management framework. The directors of aFML collectively assume
responsibility for aFML's obligations under the AIFMD including
reviewing investment performance and monitoring the Company's risk
profile during the year.
aFML is a fully integrated member of the abrdn Group ("the Group"),
which provides a variety of services and support to aFML in the
conduct of its business activities, including in the oversight
of the risk management framework for the Company. The AIFM has
delegated the day to day administration of the investment policy
to abrdn Asia, which is responsible for ensuring that the Company
is managed within the terms of its investment guidelines and the
limits set out in its pre-investment disclosures to investors (details
of which can be found on the Company's website). The AIFM has retained
responsibility for monitoring and oversight of investment performance,
product risk and regulatory and operational risk for the Company.
The Group's Internal Audit Department is independent of the Risk
Division and reports directly to the Group CEO and to the Audit
Committee of the Group's Board of Directors. The Internal Audit
Department is responsible for providing an independent assessment
of the Group's control environment.
The Manager conducts its risk oversight function through the operation
of the Group's risk management processes and systems which are
embedded within the Group's operations. The Group's Risk Division
supports management in the identification and mitigation of risks
and provides independent monitoring of the business. The Division
includes Compliance, Business Risk, Market Risk, Risk Management
and Legal. The team is headed up by the Group's Chief Risk Officer,
who reports to the CEO of the Group. The Risk Division achieves
its objective through embedding the Risk Management Framework throughout
the organisation using the Group's operational risk management
system ("SHIELD").
The Group's corporate governance structure is supported by several
committees to assist the board of directors, its subsidiaries and
the Company to fulfil their roles and responsibilities. The Group's
Risk Division is represented on all committees, with the exception
of those committees that deal with investment recommendations.
The specific goals and guidelines on the functioning of those committees
are described in the committees' terms of reference.
Risk management. The main risks the Company faces from these financial
instruments are (i) market risk (comprising interest rate, foreign
currency and other price risk), (ii) liquidity risk and (iii) credit
risk.
Market risk. The fair value of or future cash flows from a financial
instrument held by the Company may fluctuate because of changes
in market prices. This market risk comprises three elements - interest
rate risk, currency risk and other price risk.
Interest rate risk. Interest rate movements may affect:
- the level of income receivable on cash deposits;
- valuation of debt securities in the portfolio.
Management of the risk. The possible effects on fair value and
cash flows that could arise as a result of changes in interest
rates are taken into account when making investment and borrowing
decisions. When drawn down, interest rates are fixed on borrowings.
Interest rate risk profile. The interest rate risk profile of the
Company's financial assets and liabilities, excluding equity holdings
which are all non-interest bearing, at the reporting date was as
follows:
Weighted average Weighted
period for average Fixed Floating
which
rate is fixed interest rate rate
rate
At 31 July 2023 Years % GBP'000 GBP'000
Assets
Sterling - - - 4,664
Chinese Renminbi - - - 775
Vietnam Dong - - - 361
Thailand Baht - - - 4
US Dollar - - - 3
- - - 5,807
Liabilities
2.25% Convertible Unsecured Loan
Stock 2025 1.83 2.3 36,175 -
3.05% Senior Unsecured Loan Note
2035 12.35 3.1 29,898 -
- - 66,073 -
Weighted average Weighted
period for average Fixed Floating
which
rate is fixed interest rate rate
rate
At 31 July 2022 Years % GBP'000 GBP'000
Assets
Sterling - - - 8,585
Taiwan Dollar - - - 458
Vietnam Dong - - - 371
Sri Lanka Rupee - - - 32
Pakistan Rupee - - - 11
Indian Rupee - - - 9
Thailand Baht - - - 3
Malaysian Ringgit - - - 2
- - - 9,471
Liabilities
2.25% Convertible Unsecured Loan
Stock 2025 2.83 2.3 35,940 -
3.05% Senior Unsecured Loan Note
2035 13.35 3.1 29,892 -
- - 65,832 -
The weighted average interest rate is based on the current yield
of each asset or liability, weighted by its market value.
The floating rate assets consist of cash deposits on call earning
interest at prevailing market rates.
The Company's equity portfolio and short term debtors and creditors
have been excluded from the above tables.
Interest rate sensitivity. Movements in interest rates would not
significantly affect net assets attributable to the Company's shareholders
and total return.
Foreign currency risk. Most of the Company's investment portfolio
is invested in overseas securities and the Statement of Financial
Position, therefore, can be significantly affected by movements
in foreign exchange rates.
Management of the risk. It is not the Company's policy to hedge
this risk on a continuing basis but the Company may, from time
to time, match specific overseas investment with foreign currency
borrowings.
