Annual Financial Report
24/10/2024 07:00
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RNS Number : 3804J abrdn Asia Focus plc 24 October 2024
ABRDN ASIA FOCUS PLC
Legal Entity Identifier (LEI): 5493000FBZP1J92OQY70
ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 JULY 2024
Performance Highlights
Net asset value total return (diluted)(AB) Net asset value per share (diluted)
+7.9% 324.3p
2023 +7.6% 2023 308.9p
Net asset value total return since inception (diluted)(AB) Annualised Net asset value total return since inception (diluted)(AB)
+2472.6% +11.9%
2023 +2283.6% 2023 +12.1%
Share price total return(A) Share price
+8.8% 278.0p
2023 +7.3% 2023 264.0p
MSCI AC Asia ex Japan Small Cap Index total return(C) Discount to net asset value(AB)
+14.1% 14.3%
2023 +8.0% 2023 14.5%
Ongoing charges ratio(A) Dividends per share(D)
0.89% 7.42p
2023 0.92% 2023 8.66p
(A) Alternative Performance Measure (see definition below).
(B) Presented on a diluted basis as the Convertible Unsecured Loan Stock
("CULS") are "in the money" (2023 - same).
(C) Currency adjusted, capital gains basis.
(D) Dividends include special dividends of 1.00p for 2024 (2023 - 2.25p).
Strategic Report
Chair's Statement
Overview
Following the market trends referenced in my half-year report, Asian small
caps continued to show their resilience and outpace their larger peers over
the full year despite turbulent times geopolitically. The MSCI AC Asia ex
Japan Small Cap Index delivered a total return of 14.1% in sterling terms,
outperforming the MSCI AC Asia ex Japan Index, which rose by 7.6%.
Across small cap markets in Asia, we saw a sharp divergence in performance. At
one end was India (28.1% of portfolio), the best performer by a large margin.
A buoyant economy, growth in the corporate sector and substantial foreign
capital inflows drove strong gains in the domestic market. There was an
element of election jitters as Prime Minister Narendra Modi won a third term
in office at the polls but had to settle for a coalition government with his
allies. This proved short-lived, however, with investors quickly pushing the
market to new all-time highs within days.
Another solid performer was Taiwan (14.4% of portfolio), as the
technology-heavy market benefited from expectations of a trough in the
semiconductor cycle and the rapid advance of artificial intelligence (AI) and
related applications.
At the other end, however, was China (9.1% of portfolio), with a sharp fall in
domestic markets. The country's stalled economy and property woes weighed on
investor sentiment, although the Chinese government stepped in and increased
support with measures to bolster financial markets and the economy. There are
also concerns over potential US tariffs and sanctions following the outcome of
November's US presidential election.
Investment Performance
Against this backdrop, on a total return basis, your Company's net asset value
(NAV) rose 7.9% in sterling terms for the 12 months ended 31 July 2024, while
the share price rose 8.8%. Over the long term, your Company's NAV has averaged
annual growth of 11.9% since inception, an outstanding level of sustained
performance, and reflective of your Manager's ability to invest in hand-picked
smaller companies in Asia that are difficult to access for UK investors.
Despite the relative underperformance, absolute returns have been reasonable
relative to a broader peer group of Asian funds, and your Manager maintains a
preference for more diversified exposure to the region versus the small cap
index which has become increasingly concentrated across fewer markets. Stock
selection has been largely positive, particularly in markets like India, where
your Company's holdings across a broad swathe of sectors have benefited from
the healthy economic backdrop and good management, such as real estate
developer Prestige Estates, energy holding Aegis Logistics and healthcare
group Vijaya Diagnostic Centre.
Your Company's off-benchmark exposure to Vietnam has also added value,
primarily driven by FPT Corp, a diversified technology group with a
fast-growing software outsourcing business and led by an entrepreneurial
management team. More broadly, Vietnam is rising up fast as an alternative
supply chain option amid geopolitical uncertainty, with foreign direct
investments (FDI) pouring into higher technology sectors, especially
automotive and electronics. Less positively, the Company's lack of exposure to
certain sub-segments of the Taiwanese technology and utilities space cost
performance in relative terms, as did weaker performance from a few of the
holdings in China and Singapore. You can read more about this in the
Investment Manager's Review.
Dividend and Reserves
The Board recognises the importance of your Company's dividend income for many
shareholders, and the income generation of the portfolio has been robust and
supportive of the new enhanced and progressive dividend policy approved by
shareholders in 2022. Your Company has maintained or raised the Ordinary
dividend every year since 1998. Indeed, your Company anticipates joining the
AIC's next generation of dividend heroes next year.
In total, four interim dividends have been declared in respect of the
financial year ended 31 July 2024 amounting to 6.42p per Ordinary 5p share
(2023: 6.41p). In addition, continuing strength of dividend generation from
the portfolio has allowed the Board to declare a special interim dividend of
1.0p (2023: 2.25p) in respect of the year ended 31 July 2024 which will be
paid on 20 December 2024 to shareholders on the register on the record date of
22 November 2024 (ex-dividend date 21 November 2024). This special dividend
brings the total distribution for the year to 7.42p (2023: 8.66p) representing
a yield of 2.7% based upon the share price at the time of writing of 280.0p.
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 for the year to 31 July 2024, there remains well over a
year's worth of revenue reserve to cover the Ordinary dividend.
Share Capital Management and Gearing
In line with the general trend across the investment trust sector, the
Company's shares have continued to trade at a stubbornly wide discount to
NAV. The Company's share price to NAV discount was flat over the year,
opening and closing at 15%. During the period the shares have traded at an
average discount of 16.1%, which remains higher than the long-term average.
I would note that while the discount is wide, some of your Company's peers are
trading at similar discount levels, likely reflecting a more cautious stance
by UK investors towards Asian small cap equities.
Your Board is very mindful of the negative impact of large discounts to NAV to
shareholders but also share price volatility. The Board increased the pace
of buybacks during the year, purchasing 2,850,000 shares (2023: 500,000) in
total, 1.8% of the Company's issued shares (excluding Treasury shares). A
further 2,372,500 shares have been purchased since the end of the financial
year to date.
We will continue to oversee the judicious use of share buy backs. The shares
bought back in this reporting period were at an average discount to NAV of
15.5%, supporting the twin aims of reducing the volatility of any discount
whilst modestly enhancing the NAV for continuing shareholders.
The Company's net gearing at 31 July 2024 was 10.4% (2023: 12.1%) with the
debt provided by the £30m Loan Notes and the £36.6 million Convertible
Unsecured Loan Stock ("CULS"), redeemable in 2025. As at 22 October 2024, the
latest practicable date, the net gearing stood at 11.9%. As we approach the
maturity of the CULS, scheduled for 31 May 2025 the Board, in conjunction with
the Manager and advisers, is reviewing the current level of gearing, alongside
opportunities for repaying or converting the CULS, and will update
shareholders closer to the time. In the event that suitable opportunities
are not available the Board expects to repay the CULS using the proceeds of
sales across the portfolio.
Promoting the Company
Your Board and Investment Manager have made significant efforts to enhance the
marketing of your Company by highlighting the depth of abrdn's resources on
the ground in Asia. To learn more about the management team's travels and the
underlying portfolio, visit abrdn.com/AAS. Here, existing and potential
shareholders can sign up for regular email updates. By following the dedicated
abrdn Asia Focus page on LinkedIn, you can stay informed about your
investments. You are also invited to join us at the AGM to hear from the
Investment Managers and the Board. Additionally, we hold a pre-AGM webinar
(see below) with the Chair and Investment Managers, including a Q&A
session, which is open to all. This session is also recorded and available to
watch on demand afterwards.
Board Evolution
In my half-year statement, I had welcomed two new Board members, Lucy
Macdonald who replaced Randal Dunluce, the Earl of Antrim who stepped down
from the Board at the last AGM in December 2023, and Davina Curling who joined
with effect from 1 March 2024 as Senior Independent Director.
Lucy has enjoyed a successful career in asset management and was, until 2020,
managing director, CIO global equities at Allianz Global Investors. Lucy
brings 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.
Meanwhile, 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 Global Equity Income Trust plc and is a member of the investment
committee of St James's Place Wealth management.
Both Lucy and Davina bring considerable investment management experience to
the Board, and I am glad to report that both have settled in well and are
already contributing their insights to the Board.
Your Investment Manager
The Board is encouraged by abrdn Group's commitment to Asian equities. It
hasn't been the easiest environment for active managers over the past couple
of years, but your Manager continues to invest in its research platform,
including quantitative tools that can support fund managers' fundamental
research efforts. The Asian equities team remains one of the most
well-resourced in the industry with 35 analysts and portfolio managers spread
across the region. Over the past year, there has been a slight evolution of
the team's structure with a cleaner delineation of roles between analysts and
fund managers. The idea is to streamline responsibilities and increase focus,
which should be welcome news for shareholders as Managers Gabriel Sacks and
Xin-Yao Ng's time will be increasingly aligned to your portfolio. In addition,
the team is bulking up its analyst pool with the hiring of a senior tech
analyst and an Indian small and mid-cap analyst, with the purpose of improving
idea generation and supporting the role of fund managers.
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 0.89% (2023: 0.92%), primarily made up of the management fee. Your
Company is one of the very few to have linked the management fee to the market
capitalisation rather than the NAV of the Company, further aligning the
Investment Manager with you, the Shareholders.
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 96.7
at year end) and the long-term outperformance, the current fees constitute
value for money.
I would remind shareholders that 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 the Company's NAV total return underperforms the benchmark over the five
year period measured from 1 August 2021. The latest performance data
covering the period since the introduction of the tender offer to 30 September
2024 shows a NAV total return of 21.7% versus the benchmark which has returned
19.6%.
Responsible Investing
One of the key benefits of having an extensive on-the-ground team in Asia is
your Manager's ability to actively engage with companies on environmental,
social and governance matters. Whilst the Company is not a sustainable fund,
it is positive to note that the portfolio's MSCI ESG rating of 'BBB' is in
line with that of the Benchmark and the Economic Emission Intensity is only
25.6% that of the Benchmark. Further details on responsible investing are
provided on pages 105 to 108 of the published Annual Report and financial
statements for the year ended 31 July 2024.
Shareholder Engagement and Annual General Meeting
The Company's Annual General Meeting is scheduled for 11:00 a.m. on 6 December
2024. In line with best practice the voting on all business at the AGM will be
conducted by way of a poll which will be administered on the day by the
Company's registrar. 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 2023, 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 Monday 18 November 2024. During the presentation,
shareholders will receive updates from myself and the Manager and there will
be the opportunity for an interactive question and answer session where we
will endeavour to answer as many questions as time allows. 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
Despite the ongoing global geopolitical and macroeconomic uncertainty, Asian
small cap companies remain replete with opportunities for discovering high
quality companies that are often overlooked.
Economic, political, and monetary policy news in the US will be significant.
