REG - abrdn Asia Focus plc - Annual Financial Report
20/10/2023 07:00
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RNS Number : 7363Q abrdn Asia Focus plc 20 October 2023
ABRDN ASIA FOCUS PLC
Legal Entity Identifier (LEI): 5493000FBZP1J92OQY70
ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 JULY 2023
· Net Asset Value (total return): +7.6% compared to the Company's
benchmark return, the MSCI AC Asia ex-Japan Small Cap Index, of +8.0%;
· Share price (total return basis): +7.3%;
· Since inception (1995):
o Net Asset Value: +2283.6%;
o Share price: +2158.4%;
o Benchmark return, the MSCI AC Asia ex-Japan Small Cap Index: +261.3%.
· Dividends: Dividends totalling 6.41p (2022 - Ordinary dividend 6.4p)
have been paid, with a further special dividend of 2.25p, bringing the total
distribution for the year to 8.66p (2022 - 8.0p);
· AIC ISA millionaire: abrdn Asia Focus is one of the top 5 companies
that would have made investors £1,000,000 if they had invested their full isa
allowance from 1999 to 2023
· Succession planning of investment managers confirmed: Hugh Young has
confirmed he will be retiring on 31 December 2023. abrdn Asia Focus's
management remains in the experienced hands of Flavia Cheong, abrdn's Head of
Equities, Asia Pacific, Gabriel Sacks and Xin-Yao Ng.
Performance Highlights
Net asset value total return (diluted)(AB) Net asset value per share (diluted)
+7.6% 308.9p
2022 -2.0% 2022 295.3p
Net asset value total return since inception (diluted)(AB) Annualised Net asset value total return since inception (diluted)(AB)
+2283.6% +12.1%
2022 +2115.6% 2022 +12.3%
Share price total return(A) Share price
+7.3% 264.0p
2022 -1.7% 2022 254.0p
MSCI AC Asia ex Japan Small Cap Index total return(C) Discount to net asset value(AB)
+8.0% 14.5%
2022 -5.1% 2022 14.0%
Ongoing charges ratio(A) Dividends per share(D)
0.92% 8.66p
2022 0.88% 2022 8.00p
(A) Alternative Performance Measure (see definition below).
(B) Presented on a diluted basis as the Convertible Unsecured Loan Stock
("CULS") is "in the money" (2022 - same).
(C) Currency adjusted, capital gains basis.
(D) Dividends include special dividends of 2.25p for 2023 (2022 - 1.6p).
Strategic Report
Chair's Statement
This marks my first annual statement for the Company as Chair, following Nigel
Cayzer's retirement as a Director of the Company at last year's Annual General
Meeting. Once again, the Board and I would like to reiterate our thanks to him
for the enormous contribution he made in steering this investment trust
forward since its launch.
Overview
The state of flux in global markets continues. Inflation in Asian economies
was more moderate over the review period than elsewhere, and central banks not
as aggressive in their rate hikes. Even so, the threat of a possible global
recession spilling into the region weighed heavily on investors' minds. As
ever, markets have paid close attention to US Federal Reserve (Fed) policy,
which has put up rates 11 times since March 2022 (with a combined rise of 525
basis points).
As I referenced in the Half Yearly Report, China easing Covid restrictions
raised expectations that a reopening economy would lead to greater demand
across several sectors. This recovery has proved to be patchier than
anticipated. Struggles in the country's property sector continue and political
tensions exacerbated market volatility (once again rising US-China rhetoric
was a notable feature).
By contrast, India has shown signs of recovery in urban consumer demand, and
has a buoyant housing market. The Reserve Bank of India (RBI) forecasts GDP
growth of 6.5% for the 23/24 fiscal year, putting India among the
fastest-growing economies. Indonesia's market has also been stronger, with
domestic spending particularly resilient.
Meanwhile, the ASEAN region continues to look attractive. Your Manager sees
the bloc emerging as a key beneficiary of the shifts in global supply chains
amid the evolving geopolitical landscape, especially between China and the US.
In particular, corporate initiatives to embark on a China plus 1 or China plus
2 strategy as part of a supply chain diversification move is fuelling
investment across ASEAN, with notable beneficiaries such as Vietnam, given its
niche in apparel and electronics; Thailand, which is drawing interest from the
printed circuit board supply chain because of its developed infrastructure and
industrial parks; and Malaysia, for its engineering talent in software design
companies. The bloc's supportive policies, cost competitiveness, industrial
development, linkages to existing manufacturing hubs and rising middle-income
consumers are structural drivers that are not only attracting foreign direct
investment but also spurring intra-Asian trade, and in turn, boosting economic
growth.
Investment Performance
Although the weaker global economic environment has continued to be
challenging for investors, over the last 12 months, on a total return basis,
the Company's net asset value ("NAV") rose +7.6% in sterling terms for the 12
months to the end of July 2023, while the share price return was +7.3% having
been impacted by the widening of the NAV discount to 14.5%. By comparison, the
MSCI AC Asia ex Japan Small Cap (total return) index returned +8.0% and the
MSCI AC Asia ex Japan rose 0.8%. The outperformance of smaller companies in
Asia against their large cap peers now stretches several years, with the small
cap index outperforming large cap by more than 10% annually over the past 3
years, testament to the benefits of investing in this overlooked segment of
the equity market. In addition I am pleased to note that in the two-year
period from 1 August 2021 (the date that we set the Company's new Benchmark
against the new investment policy), the NAV total return has been 6.1%, the
share price total return has been 5.5% and the Benchmark return was 2.5%.
It has been especially satisfying to see the high-quality, cash-generative
small companies favoured by your Manager fare well. This was notably the case
in countries like India and Indonesia, where structural growth, huge consumer
markets and rising adoption of technology led to strong performance from
businesses in a variety of sectors, including banking, industrials, IT, and
branded consumer products. You can read more detail on company-level
performance in the Investment Manager's Report below.
While China has proved to be one of the weaker countries in terms of its
performance, your Manager has taken advantage of volatility and attractive
valuations of certain high-quality smaller companies to add exposure, from a
relatively low base. This was aided by the change of mandate approved by
shareholders last year (which saw the removal of the limit on company size at
initiation), allowing your Manager greater flexibility in picking companies in
larger markets such as China.
Asia is more than just China and India, however, and your Company's portfolio
is highly diversified across the region, focusing on businesses with healthy
balance sheets and strong growth prospects. Stock selection was strong in
Korea and Taiwan, where companies involved in cutting-edge technologies and
digital services benefitted from a recovery in sentiment towards the IT sector
globally, supported by a wave of interest in Artificial Intelligence. Frontier
markets such as Vietnam and Sri Lanka also had a pretty volatile ride due to
political and economic pressures although ended the period on a much stronger
footing, with some of the companies there among the portfolio's strongest
performers.
Over the long term, the value of investing in such hand-picked smaller
companies in Asia has proved their worth. £1,000 invested in 1995 is now
worth £22,580 with dividends reinvested; and your Company is one of the top
five among the Association of Investment Companies (AIC)'s ISA millionaires: a
company that would have made investors over £1,000,000 had they invested
their full ISA allowance from 1999 to 2023.
Dividend and Reserves
The Board recognises the importance of your Company's dividend income for many
shareholders. The Ordinary dividend has been maintained or raised every year
since 1998, and your Board is firmly committed to the new enhanced and
progressive dividend policy approved by shareholders in 2022.
Three interim dividends of 1.6p and a fourth interim of 1.61p have been paid
in March, June, September and December 2023, totalling 6.41p (2022 - Ordinary
dividend 6.4p). Furthermore, I am very pleased to report that the continuing
strength of dividend generation from the portfolio has allowed the Company to
declare a further special interim dividend in respect of the year ended 31
July 2023 of 2.25p per Ordinary share which will be paid on 20 December 2023
to shareholders on the register on the record date of 24 November 2023 (ex
dividend 23 November 2023). The special dividend will bring the total
distribution for the year to 8.66p (2022 - 8.0p).
The Board's strategy is to maintain the progressive dividend policy of the
last 25 years (including with the flexibility to pay dividends out of capital
reserves where merited in the future) in order to provide shareholders with a
regular level of income alongside capital growth prospects. Following payment
of the four interims and special dividend for the year to 31 July 2023, there
remains well over a year's worth of reserves to cover the Ordinary dividend.
Share Capital and Gearing
One of the disappointing aspects of your Company's performance is the
continuing discount to NAV. During the period the shares have traded at an
average discount of -12.5%, which is higher than its long-term average. This
is in line with the Company's immediate peers, at a time when investment trust
discounts have moved to historically wide levels.
Your Board is very mindful of the negative impact of large discounts to NAV to
shareholders. As a result, we have started to buy back Ordinary shares in
the market for treasury. In total 500,000 shares have been purchased in the
Company's financial year (2022: nil), 0.3% of the Company's issued shares
(excluding Treasury shares). A further 595,000 shares have been purchased
since the end of the reporting to date.
We will continue to oversee the judicious use of share buy backs. The shares
bought back in this reporting period were at a weighted average discount to
NAV of -13.5%, supporting the twin aims of reducing the volatility of any
discount whilst modestly enhancing the NAV for shareholders.
The Company's net gearing at 31 July 2023 was 12.1% with the debt provided by
the £30m Loan Notes and the £36.6 million Convertible Unsecured Loan Stock
redeemable in 2025. As at 18 October 2023, the latest practicable date, the
net gearing stood at 10.2%.
Your Investment Manager
When we announced the amended investment policy in November 2021 (and approved
by Shareholders in January 2022) we also introduced a number of other changes;
one of which was to deepen the Company's management team, in particular the
addition of Flavia Cheong, abrdn's Head of Equities, Asia Pacific, as joint
lead manager alongside Hugh Young and Gabriel Sacks and now Xin-Yao Ng, both
of whom have worked alongside Hugh for 15 and 5 years respectively. This was
partially in recognition of the fact that the long-term success of your
Company can be attributed to the strong teamwork at abrdn and that Hugh Young
was nearing retirement.
I can now confirm that Hugh will be retiring on 31 December 2023, the same
point at which he retires from the Manager. Hugh has worked tirelessly on
behalf of the Company since its launch and, both personally and on behalf of
the Board, I would like to thank him and wish him the very best for his
well-earned retirement. The cumulative long term performance disclosed on
page 27 of the published Annual Report and Financial Statements for the year
ended 31 July 2023 is testament to Hugh's skill, dedication and methodology
that he has handed down to the management team over the years. While Hugh
leaves us in good hands with a high-quality team across Asia (over 40
investment personnel across six countries) continuing the vital on-the-ground
research as part of your Company's investment process, he will be much missed.
I know Hugh still views Asia's rapidly developing economies as providing a
fertile ground for smaller companies. Your Manager continues to explore
opportunities across the region to produce a genuinely diversified portfolio
not reliant on any one market, looking for businesses with strong balance
sheets, exceptional business models and demonstrating resilience to macro
concerns.