The revenue account is subject to currency fluctuations arising
on dividends receivable in foreign currencies and, indirectly,
due to the impact of foreign exchange rates upon the profits of
investee companies. It is not the Company's policy to hedge this
currency risk but the Board keeps under review the currency returns
in both capital and income.
Foreign currency risk exposure by currency of denomination:
31 July 2023 31 July 2022
Net monetary Total Net monetary Total
Overseas assets/ currency Overseas assets/ currency
investments (liabilities) exposure Investments (liabilities) exposure
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Australian Dollar - - 7,940 - 7,940
Chinese Renminbi 21,839 775 22,614 15,756 - 15,756
Danish Krona 10,937 - 10,937 12,352 - 12,352
Hong Kong Dollar 49,118 - 49,118 64,947 - 64,947
Indian Rupee 89,410 - 89,410 82,097 9 82,106
Indonesian Rupiah 64,045 - 64,045 55,431 - 55,431
Korean Won 46,231 - 46,231 31,429 - 31,429
Malaysian Ringgit 30,827 - 30,827 35,339 2 35,341
Taiwan Dollar 69,008 - 69,008 56,994 458 57,452
New Zealand Dollar 12,605 - 12,605 14,061 - 14,061
Pakistan Rupee - - - - 11 11
Philippine Peso 20,287 - 20,287 19,825 - 19,825
Singapore Dollar 33,221 - 33,221 41,585 - 41,585
Sri Lankan Rupee 14,586 - 14,586 7,640 32 7,672
Thailand Baht 32,643 4 32,647 35,114 3 35,117
US Dollar 11,461 3 11,464 - - -
Vietnamese Dong 31,161 361 31,522 30,474 371 30,845
537,379 1,143 538,522 510,984 886 511,870
Sterling 12,293 (61,409) (49,116) 13,857 (57,247) (43,390)
Total 549,672 (60,266) 489,406 524,841 (56,361) 468,480
Foreign currency sensitivity. The Company's foreign currency financial
instruments are in the form of equity investments, fixed interest investments,
cash and bank loans. The sensitivity of the former has been included
within other price risk sensitivity analysis so as to show the overall
level of exposure. Due consideration is paid to foreign currency risk
throughout the investment process.
Investment in Far East equities or those of companies that derive
significant revenue or profit from the Far East involves a greater
degree of risk than that usually associated with investment in
the securities in major securities markets. The securities that
the Company owns may be considered speculative because of this
higher degree of risk. It is the Board's policy to hold an appropriate
spread of investments in the portfolio in order to reduce the risk
arising from factors specific to a particular country or sector.
Both the allocation of assets and the stock selection process,
as detailed on pages 103 to 105, of the published Annual Report
and Financial Statements for the year ended 31 July 2023 act to
reduce market risk. The Manager actively monitors market prices
throughout the year and reports to the Board, which meets regularly
in order to review investment strategy. The investments held by
the Company are listed on various stock exchanges worldwide.
Other price risk sensitivity. If market prices at the reporting
date had been 20% (2022 - 20%) higher or lower while all other
variables remained constant, the return attributable to Ordinary
shareholders for the year ended 31 July 2023 would have increased/(decreased)
by GBP109,934,000 (2022 - increased/(decreased) by GBP104,968,000)
and equity reserves would have increased/(decreased) by the same
amount.
Liquidity risk . This is the risk that the Company will encounter
difficulty in meeting obligations associated with financial liabilities.
Management of the risk . The Board imposes borrowing limits to
ensure gearing levels are appropriate to market conditions and
reviews these on a regular basis. Gearing comprises both senior
unsecured loan notes and convertible unsecured loan stock. The
Board has imposed a maximum gearing level, measured on the most
stringent basis of calculation after netting off cash equivalents,
of 25%. Details of borrowings at the 31 July 2023 are shown in
note 13.
Liquidity risk is not considered to be significant as the Company's
assets comprise mainly readily realisable securities, which can
be sold to meet funding commitments if necessary. Details of the
Board's policy on gearing are shown in the investment policy section
on page 16 of the published Annual Report and Financial Statements
for the year ended 31 July 2023.
L iquidity risk exposure . At 31 July 2023 the Company had borrowings
in the form of the GBP36,629,000 (2022 - GBP36,642,000) nominal
of 2.25% Convertible Unsecured Loan Stock 2025 and GBP29,898,000
(2022 - GBP29,892,000 ) in the form of the 3.05% Senior Unsecured
Loan Note 2035.