Expectations of US rate cuts are rising, which typically lead to US dollar
weakness. This supports currencies and equities in Asia as the US-Asia yield
differential narrows. In addition, lower US interest rates generally result in
lower borrowing costs globally. In Asia, smaller companies have historically
benefited more than larger ones from such a rate-cutting cycle as risk
appetite returns to equities and the region, while companies have more room to
borrow to expand and invest in their businesses. These investments help
support corporate earnings and share prices.
The two largest economies in Asia will remain in the spotlight due to their
diverging fortunes. China's economy is under pressure with key pain points in
consumer spending and the property sector. However, the central government has
adopted a calibrated approach to avoid the problems of excess liquidity but
still has considerable fiscal power to support growth. India, in contrast, is
well-positioned for continued growth with a positive macro outlook, buoyant
property sector, strong urban consumption and a robust infrastructure
investment cycle. This in turn is reviving private capital expenditure. These
factors should support economic and earnings growth over the long term. As far
as abrdn Asia Focus is concerned, your Company's portfolio is geared towards a
broader set of markets across the region, with roughly 85% of the portfolio
invested outside of China and Hong Kong in companies that exhibit strong
quality characteristics and healthy levels of growth.
At this juncture, it is worth reiterating why I believe that small caps
continue to offer immense potential and unique opportunities to capitalise on
the dynamic and rapidly evolving economies of Asia. Asian small caps provide
very different exposures compared to the large caps in the region, both in
terms of markets and sectors, together with being companies that are
inherently more agile and exhibiting faster growth due to the early stage of
their corporate lifecycle. These smaller companies operate in diverse
industries, especially in niche areas like technology and healthcare, and are
often at the forefront of innovation. Most importantly, they can be more
direct beneficiaries of Asia's structural growth and long-term trends. The
region boasts some of the world's fastest-growing economies and a rising
middle class. Asia is a key hub for semiconductor supply chains, especially
with booming AI demand, and is heavily investing in the green transition.
Supply chains continue to move from China to other low-cost Asian markets such
as Indonesia, India and Vietnam. This diversification is expected to boost
growth through increased foreign investments and manufacturing, supporting
domestic earnings.
With all of this in mind, I and the Board remain confident in your Manager,
who is committed to carefully selecting high-quality smaller companies with
sound fundamentals that can capitalise on the growth potential of this dynamic
region and achieve sustainable long-term returns. The small cap universe is
fertile ground for active stock picking because it is a less efficient market
that is often poorly researched. Here, your Manager's extensive on-the-ground
presence and long track record investing in Asia will enable it to make the
most of inefficiencies in pricing smaller companies and unearthing hidden gems
across the rich and diverse small cap universe. Investment trusts such as
abrdn Asia Focus offer UK investors access to businesses that are otherwise
inaccessible via mainstream funds and passive investments.
I remain confident that Asian smaller companies will continue to thrive and
flourish over the longer term and that your Company continues to be
well-positioned to unlock this potential and, with it, very welcome
sustainable long-term returns.
Krishna Shanmuganathan
Chair
23 October 2024
Investment Manager's Review
Performance Review
Over the 12-month period to 31 July 2024 it has been a tale of two halves for
Asian small caps as they traded within a narrow range in the first six months
before gathering pace to finish the year on a strong note. The MSCI AC Asia Ex
Japan Small Cap Index (the "benchmark") returned 14.1% in sterling terms over
the period whilst your Company's net asset value ("NAV") and share price, both
in total return terms, increased by 7.9% and 8.8%, respectively.
As your Chair has highlighted, various key macroeconomic and political themes
influenced investor sentiment and market movements, such as China's slowdown,
global recession concerns, US monetary policy and geopolitics, including the
conflict in the Middle East.
Through the uncertainty and volatility witnessed, your Company's portfolio
posted positive absolute returns, a testament to the quality and resilience of
the underlying holdings. The initial months proved challenging, due to
unfavourable country allocation effects, but performance saw a significant
improvement in the second half, led primarily by strong stock selection in
India.
Looking at the key drivers of performance, we would naturally highlight India,
where the small cap market was exceptionally buoyant, rising by 50% over the
year. This market strength came at a time when the stars appeared to have
aligned for the country. GDP growth has been averaging 6-7% annually. The
government's focus on structural reforms, particularly in infrastructure and
the supply side of the economy, has boosted investor and corporate confidence.
Also drawing in capital investment flows was the inclusion of Indian
government bonds in JP Morgan's emerging market indices in June 2024.
Political stability counts, too. While the result of the general election in
India came as a surprise to many, Prime Minister Narendra Modi secured a third
term in office, this time with a coalition government. The new government's
first budget presented in July showed that fiscal prudence was high on the
agenda, with a continued focus on infrastructure development, albeit with some
moderation in the pace of growth. There also appeared to be efforts to plug
gaps in the economy around consumption, rural demand and employment - all of
which was generally well received. Such a supportive economic and policy
environment was reflected in strength at the corporate level, with solid
earnings results especially in sectors like power and industrials. This
generally upbeat mood has been supported by a domestic investor boom, with
locals increasingly channelling their savings into the equity market.
We remain positive on India, as we have been since the inception of the
Company almost 30 years ago, with the country representing a sizeable 27% of
the portfolio at year-end, our highest country weighting. The small-cap
benchmark, however, has an even higher allocation to India at 34%. While our
relatively lighter exposure to India proved costly, this was more than
compensated for by the strong performance of our holdings across a range of
sectors. Notably, six of the portfolio's top ten stock performers this year
came from India. The best performer was Prestige Estates, which we believe is
well positioned as one of the few quality, listed operators in the Indian
property space. It has benefited from the ongoing upcycle in residential
property. In the energy sector, Aegis Logistics continued to benefit from
India's shift away from fossil fuels towards cleaner energy, with demand for
liquefied petroleum gas bolstered by its cost competitiveness relative to
other gas alternatives. Elsewhere, in the healthcare sector, Vijaya Diagnostic
Centre reported consistently good results, with organic growth that continued
to be well ahead of industry peers. Organic growth was a result of a
combination of existing centres continuing to grow as well as from new centres
that were opened over the last two years.
The other key country to highlight is Taiwan, a market that is well
represented in the small cap index. With global equity investors fixated on
Nvidia and the rise of artificial intelligence (AI), this technology-heavy
market did well. Indeed, Taiwanese corporates have benefited from both a
cyclical upturn in semiconductor pricing and strong incremental demand for
advanced chips. Throughout this, we have been bullish on technology, and the
semiconductor sector specifically, although we have been highly selective,
focusing our interest on businesses that we feel are true leaders in their
field with clear and defensible business moats. As a result, we have averaged
a significantly lower allocation to Taiwan over the year compared to the
small-cap benchmark, which weighed on relative performance. In addition,
several of our stocks lagged the benchmark's rise despite still posting
reasonable returns. Despite our underweight position, and the recent sell-off
in technology stocks that we have witnessed since the end of the Company's
fiscal year-end, we continue to be confident in the prospects for high-quality
technology and semiconductor stocks in the region. As evidence of this, we
invested in Chroma Ate during the year, a company that is one of the top test
equipment businesses globally, specialising in power testing across a range of
industries, but also increasingly involved in system-level testing for
semiconductors. We expect Chroma to be in a prime position to benefit from the
structural growth trend in advanced semiconductor manufacturing.
Elsewhere, we also saw gains from the off-benchmark exposure that the Company
has to Vietnam, which was about 7% of the portfolio as of end-July 2024. The
country is seeing foreign direct investments pour into higher technology
sectors, especially automotive and electronics as some multinational
corporations seek to reduce their reliance on China and mitigate geopolitical
risks. Here, the software service company, FPT, continued to deliver
impressive earnings. Despite its share price gains over the year, we believe
the company is still trading at an attractive valuation.
In South Korea, our lighter than benchmark exposure and stock picks were
positive for performance. The domestic market lagged the region, as weak
export demand and disappointing domestic economic growth weighed on capex and
corporate earnings. In terms of our holdings, Korea Shipbuilding &
Offshore Engineering (KSOE), which we had initiated during the year, performed
well. We feel it is well placed to benefit from the industry's long-term cycle
of vessel newbuilds, due to the need to replace ageing ships and comply with
emissions regulation. This offset weakness witnessed in Park Systems, a
leading manufacturer of atomic force microscopy systems for scientific
research, which lagged the broader strength in the technology sector and
posted slightly lower than expected results.
In contrast, parts of Southeast Asia weighed on performance. Our overweight to
Indonesia was a drag despite good stock selection. The market was weak on the
back of a lack of catalysts and soft corporate earnings for the second quarter
of 2024. Furthermore, the government's budget plan for 2025 aimed to maintain
economic growth above 5%, but the cut in infrastructure spending pulled down
infrastructure-linked stocks and sectors, which together with a surprise
interest rate increase by the central bank, worsened the overall market
sentiment.
Another key detractor was Singapore's AEM Holdings, a business that has lots
of potential but saw its shares sell off on concerns over a shortfall in
inventory, the resignation of its CEO and results that missed market
expectations. On the back of these developments, we decided to exit our
position to focus on higher conviction technology holdings elsewhere in the
region.
Portfolio Activity
We have continued to focus on earnings visibility and cashflow generation to
ensure that the portfolio remains fundamentally strong and resilient amid the
challenging environment, with very disparate performance across markets and
sectors.
In China, for instance, we have shifted our exposure towards more
consumer-oriented stocks which we believe have a positive long-term growth
outlook despite subdued consumer spending at this point in time. This
included introducing Proya Cosmetics and Tongcheng Travel to the portfolio.
Proya Cosmetics, a leading domestic beauty and skincare company, is known for
its innovative products and strong market presence. The company is enhancing
operational efficiency and marketing efforts, especially on digital platforms
like Douyin (TikTok) and Alibaba, and is set to benefit from continued
'localisation' as consumers shift from expensive foreign brands towards more
affordable local offerings. Tongcheng Travel, the largest online travel agency
in China by monthly active users, offers air, train, and bus tickets, as well
as hotel bookings. It has strong backing from Tencent and Trip.com, its
largest shareholders, and enjoys strong margins. We believe Tongcheng Travel
is well positioned to benefit from increasing domestic travel among Chinese
residents in lower-tier cities. To fund these new positions, we exited other
mainland holdings with more challenged earnings, such as Joinn Laboratories
and Sinoma Science & Technology. Overall, our China weighting has remained
relatively stable compared to the benchmark, with a slight underweight due to
our cautious outlook on China.
Elsewhere, in India, we have increased our country exposure as a result of
strong idea generation from the team and a positive outlook for growth. We
participated in the IPO of Bharti Hexacom, a subsidiary of Bharti Airtel, as
it is a pure domestic player in the Indian telecom sector with operations in
Rajasthan and the North-East region. The market is close to a duopoly, with
Bharti Hexacom holding a 43.5% market share. These markets have grown faster
than the rest of the country over the past five years, and we expect future
growth from rising penetration and the 5G transition. We also invested in JB
Chemicals and Pharma, a top pharmaceutical company in India with a strong
contract manufacturing business, attractive financial profile and capable
management team. Additionally, we invested in 360 One WAM, the leading wealth
manager for ultra-high net worth individuals in India, which has been growing
rapidly due to buoyant capital markets and an acceleration in stake sales by
India's entrepreneurial promoters. Management highlights their focus and
superior service levels as key competitive advantages, along with a strong
technology platform, brand and people.