Responsible Investment
Your Manager has long been at the forefront of including environmental, social
and governance assessment in their investment research. Whilst your Company
is not a 'sustainable fund', we have long acknowledged that the best companies
are sustainable companies, and that is very much your Company's investment
philosophy. Although the portfolio's MSCI ESG rating of 'BB' is in line with
that of the benchmark it is pleasing to note that the Company's portfolio
Economic Emission Intensity is only 13.6% of the benchmark. Further detailed
information can be found in the ESG report on page 106 of the published Annual
Report and Financial Statements for the year ended 31 July 2023.
Active engagement with your investee companies is also a hallmark of your
Manager's long experience of investing in smaller companies in Asia. You can
read more detail on company-level engagement and responsible investing on page
37 of the published Annual Report and Financial Statements for the year ended
31 July 2023.
The task force on climate-related financial disclosures (referred to as
"TCFD") is now a global standard for reporting climate risks and
opportunities. As a listed investment company, the Company is not subject to
the FCA Listing Rule requirement to comply with TCFD reporting. However, the
Board is a keen supporter of the ambitions of TCFD, as it believes it will
improve disclosure of climate related risks. This in turn will help the
Investment Manager and other stakeholders better assess the risks which will
support sound investment decisions. Your Manager is subject to mandatory
requirements to report on the Company as one of its products and the first
abrdn Asia Focus plc TCFD Report, for the year ended 31 December 2022, is
available under the 'Literature' section at asia-focus.co.uk.
Board Succession
As I indicated at the half-year stage, as part of the Board's succession plan,
Randal McDonnell, the Earl of Antrim, will be stepping down at this year's AGM
having completed his service. I'd like to thank Randal for his service to
the Company. It has been a pleasure to have him on the Board and his wise
contributions will be much missed.
Following a review of the Board's skills, background and experience, and with
the support of Fletcher Jones, an independent specialist investment trust
recruitment consultant, I am pleased to announce the appointment of Lucy
Macdonald as his replacement who will be joining the Board immediately
following the close of business of the AGM on 5 December 2023. Lucy has
enjoyed a successful career in asset management and was, until 2020, managing
director, CIO global equities at Allianz Global Investors. Lucy will bring
significant investment experience to the Board. She is an experienced board
director and is currently a member of the investment committee of the RNLI, a
non-executive council member of the Duchy of Lancaster and senior independent
director of JPMorgan Global Emerging Markets Income Trust Plc
To further diversify the Board's composition and deepen the bench strength on
the Board with future Board succession in mind, I am also pleased to announce
the appointment of Davina Curling with effect from 1 March 2024. Davina has
also enjoyed a successful career in asset management and was formerly managing
director, head of European equities at Russell Investments. More recently
Davina has consulted on projects for small companies and start-ups in the
financial, manufacturing and retail sectors. Davina is a non-executive
director of Henderson Opportunities Trust plc and INVESCO Select Trust plc and
is a member of the investment committee of St James's Place Wealth management.
Davina will become Senior Independent Director upon appointment.
Your Board is cognisant of the FCA's diversity and inclusion Policy Statement
PS22/3 and remains committed to corporate governance best practice as
recommended in the Hampton-Alexander and Davies reviews. I am pleased to
confirm that from 1 March 2024, the Board will be compliant with the new
diversity and inclusion targets set out in Chapter 15 of the FCA's Listing
Rules.
Value for Money
We strive to keep the cost of investing low for shareholders to retain as much
of the return on their investment as possible. Ongoing charges for the year
were 0.92% (2022: 0.88%), primarily made up of the management fee. As you
know, the fee was reduced in 2021 to 0.85% for the first £250m, 0.6% for the
next £500m and 0.5% for market capitalisation over £750m, to provide even
better value for money for shareholders. Importantly, the management fee is
tied to the share price of the Company, and not the NAV. This aligns your
Manager's fees with shareholder returns, and sets your Company apart from many
of its peers.
In addition, in 2022 the Company introduced a performance-linked conditional
tender offer for up to 25% of the issued capital. Shareholders will be
offered the opportunity to realise a proportion of their holding for cash at a
level close to NAV less costs in the event of underperformance against the
benchmark in the five year period ending 1 August 2026.
Your Board continues to keep all costs under review but believes that, given
the breadth and depth of on-the-ground research by your Manager, the very
selective stock picking (your Company's portfolio has an active share of 97.8
at year end) and the long-term outperformance, the current fees constitute
good value for money.
Migration of abrdn Savings Plans to interactive investor ("ii")
The Company's Manager, abrdn, has been reviewing its current service provider
for its investment trust share plans (abrdn Savings Plan, Children's Plan and
ISA). In May 2022, abrdn completed the acquisition of ii, the UK's second
largest, award-winning investment platform for self-directing private
investors. Having considered the various options, abrdn has concluded its
review and has decided to migrate its share plan customers to ii in December
2023, given the strength of the ii offering, its understanding of and
enthusiasm for investment trusts and the strong representation of investment
trusts in its customer portfolios. Following completion of the migration,
plan participants should contact the Company's registrars, Equiniti (further
details on page 111 of the published Annual Report and Financial Statements
for the year ended 31 July 2023) if they would like to continue to receive
hard copies of shareholder reports and communications and they will be added
to the Company's mailing list. Plan participants who have queries in respect
of the migration should raise them directly with abrdn's investor services
team by email at inv.trusts@abrdn.com or by telephone on 0808 500 4000 or 00
44 1268 448 222 (Monday to Friday 9am to 5pm - call charges will vary).
Shareholder Engagement and Annual General Meeting
The Company's Annual General Meeting is scheduled for 11:00 a.m. on 5 December
2023. The AGM will be preceded by a short presentation from the management
team and following the formal business there will be a light shareholder
buffet lunch and the opportunity to meet the Directors. In addition to the
usual ordinary business being proposed at the AGM, as special business the
Board is seeking to renew the authority to issue new shares and sell treasury
shares for cash at a premium without pre-emption rules applying and to renew
the authority to buy back shares and either hold them in treasury for future
resale (at a premium to the prevailing NAV per share) or cancel them. I would
encourage all shareholders to support the Company and lodge proxy voting forms
in advance of the meeting, regardless of whether they intend to attend in
person.
In light of the significant take up from shareholders at the online
presentation held in November 2022, in advance of the AGM, the Board has
decided to hold another interactive Online Shareholder Presentation which will
be held at 11:00 a.m. on 21 November 2023. At the presentation, shareholders
will receive updates from the Chair and Manager and there will be the
opportunity for an interactive question and answer session. Following the
online presentation, shareholders will still have time to submit their proxy
votes prior to the AGM and I would encourage all shareholders to lodge their
votes in advance in this manner. Full registration details can be found at:
asia-focus.co.uk.
Outlook
While it has been a tough period for small caps elsewhere, Asia's domestic
growth story means that the region's diverse and fast-growing small companies
are outpacing larger rivals. Asia is forecast to contribute around 70% of
global growth for 2023, according to the IMF's last World Economic Outlook
(published in April). Growth in Asia and the Pacific is set to accelerate to
4.6% this year from 3.8% in 2022.
As I have already referenced, although China's post-Covid recovery has thus
far failed to take off and there has been much talk of the 'Japanification' of
China's economy, improved policy messaging from China's government and more
concrete measures could see an improved backdrop for companies over the longer
term. Meanwhile, India's prime minister Narendra Modi continues to make the
bold claim that India will become one of the world's top three economies
within his third term (should he be re-elected in 2024).
Importantly your Company is able to invest in excellent companies spread
across Asia and it is not dependent on investing solely in India or China.
Recovery in Southeast Asia continues to gather pace and markets like Vietnam
are providing a more positive environment for small-cap investors,
notwithstanding significant volatility there during the year.
Stronger GDP growth should benefit the smaller companies targeted by this
investment trust over time. But by no means does this measure alone
automatically result in strong share-price performance. Pinpointing those
businesses that can succeed and are capable of becoming 'multi-baggers'
(stocks that deliver returns many times over the original investment),
requires a disciplined, bottom-up stock picking approach.
Your Company remains positioned around Asia's long-term structural growth
themes, such as greater domestic consumption that comes with Asia's rising
affluence, booming infrastructure, the growth of digital, moving to a
lower-carbon future, advances in health and wellness technology, and the
opportunities offered by the rollout of 5G, big data and digital
interconnectivity.
Relatively under-researched and inefficient markets across the whole Asian
continent mean there is ample potential for unearthing hidden gems, companies
with strong balance sheets and sustainable earnings prospects that can emerge
stronger. I am confident that with extensive on-the-ground coverage and a
highly experienced management team, your Manager is well positioned to keep
finding quality companies among the hugely varied Asian small cap universe.
Krishna Shanmuganathan
Chair
19 October 2023
Investment Manager's Review
Performance review
Asian small caps demonstrated strong performance over the 12-month review
period to 31 July 2023, despite the volatility across global markets. The
benchmark MSCI AC Asia Ex Japan Small Cap Index returned +8.0% in sterling
terms over the review period. The Company's net asset value ("NAV") and share
price, both in total return terms, increased by 7.6% and 7.3%, respectively.
As your Chair has highlighted earlier in this report, global markets have
faced numerous challenges over the review period, including increasing
inflation and interest rates (especially in developed markets), concerns
regarding a potential global recession and a slower-than-expected China
recovery. Nevertheless, Asian small caps have demonstrated remarkable
resilience, outperforming their larger counterparts by a significant margin.
Over the past three years, the cumulative outperformance of smaller companies
in Asia against the large cap index has amounted to a meaningful 38 percentage
points (the MSCI Asia ex Japan Small Cap gained 43% in the three years to 31
July 2023, compared with 4.2% for the MSCI Asia ex Japan). Heightened market
volatility and macroeconomic uncertainty means our investment process gains
even greater significance and we believe the unwavering rigour in seeking out
quality has proven particularly advantageous over the 12-month period.
Our stock selection in India and Indonesia contributed to the positive
performance, as both countries enjoyed resilient domestic spending during the
review period. India-based engineering and technology solutions company
Cyient, has seen a strong recovery in earnings as demand for engineering
software and design services bounced-back in the aerospace industry, while
margins benefited from management's restructuring efforts over the past few
years. Prestige Estates, a property developer, released robust presales
figures thanks to new projects and continued industry consolidation as they
look to accelerate growth and become a national player. Similarly, Syngene, a
contract research organisation working in pharmaceuticals, biotech and other
industries, also benefited from a series of positive earnings reports.
The company's strategic investments to expand capacity in biologics
manufacturing and discovery services, as well as its solid balance sheet and a
low debt profile, contributed to its success over the review period. Shares of
Indian downstream oil and gas company Aegis Logistics were especially strong
in the last month of the period, as the company released good quarterly
results. In Indonesia, Bank OCBC NISP announced robust first-quarter
performance, buoyed by asset growth due to an improving economic climate.