At 31 July 2023 the amortised cost of the Company's 3.05% Senior
Unsecured Loan Note 2035 was GBP29,898,000 (2022 - GBP29,892,000).
The maximum exposure at 31 July 2023 was GBP29,898,000 (2022 -
GBP29,892,000) and the minimum exposure at 31 July 2023 was GBP29,892,000
(2022 - GBP29,886,000).
The maturity profile of the Company's existing borrowings is set
out below.
Due
Due between
Expected within 3 months Due after
cashflows 3 months and 1 year 1 year
31 July 2023 GBP'000 GBP'000 GBP'000 GBP'000
2.25% Convertible Unsecured Loan
Stock 2025 37,691 - 827 36,864
3.05% Senior Unsecured Loan Note
2035 41,438 - 915 40,523
79,129 - 1,742 77,387
Due
Due between
Expected within 3 months Due after
cashflows 3 months and 1 year 1 year
31 July 2022 GBP'000 GBP'000 GBP'000 GBP'000
2.25% Convertible Unsecured Loan
Stock 2025 38,282 - 827 37,455
3.05% Senior Unsecured Loan Note
2035 42,353 - 915 41,438
80,635 - 1,742 78,893
Credit risk. This is the risk of failure of the counterparty to a
transaction to discharge its obligations under that transaction that
could result in the Company suffering a loss.
Management of the risk. Investment transactions are carried out with
a large number of brokers, whose credit-standing is reviewed periodically
by the Investment Manager, and limits are set on the amount that may
be due from any one broker. Settlement of investment transactions
are also done on a delivery versus payment basis;
- the risk of counterparty exposure due to failed trades causing a
loss to the Company is mitigated by the review of failed trade reports
on a monthly basis. In addition, the third party administrator carries
out a stock reconciliation to Custodian records on a monthly basis
to ensure discrepancies are picked up on a timely basis. The Manager's
compliance department carries out periodic reviews of the Custodian's
operations and reports its finding to the Manager's risk management
committee. This review will also include checks on the maintenance
and security of investments held; and
- cash is held only with reputable banks with high quality external
credit ratings.
It is the Manager's policy to trade only with A- and above (Long Term
rated) and A-1/P-1 (Short Term rated) counterparties.
None of the Company's financial assets is secured by collateral or
other credit enhancements.
Credit risk exposure. In summary, compared to the amounts in the Statement
of Financial Position, the maximum exposure to credit risk at 31 July
was as follows:
2023 2022
Statement Statement
of Financial Maximum of Financial Maximum
Position exposure Position exposure
Current assets GBP'000 GBP'000 GBP'000 GBP'000
Debtors and prepayments 2,237 2,237 1,464 1,464
Cash and short term deposits 5,807 5,807 9,471 9,471
8,044 8,044 10,935 10,935
None of the Company's financial assets is past due or impaired.
Fair values of financial assets and financial liabilities. The
fair value of the loan note has been calculated at GBP26,603,000 as
at 31 July 2023 (2022 - GBP28,804,000) compared to a value at
amortised cost in the financial statements of GBP29,898,000 (2022 -
GBP29,892,000) (note 13). The fair value of the loan note is
determined by aggregating the expected future cash flows for that
loan discounted at a rate comprising the borrower's margin plus an
average of market rates applicable to loans of a similar period of
time and currency. Investments held at fair value through profit or
loss are valued at their quoted bid prices which equate to their
fair values. The Directors are of the opinion that the other
financial assets and liabilities, excluding CULS which are held at
amortised cost, are stated at fair value in the Statement of
Financial Position and considered that this approximates to the
carrying amount.
20. Fair value hierarchy
FRS 102 requires an entity to classify fair value measurements
using a fair value hierarchy that reflects the significance of
the inputs used in making the measurements.
Level 1: unadjusted quoted prices in an active market for identical
assets or liabilities that the entity can access at the measurement
date.
Level 2: inputs other than quoted prices included within Level
1 that are observable (ie developed using market data) for the
asset or liability, either directly or indirectly.
Level 3: inputs are unobservable (ie for which market data is unavailable)
for the asset or liability.