Meanwhile, we introduced a new holding in Korea that is well placed to ride on
the decarbonisation trend in the shipping industry. Korea Shipbuilding &
Offshore Engineering (KSOE) owns Hyundai Heavy Industry (80%), Samho Heavy
Industry (100%), and Hyundai Mipo Dockyard (43%). Together, they form the
world's largest shipbuilding company with a 17% global market share. KSOE's
prospects are supported by two key pillars. First, the industry is in a
long-term cycle of vessel newbuilds due to the need to replace aging ships and
comply with emissions regulations, leading to a profit upturn from increased
dock use and delivery gains. Second, KSOE is gaining market share in
eco-friendly ships due to its strong R&D capabilities. It is a leader in
eco-friendly technologies and could play a critical role in the industry's
decarbonisation. KSOE is a market leader in LNG-dual fuel engines, focusing on
X-DF engines, which lower carbon emissions by reducing heavy-fuel oil usage
and are more profitable than fossil fuel engines.
We also added a new consumer holding in the Philippines, a large market with
an improving economy as inflation stabilises and global interest rates drop.
Century Pacific Food, the largest canned food company locally, caters to mass
and premium markets across marine, meat, plant-based, and milk segments. The
Po family, who are well-regarded, run the company. Century Pacific has a
strong brand presence in tuna and is growing in meat and milk. The company
benefits from resilient demand in its core categories and a product
diversification strategy that should enhance margins over time. It has a good
track record of growing new brands and product categories.
We funded the above by reducing smaller and more illiquid positions in which
we had lower confidence. These were mostly in Southeast Asia including
Singapore (Bukit Sembawang Estates and Yoma Holdings), Malaysia (Oriental
Holdings and Shangri-La Hotels), Thailand (Tisco Financial and Hana
Microelectronics) and the Philippines, where Cebu Holdings finally consummated
its merger with Ayala Land.
Outlook
Recent volatility across markets reinforces the extent to which macroeconomic,
political and policy concerns continue to affect investor sentiment.
Technology stocks are among those which have borne the brunt of the
volatility, although investor hopes appear to wax and wane based mostly on
Nvidia's announcements. Global recession fears persist amid worries over
whether the US Federal Reserve can engineer a soft landing for the US economy,
while the consumer outlook remains weak in China. Geopolitics simmer in the
background, with the upcoming presidential election in the US still deadlocked
and tensions in the Middle East escalating.
In such a still-uncertain backdrop, there are some potential tailwinds. In
September, the Federal Reserve cut interest rates by 50 basis points,
suggesting a turning point in global monetary conditions. With the West
leading in policy easing, we are moving into a rate cutting cycle in Asia too,
that is likely to boost Asian currencies and allow more room for governments
to support economic growth. This will benefit smaller companies because of
their more domestic exposure. A lower rate environment also means lower
funding costs for smaller companies, allowing them to pursue growth more
efficiently.
Looking ahead, Asian smaller companies are forecast to deliver outsized
earnings growth of around 41% in 2024, bouncing back strongly from a negative
2023. This growth significantly outpaces their larger counterparts, with large
caps expected to see about 19% earnings growth and world equities around 7%.
It is noteworthy that small cap companies are not only delivering earnings but
are forecast to lead in earnings growth until 2025. Valuations are also on our
side, with Asian smaller companies still cheap relative to their US
counterparts, trading at a relative discount of about 24% to US small caps.
More broadly, micro, small, and medium-sized enterprises (MSMEs) remain
important drivers of growth across developing Asia, accounting for an average
97% of all enterprises, 56% of the workforce, and 28% of a country's economic
output. In effect, these companies are the backbone of Asian economies.
As a result, we see much potential in Asian smaller companies, and our
portfolio of well-researched Asian small caps offers a unique investing
opportunity. The portfolio is concentrated, high-conviction and highly
differentiated, with an active share of close to 97%. We bring considerable
expertise to the table, given our long track record in Asia with a deep and
experienced team of around 35 analysts and portfolio managers. We aim to find
exciting smaller companies that will benefit from Asia's expanding middle
class, with our on-the-ground team making the most of inefficiencies in
pricing under-researched smaller companies across the region.
Gabriel Sacks, Flavia Cheong and Xin-Yao Ng
abrdn Asia Limited
23 October 2024
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
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
The Company invests 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") 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 considers ESG as part
of the research for each asset class during the investment review 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 and 104 of the published Annual Report
and financial statements for the year ended 31 July 2024. A comprehensive
analysis of the Company's portfolio is disclosed on pages 28 to 36 of the
published Annual Report and financial statements for the year ended 31 July
2024 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 59 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 outperformance 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 6 December 2024 in London. We encourage shareholders to
lodge their vote by proxy on all the resolutions put forward.
Online Shareholder Presentation In November 2023 the Board held an online shareholder presentation which was
attended by over 200 shareholders and prospective investors. Based on the
success of this event a further online presentation will be held on Monday 18
November 2024 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 updates from the
investment management team. 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 17 of the published Annual Report and financial statements
for the year ended 31 July 2024).
Social Media Shareholders can access up to date news on the Company and management team by
following the dedicated abrdn Asia Focus page on LinkedIn.
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 and 104
of the published Annual Report and financial statements for the year ended 31
July 2024 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 2024. 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 auditor.
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 concluded its search for two new
independent Directors as part of the Board succession plans as explained on
page 49 of the published Annual Report and financial statements for the year
ended 31 July 2024.
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 The Board considers the Company's NAV total return 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 2024.
Performance against comparative indices The Board also measures performance against 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. Graphs showing performance are shown on pages
26 and 27 of the published Annual Report and financial statements for the year
ended 31 July 2024. 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 shares trade relative
(on a total return basis) to the MSCI Asia ex Japan Small 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 page 27 of the
published Annual Report and financial statements for the year ended 31 July
2024.
Discount/Premium to NAV The discount/premium relative to the NAV per share 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 2024.
Dividend In 2022 the Board introduced a target dividend of 6.4p per share and 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 2024.
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 geopolitical uncertainty such as the ongoing
conflicts in Ukraine and the Middle East continue to present a significant
risk to world markets. 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 significantly 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 Risk The Company's strategy and objectives are regularly reviewed to ensure that
they remain appropriate and effective. The Board monitors the discount level
Risk Unchanged during Year 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 continue to cause volatility in
equity markets and the Company's share price discount to NAV. The Company buys
back shares into treasury seeking to limit volatility. 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.
Whilst the Board rates this risk overall as stable, the risks associated with
certain constituent parts of this risk, such as Board dependence on the
Manager are rising and will be the subject of continued scrutiny.
Investment Risk The Board sets, and monitors, its investment restrictions and guidelines, and
receives regular board reports which include performance reporting on the
Risk Unchanged during Year implementation of the investment policy, the investment process and
application of the guidelines and concentration/liquidity analysis of the
portfolio. abrdn Group 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 2024 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 currently provided at attractive rates, the Board and Manager
monitor gearing levels regularly and covenant reports are provided to lenders
bi-monthly.
The Investment Manager includes responsible investing in its assessment of
investee companies together with the impact of climate as part of the
investment process. Responsible 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 on internal controls and risk
management at each Board meeting. It receives assurances from all its
Risk Unchanged during Year 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 pages 49 and 50 of the
published Annual Report and financial statements for the year ended 31 July
2024.
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 Risk The Board receives assurance from the Manager and Company Secretary and third
party service providers on all aspects of regulatory compliance as well as
Risk Unchanged during Year 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 Risk External risks over which the Company has no control are always a risk. The
Manager monitors the Company's portfolio and is in close communication with
Risk Unchanged during Year 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. In addition the Board has discussed with the Manager options
that would be available to reduce the impact of conflict on the portfolio.
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. At 31
July 2024, there were three male Directors and three female Directors on the
Board and the Company is compliant with the diversity and inclusion targets
set out in Chapter 6 of the FCA's Listing Rules. Further details are
disclosed in the Directors' Report.
The UK Stewardship Code and Proxy Voting
The Company supports the UK Stewardship Code 2020, and seeks to play its role
in supporting good stewardship of the companies in which it invests.
Responsibility for actively monitoring the activities of portfolio companies
has been delegated by the Board to the Manager.
The Manager is a tier 1 signatory of the UK Stewardship Code 2020 which aims
to enhance the quality of engagement by investors with investee companies in
order to improve their socially responsible performance and the long term
investment return to shareholders. The Manager's Annual Stewardship Report for
2023 may be found at abrdn.com. While delivery of stewardship activities has
been delegated to the Manager, the Board acknowledges its role in setting the
tone for the effective delivery of stewardship on the Company's behalf.
The Board has also given discretionary powers to the Manager to exercise
voting rights on resolutions proposed by the investee companies within the
Company's portfolio. The Manager reports to the Board on a six monthly basis
on stewardship (including voting) issues and additional information may be
found on pages 105 to 108 of the published Annual Report and financial
statements for the year ended 31 July 2024.
Global Greenhouse Gas Emissions and Streamlined Energy and Carbon Reporting
("SECR")
All of the Company's activities are outsourced to third parties. The Company
therefore 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. For the same reason as set out above, the Company
considers itself to be a low energy user under the SECR regulations and
therefore is not required to disclose energy and carbon information. Further
information on the Manager's obligatory disclosures under the Taskforce on
Climate-related Financial Disclosures ("TCFD") may be found on the Company's
website.
Environmental, Community, Social and Human Rights Issues
The Company has no employees and, accordingly, there are no disclosures to be
made in respect of employees. In relation to the investment portfolio, the
Board has delegated assessment of these issues to the Investment Manager,
responsibility and further information may be found on page 105 to 108 of the
published Annual Report and financial statements for the year ended 31 July
2024.
Modern Slavery Act
Due to the nature of its business, being a Company that does not offer goods
and services to customers, the Board considers that the Company 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 advisers and service providers in the
financial services industry, to be low risk in relation to this matter.
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 £35m available
for drawing under the Loan Note Facility (uncommitted and subject to lender
credit committee approval) 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 on pages 14 and 15 of the published Annual Report and
financial statements for the year ended 31 July 2024.
The Strategic Report has been approved by the Board and signed on its behalf
by:
Krishna Shanmuganathan,
Chair
23 October 2024
Results
Performance (total return)
1 year 3 year 5 year 10 year Since
% return(B) % return(C) % return % return inception
Share price(A) +8.8 +14.8 +37.7 +80.7 +2357.6
Net asset value per Ordinary share - diluted(AB) +7.9 +13.8 +39.6 +103.9 +2472.6
MSCI AC Asia ex Japan Small Cap Index (currency adjusted) +14.1 +17.0 +62.6 +120.5 +312.2
(A) Considered to be an Alternative Performance Measure (see 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.