Other standout performers in Indonesia included Ultrajaya Milk Industry, a
more consumer-driven business focused on household dairy products, and fuel
distributor AKR Corporindo.
At a sector level, technology, industrials and financials were positives for
the portfolio. A stabilising tech sector and rising enthusiasm for generative
artificial intelligence (AI) saw strong performance in both Taiwan and Korea.
Positive stock selection in both countries aided performance over the 12
months. In Korea, Park Systems, manufacturer of atomic force microscopy (AFM)
systems, was the leading contributor to relative results over the year. AFM
has diverse applications in advanced science and technology labs, and the size
of the addressable market should grow over time given it is still a relatively
new field. Leeno Industrial also generated strong returns, with an anticipated
recovery in demand driven by AI and testing initiatives. Meanwhile, in Taiwan,
Sunonwealth Electric Machine Industry, which manufactures industrial fans and
Taiwan Union Technology, which distributes copper-clad laminate, also
contributed to relative performance given an improved outlook for growth. In
addition, Vietnam's leading IT group FPT Corporation advanced over the review
period on continued strong results with the company reporting a 21% profit
jump in the second quarter, driven by a 29% surge in IT service revenues.
Elsewhere, our positioning in several other companies also proved
advantageous. Shares of Thailand-based TISCO Financial Group performed well as
its conservative lending practices over the past few years proved prescient.
Sri Lankan conglomerate John Keells Holdings, which operates in sectors
including transportation, consumer goods, retail, leisure, property, and
financial services, also advanced as a beneficiary of a recovery in tourism
and the overall domestic economy in Sri Lanka following the implementation of
significant structural reforms.
On the other side, your Company's exposure to China and Hong Kong, both among
the worst-performing markets, dragged on performance. Consumer-related sectors
bore the brunt of the selling and the property sector continued to languish.
Key detractors in China included JOINN Laboratories., a drug testing business,
and Sinoma Science & Technology, an advanced materials company focused on
green energy solutions. Hong Kong-listed banking group Dah Sing Financial
Holdings Limited and dry-bulk shipper Pacific Basin Shipping were also weak.
Our stock selection and overweight positioning in Singapore also weighed on
overall performance. Among the main detractors in this market were investment
holding company Yoma Strategic Holdings, a conglomerate operating in Myanmar,
property developer Bukit Sembawang Estates and nanotechnology solutions
provider Nanofilm. The latter reported weak semi-annual results due to slowing
demand and high operating expenses.
Other detractors of note mainly included companies in the consumer
discretionary, materials and health care sectors. Malaysian hotel operator
Shangri-La Hotels Malaysia Bhd., Indonesia-focused M.P. Evans, which produces
palm oil, and Thailand-based Mega Lifesciences PCL came under pressure. In
addition, Taiwan-headquartered e-commerce operator momo.com underperformed, in
part due to disappointing sales growth and broader concerns about the
lacklustre pace of digital sales expansion following the easing of lockdown
measures.
Portfolio Activity
Much the same as we have said in previous reports, market volatility creates
price disconnects, which require managers to focus on fundamentals. We have a
long-term approach to investing and favour businesses with clearer earnings
visibility and stronger fundamentals, focusing on quality companies that are
well placed in structurally growing areas, such as healthcare and technology.
This approach also helps us mitigate downside risks to growth from
inflationary pressures. As such, over the period we have reduced or exited
positions where we felt there was less certainty in a company's earnings
trajectory or where those earnings could be less resilient to current macro
headwinds.
Keeping in line with the Company's focus on quality, we purchased shares in
Taiwan's Sinbon Electronics, which makes cables and connectors for niche
markets. The company supplies products and applications to sectors including
green energy, industrial applications, automotive, medical equipment as well
as communication and electronic peripherals. In a highly fragmented industry,
its competitive edge lies in its capabilities to manufacture highly customised
products for its diversified customer base, as well as its well-entrenched
partnerships with its suppliers and clients. Although its shares were under
pressure after the release of its 2023 first half results, we view it as a
beneficiary of long-term structural trends such as the Internet of Things, 5G
applications and electric vehicles, as well as growing demand for renewable
energy, supported by solid order visibility over the next two to three years.
The company operates a cost pass-through model which ensures healthy margins
and cash-flow.
Another key purchase was Autohome, a dominant Chinese auto platform with more
than 60 million daily active users. It trades at attractive valuations, with
just the cash on its balance sheet representing more than 75% of the Group's
total market value, and we see latent potential for consumer spending to pick
up in China as the economy re-opens. Autohome has an asset-light business
model, delivering comprehensive, independent and interactive content to
automobile buyers and owners. Its core business benefits from the powerful
network-effect characteristics of a classifieds business and it is the number
one player in the market. Its original generated content drives high-quality
user traffic, which in turn results in advertising and lead generation. It is
also expanding into new areas of business, such as auto-related financing for
example and used car sales.
As covered in our interim report, we added other Chinese companies to the
portfolio including seeds & nuts producer ChaCha Food. With
well-established brands, the company has high potential for growth as the
largely fragmented snacks industry in China presents a consolidation
opportunity. As an aside, we engaged with the company over the period to gain
visibility on its risk management policies on key environmental, social and
governance (ESG) topics, and to encourage the company to issue its first ESG
report. We came away with a positive impression given ChaCha's comprehensive
ESG practices in its daily operations, as well as its efforts to improve
disclosure and business integration. We also added Kerry Logistics, one of
Asia's largest integrated logistics providers. With its diversified customer
base, we believe it is well placed to benefit from supply-chain relocation,
e-commerce growth and intra-regional trade in Asia.
Against these purchases, we exited Pacific Basin Shipping, given the lack of
visibility and momentum on shipping rates (despite the compelling supply and
demand dynamic). The industry is likely to enter a significant capex cycle,
which could also affect shareholder returns. Elsewhere, we sold Douzone Bizon,
due to concerns over execution and an uncertain growth outlook, and divested
from eCloudvalley Digital Technology, owing to poor disclosure and a slowdown
in growth. Other sales included Absolute Clean Energy, IPH, Nazara
Technologies and Tatva Chintan Pharma; small positions that we didn't feel
compelled to scale up.
Outlook
We expect global market sentiment to remain volatile in the short term, given
concerns regarding global growth, monetary policies in the US and other
developed markets, as well as developments in China, where macroeconomic data
remains soft. Having said that, at the time of writing the Chinese government
has begun another round of easing measures which should increase support to
the economy at the margin. While we are yet to see more impactful policy
action, there are still good opportunities to invest in small cap stocks that
trade at attractive valuations and that provide exposure to pockets of growth
within China's domestic market.
Elsewhere, other Asian economies are benefiting from diversification in global
supply chains. Companies are adding alternative sourcing locations,
increasingly adopting "China plus one" or "plus two" strategies. We have kept
a large allocation to India in the portfolio, where we have exposure to a
diverse set of companies operating in a number of high-growth industries.
India is in the early stages of a cyclical upswing, and enjoys a demographic
dividend, meaning it is well-placed for sustainable long-term growth. The
region will also gain from growing demand for AI-related apps and chips,
especially in the semiconductor and consumer electronics segments.
Resource-rich Indonesia has a sizeable and dynamic domestic market with rising
post-pandemic consumer demand. There is a more limited universe of small caps
compared with elsewhere, but we believe the portfolio is invested in well-run
businesses with vast long-term potential. Vietnam, meanwhile, has become a key
player in manufacturing - benefiting from diversification in the global supply
chain and numerous free-trade agreements. The country is on a growth track,
and we continue to like the long-term macro story. On the other hand, we do
see some near-term political risk in some parts of the region, with political
uncertainty in Thailand and general elections for both India and Indonesia in
2024. Outside of Thailand though, we generally expect political stability with
a continuity in policy-making which provides a positive backdrop for the
corporate sector.
In summary, we continue to believe Asian small caps offer significant value.
There are attractive opportunities around the structural themes of aspiration,
building Asia, digital future, going green, health & wellness and tech
enablers. Overall, we have been nimble, taking the opportunity to raise the
portfolio's earnings visibility and reduce exposure to names where this
visibility is less certain. As a result, we continue to favour quality Asian
small-cap companies with solid balance sheets and sustainable earnings
prospects that can emerge stronger and position the portfolio well in tough
times. While performance of small caps in the region can be volatile, given
our in-house research capabilities, investment management focus and bottom-up
analysis, we expect to deliver for our shareholders in the long run.
Gabriel Sacks, Flavia Cheong, Xin-Yao Ng & Hugh Young
abrdn Asia Limited
19 October 2023
Overview of Strategy
Business Model
The business of the Company is that of an investment company which seeks to
qualify as an investment trust for UK capital gains tax purposes.
Investment Objective
On 27 January 2022 shareholders approved an amended investment objective. The
Company aims to maximise total return to shareholders over the long term from
a portfolio made up predominantly of quoted smaller companies in the economies
of Asia excluding Japan.
Investment Policy
On 27 January 2022 shareholders approved an amended investment policy. The
Company may invest in a diversified portfolio of securities (including equity
shares, preference shares, convertible securities, warrants and other
equity-related securities) predominantly issued by quoted smaller companies
spread across a range of industries and economies in the Investment Region.
The Investment Region includes Bangladesh, Cambodia, China, Hong Kong, India,
Indonesia, Korea, Laos, Malaysia, Myanmar, Pakistan, The Philippines,
Singapore, Sri Lanka, Taiwan, Thailand and Vietnam, together with such other
economies in Asia as approved by the Board.
The Company may invest up to 10% of its net assets in collective investment
schemes, and up to 10% of its net assets in unquoted companies, calculated at
the time of investment.
The Company may also invest in companies traded on stock markets outside the
Investment Region provided over 75% of each company's consolidated revenue,
operating income or pre-tax profit is earned from trading in the Investment
Region or the company holds more than 75% of their consolidated net assets in
the Investment Region.
When the Board considers it in shareholders' interests, the Company reserves
the right to participate in rights issues by an investee company.
Risk Diversification
The Company will invest no more than 15% of its gross assets in any single
holding including listed investment companies at the time of investment.
Gearing
The Board is responsible for determining the gearing strategy for the Company.
Gearing is used selectively to leverage the Company's portfolio in order to
enhance returns where and to the extent this is considered appropriate to do
so. Gearing is subject to a maximum gearing level of 25% of NAV at the time of
draw down.
Investment Manager and Alternate Investment Fund Manager
The Company's Alternative Investment Fund Manager, appointed as required by EU
Directive 2011/61/EU, is abrdn Fund Managers Limited ("aFML") (previously
known as Aberdeen Standard Fund Managers Limited) which is authorised and
regulated by the Financial Conduct Authority. Day to day management of the
portfolio is delegated to abrdn Asia Limited ("abrdn Asia", the "Manager" or
the "Investment Manager"). aFML and abrdn Asia are wholly owned subsidiaries
of abrdn plc.