The financial assets measured at fair value in the Statement of
Financial Position are grouped into the fair value hierarchy at
31 July 2023 as follows:
Level Level Level Total
1 2 3
As at 31 July 2023 Note GBP'000 GBP'000 GBP'000 GBP'000
Financial assets and liabilities
at fair value through profit or loss
Quoted equities a) 536,515 - 9,958 546,473
Quoted preference shares b) - - 2,835 2,835
Quoted warrants b) - 247 117 364
Net fair value 536,515 247 12,910 549,672
Level Level Level Total
1 2 3
As at 31 July 2022 Note GBP'000 GBP'000 GBP'000 GBP'000
Financial assets and liabilities
at fair value through profit or loss
Quoted equities a) 511,540 - 9,664 521,204
Quoted preference shares b) - 3,203 - 3,203
Quoted warrants b) - 434 - 434
Net fair value 511,540 3,637 9,664 524,841
a) Quoted equities. The fair value of the Company's investments
in quoted equities has been determined by reference to their quoted
bid prices at the reporting date. Quoted equities included in Fair
Value Level 1 are actively traded on recognised stock exchanges.
b) Quoted preference shares and quoted warrants. The fair value
of the Company's investments in quoted preference shares and quoted
warrants has been determined by reference to their quoted bid prices
at the reporting date. Investments categorised as Level 2 are not
considered to trade as actively as Level 1 assets.
Year ended Year ended
31 July 2023 31 July 2022
Level 3 Financial assets at fair GBP'000 GBP'000
value through profit or loss
Opening fair value 9,664 -
Transfers from level 1 - 9,664
Transfers from level 2 2,952 -
Total gains or losses included in
losses on investments in the Statement
of Comprehensive Income:
- assets held at the end of the year 294 -
Closing balance 12,910 9,664
Transfers from level 2 during the year comprise Millennium & Copthorne
preference shares of GBP2,835,000 (2022 - GBP3,203,000) to reflect
the absence of a consistent market quote. These have been priced
in line with their Ordinary shares. In addition First Sponsor Group
warrants of GBP117,000 (2022 - GBP158,000) have been classified
as level 3 to reflect their illiquidity. Their fair value has been
based on a trade executed in February 2023.
The Company's investee, CEBU Holdings is awaiting final regulatory
approval to merge with another company, Ayala Land, and new shares
are expected to be issued in Ayala Land in due course to satisfy
the transaction by a share conversion. The valuation methodology
employed is based on the underlying quoted price of Ayala Land
and the implied conversion ratio providing a value of GBP9,958,000
(2022 - GBP9,664,000).
21. Capital management policies and procedures
The Company manages its capital to ensure that it will be able
to continue as a going concern while maximising the return to shareholders
through the optimisation of the debt (comprising CULS and Loan
Note) and equity balance.
The Company's capital comprises the following:
2023 2022
GBP'000 GBP'000
Equity
Equity share capital 10,435 10,435
Reserves 475,349 453,961
Liabilities
3.05% Senior Unsecured Loan Note 2035 29,898 29,892
2.25% Convertible Unsecured Loan Stock
2025 36,175 35,940
551,857 530,228
The Board's policy is to utilise gearing when the Manager believes
it appropriate to do so, up to a maximum of 25% geared at the time
of drawdown. Gearing for this purpose is defined as the excess
amount above shareholders' funds of total assets (including net
current assets/liabilities) less cash/cash equivalents, expressed
as a percentage of the shareholders' funds. If the amount so calculated
is negative, this is shown as a 'net cash' position.
2023 2022
GBP'000 GBP'000
Investments at fair value through profit
or loss 549,672 524,841
Current assets excluding cash and cash
equivalents 894 1,184
Current liabilities (1,250) (2,864)
Deferred tax liability on Indian capital
gains (4,609) (2,684)
544,707 520,477
Net assets 485,784 464,396
Gearing (%) 12.1 12.1
The Board monitors and reviews the broad structure of the Company's
capital on an ongoing basis. The review includes:
- the planned level of gearing which takes account of the Manager's
views on the market;
- the level of equity shares in issue;
- the extent to which revenue in excess of that which is required
to be distributed should be retained.
The Company's objectives, policies and processes for managing capital
are unchanged from the preceding accounting period.
The Company does not have any externally imposed capital requirements.
Alternative Performance Measures
Alternative Performance Measures ("APMs") are numerical measures of
the Company's current, historical or future performance, financial
position or cash flows, other than financial measures defined or specified
in the applicable financial framework. The Company's applicable financial
framework includes FRS 102 and the AIC SORP. The Directors assess the
Company's performance against a range of criteria which are viewed
as particularly relevant for closed-end investment companies.
Discount to net asset value per Ordinary share
The difference between the share price and the net asset value per
Ordinary share expressed as a percentage of the net asset value per
Ordinary share. 2023 has been presented on a diluted basis as the Convertible
Unsecured Loan Stock ("CULS") is "in the money" (2022 - same).