(C) Also represents the period, following the commencement of monitoring
performance with effect from 31 July 2021 to determine whether a tender offer
for the Ordinary shares of the Company should be undertaken after five years.
Source: abrdn, Morningstar, Lipper & MSCI
Ten Largest Investments
As at 31 July 2024
4.7% Aegis Logistics 4.2% FPT Corporation
Total assets Total assets
A strong and conservative player in India's gas and liquids logistics sector, FPT is a diversified technology group with a fast-growing software outsourcing
with a first mover advantage in key ports and a fair amount of capacity business. It also owns a telecoms unit, an electronics retailing company, and
expansion to come. The government's push for the adoption of cleaner energy is has interests in other sectors, such as education.
also boosting its liquefied natural gas business.
3.3% Park Systems Corporation 3.3% AKR Corporindo
Total assets Total assets
The Korean company is the leading developer of atomic force microscopes, a AKR is one of the main players in industrial fuel in Indonesia, which has a
nascent technology that could have broad industrial application in sectors high entry barrier. Its key strength is its extensive infrastructure and
such as chip-making and biotechnology. logistic facilities throughout the country.
3.2% Prestige Estates Projects 3.0% Taiwan Union
Total assets Total assets
Prestige Estates is a leading South Indian developer with a good reputation Taiwan Union Technology Corp is a leading maker of copper clad laminate (CCL),
for executing and completing projects. It is well-placed to benefit from a key base material used to make printed circuit boards. With a strong
ongoing reforms in the real estate industry, and the recovery of the Bangalore commitment to R&D, it has moved up the value chain through the years.
property market.
2.8% Bank OCBC NISP 2.7% M. P. Evans Group
Total assets Total assets
An Indonesian listed banking and financial services company, which is a steady M.P. Evans is an Indonesian producer of sustainable crude palm oil (CPO) with
consistent performer backed by healthy asset quality. plantations in five Indonesian provinces. We expect appreciation for the group
to improve over time with the delivery and realisation of its estates' value
and cashflow generating potential.
2.7% Affle India 2.6% John Keells Holdings
Total assets Affle India operates a data platform that helps direct digital advertising. It Total assets
is dominant in India where digitalisation has reached an inflection point. The
company has also pursued a broader emerging markets growth strategy and now
has some positions in Southeast Asia and Latin America.
A respected and reputable Sri Lanka conglomerate with a healthy balance sheet
and good execution, John Keells has a hotels and leisure segment that includes
properties in the Maldives. It has other interests in consumer, transportation
and financial services.
Aegis Logistics
4.2%
Total assets
FPT Corporation
A strong and conservative player in India's gas and liquids logistics sector,
with a first mover advantage in key ports and a fair amount of capacity
expansion to come. The government's push for the adoption of cleaner energy is
also boosting its liquefied natural gas business.
FPT is a diversified technology group with a fast-growing software outsourcing
business. It also owns a telecoms unit, an electronics retailing company, and
has interests in other sectors, such as education.
3.3%
Total assets
Park Systems Corporation
3.3%
Total assets
AKR Corporindo
The Korean company is the leading developer of atomic force microscopes, a
nascent technology that could have broad industrial application in sectors
such as chip-making and biotechnology.
AKR is one of the main players in industrial fuel in Indonesia, which has a
high entry barrier. Its key strength is its extensive infrastructure and
logistic facilities throughout the country.
3.2%
Total assets
Prestige Estates Projects
3.0%
Total assets
Taiwan Union
Prestige Estates is a leading South Indian developer with a good reputation
for executing and completing projects. It is well-placed to benefit from
ongoing reforms in the real estate industry, and the recovery of the Bangalore
property market.
Taiwan Union Technology Corp is a leading maker of copper clad laminate (CCL),
a key base material used to make printed circuit boards. With a strong
commitment to R&D, it has moved up the value chain through the years.
2.8%
Total assets
Bank OCBC NISP
2.7%
Total assets
M. P. Evans Group
An Indonesian listed banking and financial services company, which is a steady
consistent performer backed by healthy asset quality.
M.P. Evans is an Indonesian producer of sustainable crude palm oil (CPO) with
plantations in five Indonesian provinces. We expect appreciation for the group
to improve over time with the delivery and realisation of its estates' value
and cashflow generating potential.
2.7%
Total assets
Affle India
Affle India operates a data platform that helps direct digital advertising. It
is dominant in India where digitalisation has reached an inflection point. The
company has also pursued a broader emerging markets growth strategy and now
has some positions in Southeast Asia and Latin America.
2.6%
Total assets
John Keells Holdings
A respected and reputable Sri Lanka conglomerate with a healthy balance sheet
and good execution, John Keells has a hotels and leisure segment that includes
properties in the Maldives. It has other interests in consumer, transportation
and financial services.
Portfolio
As at 31 July 2024
Valuation Total Valuation
2024 assets 2023
Company Industry Country £'000 % £'000
Aegis Logistics Oil, Gas & Consumable Fuels India 25,221 4.7 16,974
FPT Corporation IT Services Vietnam 22,926 4.2 16,849
Park Systems Corporation Electronic Equipment, Instruments & Components South Korea 18,070 3.3 28,924
AKR Corporindo Oil, Gas & Consumable Fuels Indonesia 17,804 3.3 16,518
Prestige Estates Projects Real Estate Management & Development India 17,104 3.2 10,887
Taiwan Union Technology Corp Electronic Equipment, Instruments & Components Taiwan 16,354 3.0 14,928
Bank OCBC NISP Banks Indonesia 15,361 2.8 23,675
M.P. Evans Group Food Products United Kingdom 14,751 2.7 12,293
Affle India Media India 14,652 2.7 13,612
John Keells Holdings Industrial Conglomerates Sri Lanka 13,801 2.6 14,586
Top ten investments 176,044 32.5
KFin Technologies Capital Markets India 13,532 2.5 -
Chroma ATE Electronic Equipment, Instruments & Components Taiwan 13,474 2.5 -
Vijaya Diagnostic Centre Health Care Providers & Services India 13,285 2.5 8,027
Asian Terminals Transportation Infrastructure Philippines 12,623 2.3 10,329
360 One Wam Capital Markets India 12,605 2.3 -
Mega Lifesciences (Foreign) Pharmaceuticals Thailand 12,507 2.3 13,715
Precision Tsugami China Machinery China 12,143 2.2 10,931
LEENO Industrial Semiconductors & Semiconductor Equipment South Korea 12,036 2.2 11,610
Dah Sing Financial Banks Hong Kong 12,010 2.2 12,225
Medikaloka Hermina Health Care Providers & Services Indonesia 11,877 2.2 12,728
Top twenty investments 302,136 55.7
Sporton International Professional Services Taiwan 11,869 2.2 13,280
Autohome - ADR Interactive Media & Services China 10,072 1.8 11,462
Zhejiang Shuanghuan Driveline - A Auto Components China 10,012 1.8 -
United Plantations Food Products Malaysia 9,768 1.8 6,067
CE Info Systems Software India 9,651 1.8 4,774
Apar Industries Industrial Conglomerates India 9,576 1.8 -
Nam Long Invest Corporation Real Estate Management & Development Vietnam 9,548 1.8 14,312
Makalot Industrial Textiles, Apparel & Luxury Goods Taiwan 9,349 1.7 -
Bharti Hexacom Telecommunications Service Providers India 9,327 1.7 -
AEON Credit Service (M) Consumer Finance Malaysia 9,016 1.7 7,677
Top thirty investments 400,324 73.8
HD Korea Shipbuilding & Offshore Engineering Machinery South Korea 8,926 1.6 -
UNO Minda Auto Components India 8,817 1.6 -
SINBON Electronics Electronic Equipment, Instruments & Components Taiwan 8,688 1.6 6,824
Ultrajaya Milk Industry & Trading Food Products Indonesia 8,510 1.6 11,124
HD Hyundai Marine Solution Industiral Transportation South Korea 8,355 1.5 -
Proya Cosmetics - A Personal Care Products China 8,000 1.5 -
Military Commercial Joint Stock Bank Banks Vietnam 7,957 1.5 -
Aptus Value Housing Finance Financial Services India 7,651 1.4 -
Sunonwealth Electric Machine Industry Machinery Taiwan 7,500 1.4 10,029
J.B. Chemicals & Pharmaceuticals Pharmaceuticals India 7,489 1.4 -
Top forty investments 482,217 88.9
Millenium & Copthorne Hotels New Zealand (A) Hotels, Restaurants & Leisure New Zealand 6,727 1.2 8,546
Cyient IT Services India 6,724 1.2 19,980
Century Pacific Food Food Products Philippines 6,390 1.2 -
Alchip Technologies Semiconductors & Semiconductor Equipment Taiwan 6,194 1.1 -
Hansol Chemical Chemicals South Korea 5,980 1.1 -
Tongcheng Travel Holdings Hotels, Restaurants & Leisure China 5,742 1.1 -
Chacha Food - A Food Products China 5,642 1.1 7,903
MOMO.com Internet & Direct Marketing Retail Taiwan 5,520 1.0 9,222
Humanica (Foreign) Professional Services Thailand 5,068 0.9 -
ASMPT Ltd Semiconductors & Semiconductor Equipment Hong Kong 4,804 0.9 -
Top fifty investments 541,008 99.7
Bangkok Chain Hospital Health Care Providers & Services Thailand 4,772 0.9 -
Pentamaster International Semiconductors & Semiconductor Equipment Malaysia 4,405 0.8 6,782
Hang Lung Properties Real Estate Management & Development Hong Kong 4,383 0.8 -
Global Health Health Care Providers & Services India 3,377 0.6 -
Asia Vital Components Technology Hardware, Storage & Peripherals Taiwan 2,486 0.5 -
Convenience Retail Asia Consumer Staples Distribution Hong Kong 2,077 0.4 4,013
Credit Bureau Asia Professional Services Singapore 2,068 0.4 2,953
First Sponsor Group (Warrants 21/03/2029) Real Estate Management & Development Singapore 221 - 247
G3 Exploration Oil, Gas & Consumable Fuels China - - -
Total investments 564,797 104.1
Net current assets (22,340) (4.1)
Total assets(B) 542,457 100.0
(A) Holding includes investment in both common and preference lines.
(B) Total assets less current liabilities.
Investment Case Studies
Zhejiang Shuanghuan Driveline
In which year did we first invest?
2023
% Holding:
1.8%
Where is its head office?
Hangzhou, China
What does Zhejiang Shuanghuan Driveline do?
The Chinese company has been making transmission gears for more than 40 years.
Its gears are used widely in the automotive, construction machinery and power
tool industries.
Why do we like the company?