Delivering the Investment Policy
The Directors are responsible for determining the investment policy and the
investment objective of the Company. Day to day management of the Company's
assets has been delegated, via the AIFM, to the Investment Manager, abrdn
Asia. abrdn Asia invests in a diversified range of companies throughout the
Investment Region in accordance with the investment policy. abrdn Asia follows
a bottom-up investment process based on a disciplined evaluation of companies
through direct visits by its fund managers. Stock selection is the major
source of added value. No stock is bought without the fund managers having
first met management. abrdn Asia estimates a company's worth in two stages,
quality then price. Quality is defined by reference to management, business
focus, the balance sheet and corporate governance. Price is calculated by
reference to key financial ratios, the market, the peer group and business
prospects. Top-down investment factors are secondary in the abrdn Asia's
portfolio construction, with diversification rather than formal controls
guiding stock and sector weights. Whilst the management of the Company's
investments is not undertaken with any specific instructions to exclude
certain asset types or classes, the Investment Manager embeds ESG into the
research of each asset class as part of the investment process. For the
manager, ESG investment is about active engagement, in the belief that the
performance of assets held around the world can be improved over the longer
term.
A detailed description of the investment process and risk controls employed by
abrdn Asia is disclosed on pages 103 to 105 of the published Annual Report and
Financial Statements for the year ended 31 July 2023. A comprehensive
analysis of the Company's portfolio is disclosed on pages 30 to 40 of the
published Annual Report and Financial Statements for the year ended 31 July
2023 including a description of the ten largest investments, the portfolio
investments by value, sector/geographical analysis and currency/market
performance. At the year end the Company's portfolio consisted of 62 holdings.
Comparative Indices
From 1 August 2021 the Manager has utilised the MSCI AC Asia ex Japan Small
Cap Index (currency adjusted) as well as peer group comparisons for Board
reporting. For periods prior to 1 August 2021, a composite index is used
comprising the MSCI AC Asia Pacific ex Japan Small Cap Index (currency
adjusted) up to 31 July 2021 and the MSCI AC Asia ex Japan Small Cap Index
(currency adjusted) thereafter. It is likely that performance will diverge,
possibly quite dramatically in either direction, from the comparative index.
The Manager seeks to minimise risk by using in-depth research and does not see
divergence from an index as risk.
Promoting the Company's Success
In accordance with corporate governance best practice, the Board is now
required to describe to the Company's shareholders how the Directors have
discharged their duties and responsibilities over the course of the financial
year following the guidelines set out under section 172 (1) of the Companies
Act 2006 (the "s172 Statement"). This Statement, from 'Promoting the Success
of the Company' to "Long Term Investment", provides an explanation of how the
Directors have promoted the success of the Company for the benefit of its
members as a whole, taking into account the likely long term consequences of
decisions, the need to foster relationships with all stakeholders and the
impact of the Company's operations on the environment.
The purpose of the Company is to act as a vehicle to provide, over time,
financial returns to its shareholders. The Company's Investment Objective is
disclosed above. The activities of the Company are overseen by the Board of
Directors of the Company.
The Board's philosophy is that the Company should operate in a transparent
culture where all parties are treated with respect and provided with the
opportunity to offer practical challenge and participate in positive debate
which is focused on the aim of achieving the expectations of shareholders and
other stakeholders alike. The Board reviews the culture and manner in which
the Manager operates at its regular meetings and receives regular reporting
and feedback from the other key service providers.
Investment trusts, such as the Company, are long-term investment vehicles,
with a recommended holding period of five or more years. Typically,
investment trusts are externally managed, have no employees, and are overseen
by an independent non-executive board of directors. Your Company's Board of
Directors sets the investment mandate, monitors the performance of all service
providers (including the Manager) and is responsible for reviewing strategy on
a regular basis. All this is done with the aim of preserving and, indeed,
enhancing shareholder value over the longer term.
Stakeholders
The Company's main stakeholders have been identified as its shareholders, the
Manager (and Investment Manager), service providers, investee companies and
debt providers. More broadly, the environment and community at large are also
stakeholders in the Company. The Board is responsible for managing the
competing interests of these stakeholders. Ensuring that the Manager
delivers out performance for Ordinary shareholders over the longer term
without adversely affecting the risk profile of the Company which is known and
understood by the loan note holders and CULS holders. This is achieved by
ensuring that the Manager stays within the agreed investment policy.
Shareholders
Shareholders are key stakeholders in the Company - they look to the Manager to
achieve the investment objective over time. The following table describes
some of the ways we engage with our shareholders:
AGM The AGM normally provides an opportunity for the Directors to engage with
shareholders, answer their questions and meet them informally. The next AGM
will take place on 5 December 2023 in London. We encourage shareholders to
lodge their vote by proxy on all the resolutions put forward.
Online Shareholder Presentation In November 2022 the Board held an online shareholder presentation which was
attended by over 250 shareholders and prospective investors. Based on the
success of this event a further online presentation will be held on 21
November 2023 at 11:00 a.m.
Annual Report We publish a full annual report each year that contains a strategic report,
governance section, financial statements and additional information. The
report is available online and in paper format.
Company Announcements We issue announcements for all substantive news relating to the Company. You
can find these announcements on the website.
Results Announcements We release a full set of financial results at the half year and full year
stage. Updated net asset value figures are announced on a daily basis.
Monthly Factsheets The Manager publishes monthly factsheets on the Company's website including
commentary on portfolio and market performance.
Website Our website contains a range of information on the Company and includes a full
monthly portfolio listing of our investments as well as podcasts by the
Investment Manager. Details of financial results, the investment process and
Investment can be found at asia-focus.co.uk
Investor Relations The Company subscribes to the Manager's Investor Relations programme (further
details are on page 22 of the published Annual Report and Financial Statements
for the year ended 31 July 2023).
The Manager
The key service provider for the Company is the Alternative Investment Fund
Manager and the performance of the Manager is reviewed in detail at each Board
meeting. The Manager's investment process is outlined on pages 103 to 105
and further information about the Manager is given on page 102 of the
published Annual Report and Financial Statements for the year ended 31 July
2023. Shareholders are key stakeholders in the Company - they are looking to
the Manager to achieve the investment objective over time and to maximise
total return to shareholders over the long term from a portfolio made up
predominantly of quoted smaller companies in the economies of Asia excluding
Japan. The Board is available to meet at least annually with shareholders at
the Annual General Meeting and this includes informal meetings with them over
lunch following the formal business of the AGM. This is seen as a very
useful opportunity to understand the needs and views of the shareholders. In
between AGMs, the Directors and Manager also conduct programmes of investor
meetings with larger institutional, private wealth and other shareholders to
ensure that the Company is meeting their needs. Such regular meetings may
take the form of joint presentations with the Investment Manager or meetings
directly with a Director where any matters of concern may be raised
directly.
Other Service Providers
The other key stakeholder group is that of the Company's third party service
providers. The Board is responsible for selecting the most appropriate
outsourced service providers and monitoring the relationships with these
suppliers regularly in order to ensure a constructive working relationship.
Our service providers look to the Company to provide them with a clear
understanding of the Company's needs in order that those requirements can be
delivered efficiently and fairly. The Board, via the Management Engagement
Committee, ensures that the arrangements with service providers are reviewed
at least annually in detail. The aim is to ensure that contractual
arrangements remain in line with best practice, services being offered meet
the requirements and needs of the Company and performance is in line with the
expectations of the Board, Manager, Investment Manager and other relevant
stakeholders. Reviews include those of the Company's depositary and
custodian, share registrar, broker and auditors.
Principal Decisions
Pursuant to the Board's aim of promoting the long term success of the Company,
the following principal decisions have been taken during the year:
Portfolio The Investment Manager's Review details the key investment decisions
taken during the year and subsequently. The Investment Manager has continued
to monitor the investment portfolio throughout the year under the supervision
of the Board. A list of the key portfolio changes can be found in the
Investment Manager's Report.
Directorate During the year the Board has initiated a search for a new
independent Director as part of the continuing Board succession plans
culminating in the decision to appoint two new Directors as explained in the
Chair's Statement above.
Long Term Investment
The Investment Manager's investment process seeks to outperform over the
longer term. The Board has in place the necessary procedures and processes to
continue to promote the long term success of the Company. The Board will
continue to monitor, evaluate and seek to improve these processes as the
Company continues to grow over time, to ensure that the investment proposition
is delivered to shareholders and other stakeholders in line with their
expectations.
Key Performance Indicators (KPIs)
The Board uses a number of financial performance measures to assess the
Company's success in achieving its objective and to determine the progress of
the Company in pursuing its investment policy. The main KPIs identified by
the Board in relation to the Company, which are considered at each Board
meeting, are as follows:
KPI Description
NAV Return (per share) 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 2023.
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
25 to 27 of the published Annual Report and Financial Statements for the year
ended 31 July 2023. At its regular Board meetings the Board also monitors
share price performance relative to competitor investment trusts over a range
of time periods, taking into consideration the differing investment policies
and objectives employed by those companies.
Share price The Board also monitors the price at which the Company's 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 pages 27 and 56 of
the published Annual Report and Financial Statements for the year ended 31
July 2023.
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 2023.
Dividend In 2022 the Board set a target dividend of 6.4p per share which was achieved
for the year ended 31 July 2022. The aim is to maintain a progressive Ordinary
dividend so that shareholders can rely on a consistent stream of income.
Dividends paid over the past 10 years are set out on page 24 of the published
Annual Report and Financial Statements for the year ended 31 July 2023.
Principal Risks and Uncertainties
There are a number of risks which, if realised, could have a material adverse
effect on the Company and its financial condition, performance and prospects.
Risks are identified and documented through a risk management framework and
further details on the risk matrix are provided in the Directors' Report.
The Board, through the Audit Committee, has undertaken a robust review of the
principal risks and uncertainties facing the Company including those that
would threaten its business model, future performance, solvency or liquidity.
Those principal risks are disclosed in the table below together with a
description of the mitigating actions taken by the Board. The principal risks
associated with an investment in the Company's Shares are published monthly on
the Company's factsheet or they can be found in the pre-investment disclosure
document published by the Manager, both of which are available on the
Company's website.
The Board also has a process to review longer term risks and consider emerging
risks and if any of these are deemed to be significant these risks are
categorised, rated and added to the risk matrix.
Macroeconomic risks arising from geo political uncertainty has been a
significant risk during the year leading to rising interest rates and higher
inflation. In addition to the risks listed below, the Board is also very
conscious of the risks emanating from increased environmental, social and
governance challenges. As climate change pressures mount, the Board
continues to monitor, through its Manager, the potential risk that investee
companies may fail to keep pace with the appropriate rates of change and
adaption.