As at As at
31 July 2023 31 July 2022
NAV per Ordinary share (p) a 308.93 295.25
Share price (p) b 264.00 254.00
Discount (a-b)/a 14.5% 14.0%
Dividend cover
Revenue return per Ordinary share divided by dividends declared for
the year per Ordinary share expressed as a ratio.
Year ended Year ended
31 July 2023 31 July 2022
Revenue return per Ordinary share (p) a 10.29 9.34
Dividends declared (p) b 8.66 8.00
Dividend cover a/b 1.19 1.17
Net gearing
Net gearing measures the total borrowings less cash and cash equivalents
divided by shareholders' funds, expressed as a percentage. Under AIC
reporting guidance cash and cash equivalents includes net amounts due
from and to brokers at the year end as well as cash and short term
deposits.
Year ended Year ended
31 July 2023 31 July 2022
Borrowings (GBP'000) a 66,073 65,832
Cash and short term deposits (GBP'000) b 5,807 9,471
Amounts due to brokers (GBP'000) c - -
Amounts due from brokers (GBP'000) d 1,343 280
Shareholders' funds (GBP'000) e 485,784 464,396
Net gearing (a-b+c-d)/e 12.1% 12.1%
Ongoing charges
The ongoing charges ratio has been calculated in accordance with guidance
issued by the AIC as the total of investment management fees and administrative
expenses and expressed as a percentage of the average published daily
net asset values with debt at fair value throughout the year.
2023 2022
Investment management fees (GBP'000) 3,012 3,204
Administrative expenses (GBP'000) 1,328 1,561
Less: non-recurring charges(A) (GBP'000) (67) (428)
Ongoing charges (GBP'000) 4,273 4,337
Average net assets (GBP'000) 462,127 490,446
Ongoing charges ratio 0.92% 0.88%
(A) Professional fees comprising corporate and legal fees considered
unlikely to recur.
The ongoing charges ratio provided in the Company's Key Information
Document is calculated in line with the PRIIPs regulations, which includes
finance costs and transaction charges.
Total return
NAV and share price total returns show how the NAV and share price
has performed over a period of time in percentage terms, taking into
account both capital returns and dividends paid to shareholders. NAV
and share price total returns are monitored against open-ended and
closed-ended competitors, and the Reference Index, respectively.
Share
Year ended 31 July 2023 NAV Price
Opening at 1 August 2022 a 295.25p 254.00p
Closing at 31 July 2023 b 308.93p 264.00p
Price movements c=(b/a)-1 4.6% 3.9%
Dividend reinvestment(A) d 3.0% 3.4%
Total return c+d +7.6% +7.3%
Share
Year ended 31 July 2022 NAV Price
Opening at 1 August 2021 a 309.02p 266.00p
Closing at 31 July 2022 b 295.25p 254.00p
Price movements c=(b/a)-1 -4.5% -4.5%
Dividend reinvestment(A) d 2.5% 2.8%
Total return c+d -2.0% -1.7%
(A) NAV total return involves investing the net dividend in the NAV
of the Company with debt at fair value on the date on which that dividend
goes ex-dividend. Share price total return involves reinvesting the
net dividend in the share price of the Company on the date on which
that dividend goes ex-dividend.
The Annual General Meeting will be held at 11.00 a.m. on 5
December 2023 at Wallacespace Spitalfields, 15-25 Artillery Lane,
London, E1 7HA.
Please note that past performance is not necessarily a guide to
the future and that the value of investments and the income from
them may fall as well as rise and may be affected by exchange rate
movements. Investors may not get back the amount they originally
invested.
The Annual Financial Report Announcement is not the Company's
statutory accounts. The above results for the year ended 31 July
2023 are an abridged version of the Company's full financial
statements, which have been approved and audited with an
unqualified report. The 2022 and 2023 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 s.498(2) or 498(3) of the Companies Act 2006. The
financial information for 2022 is derived from the statutory
accounts for 2021 which have been delivered to the Registrar of
Companies. The 2023 financial statements will be filed with the
Registrar of Companies in due course.
The audited Annual Report and financial statements will be
posted to shareholders in November. Copies may be obtained during
normal business hours from the Company's Registered Office, 280
Bishopsgate, London EC2M 4AG or from the Company's website,
asia-focus.co.uk*
* Neither the content of the Company's website nor the content
of any website accessible from hyperlinks on the Company's website
(or any other website) is (or is deemed to be) incorporated into,
or forms (or is deemed to form) part of this announcement.
By Order of the Board
abrdn Holdings Limited
Secretary
19 October 2023
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END
FR FLFLAILLALIV
(END) Dow Jones Newswires
October 20, 2023 02:04 ET (06:04 GMT)
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