Shuanghuan is a leading supplier of high-precision gears for electric vehicle
(EV) manufacturers in China, benefiting from its expertise in gear design and
manufacturing. Its strong research and development capabilities and commitment
to innovation and quality are evident in its top-tier customer base. We see
the company as well placed to capitalise on the growing outsourcing trend
among original equipment manufacturers (OEMs) and increasing EV penetration,
with the company commanding over 50% market share in gears for Chinese EVs.
Areas of growth would include smart plastic gears, which are penetrating into
various applications including smart home devices and vehicles, as well as
industrial robots. The company's overseas expansion is also ahead of schedule,
with a new factory in Hungary set to open in the fourth quarter of this year.
When did we engage the company on ESG?
We last met the company as a priority engagement effort in November 2022, in
addition to our regular meetings with the company since then.
What were the key areas of engagement?
We sent an engagement letter to the board secretary to suggest that the
company take proactive actions to identify potential ESG risks and improve
disclosures on corporate governance, carbon emission, labour safety and
product quality. We also shared a few ESG reports in the automobile industry
with the company, and explained to management why we feel these some of these
issues can be financially material.
What efforts have the company made on the ESG front?
We have a favorable view of the company's culture and governance standards.
The staff is relatively diverse for an industrial company in China, with many
women working on the factory floor. Employees are incentivized and aligned
with the controllers via stock options. As an enabler of further EV
penetration globally, the company's operations support decarbonization efforts
by auto OEMs. The company has set up an ESG committee at the board level to
formulate ESG goals, oversee operations, conduct research, and provide
insights on enhancing ESG performance. This committee reports to the board.
Furthermore, the company has also established an ESG working group, which
promotes ESG and submits proposals to the ESG committee, to enhance the
group's overall risk framework. The company published its first ever ESG
report in 2022.
When do we next meet the company and what will be on the agenda?
We would look to engage the company over the next six months to check on its
progress in engaging with rating agency MSCI because the company is a
small-cap stock and has yet to be rated by MSCI for its ESG efforts.
From an operational perspective, we are likely to question management on the
profile of its order book, any changes to the demand outlook domestically and
overseas, and progress on its overseas expansion. We would also want to drill
down into the company's individual segments to check on opportunities and
risks, and get an update on any changes to the long-term strategic plans.
KFin Technologies
In which year did we first invest?
2023
% Holding:
2.5%
Where is its head office?
Hyderabad, India
What does KFin do?
KFin is a digital platform business that serves the asset management industry
in India, by providing services that help manage investments. For instance,
KFIn acts as a registrar and transfer agent (RTA) for domestic mutual funds,
handling the administrative tasks related to managing these funds.
Why do we like the company?
We see the company as a key beneficiary of India's growing wealth accumulation
trend, with more people turning to financial markets for savings. The industry
is attractive due to a duopoly structure in the core RTA business, a loyal
customer base, and high entry barriers from its low-cost operating model. The
market is growing rapidly, and the company is successfully diversifying its
revenue by product line and geography. We are impressed by KFin's management
and the CEO's growth ambitions, with future acquisitions likely to accelerate
its international expansion. This is an exciting growth company with a highly
recurring core business, strong financials, a high operating margin of over
40%, healthy cash flow, and a solid balance sheet.
When did we engage the company on ESG?
We last discussed ESG issues with the company in March 2024.
What were the key areas of engagement?
We have been engaging the company on regulatory risks, data privacy and
cybersecurity, operational risks such as fraud and money laundering, as well
as talent retention.
What efforts have the company made on the ESG front?
Regulatory risks are significant in the industry, but KFin has a commendable
track record with no material client errors or issues with the Reserve Bank of
India. The company also has a robust code of conduct to ensure compliance with
regulatory standards, particularly concerning insider trading. o address staff
attrition, KFin has implemented long-term incentives and employee stock
ownership plans to help retain talent. Additionally, the company focuses on
user consent, data security, and transparency, aligning with best practices in
data privacy management.
When do we next meet the company and what will be on the agenda?
We plan to meet the company before the end of 2024 to discuss key issues such
as regulatory trends and labour management, especially staff attrition rates
and talent retention. We also want to hear management's thoughts on the
ramp-up of its RTA business in Southeast Asia, their capital allocation
priorities, and the most exciting growth opportunities. Finally, we will touch
base on key customer relationships and any potential fee pressures, which we
do not believe to be the case.
Humanica
In which year did we first invest?
2024
% Holding:
0.9%
Where is its head office?
Bangkok, Thailand
What does Humanica do?
Humanica is a leading provider of HR technology and outsourcing services, such
as employee data management, benefits administration, payroll processing, and
reporting, across Southeast Asia.
Why do we like the company?
We see room for growth in this industry with Humanica's prospects enhanced by
its merger with DataOn Group, the largest provider of HR solutions in
Indonesia in May 2022. This merger combined the strengths of both companies'
software developers, resulting in the creation of a new flagship software
called Workplaze, completed in March 2023. Workplaze is a strong competitor to
international human resource management software because of its lower pricing
and localised features tailored to each country; elements that are often
missing in globally renowned software products. It is gaining momentum across
markets in Southeast Asia. Following the merger, Humanica's management team
remains strong and intact. Its financials have improved significantly due to
post-acquisition benefits and the higher average selling price of Workplaze
compared to its flagship software Humatrix is likely to expand margins over
time. The company continues to target the premium-mass segment, which still
offers plenty room for growth over the long term.
When did we engage Humanica on ESG?
We last met the company in April 2024.
What were the key areas of engagement?
Our key areas of engagement with the company have been on data security and
the sustainability of research and development that help prevent its software
from becoming obsolete.
What efforts have the company made on the ESG front?
On data security, Humanica plans to apply for ISO 27001 by 2025 and ISO 27701
by 2024. They have set up a committee to oversee information security and
personal data protection. The company has allocated 100 million baht per year
for upgrading its human resource management and digital healthcare software,
developing new applications, and seeking new partners.
When do we next meet the company and what will be on the agenda?
We plan to meet the company in the second half of 2024 to discuss its progress
on ISO licences and updates on key ESG areas, including data security and
corporate governance.
In addition, we need to monitor Humanica's progress in acquiring new customers
across its key markets, retaining them, and cross-selling new software. As
with any software business, it is important that we track the glide path
towards higher profitability as the company gains scale and how management
balances this with investments in sales and marketing, R&D and other
business development opportunities.
Directors' Report
The Directors present their Report and the audited financial statements for
the year ended 31 July 2024.
Results and Dividends
Details of the Company's results and proposed dividends are shown on page 24
of the published Annual Report and financial statements for the year ended 31
July 2024.
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 2024 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 2024, there were 153,626,718 fully paid Ordinary shares of 5p each
(2023 - 156,457,978 Ordinary shares of 5p each) in issue with a further
55,094,590 Ordinary shares of 5p held in treasury (2023 - 52,244,590 Ordinary
shares of 5p each held in treasury). During the year 2,850,000 Ordinary shares
were purchased in the market for treasury (2023 - 500,000). During the
period and up to the date of this report no new Ordinary shares were issued
for cash and no shares were sold from treasury Subsequent to the period end,
2,372,500 Ordinary shares were purchased in the market for treasury.
On 14 December 2023, 24,012 units of Convertible Unsecured Loan Stock 2025
were converted into 8,191 new Ordinary shares of 5p each. On 14 June 2024
30,927 units of Convertible Unsecured Loan Stock 2025 were converted into
10,549 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 £30 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 ("abrdn Group"), 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
The annual management fee is based upon the market capitalisation of the
Company and charged at 0.85% for the first £250,000,000, 0.60% for the next
£500,000,000 and 0.50% over £750,000,000. 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 (2023 - nil) and has not made
any charitable donations during the year (2023 - 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, C Black, K Shanmuganathan, L Cooper, A Finn, L
Macdonald (appointed 5 December 2023) and D Curling (appointed 1 March 2024),
together with Randal Dunluce (The Earl of Antrim), who retired on 5 December
2023, 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 6 December 2024 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 2024.
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.
Davina Curling has been appointed 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 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
whilst also taking 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 2024
Number of board members Percentage of the board Number of senior positions Number in executive management Percentage of executive management
on the board
(CEO, CFO, Chair and SID)
Men 3 50% 2 n/a n/a
(note 4) (note 4)
Women 3 50% 1
(note 1) (note 3)
Not specified/prefer not to say - - -
Table for reporting on ethnic background as at 31 July 2024
Number of board members Percentage of the board Number of senior positions Number in executive management Percentage of executive management
on the board
(CEO, CFO, Chair and SID)
White British or other White 5 80% 2 n/a n/a
(including minority-white groups)
(note 3) (note 4) (note 4)
Mixed / Multiple Ethnic Groups - - -
Asian/Asian British 1 20% 1
(note 2)
Black/African/Caribbean/Black British - - -
Other ethnic group, including Arab - - -
Not specified/prefer not to say - - -
Notes:
1. The Company meets the target that at least 40% of Directors
are women as set out in LR 6.6.6R (9)(a)(i) for the year ended 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 6.6.6R (9)(a)(iii)
3. The Company meets the target that at least one of the
senior positions is filled by a woman set out in LR 6.6.6R(a)(ii), for the
year to 31 July 2024 as Ms Davina Curling is Senior independent Director. The
Company is externally managed and does not have any executive staff
specifically it does not have either a CEO or CFO. The Board believes that
it is appropriate and reasonable that the role of Audit Committee Chairman on
an investment trust that has no executive staff should also be considered to
be a senior position.
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.
- Interaction with the workforce (provisions 2, 5 and 6);
- the role and responsibility of the chief executive (provisions 9
and 14);
- previous experience of the chairman of a remuneration committee
(provision 32); and
- executive directors' remuneration (provisions 33 and 36 to 40).
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. The full text of the Company's Corporate Governance Statement can be
found on the Company's website:
asia-focus.co.uk.
The Board is cognisant of the FRC's new Corporate Governance Code 2024
provisions effective for financial years commencing on 1 January 2025 and is
in the process of assessing any consequential changes to be made to operations
and governance.
During the year ended 31 July 2024, 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 2024 (with their eligibility to attend
the relevant meeting in brackets):
Director Board Audit Nomination Committee Management Engagement
Committee
Committee
K Shanmuganathan (D) 5 (5) n/a 1 (1) 1 (1)
C Black 5 (5) 2 (2) 1 (1) 1 (1)
L. Cooper 5 (5) 2 (2) 1 (1) 1 (1)
A Finn 5 (5) 2 (2) 1 (1) 1 (1)
L Macdonald (A) 3 (3) 1 (1) 1 (1) 0 (0)
D Curling (B) 3 (3) 1 (1) 1 (1) 0 (0)
Earl of Antrim (C) 2 (2) 1 (1) 0 (0) 1 (1)
(A) Ms Macdonald was appointed to the Board on 5 December 2023
(B) Ms Curling was appointed to the Board on 1 March 2024
(C) The Earl of Antrim retired on 5 December 2023
(D) The Chair is not a member of the Audit Committee but typically attends
each meeting by invitation.