The Board does not consider that the principal risks and uncertainties
identified have changed during the Year or since the date of this Annual
Report and are not expected to change materially for the current financial
year.
Description Mitigating Action
Shareholder and Stakeholder 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 during the year led to volatility in
equity markets and a widening of the Company's share price discount to NAV. As
a result, the Company has started to buy back shares into treasury. The Broker
and Manager communicate with major shareholders regularly to gauge their views
on the Company, including discount volatility. There are additional direct
meetings undertaken by the Chair and other Directors. The Board monitors
shareholder and market reaction to Company news flow.
Investment Risk The Board sets, and monitors, its investment 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 provides a team of experienced portfolio managers with
detailed knowledge of the Asian markets. The Investment Manager is in
attendance at all Board meetings. The Board also monitors the Company's share
price relative to the NAV.
The Board recognises that investing in unlisted securities carries a higher
risk/reward profile. Accordingly it seeks to mitigate this risk by limiting
investment into such securities to 10% of the Company's net assets (calculated
at the time of investment). For the year ended 31 July 2023 no unlisted
investments were made.
The Manager's risk department reviews investment risk and a review of credit
worthiness of counterparties is undertaken by its Counterparty Credit Risk
team. The Company does not hedge foreign currency exposure but it may, from
time to time, partially mitigate it by borrowing in foreign currencies.
Gearing is provided at attractive rates, the Board and Manager monitor gearing
levels regularly and covenant reports are provided to lenders bi-monthly.
The Investment Manager embeds ESG and the impact of climate change into the
research of each asset class as part of the investment process. ESG investment
is about active engagement, in the belief that the performance of assets held
around the world can be improved over the longer term.
Operational Risk The Board receives reports from the Manager 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 page 50 of the published
Annual Report and Financial Statements for the year ended 31 July 2023.
The Manager has documented succession planning in place for key personnel.
There is a team approach to portfolio management of the Company and this has
been clearly communicated to shareholders
Governance & Regulatory Risk The Board receives assurance from the Manager and Company Secretary and
third party service providers on all aspects of regulatory compliance as well
Risk Unchanged during Year as drawing upon the significant experience of individual Directors. Upon
appointment Directors receive a detailed induction covering relevant
regulatory matters such as Corporate Governance, the Companies Act and Listing
Rules and further training is available if required.
Major Events & Geo Political 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.
Promoting the Company
The Board recognises the importance of promoting the Company to prospective
investors both for improving liquidity and enhancing the value and rating of
the Company's shares. The Board believes an effective way to achieve this is
through subscription to and participation in the promotional programme run by
the Manager on behalf of a number of investment trusts under its management.
The Company's financial contribution to the programme is matched by the
Manager. The Manager reports quarterly to the Board giving analysis of the
promotional activities as well as updates on the shareholder register and any
changes in the make-up of that register.
The purpose of the programme is both to communicate effectively with existing
shareholders and to gain new shareholders with the aim of improving liquidity
and enhancing the value and rating of the Company's shares. Communicating the
long-term attractions of your Company is key and therefore the Company also
supports the Manager's investor relations programme which involves regional
roadshows, promotional and public relations campaigns.
Board Diversity
The Board recognises the importance of having a range of skilled, experienced
individuals with the right knowledge represented on the Board in order to
allow the Board to fulfil its obligations. The Board also recognises the
benefits and is supportive of the principle of diversity in its recruitment of
new Board members. The Board will not display any bias for age, gender,
race, sexual orientation, religion, ethnic or national origins, or disability
in considering the appointment of its Directors. Although the Board does not
set diversity targets, it is mindful of best practice in this area, and the
Board will continue to evolve in 2023/2024, with the stated aim of improving
its diversity. At 31 July 2023, there were four male Directors and one
female Director on the Board. Following the appointments of Lucy Macdonald and
Davina Curling the Board will comprise three male Directors and three female
Directors and will be compliant with the new diversity and inclusion targets
set out in Chapter 15 of the FCA's Listing Rules.
Environmental, Social and Governance ("ESG") Engagement
Whilst the management of the Company's investments is not undertaken with any
specific instructions to exclude certain asset types or classes, the
Investment Manager embeds ESG into the research of each asset class as part of
the investment process. ESG investment is about active engagement, with the
goal of improving the performance of assets held around the world.
The Investment Manager aims to make the best possible investments for the
Company, by understanding the whole picture of the investments - before,
during and after an investment is made. That includes understanding the
environmental, social and governance risks and opportunities they present -
and how these could affect longer-term performance. Environmental, social
and governance considerations underpin all investment activities. With 1,000+
investment professionals, the Investment Manager is able to take account of
ESG factors in its company research, stock selection and portfolio
construction - supported by more than 30 ESG specialists around the world.
Please refer to pages 106 to 110 of the published Annual Report and Financial
Statements for the year ended 31 July 2023 for further detail on the
Investment Manager's ESG policies applicable to the Company.
The Company has no employees as the Board has delegated day to day management
and administrative functions to abrdn Fund Managers Limited. There are
therefore no disclosures to be made in respect of employees. The Company's
socially responsible investment policy is outlined above.
Due to the nature of the Company's business, being a company that does not
offer goods and services to customers, the Board considers that it is not
within the scope of the Modern Slavery Act 2015 because it has no turnover.
The Company is therefore not required to make a slavery and human trafficking
statement. The Board considers the Company's supply chains, dealing
predominantly with professional advisors and service providers in the
financial services industry, to be low risk in relation to this matter.
The Company has no greenhouse gas emissions to report from the operations of
its business, nor does it have responsibility for any other emissions
producing sources under the Companies Act 2006 (Strategic Report and
Directors' Reports) Regulations 2013.
Viability Statement
The Company does not have a formal fixed period strategic plan but the Board
formally considers risks and strategy at least annually. The Board considers
the Company, with no fixed life, to be a long term investment vehicle, but for
the purposes of this viability statement has decided that a period of three
years is an appropriate period over which to report. The Board considers that
this period reflects a balance between looking out over a long term horizon
and the inherent uncertainties of looking out further than three years.
· In assessing the viability of the Company over the review period
the Directors have conducted a robust review of the principal risks, focusing
upon the following factors:
· The principal risks detailed in the Strategic Report;
· The ongoing relevance of the Company's investment objective in the
current environment;
· The demand for the Company's Shares evidenced by the historical
level of premium and or discount;
· The level of income generated by the Company;
· The level of gearing provided by the Company's Loan Stock and Loan
Notes (including the flexibility afforded by the additional £35m available
for drawing under the Loan Note Facility to repay CULS if required in 2025);
and
· In the event of triggering the conditional Tender Offer in 2026,
the liquidity of the Company's portfolio including the results of stress test
analysis performed by the Manager under a wide number of market scenarios.
In making this assessment, the Board has examined scenario analysis covering
the impact of significant historical market events such as the 2008 Global
Financial Crisis, Covid-19 and the Chinese Devaluation on the liquidity of the
portfolio, as well as future scenarios such as geo-political tensions in East
Asia, and how these factors might affect the Company's prospects and viability
in the future.
Accordingly, taking into account the Company's current position, the fact that
the Company's investments are mostly liquid and the potential impact of its
principal risks and uncertainties, the Directors have a reasonable expectation
that the Company will be able to continue in operation and meet its
liabilities as they fall due for a period of three years from the date of this
Report. In making this assessment, the Board has considered that matters such
as significant economic or stock market volatility, a substantial reduction in
the liquidity of the portfolio or changes in investor sentiment could have an
impact on its assessment of the Company's prospects and viability in the
future.
Future
The Board's view on the general outlook for the Company can be found in my
Chair's Statement whilst the Investment Manager's views on the outlook for the
portfolio are included in the Investment Manager's Review.
The Strategic Report has been approved by the Board and signed on its behalf
by:
Krishna Shanmuganathan,
Chair
19 October 2023
Results
Performance (total return)
1 year 3 year 5 year 10 year Since
% return % return % return % return inception
Share price(A) +7.3 +45.9 +41.0 +59.1 +2158.4
Net asset value per Ordinary share - diluted(AB) +7.6 +49.6 +38.5 +83.7 +2283.6
MSCI AC Asia ex Japan Small Cap Index (currency adjusted) +8.0 +43.2 +36.4 +102.0 +261.3
(A) Considered to be an Alternative Performance Measure (see definition below
for more information).
(B) 1 year return calculated on a diluted basis as CULS is "in the money". All
other returns are calculated on a diluted basis.
Source: abrdn, Morningstar, Lipper & MSCI
Ten Largest Investments
As at 31 July 2023
Park Systems Corporation Bank OCBC NISP
5.2% 4.2%
Total assets Total assets
The Korean company is the leading developer of atomic force microscopes, a An Indonesian listed banking and financial services company, which is a steady
nascent technology that could have broad industrial application in sectors consistent performer backed by healthy asset quality.
such as chip-making and biotechnology.
Cyient Aegis Logistics
3.6% 3.1%
Total assets Total assets
The Indian company provides engineering and IT services to clients in A strong and conservative player in India's gas and liquids logistics sector,
developed markets, competing primarily on quality of service and cost of with a first mover advantage in key ports and a fair amount of capacity
delivery. expansion to come. The government's push for the adoption of cleaner energy is
also boosting its liquefied natural gas business.
FPT Corporation AKR Corporindo
3.0% 3.0%
Total assets Total assets
FPT is a diversified technology group with a fast-growing software outsourcing AKR is one of the main players in industrial fuel in Indonesia, which has a
business. It also owns a telecoms unit, an electronics retailing company, and high entry barrier. Its key strength is its extensive infrastructure and
has interests in other sectors, such as education. logistic facilities throughout the country.
AEM Holdings Taiwan Union
2.7% 2.7%
Total assets Total assets
A Singapore-based provider of advanced semiconductor chip testing services Taiwan Union Technology Corp is a leading maker of copper clad laminate (CCL),
that has embedded itself in chipmaker Intel's global supply chain. 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..
John Keells Holdings Nam Long Invest Corporation
2.6% A respected and reputable Sri Lanka conglomerate with a healthy balance sheet 2.6%
and good execution, John Keells has a hotels and leisure segment that includes
Total assets properties in the Maldives. It has other interests in consumer, transportation Total assets
and financial services.
A reputable Vietnamese developer in Ho Chi Minh City that focuses on the
affordable housing segment, with decent land bank and promising project
pipeline.
Park Systems Corporation
4.2%
Total assets
Bank OCBC NISP
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.
An Indonesian listed banking and financial services company, which is a steady
consistent performer backed by healthy asset quality.
3.6%
Total assets
Cyient
3.1%
Total assets
Aegis Logistics
The Indian company provides engineering and IT services to clients in
developed markets, competing primarily on quality of service and cost of
delivery.
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.
3.0%
Total assets
FPT Corporation
3.0%
Total assets
AKR Corporindo
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.
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.
2.7%
Total assets
AEM Holdings
2.7%
Total assets
Taiwan Union
A Singapore-based provider of advanced semiconductor chip testing services
that has embedded itself in chipmaker Intel's global supply chain.
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..
2.6%
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.
2.6%
Total assets
Nam Long Invest Corporation
A reputable Vietnamese developer in Ho Chi Minh City that focuses on the
affordable housing segment, with decent land bank and promising project
pipeline.
Portfolio
As at 31 July 2023
Valuation Total Valuation
2023 assets 2022
Company Industry Country £'000 % £'000
Park Systems Corporation Electronic Equipment, Instruments & Components South Korea 28,924 5.2 17,120
Bank OCBC NISP Banks Indonesia 23,675 4.2 13,356
Cyient Software India 19,980 3.6 14,016
Aegis Logistics Oil, Gas & Consumable Fuels India 16,974 3.1 13,716
FPT Corporation IT Services Vietnam 16,849 3.0 15,444
AKR Corporindo Oil, Gas & Consumable Fuels Indonesia 16,518 3.0 18,389
AEM Holdings Semiconductors & Semiconductor Equipment Singapore 15,213 2.7 17,802
Taiwan Union Electronic Equipment, Instruments & Components Taiwan 14,928 2.7 5,778
John Keells Industrial Conglomerates Sri Lanka 14,586 2.6 7,640
Nam Long Invest Corporation Real Estate Management & Development Vietnam 14,312 2.6 15,030
Top ten investments 181,959 32.7
Sinoma Science & Technology - A Chemicals China 13,936 2.5 15,756
Mega Lifesciences (Foreign) Pharmaceuticals Thailand 13,715 2.5 13,524
Affle India Media India 13,612 2.4 18,847
Sporton International Professional Services Taiwan 13,280 2.4 9,123
Medikaloka Hermina Health Care Providers & Services Indonesia 12,728 2.3 14,656
M.P. Evans Group Food Products United Kingdom 12,293 2.2 13,857
Dah Sing Financial Banks Hong Kong 12,225 2.2 13,682
LEENO Industrial Semiconductors & Semiconductor Equipment South Korea 11,610 2.1 6,322
Autohome - ADR Interactive Media & Services China 11,462 2.1 -
Oriental Holdings Automobiles Malaysia 11,202 2.0 12,281
Top twenty investments 308,022 55.4
Ultrajaya Milk Industry & Trading Food Products Indonesia 11,124 2.0 9,030
UIE Food Products Denmark 10,937 2.0 12,352
Precision Tsugami China Machinery China 10,931 2.0 11,973
Prestige Estates Projects Real Estate Management & Development India 10,887 1.9 7,162
Joinn Laboratories China - H Life Sciences Tools & Services China 10,472 1.9 12,745
Asian Terminals Transportation Infrastructure Philippines 10,329 1.8 10,161
Sunonwealth Electric Machinery Industry Machinery Taiwan 10,029 1.8 11,071
Cebu Real Estate Management & Development Philippines 9,958 1.8 9,664
Hana Microelectronics (Foreign) Electronic Equipment, Instruments & Components Thailand 9,911 1.8 8,736
MOMO.com Internet & Direct Marketing Retail Taiwan 9,222 1.6 16,160
Top thirty investments 411,822 74.0
Millenium & Copthorne Hotels New Zealand (A) Hotels, Restaurants & Leisure New Zealand 8,546 1.5 9,808
Syngene International Life Sciences Tools & Services India 8,333 1.5 6,521
Vijaya Diagnostic Centre Health Care Providers & Services India 8,027 1.5 5,645
ChaCha Food - A Food Products China 7,903 1.4 -
AEON Credit Service (M) Consumer Finance Malaysia 7,677 1.4 9,701
Bukit Sembawang Estates Real Estate Management & Development Singapore 7,541 1.4 9,322
SINBON Electronics Electronic Equipment, Instruments & Components Taiwan 6,824 1.2 -
Sanofi India Pharmaceuticals India 6,823 1.2 6,770
Pentamaster International Semiconductors & Semiconductor Equipment Malaysia 6,782 1.2 4,850
KMC Kuei Meng International Leisure Products Taiwan 6,236 1.1 4,560
Top forty investments 486,514 87.4
United Plantations Food Products Malaysia 6,067 1.1 5,815
Koh Young Technology Semiconductors & Semiconductor Equipment South Korea 5,697 1.0 4,879
Tisco Financial (Foreign) Banks Thailand 5,547 1.0 4,827
CE Info Systems Software India 4,774 0.9 2,421
Kerry Logistics Air Freight & Logistics Hong Kong 4,544 0.8 -
Shangri-La Hotels Malaysia Hotels, Restaurants & Leisure Malaysia 4,542 0.8 5,867
Andes Technology Semiconductors & Semiconductor Equipment Taiwan 4,513 0.8 3,470
Yoma Strategic Real Estate Management & Development Myanmar 4,282 0.8 5,943
NZX Capital Markets New Zealand 4,059 0.8 4,253
Convenience Retail Asia Food & Staples Retailing Hong Kong 4,013 0.7 4,314
Top fifty investments 534,552 96.1
Aspeed Technology Semiconductors & Semiconductor Equipment Taiwan 3,976 0.6 3,652
Thai Stanley Electric (Foreign) Auto Components Thailand 3,470 0.6 2,912
Credit Bureau Asia Professional Services Singapore 2,953 0.6 3,228
Nanofilm Technologies International Chemicals Singapore 2,868 0.5 4,856
Manulife Insurance Malaysia 1,339 0.3 1,675
First Sponsor Group (Warrants 21/03/2029) Real Estate Management & Development Singapore 247 0.1 276
AEON Stores Hong Kong Multiline Retail Hong Kong 150 - 279
First Sponsor Group (Warrants 30/05/2024) Real Estate Management & Development Singapore 117 - 158
Total investments 549,672 98.8
Net current assets 6,794 1.2
Total assets(B) 556,466 100.0
(A) Holding includes investment in both common and preference lines.
(B) Total assets less current liabilities.
Investment and ESG Case Studies
Sinoma Science
In which year did we first invest?
2022
% Holding:
2.5%
Where is their head office?
Beijing, China
What is their web address?
www.sinomatech.com/en/p_s/
What does the company do?
Sinoma is one of the largest wind turbine blade producers in China and the
third largest battery separator maker, which is backed by strong R&D
capability and support from its parent group.
Why do we like the investment?
We view the stock as a proxy for growth of wind energy. Sinoma is also one of
the best state-owned enterprises (SOEs) in China focusing on the development
of
new materials.
Among the company's key strengths is its research and development (R&D)
capability. Upon its Shenzhen listing in 2006, Sinoma had inherited a few
R&D institutes, including a national laboratory that was focused on
developing fibreglass materials. The company has continued to build on its
solid R&D foundation.
Sinoma's capable management deserves mention. It has demonstrated strong
entrepreneurship in developing downstream applications including wind turbine
blades and battery separators. The team has also been stable and runs the
company like a privately owned enterprise despite its SOE roots.
As a result, the company is now the largest wind blade producer,
second-largest fibreglass maker and the No.3 separator maker in China. It also
has a large trove of new materials waiting to be commercialised including
hydrogen storage tanks. The hydrogen storage tank segment is a small but
rapidly growing business, with potential for growth. The industry has policy
support because it is a key development area for the
central government.
When did we engage Sinoma on ESG?
We last met Sinoma in November 2022.
What were the key areas of engagement?
We have engaged Sinoma mostly around climate change, especially on disclosure
of its ESG efforts. Its disclosure around water management and carbon emission
given its exposure in fibreglass production is still subpar. However, we
expect further ESG improvements ahead because of the parent group's
consolidation of its wind turbine blade business into Sinoma. Also, as its
revenue contribution from the separator business increases, this should also
enhance its ESG credentials.
The company has also demonstrated leadership in wind turbine blade disposal by
forming an alliance which it leads with its largest customer Goldwind to
collect decommissioned wind turbine blades. Owing to technology constraints,
the current blade recycle rate
is low (less than 10%), but Sinoma is well positioned to
take on future opportunities as and when the right technology emerges.
On the fibreglass front, the company believes its carbon emissions per tonne
for this business is at least 20% lower than peers, thus it believes that it
can gain market share once clients start to focus more on ESG.
What is the result of our engagement?
We continue our ongoing engagement with Sinoma and encouragingly, MSCI
upgraded the company's ESG rating from B to BB in August 2022, citing its
increasing involvement in clean tech and peer-leading R&D investment. MSCI
also highlighted improvements in Sinoma's carbon mitigation practices,
including use of renewable energy.
When do we next meet the company and what will be on the ESG agenda?
We recently met Sinoma during a research trip to China and we will look to
engage the company in December to discuss the restructuring of its glass fibre
business, including the timeline and impact on its operations from an ESG
perspective, including carbon emissions and water usage and management.
Medikaloka Hermina
In which year did we first invest?
2021
% Holding:
2.3%
Where is their head office?
Jakarta, Indonesia
What is their web address?
https://herminahospitals.com/en
What does Medikaloka Hermina do?
The Indonesian hospital operator started out as a maternity clinic with seven
inpatient beds in east Jakarta in 1985. Since then, it has grown into the
country's largest private hospital group by number of operational beds, with
45 hospitals across 31 cities.
Why do we like the company?
Hermina is the lowest-cost hospital operator in Indonesia, best positioned to
provide healthcare coverage for the masses in the country, that benefits from
the roll-out of BJPS (Indo's universal healthcare scheme) and structural rise
in healthcare demand.
It is very clear in their positioning, targeting the mass market, and has a
key competitive strength in cost leadership to serve this target customer
segment. Of the company's founding members, some continue to run the hospital
and have executed well on the strategy.
Hermina's core strength is in women's and children's health-care services,
given its beginnings in maternity services. It has strong brand equity in
obstetrics, gynaecology and paediatrics. More than 73,000 babies are born in
Hermina hospitals every year.
Interests are generally aligned, with management owning shares and key doctors
incentivised by a partner-model, where they own shares in the hospitals they
work in.
Overall, we regard Hermina as a good quality operator in its field.
When did we engage Medikaloka Hermina on ESG?
We last met Hermina in May 2023.
What were the key areas of engagement?
Our focus remains on engaging Hermina to disclose more around its
sustainability efforts, especially around carbon emissions with the company
having a high weighted average carbon intensity due to its geographic spread
across Indonesia. We have discussed electricity usage, which is the main way
that the company contributes to carbon emissions, given that power is mostly
generated from coal.
We also track its progress in terms of alignment with the UN SDGs, in
particular, SDG 3.8, achieve universal health coverage, including financial
risk protection, access to quality essential healthcare services and access to
safe, effective, quality, and affordable essential medicines and vaccines for
all.