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 2024.
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.
During the year the Nomination Committee completed a search for two new
independent non-executive Directors 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
5 December 2023 and 1 March 2024.
The Board undertakes an annual evaluation of the Board, Directors, the Chair
and the Audit Committee which is conducted by questionnaires. In light of a
number of changes to Board composition during the year, the Board is in the
process of agreeing the terms and remit of the 2024 Board evaluation which
will be an externally facilitated evaluation overseen by an independent
specialist firm.
The Nomination Committee has reviewed the contributions of each Director ahead
of their proposed re-elections at the AGM on 6 December 2024. 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. Ms Macdonald and Ms
Curling were appointed during the year and have both been on the Board for a
relatively short time but each has already contributed significantly to Board
discussions in areas such as portfolio management and performance reporting.
For the foregoing reasons, 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 6 December 2024.
Management Engagement Committee
The Management Engagement Committee comprises all 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 2024.
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 2024 meeting, the Audit Committee carried out an
annual assessment of internal controls for the year ended 31 July 2024 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 2024. 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 is mindful that the Convertible Unsecured Loan Stock 2025 ("CULS")
is due to mature on 31 May 2025. The Board expects to be able to refinance
the CULS if desired, by arranging a new bank facility, drawing down under the
Loan Note Shelf Facility (which is uncommitted and subject to lender credit
committee approval) or by arranging alternative finance. In the event that
the Board chooses not to refinance the maturing CULS the Company will repay
the CULS from portfolio sales. To this end the Manager has conducted stress
testing on the portfolio covering reasonably possible downside market
scenarios with attention on the resulting liquidity of the portfolio. The
plausible downside scenarios modelled include historical market events
including the Chinese Devaluation, COVID-19 and other similar shocks and
resulted in a reduction in portfolio valuation of up to 27.5% in the worst
case which would not impact any future plans to redeem of the CULS or the
business model of the Company.
The Directors are mindful of the Principal Risks and Uncertainties disclosed
in the Strategic Report 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 and considered the
Company's Statement of Financial Position as at 31 July 2024 which shows net
current liabilities of £22.3 million at that date, and do not consider this
to be a concern due to the liquidity of the portfolio which would enable the
Company to meet any short term liabilities if required. 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 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
respectively of the published Annual Report and financial statements for the
year ended 31 July 2024.
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 December 2023 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 2024:
Shareholder No. of Ordinary shares held % held
City of London Investment 36,485,774 23.75
Management Company
Interactive Investor (non-beneficial) 20,097,651 13.1
Allspring Global Investments 19,541,334 12.7
Hargreaves Lansdown (non-beneficial) 10,950,336 7.1
Funds managed by abrdn plc 6,051,791 3.9
1607 Capital Partners 5,261,928 3.4
Charles Stanley 4,704,334 3.1
On 23 August 2024 Allspring Global Investments notified a change in holding to
19,916,065 (12.97%) Ordinary shares; on 17 October 2024 abrdn plc notified a
change in holding to 9,033,837 (6.0%) Ordinary shares; and on 21 October 2024
City of London Investment Management notified a change in holding to
32,692,372 (21.6%) Ordinary shares. There have been no other significant
changes notified in respect of the above holdings between 31 July 2024 and 23
October 2024.
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 Chair, often in conjunction with another Director, meets with
the largest shareholders at least annually.
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 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'. During
2023 the Board has 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 11, 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 11 is to authorise the
Directors to allot up to a maximum of 102.19 million shares in total
(representing approximately 2/3 of the existing issued capital of the
Company), of which a maximum of 51.09 million 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 12 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 12 and subject to the
authority to be conferred by Resolution 11 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 13 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 13 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 12 above, may be held in treasury. During the year the Company
has not bought back any Ordinary shares for Treasury.
If Resolutions 11 to 13 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 14 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 2025. 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 14 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 3, an ordinary resolution, will seek shareholder approval
for the dividend policy.
Recommendation
Your Board considers Resolutions 11 to 14 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 11 to 14 to be proposed at the AGM, as they intend to do in
respect of their own beneficial shareholdings amounting to 29,837 Ordinary
shares.
By order of the Board
abrdn Holdings Limited -Secretaries
280 Bishopsgate
London EC2M 4AG
23 October 2024
Statement of Comprehensive Income
Year ended 31 July 2024 Year ended 31 July 2023
Revenue Capital Total Revenue Capital Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
Gains on investments 10 - 39,271 39,271 - 25,318 25,318
Income 3 17,272 - 17,272 19,984 - 19,984
Exchange losses - (1,052) (1,052) - (384) (384)
Investment management fees 4 (769) (2,307) (3,076) (753) (2,259) (3,012)
Administrative expenses 5 (1,306) - (1,306) (1,312) (16) (1,328)
Net return before finance costs and taxation 15,197 35,912 51,109 17,919 22,659 40,578
Finance costs 6 (501) (1,504) (2,005) (501) (1,502) (2,003)
Net return before taxation 14,696 34,408 49,104 17,418 21,157 38,575
Taxation 7 (1,407) (10,372) (11,779) (1,279) (2,107) (3,386)
Net return after taxation 13,289 24,036 37,325 16,139 19,050 35,189
Return per share (pence): 9
Basic 8.59 15.53 24.12 10.29 12.14 22.43
Diluted 8.08 14.77 22.85 9.66 11.65 21.31
For the year ended 31 July 2024 the conversion option for potential Ordinary
shares within the Convertible Unsecured Loan Stock was dilutive to the revenue
and capital return per Ordinary share (2023 - dilutive to revenue and capital
return).
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 2024 31 July 2023
Notes £'000 £'000
Non-current assets
Investments at fair value through profit or loss 10 564,797 549,672
Current assets
Debtors and prepayments 11 3,808 2,237
Cash and cash equivalents 12,703 5,807
16,511 8,044
Creditors: amounts falling due within one year
Other creditors 12 (2,483) (1,250)
2.25% Convertible Unsecured Loan Stock 2025 12 (36,368) -
(38,851) (1,250)
Net current (liabilities)/assets (22,340) 6,794
Total assets less current liabilities 542,457 556,466
Non-current liabilities
Creditors: amounts falling due after more than one year
2.25% Convertible Unsecured Loan Stock 2025 13 - (36,175)
3.05% Senior Unsecured Loan Note 2035 13 (29,906) (29,898)
Deferred tax liability on Indian capital gains 13 (10,291) (4,609)
(40,197) (70,682)
Net assets 502,260 485,784
Capital and reserves
Called up share capital 14 10,436 10,435
Capital redemption reserve 2,062 2,062
Share premium account 60,495 60,441
Equity component of 2.25% Convertible Unsecured Loan Stock 2025 13 1,057 1,057
Capital reserve 15 409,798 393,238
Revenue reserve 18,412 18,551
Total shareholders' funds 502,260 485,784
Net asset value per share (pence):
Basic 16 326.94 310.49
Diluted 16 324.26 308.93
The financial statements were approved by the Board of Directors and
authorised for issue on 23 October 2024 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 2024
Capital Share Equity
Share redemption premium Component Capital Revenue
capital reserve account CULS 2025 reserve reserve Total
Note £'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 August 2023 10,435 2,062 60,441 1,057 393,238 18,551 485,784
Conversion of 2.25% CULS 2025 12, 13 1 - 54 - - - 55
Purchase of own shares to treasury 14 - - - - (7,476) - (7,476)
Net return after taxation - - - - 24,036 13,289 37,325
Dividends paid 8 - - - - - (13,428) (13,428)
Balance at 31 July 2024 10,436 2,062 60,495 1,057 409,798 18,412 502,260
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 £'000 £'000 £'000 £'000 £'000 £'000 £'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
The accompanying notes are an integral part of the financial statements.
Statement of Cash Flows
Year ended Year ended
31 July 2024 31 July 2023
Notes £'000 £'000
Cash flows from operating activities
Net return before finance costs and tax 51,109 40,578
Adjustments for:
Dividend income 3 (16,802) (19,798)
Interest income 3 (470) (186)
Dividends received 16,561 20,094
Interest received 459 169
Interest paid (1,758) (1,743)
Gains on investments 10 (39,271) (25,318)
Foreign exchange movements 1,052 384
Decrease/(increase) in prepayments 3 (5)
Increase in other debtors (2) (15)
Increase/(decrease) in other creditors 31 (1,621)
Stock dividends included in investment income - (25)
Overseas withholding tax suffered 7 (1,509) (1,432)
Net cash inflow from operating activities 9,403 11,082
Cash flows from investing activities
Purchase of investments (199,205) (76,870)
Sales of investments 223,289 76,321
Capital (losses)/gains tax on sales (4,690) -
Net cash inflow/(outflow) from investing activities 19,394 (549)
Cash flows from financing activities
Purchase of own shares for treasury (7,421) (1,261)
Equity dividends paid 8 (13,428) (12,552)
Net cash outflow from financing activities (20,849) (13,813)
Increase/(decrease) in cash and cash equivalents 7,948 (3,280)
Analysis of changes in cash and short term deposits
Opening balance 5,807 9,471
Increase/(decrease) in cash and short term deposits 7,948 (3,280)
Foreign exchange movements (1,052) (384)
Closing balance 12,703 5,807
Represented by:
Money market funds 8,486 -
Cash and short term deposits 4,217 5,807
12,703 5,807
The accompanying notes are an integral part of the financial statements.
Notes to the Financial Statements
For the year ended 31 July 2024
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 £'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 is mindful that the Convertible Unsecured Loan Stock 2025 ("CULS")
is due to mature on 31 May 2025. The Board expects to be able to refinance the
CULS if desired, by arranging a new bank facility, drawing down under the Loan
Note Shelf Facility or by arranging alternative finance. In the event that the
Board chooses not to refinance the maturing CULS the Board and Manager will
repay the CULS from portfolio sales. To this end the Manager has conducted
stress testing on the portfolio covering reasonably possible downside market
scenarios with attention on the resulting liquidity of the portfolio. The
plausible downside scenarios modelled include historical market events
including the Chinese Devaluation, COVID-19 and other similar shocks and
resulted in a reduction in portfolio valuation of up to 27.5% in the worst
case which would not impact any future plans to redeem of the CULS or the
business model of the Company.
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 2024 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
and considered the Company's Statement of Financial Position as at 31 July
2024 which shows net current liabilities of £22.3 million at that date, and
do not consider this to be a concern due to the liquidity of the portfolio
which would enable the Company to meet any short term liabilities if required.
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.
(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
- 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.
(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.
Gains and losses on sale of investments purchased and sold in India after 1
April 2017 are liable to capital gains tax in India. At each year end date, a
provision for capital gains tax is calculated based upon the Company's
realised and unrealised gains and losses. There are two rates of tax:
short-term and long-term. The short-term rate of tax is applicable to
investments held for less than 12 months and the long-term rate of tax is
applicable to investments held for more than twelve months. The provision is
recognised in the Statement of Financial Position and the year-on-year
movement in the provision is recognised in the Statement of Comprehensive
Income.