Being the lowest cost operator, Hermina is in a good position to make
healthcare affordable to the masses in a country where a large proportion of
the population is still relatively poor.
What is the result of our engagement?
Hermina is making an effort to disclose more around sustainability in its
annual reports. It has publicised its efforts in the following areas.
On the environmental front, all its hospitals have implemented the green
hospital concept, leading to a significant reduction in its environmental
footprint (e.g., waste, energy use, water use, and greenhouse gas emissions).
Recently, it introduced solar energy to two of its hospitals, in Depok and
Bogor.
In terms of social impact, Hermina focuses on public health efforts and
assisting underprivileged local communities around its hospitals. It routinely
conducts events to provide free medical services.
On governance, it has created a unique and favourable structure, where the
shareholders, management and key doctors are incentivised and aligned to
minority interests.
We view Hermina as one of the investments whereby business and social good
come together well. We have been invested in Hermina for years for abrdn
portfolios well before it turned profitable, and we have been engaging the
company consistently on its performance delivery. If Hermina does well, it
will contribute to the greater good of society in Indonesia in the end.
When do we next meet the company and what will be on the ESG agenda?
We are planning to meet the company in January 2024 and get an update on
potential health-care policy changes, tariffs as well as the roll-out of JKN
(National Health Insurance) programme, given that these areas would drive mass
health-care penetration.
Vijaya Diagnostic Centre
In which year did we first invest?
2021
% Holding:
1.5%
Where is their head office?
Hyderabad, India
What is their web address?
https://www.vijayadiagnostic.com/
What does Vijaya Diagnostic Centre do?
Founded in 1981, Vijaya Diagnostic Centre has grown to become the largest
diagnostics provider in South India.
Why do we like the company?
Vijaya has a long growth runway ahead despite its regional market leadership
in South India. A large part of this is due to a structural change seen in
India: Historically, the country has underspent in healthcare, resulting in
under penetration of essential medical diagnostics services. Now, with an
expanding and increasingly more affluent middle class, demand for healthcare
services is rising alongside greater insurance penetration. Vijaya is
well-placed to benefit as medical services become better developed across the
board, and costs turn more affordable for the masses.
Compared to its peers, the company draws 95% of revenue from the end consumer
segment (patients), which is typically less price sensitive and more driven by
brand strength. Also, Vijaya's one-stop shop model, with radiology and
pathology in every centre, makes it more convenient for patients and increases
the barrier to entry for competitors, including the new-age digital disrupters
- as the capital requirement for radiology machines is relatively high. Vijaya
is free-cash-flow generative and has a business model that looks as good as
its peers, with nationwide reach.
When did we engage Vijaya on ESG?
We last met Vijaya in April 2023.
What were the key areas of engagement?
Since its initial public offering in 2021, there has not been much in terms of
disclosures around ESG and sustainability from the company. So, in the April
meeting, our key topics of discussion included labour management, especially
around employee engagement, training and turnover, corporate behaviour as well
as corporate governance and disclosure. In particular, we are keen to
encourage Vijaya on greater reporting of alignment with the United Nations'
Sustainable Development Goals (SDGs) by companies, given this is an area of
increasing investor interest. In particular, UN SDG 3, which focuses on
ensuring healthy lives and promoting well-being for all at all ages. Medical
diagnostics testing is an essential part of healthcare, which drives better
outcomes for patients. Despite this, access to diagnostics across India
remains mixed.
One of the focus areas for Vijaya is in making diagnostic services affordable
for Indians who have historically underspent on medical care, for a range of
reasons, including affordability. This runs parallel to their aim of expanding
into India's Tier 2 and Tier 3 cities that have a longer runway for growth and
expansion compared to the metropolises, which they expect to be at least 50%
of their capital expenditure for the next 3 years. For example, in a previous
meeting, the company explained how it has acquired high-end CT scan machines
that cost significantly more than the standard models to do mammography tests
without compromising patients' health. Vijaya is not charging a premium for
this service, rather it is relying on higher rate of utilisation to make
money.
In encouraging the company to do more around its disclosures so that the
market can recognise the company's efforts and understand its role in delivery
diagnostics, we engaged Vijaya and provided a summary of disclosures that we
would like them to make in their forthcoming sustainability report. This
included a range of granular disclosures, as well as the company's alignment
with UN SDG 3. On the environment front, we have also sought to assess the
company's impact in terms of carbon emissions impact, mainly through checking
on its energy and electricity usage.
What is the result of our engagement?
In response, the company told us it has started taking steps to engage an
agency to help Vijaya capture the necessary data that we have suggested
through our engagement. We will continue to monitor and engage with Vijaya
once the sustainability report is made available to explore ways to further
improve disclosures around ESG and sustainability such that it is recognised
by the market and external ratings agencies.
When do we next meet the company and what will be on the ESG agenda?
We would look to follow up on issues such as employee engagement, turnover and
corporate behaviour.
John Keells
In which year did we first invest?
1997
% Holding:
2.6%
Where is their head office?
Colombo, Sri Lanka
What is their web address?
https://www.keells.com
What does the company do?
John Keells (JKH) has been in business for 153 years. It is Sri Lanka's
largest conglomerate operating in several sectors including leisure (hotels
& resorts in Sri Lanka and Maldives), transportation (ports and logistics
infrastructure), consumer foods (beverages and ice cream), retail (supermarket
chain) and property and financial services (banking and insurance).
Why do we like the investment?
JKH is a diversified group with high-quality assets that serves as a good
proxy for the Sri Lankan economy. It is essentially a large company operating
in a small market. Management have executed well and the group has been able
to attract the best talent locally which should ensure that it continues to
thrive over the long term, especially given the exciting potential for Sri
Lanka in areas such as tourism and transhipment.
Many of John Keells' businesses are capital-intensive and the group is nearing
the tail end of a long investment cycle. In particular, Cinnamon Life
Integrated Resort in Colombo (pictured below) is costing about US$1 billion,
with just US$100 million to go, versus its market capitalisation of around
US$600 million. It is the first integrated resort in Sri Lanka and the largest
private investment project. This big project is finally in the harvesting
stage, with revenues from most of the residential units sold already
recognised in FY2021. From FY2024 onwards, we expect the mall and casino to
start operating, which is likely to contribute substantially to the group.
More broadly, the group has also been able to ride through Sri Lanka's debt
crisis because a large part of its business is earned in overseas currencies,
especially the US dollar. As a result, the group was not overly affected by
the depreciation of the Sri Lankan rupee, while its businesses that were more
exposed to overseas customers, such as ports and its hospitality segment in
the Maldives, held up well, mitigating the impact from the domestic
uncertainty on its local operations. Now, the economy is off from its trough
and so John Keells' domestic business is stabilising as well. The currency is
fluid again and tourism should slowly recover, which bodes well for spending
at the hotels, mall and casino at its integrated resort.
How do we assess John Keells on its ESG efforts?
We view John Keells as one of the best governed groups in Sri Lanka with good
disclosures on the environmental and social aspects, although the group is not
rated by MSCI. Domestically, John Keells was ranked first in the Transparency
in Corporate Reporting (TRAC) Assessment by Transparency International Sri
Lanka (TISL) for the third consecutive year, with a 100% score for
transparency in disclosure practices.
As a part of the group's ongoing efforts towards increasing emphasis on its
ESG aspects, John Keells reformulated its ESG framework in collaboration with
an international third-party consulting firm, by setting revised group-wide
ESG ambitions and translating such ambitions to ESG-related targets.
A key area of focus has been the environmental impact. For FY2022/23, the
group's carbon footprint per million rupees of revenue decreased by 29% and
water withdrawn per million rupees of revenue decreased by 31%, respectively
compared to the previous year. A project to highlight would be "Plasticcyle",
its initiative to reduce usage of single-use plastics, support responsible
disposal, and promote recycling initiatives and innovation to support a
circular economy. Despite the challenges posed by the economic crisis,
'Plasticcycle' has collected 127,000 kg of recyclable plastic waste since its
inception in 2017/18.
When do we next meet the company and what will be on the ESG agenda?
We have been engaging with John Keells on material ESG risks, specifically
around anti-money laundering (AML) controls and counter-terrorism financing.
Looking ahead, we will continue to engage with John Keells on these fronts.
With the casino set to start operating in FY2024, we plan to meet the company
early in the new year to focus on the selection process for the casino
operator and that operator's credibility, as well as their stance towards AML
practices and counter-terrorism financing.
Directors' Report
The Directors present their Report and the audited financial statements for
the year ended 31 July 2023.
Results and Dividends
Details of the Company's results and proposed dividends are shown above.
Investment Trust Status
The Company (registered in England & Wales No. 03106339) has been accepted
by HM Revenue & Customs as an investment trust subject to the Company
continuing to meet the relevant eligibility conditions of Section 1158 of the
Corporation Tax Act 2010 and the ongoing requirements of Part 2 Chapter 3
Statutory Instrument 2011/2999 for all financial years commencing on or after
1 August 2012. The Directors are of the opinion that the Company has
conducted its affairs for the year ended 31 July 2023 so as to enable it to
comply with the ongoing requirements for investment trust status.
Individual Savings Accounts
The Company has conducted its affairs so as to satisfy the requirements as a
qualifying security for Individual Savings Accounts. The Directors intend that
the Company will continue to conduct its affairs in this manner.
Capital Structure, Buybacks and Issuance
The Company's capital structure is summarised in note 14 to the financial
statements.
At 31 July 2023, there were 156,457,978 fully paid Ordinary shares of 5p each
(2022 - 156,953,631 Ordinary shares of 5p each) in issue with a further
52,244,590 Ordinary shares of 5p held in treasury (2022 - 51,744,590 Ordinary
shares of 5p each held in treasury). During the year 500,000 Ordinary shares
were purchased in the market for treasury (2022 - nil). During the period
and up to the date of this report no Ordinary shares were issued for cash and
no shares were sold from or purchased into treasury.
On 14 December 2022, 6,334 units of Convertible Unsecured Loan Stock 2025 were
converted into 2,158 new Ordinary shares of 5p each. On 14 June 2023 6,419
units of Convertible Unsecured Loan Stock 2025 were converted into 2,189 new
Ordinary shares of 5p each. In accordance with the terms of the CULS Issue,
(as adjusted to reflect the five for one share subdivision in February 2022),
the conversion price of the CULS for both conversions was determined at 293.0p
nominal of CULS for one Ordinary share of 5p.
Voting Rights
Ordinary shareholders are entitled to vote on all resolutions which are
proposed at general meetings of the Company. The Ordinary shares carry a right
to receive dividends. On a winding up, after meeting the liabilities of the
Company, the surplus assets will be paid to Ordinary shareholders in
proportion to their shareholdings.
CULS holders have the right to attend but not vote at general meetings of the
Company. A separate resolution of CULS holders would be required to be passed
before any modification or compromise of the rights attaching to the CULS can
be made.