(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 (2023 - 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 2024 may not be available at the time of any future
distribution due to movements between 31 July 2024 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 2024.
3. Income
2024 2023
£'000 £'000
Income from investments
Overseas dividends 16,007 19,055
UK dividend income 795 718
Stock dividends - 25
16,802 19,798
Other income
Deposit interest 150 186
Interest from money market funds 320 -
470 186
Total income 17,272 19,984
4. Investment management fees
2024 2023
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment management fees 769 2,307 3,076 753 2,259 3,012
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 £250 million, 0.6% for the next £500 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 £534,000 (2023 -
£506,000) which represents two months' fees (2023 - two 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
2024 2023
£'000 £'000
Administration fees(A) 119 112
Directors' fees(B) 173 161
Promotional activities(C) 210 219
Auditors' remuneration(D)
- fees payable to the auditors for the audit of the annual financial 52 48
statements
Custodian charges 364 278
Depositary fees 49 46
Registrar fees 43 55
Legal and professional fees 57 93
Other expenses 239 300
1,306 1,312
(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 £60,000 (2023 - £86,000). 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 £210,000 (2023 - £219,000). There was a £173,000
(2023 - £73,000) balance due to abrdn plc at the year end.
(D) There are no non-audit fees charged.
6. Finance costs
2024 2023
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Bank interest paid 5 15 20 1 2 3
Interest on 3.05% Senior Unsecured Loan Note 2035 231 692 923 230 691 921
Interest on 2.25% CULS 2025 203 611 814 208 623 831
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 1,504 2,005 501 1,502 2,003
Finance costs have been charged 25% to revenue and 75% to capital.
7. Taxation
2024 2023
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
(a) Analysis of charge for the year
Indian capital gains tax charge on sales - 4,690 4,690 - - -
Overseas taxation 1,407 - 1,407 1,279 182 1,461
Total current tax charge for the year 1,407 4,690 6,097 1,279 182 1,461
Deferred tax charge on Indian capital gains - 5,682 5,682 - 1,925 1,925
Total tax charge for the year 1,407 10,372 11,779 1,279 2,107 3,386
The Company has recognised a deferred tax liability of £10,291,000 (2023 -
£4,609,000) on capital gains which may arise if Indian investments are sold.
The Company has not provided for UK deferred tax on any realised and
unrealised gains or losses of investments as it is exempt from UK tax on these
items due to its status as an investment trust company.
At 31 July 2024 the Company had surplus management expenses and loan
relationship deficits of £82,534,000 (2023 - £76,652,000) 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
£20,634,000 (2023 - £19,163,000).
(b) Factors affecting the tax charge for the year. The tax assessed for the year
is the current standard rate of corporation tax in the UK for a large company
of 25% (2023 - lower). The differences are explained below:
2024 2023
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Return before taxation 14,696 34,408 49,104 17,418 21,157 38,575
Return multiplied by the standard tax rate of corporation tax of 25% (2023 - 3,674 8,602 12,276 3,658 4,443 8,101
effective rate of 21%)
Effects of:
Gains on investments not taxable - (9,818) (9,818) - (5,317) (5,317)
Exchange losses - 263 263 - 81 81
Overseas tax 1,407 - 1,407 1,279 182 1,461
Movement in deferred tax liability on Indian capital gains - 5,682 5,682 - 1,925 1,925
Indian capital gains tax charged on sales - 4,690 4,690 - - -
UK dividend income (199) - (199) (151) - (151)
Non-taxable dividend income (4,002) - (4,002) (4,007) - (4,007)
Expenses not deductible for tax purposes 9 - 9 4 3 7
Movement in unutilised management expenses 634 577 1,211 391 474 865
Movement in unutilised loan relationship deficits (116) 376 260 105 316 421
Total tax charge for the year 1,407 10,372 11,779 1,279 2,107 3,386
8. Dividends
2024 2023
£'000 £'000
Third interim dividend for 2023 - 1.6p (2022 - 1.6p) - 2,511
Fourth interim dividend for 2023 - 1.61p (2022 - nil) 2,515 -
Special dividend for 2023 - 2.25p (2022 - 1.6p) 3,498 2,511
First interim dividend for 2024 - 1.6p (2023 - 1.6p) 2,488 2,511
Second interim dividend for 2024 - 1.6p (2023 - 1.6p) 2,466 2,511
Third interim dividend for 2024 - 1.6p (2023 - 1.6p) 2,461 2,508
13,428 12,552
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 £13,289,000
(2023- £16,139,000).
2024 2023
£'000 £'000
First interim dividend for 2024 - 1.6p (2023 - 1.6p) 2,488 2,511
Second interim dividend for 2024 - 1.6p (2023 - 1.6p) 2,466 2,511
Third interim dividend for 2024 - 1.6p (2023 - 1.6p) 2,461 2,508
Fourth interim dividend for 2024 - 1.62p (2023 - 1.61p) 2,488 2,515
Proposed special dividend for 2024 - 1.00p (2023 - 2.25p) 1,513 3,498
11,416 13,543
The amount reflected above for the cost of the special dividend for 2024 is
based on 151,254,218 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
2024 2023
Revenue Capital Total Revenue Capital Total
Basic
Net return after taxation (£'000) 13,289 24,036 37,325 16,139 19,050 35,189
Weighted average number of shares in issue(A) 154,769,839 156,862,299
Return per share (p) 8.59 15.53 24.12 10.29 12.14 22.43
2024 2023
Diluted Revenue Capital Total Revenue Capital Total
Net return after taxation (£'000) 13,511 24,704 38,215 16,366 19,730 36,096
Weighted average number of shares in issue(AB) 167,264,923 169,366,591
Return per share (p) 8.08 14.77 22.85 9.66 11.65 21.31
(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 12,495,085 (2023 - 12,504,292) to 167,264,923 (2023 - 169,366,591) Ordinary
shares.
For the year ended 31 July 2024 the assumed conversion for potential Ordinary
shares was dilutive to the revenue and the capital return per Ordinary share
(2023 - dilutive to the revenue return and the capital return). Where dilution
occurs, the net returns are adjusted for interest charges and issue expenses
relating to the CULS (2024 - £890,000; 2023 - £907,000). 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
2024 2023
£'000 £'000
Opening book cost 397,237 377,733
Opening investment holding gains 152,435 147,108
Opening fair value 549,672 524,841
Analysis of transactions made during the year
Purchases at cost 200,360 76,896
Sales proceeds received (224,506) (77,383)
Gains on investments 39,271 25,318
Closing fair value 564,797 549,672
Closing book cost 407,225 397,237
Closing investment gains 157,572 152,435
Closing fair value 564,797 549,672
2024 2023
£'000 £'000
Investments listed on an overseas investment exchange 550,046 537,379
Investments listed on the UK investment exchange 14,751 12,293
564,797 549,672
The Company received £224,506,000 (2023 - £77,383,000) from investments sold
in the period. The book cost of these investments when they were purchased was
£190,372,000 (2023 - £57,392,000). 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:
2024 2023
£'000 £'000
Purchases 257 95
Sales 446 159
703 254
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
2024 2023
£'000 £'000
Amounts due from brokers for sales 2,560 1,343
Other debtors 897 754
Prepayments and accrued income 351 140
3,808 2,237
None of the above amounts is past their due date or impaired (2023 - same).
12. Creditors: amounts falling due within one year
2024 2023
(a) Other creditors £'000 £'000
Amounts due to brokers for purchases 1,155 -
Amounts due for the purchase of own shares to treasury 56 -
Other creditors 1,272 1,250
2,483 1,250
2024 2023
Number of Liability Equity Number of Liability Equity
units component component units component component
(b) 2.25% CULS 2025 £'000 £'000 £'000 £'000 £'000 £'000
Balance at beginning of year 36,629 36,175 1,057 - - -
Conversion of 2.25% CULS 2025 (55) (55) - - - -
Notional interest on CULS transferred to revenue reserve - 154 - - - -
Amortisation and issue expenses - 94 - - - -
Balance at end of year 36,574 36,368 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 (2023 - 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 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 2024 the Company received elections from CULS holders to convert £54,939
(2023 - £12,753) nominal amount of CULS into 18,740 (2023 - 4,347) Ordinary
shares.
The fair value of the 2025 CULS at 31 July 2024 was £35,441,000 (2023 -
£34,890,000).
13. Non-current liabilities
2024 2023
Number of Liability Equity Number of Liability Equity
units component component units component component
(a) 2.25% CULS 2025 £'000 £'000 £'000 £'000 £'000 £'000
Balance at beginning of year - - - 36,642 35,940 1,057
Conversion of 2.25% CULS 2025 - - - (13) (13) -
Notional interest on CULS transferred to revenue reserve - - - - 154 -
Amortisation and issue expenses - - - - 94 -
Balance at end of year - - - 36,629 36,175 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 (2023 - 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 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 2024 the Company received elections from CULS holders to convert £54,939
(2023 - £12,753) nominal amount of CULS into 18,740 (2023 - 4,347) Ordinary
shares.
The fair value of the 2025 CULS at 31 July 2024 was £35,441,000 (2023 -
£34,890,000).
2024 2023
(b) Loan Note £'000 £'000
3.05% Senior Unsecured Loan Note 2035 30,000 30,000
Unamortised Loan Note issue expenses (94) (102)
29,906 29,898
On 1 December 2020 the Company issued £30,000,000 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 £118,000 will be amortised over the life of the loan
note. There is also a shelf facility of £35,000,000 available to the Company
for the purpose of repaying the CULS, which has not been unutilised. The shelf
facility is uncommitted and subject to credit committee approval in advance of
any drawing. 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
£225,000,000 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 2024 was
£27,112,000 (2023 - £26,603,000), the value being based on a comparable
quoted debt security.
2024 2023
£'000 £'000
(c) Deferred tax liability on Indian capital gains 10,291 4,609
14. Called up share capital
2024 2023
£'000 £'000
Allotted, called-up and fully paid
Ordinary shares of 5p (2023 - 5p) 7,681 7,823
Treasury shares 2,755 2,612
10,436 10,435
Ordinary Treasury Total
shares shares shares
Number Number Number
At 31 July 2023 156,457,978 52,244,590 208,702,568
Conversion of CULS 18,740 - 18,740
Buyback of own shares (2,850,000) 2,850,000 -
At 31 July 2024 153,626,718 55,094,590 208,721,308
During the year 2,850,000 Ordinary shares of 5p were purchased (2023 - 500,000
Ordinary shares of 5p were purchased) by the Company at a total cost of
£7,476,000 (2023 - total cost of £1,262,000), all of which were held in
treasury. At the year end 55,094,590 (2023 - 52,244,590) shares were held in
treasury, which represents 26.40% (2023 - 25.03%) of the Company's total
issued share capital at 31 July 2024. During the year there were a further
18,740 (2023 - 4,347) Ordinary shares issued as a result of CULS conversions.
Since the year end the Company bought back for treasury a further 2,372,500
Ordinary shares for a total consideration of £6,809,000.
15. Reserves
2024 2023
£'000 £'000
Capital reserve
At 31 July 2023 393,238 375,450
Movement in investment holdings fair value 5,137 5,327
Gains on realisation of investments at fair value 34,134 19,991
Purchase of own shares to treasury (7,476) (1,262)
Movement in deferred liability on Indian capital gains (5,682) (1,925)
Capital gains tax on sales - (182)
Foreign exchange movement (1,052) (384)
Capital expenses (3,811) (3,777)
At 31 July 2024 414,488 393,238
The capital reserve includes investment holding gains amounting to
£157,572,000 (2023 - £152,435,000) 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
2024 2023
Basic
Net assets attributable £502,260,000 £485,784,000
Number of shares in issue(A) 153,626,718 156,457,978
Net asset value per share 326.94p 310.49p
2024 2023
Diluted
Net assets attributable £538,628,000 £521,959,000
Number of shares in issue(A) 166,109,558 168,959,568
Net asset value per share(B) 324.26p 308.93p
(A) Calculated excluding shares held in treasury.
(B) The diluted net asset value per share has been calculated on the
assumption that £36,574,720 (2023 - £36,629,659) 2.25% Convertible Unsecured
Loan Stock 2025 ("CULS") is converted at 293.0p (2023 - 293.0p) per share,
giving a total of 166,109,558 (2023 - 168,959,568) 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 (2023 - 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 2024 the cum
income NAV was 326.94p (2023 - 310.49p) and thus the CULS were 'in the money'
(2023 - same).
17. Analysis of changes in net debt
At At
31 July Currency Cash Non-cash 31 July
2023 differences flows movements 2024
£'000 £'000 £'000 £'000 £'000
Cash and short term deposits 5,807 (1,052) 7,948 - 12,703
Debt due within one year - - - (36,368) (36,368)
Debt due after more than one year (70,682) - - 30,485 (40,197)
(64,875) (1,052) 7,948 (5,883) (63,862)
At At
31 July Currency Cash Non-cash 31 July
2022 differences flows movements 2023
£'000 £'000 £'000 £'000 £'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)
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 2024. The
balance of fees due to Directors at the year end was £nil (2023 - £nil).
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 which average Fixed Floating
rate is fixed interest rate rate rate
At 31 July 2024 Years % £'000 £'000
Assets
Sterling - - - 11,295
Chinese Renminbi - - - 985
Vietnam Dong - - - 247
New Taiwan Dollar 155
Indian Rupee - - - 20
US Dollar - - - 1
- - - 12,703
Liabilities
2.25% Convertible Unsecured Loan Stock 2025 0.83 2.3 36,368 -
3.05% Senior Unsecured Loan Note 2035 11.34 3.1 29,906 -
- - 66,274 -
Weighted average Weighted
period for which average Fixed Floating
rate is fixed interest rate rate rate
At 31 July 2023 Years % £'000 £'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 -
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 2024 31 July 2023
Net monetary Total Net monetary Total
Overseas assets/ currency Overseas assets/ currency
investments (liabilities) exposure Investments (liabilities) exposure
£'000 £'000 £'000 £'000 £'000 £'000
Chinese Renminbi 23,653 985 24,638 21,839 775 22,614
Danish Krona - - 10,937 - 10,937
Hong Kong Dollar 45,564 - 45,564 49,118 - 49,118
Indian Rupee 159,012 20 159,032 89,410 - 89,410
Indonesian Rupiah 53,552 - 53,552 64,045 - 64,045
Korean Won 53,366 - 53,366 46,231 - 46,231
Malaysian Ringgit 18,784 - 18,784 30,827 - 30,827
New Taiwan Dollar 81,434 155 81,589 69,008 - 69,008
New Zealand Dollar 6,727 - 6,727 12,605 - 12,605
Philippine Peso 19,012 - 19,012 20,287 - 20,287
Singapore Dollar 2,290 - 2,290 33,221 - 33,221
Sri Lankan Rupee 13,801 - 13,801 14,586 - 14,586
Thailand Baht 22,347 - 22,347 32,643 4 32,647
US Dollar 10,073 1 10,074 11,461 3 11,464
Vietnamese Dong 40,431 247 40,678 31,161 361 31,522
550,046 1,408 551,454 537,379 1,143 538,522
Sterling 14,751 (54,979) (40,228) 12,293 (61,409) (49,116)
Total 564,797 (53,571) 511,226 549,672 (60,266) 489,406
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.
Other price risk. Other price risks (ie changes in market prices other than
those arising from interest rate or currency risk) may affect the value of the
quoted investments.
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
and 104 of the published Annual Report and financial statements for the year
ended 31 July 2024, 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% (2023 - 20%) higher or lower while all other variables remained constant,
the return attributable to Ordinary shareholders for the year ended 31 July
2024 would have increased/(decreased) by £112,959,000 (2023 -
increased/(decreased) by £109,934,000) 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 2024 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 2024.
Liquidity risk exposure. At 31 July 2024 the Company had borrowings in the
form of the £36,574,000 (2023 - £36,629,000) nominal of 2.25% Convertible
Unsecured Loan Stock 2025 and £29,906,000 (2023 - £29,898,000) in the form
of the 3.05% Senior Unsecured Loan Note 2035.
At 31 July 2024 the amortised cost of the Company's 3.05% Senior Unsecured
Loan Note 2035 was £29,906,000 (2023 - £29,898,000). The maximum exposure at
31 July 2024 was £29,906,000 (2023 - £29,898,000) and the minimum exposure
at 31 July 2024 was £29,898,000 (2023 - £29,892,000).
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 2024 £'000 £'000 £'000 £'000
2.25% Convertible Unsecured Loan Stock 2025 37,053 - 37,053 -
3.05% Senior Unsecured Loan Note 2035 40,523 - 915 39,608
77,576 - 37,968 39,608
Due
Due between
Expected within 3 months Due after
cashflows 3 months and 1 year 1 year
31 July 2023 £'000 £'000 £'000 £'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
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:
2024 2023
Statement Statement
of Financial Maximum of Financial Maximum
Position exposure Position exposure
Current assets £'000 £'000 £'000 £'000
Debtors and prepayments 3,808 3,808 2,237 2,237
Cash and short term deposits 12,703 12,703 5,807 5,807
16,511 16,511 8,044 8,044
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 £27,112,000 as at 31 July 2024 (2023 -
£26,603,000) compared to a value at amortised cost in the financial
statements of £29,906,000 (2023 - £29,898,000) (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 2024 as follows:
Level 1 Level 2 Level 3 Total
As at 31 July 2024 Note £'000 £'000 £'000 £'000
Financial assets and liabilities at fair value through profit or loss
Quoted equities a) 562,138 - - 562,138
Quoted preference shares b) - - 2,438 2,438
Quoted warrants b) - 221 - 221
Net fair value 562,138 221 2,438 564,797
Level 1 Level 2 Level 3 Total
As at 31 July 2023 Note £'000 £'000 £'000 £'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
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 2024 31 July 2023
Level 3 Financial assets at fair value through profit or loss £'000 £'000
Opening fair value 12,910 9,664
Transfer to level 1 (9,958) -
Transfers from level 2 - 2,952
Total gains or losses included in losses on investments in the Statement of
Comprehensive Income:
- assets disposed of during the year - -
- assets held at the end of the year (514) 294
Closing balance 2,438 12,910
The Company's investee, CEBU Holdings received final regulatory approval to
merge with another company, Ayala Land, during the year and new shares were
issued in Ayala Land to satisfy the transaction by a share conversion. The
valuation methodology previously employed was based on the underlying quoted
price of Ayala Land and the implied conversion ratio providing a value of
£9,958,000 at the previous year end, 31 July 2023. As a result, a transfer of
£9,958,000 has been made from level 3 to level 1.
Transfers from level 2 during 2023 comprise Millennium & Copthorne
preference shares of £2,835,000 to reflect the absence of a consistent market
quote. These have been priced in line with their Ordinary shares and valued at
£2,438,000 at the current year end. In addition First Sponsor Group warrants
of £117,000 have been classified as level 3 to reflect their illiquidity.
Their fair value has been based on a trade executed in February 2023 and the
holding was sold during the year.
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:
2024 2023
£'000 £'000
Equity
Equity share capital 10,436 10,435
Reserves 491,824 475,349
Liabilities
3.05% Senior Unsecured Loan Note 2035 29,906 29,898
2.25% Convertible Unsecured Loan Stock 2025 36,368 36,175
568,534 551,857
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.
2024 2023
£'000 £'000
Investments at fair value through profit or loss 564,797 549,672
Current assets excluding cash and cash equivalents 1,248 894
Current liabilities (1,328) (1,250)
Deferred tax liability on Indian capital gains (10,291) (4,609)
554,426 544,707
Shareholders' funds 502,260 485,784
Gearing (%) 10.4 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.
2024 has been presented on a diluted basis as the Convertible Unsecured Loan
Stock ("CULS") is "in the money" (2023 - same).
As at As at
31 July 2024 31 July 2023
NAV per Ordinary share (p) a 324.26 308.93
Share price (p) b 278.00 264.00
Discount (a-b)/a 14.3% 14.5%
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 2024 31 July 2023
Revenue return per Ordinary share (p) a 8.59 10.29
Dividends declared (p) b 6.42 8.66
Dividend cover a/b 1.34 1.19
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 2024 31 July 2023
Borrowings (£'000) a 66,274 66,073
Cash and short term deposits (£'000) b 12,703 5,807
Amounts due to brokers (£'000) c 1,155 -
Amounts due from brokers (£'000) d 2,560 1,343
Shareholders' funds (£'000) e 502,260 485,784
Net gearing (a-b+c-d)/e 10.4% 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.
2024 2023
Investment management fees (£'000) 3,076 3,012
Administrative expenses (£'000) 1,306 1,328
Less: non-recurring charges(A) (£'000) (32) (67)
Ongoing charges (£'000) 4,350 4,273
Average net assets (£'000) 488,772 462,127
Ongoing charges ratio 0.89% 0.92%
(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 2024 NAV Price
Opening at 1 August 2023 a 308.93p 264.00p
Closing at 31 July 2024 b 324.26p 278.00p
Price movements c=(b/a)-1 5.0% 5.3%
Dividend reinvestment(A) d 2.9% 3.5%
Total return c+d +7.9% +8.8%
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%
(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 18 Bishops Square, London, E1 6EG,
at 11:00 a.m. on 6 December 2024.
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 2024 are an abridged
version of the Company's full financial statements, which have been approved
and audited with an unqualified report. The 2023 and 2024 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
2023 is derived from the statutory accounts for 2021 which have been delivered
to the Registrar of Companies. The 2024 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
23 October 2024
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