Gearing
On 1 December 2020 the Company issued a £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, as its alternative investment fund manager. aFML has
been appointed to provide investment management, risk management,
administration and company secretarial services and promotional activities to
the Company. The Company's portfolio is managed by abrdn Asia Limited ("abrdn
Asia") by way of a group delegation agreement in place between aFML and abrdn
Asia. In addition, aFML has sub-delegated administrative and secretarial
services to abrdn Holdings Limited and promotional activities to abrdn
Investments Limited ("aIL").
Management Fee
With effect from 1 August 2021 the annual management fee has been charged at
0.85% for the first £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 (2022 - nil) and has not made
any charitable donations during the year (2022 - nil).
Risk Management
Details of the financial risk management policies and objectives relative to
the use of financial instruments by the Company are set out in note 19 to the
financial statements.
The Board
The current Directors, Randal Dunluce (The Earl of Antrim), C Black, K
Shanmuganathan, L Cooper and A Finn, together with N Cayzer who retired on 30
November 2022, were the only Directors who served during the year. Pursuant to
Principle 23 of the AIC's Code of Corporate Governance which recommends that
all directors should be subject to annual re-election by shareholders, all the
members of the Board will retire at the AGM scheduled for 5 December 2022 and,
with the exception of the Earl of Antrim, will offer themselves for
re-election. Details of each Director's contribution to the long term
success of the Company are provided on page 49 of the published Annual Report
and Financial Statements for the year ended 31 July 2023.
The Board considers that there is a balance of skills and experience within
the Board relevant to the leadership and direction of the Company and that all
the Directors contribute effectively.
In common with most investment trusts, the Company has no employees.
Directors' & Officers' liability insurance cover has been maintained
throughout the year at the expense of the Company.
The Role of the Chair
The Chair is responsible for providing effective leadership to the Board, by
setting the tone of the Company, demonstrating objective judgement and
promoting a culture of openness and debate. The Chair facilitates the
effective contribution, and encourages active engagement, by each Director. In
conjunction with the Company Secretary, the Chair ensures that Directors
receive accurate, timely and clear information to assist them with effective
decision-making. The Chair leads the evaluation of the Board and individual
Directors, and acts upon the results of the evaluation process by recognising
strengths and addressing any weaknesses. The Chair also engages with major
shareholders and ensures that all Directors understand shareholder views.
The Company has announced that Davina Curling will become Senior Independent
Director with effect from her appointment to the Board on 1 March 2024. Prior
to then the Audit Committee Chairman in combination with the other independent
Directors will continue to fulfil the duties of the senior independent
director, acting as a sounding board for the Chair and acting as an
intermediary for other Directors as applicable. The Audit Committee Chairman
and, following appointment, Senior Independent Director are both available to
shareholders to discuss any concerns they may have.
Board Diversity
The Board recognises the importance of having a range of skilled, experienced
individuals with the right knowledge represented on the Board in order to
allow it to fulfil its obligations. The Board also recognises the benefits and
is supportive of, and will give due regard to, the principle of diversity in
its recruitment of new Board members. The Board will not display any bias for
age, gender, race, sexual orientation, socio-economic background, religion,
ethnic or national origins or disability in considering the appointment of
Directors. The Board will continue to ensure that all appointments are made on
the basis of merit against the specification prepared for each appointment.
The Board will take account of the targets set out in the FCA's Listing Rules,
which are set out overleaf.
The Board has resolved that the Company's year-end date is the most
appropriate date for disclosure purposes. The following information has been
provided by each Director through the completion of questionnaires.
Table for reporting on gender as at 31 July 2023
Number 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 4 80% n/a n/a n/a
(note 3) (note 4) (note 4)
Women 1 20%
(note 1)
Not specified/prefer not to say - -
Table for reporting on ethnic background as at 31 July 2023
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 4 80% n/a n/a n/a
(including minority-white groups)
(note 3) (note 4) (note 4)
Mixed / Multiple Ethnic Groups - -
Asian/Asian British 1 20%
Black/African/Caribbean/Black British - -
Other ethnic group, including Arab - -
Not specified/prefer not to say - -
Notes:
1. The Company did not meet the target that at least 40% of
Directors are women as set out in LR 9.8.6R (9)(a)(i) for the year ended 31
July 2023. However, following the appointments of Ms Macdonald and Ms Curling
on 5 December 2023 and 1 March 2024 the Board expects to be compliant for the
year ending 31 July 2024.
2. The Company meets the target that at least one Director is
from a minority ethnic background as set out in LR 9.8.6R (9)(a)(iii)
3. The Company does not meet the target for the year to 31
July 2023 as the Chair is not a woman and the Company did not have a Senior
Independent Director. However, with effect from 1 March 2024, Ms Davina
Curling will join the Board as an independent non executive Director and as
Senior independent Director and the Company will therefore be compliant for
the year ending 31 July 2024. The Company is externally managed and does not
have any executive staff specifically it does not have either a CEO or CFO.
4. This column is not applicable as the Company is externally
managed and does not have any executive staff.
Corporate Governance
The Company is committed to high standards of corporate governance. The Board
is accountable to the Company's shareholders for good governance and this
statement describes how the Company has applied the principles identified in
the UK Corporate Governance Code as published in July 2018 (the "UK Code"),
which is available on the Financial Reporting Council's (the "FRC") website:
frc.org.uk.
The Board has also considered the principles and provisions of the AIC Code of
Corporate Governance as published in February 2019 (the "AIC Code"). The AIC
Code addresses the principles and provisions set out in the UK Code, as well
as setting out additional provisions on issues that are of specific relevance
to the Company. The AIC Code is available on the AIC's website: theaic.co.uk.
The Board considers that reporting against the principles and provisions of
the AIC Code, which has been endorsed by the FRC provides more relevant
information to shareholders.
The Board confirms that, during the year, the Company complied with the
principles and provisions of the AIC Code and the relevant provisions of the
UK Code, except as set out below.
1. Interaction with the workforce (provisions 2, 5 and 6);
2. the role and responsibility of the chief executive (provisions 9 and
14);
3. previous experience of the chairman of a remuneration committee
(provision 32);
4. executive directors' remuneration (provisions 33 and 36 to 40); and
5. senior independent director (provision 12) (see below);
For the reasons set out in the AIC Code, and as explained in the UK Corporate
Governance Code, the Board considers that provisions 1 to 4 above are not
relevant to the position of the Company, being an externally-managed
investment company. In particular, all of the Company's day-to-day management
and administrative functions are outsourced to third parties. As a result, the
Company has no executive directors, employees or internal operations. The
Company has therefore not reported further in respect of provisions 1 to 4
above. See 'Nomination Committee' below for further details on the
appointment of a new Senior Independent Director. The full text of the
Company's Corporate Governance Statement can be found on the Company's
website:
asia-focus.co.uk.
During the year ended 31 July 2023, the Board had five scheduled meetings. In
addition, the Audit Committee met twice and the Management Engagement
Committee met once and there has been a number of ad hoc Board meetings.
Between meetings the Board maintains regular contact with the Manager.
Directors have attended the following scheduled Board meetings and Committee
meetings during the year ended 31 July 2023 (with their eligibility to attend
the relevant meeting in brackets):
Director Board Audit Nomination Committee Management Engagement
Committee
Committee
K Shanmuganathan (B) 5 (5) 1 (1) 4 (4) 1 (1)
Earl of Antrim 5 (5) 2 (2) 4 (4) 1 (1)
C Black 5 (5) 2 (2) 4 (4) 1 (1)
L. Cooper 5 (5) 2 (2) 4 (4) 1 (1)
A Finn 5 (5) 2 (2) 4 (4) 1 (1)
N Cayzer (A) 2 (2) n/a 1 (1) 1 (1)
(A) Mr Cayzer retired on 30 November 2022
(B) Mr Shanmuganathan was appointed Chair on 30 November 2022 and resigned
from membership of the Audit Committee from that date
Policy on Tenure
In compliance with the provisions of the AIC Code, it is expected that
Directors will serve in accordance with the nine year time limits laid down by
the AIC Code.
Board Committees
Audit Committee
The Audit Committee Report is on pages 59 to 61 of the published Annual Report
and Financial Statements for the year ended 31 July 2023.
Nomination Committee
All appointments to the Board of Directors are considered by the Nomination
Committee which comprises all of the Directors. The Board's overriding
priority in appointing new Directors to the Board is to identify the candidate
with the best range of skills and experience to complement existing Directors.
The Board also recognises the benefits of diversity and its policy on
diversity is referred to in the Strategic Report on page 22 of the published
Annual Report and Financial Statements for the year ended 31 July 2023.
As part of the continuing Board succession and refreshment plans, the Earl of
Antrim will be retiring from the Board at the AGM to be held on 5 December
2023. Therefore, during the year the Nomination Committee commenced a search
for a new independent non executive Director using the services of Fletcher
Jones Limited, an independent recruitment consultant. As part of the search
a specification of desired attributes and qualities was prepared and the
recruitment process culminated in the decision to appoint Ms Lucy Macdonald
and Ms Davina Curling as independent non-executive Directors with effect from
the close of business of the AGM on 5 December 2023 and 1 March 2024,
respectively and Ms Curling has agreed to become Senior Independent Director.
The Board undertakes an annual evaluation of the Board, Directors, the Chair
and the Audit Committee which is conducted by questionnaires. The 2023
evaluation was conducted using questionnaires and highlighted certain areas of
further focus such as continuing professional development which will be
addressed with input where necessary from the Company's advisors. Overall, the
Committee has concluded that the Board has an excellent balance of experience,
knowledge of investment markets, legal regulation and financial accounting and
continues to work in a collegiate and effective manner.
The Nomination Committee has reviewed the contributions of each Director ahead
of their proposed re-elections at the AGM on 5 December 2023. Ms Black has
continued to bring significant financial promotion, marketing and
communications expertise to the Board and has been closely involved in the
ongoing development of the Company's website; Mr Shanmuganathan has continued
to bring his deep experience of Asia and has seamlessly assumed the role of
Chair during the year to great effect; Mr Cooper has brought the weight of his
significant local Asian market experience to the Board's discussions; and Mr
Finn has brought relevant and recent accounting and financial experience to
the board and has led the Audit Committee with expertise. For the foregoing
reasons, with the exception of the Earl of Antrim who will be retiring from
the Board at the forthcoming AGM, the independent members of the Nomination
Committee have no hesitation in recommending the re-election of each Director
who will be submitting themselves for re-election at the AGM on 5 December
2023.
Management Engagement Committee
The Management Engagement Committee comprises all of the Directors and is
chaired by Mr Finn. The Committee is responsible for reviewing the performance
of the Investment Manager and its compliance with the terms of the management
and secretarial agreement. The terms and conditions of the Investment
Manager's appointment, including an evaluation of fees, are reviewed by the
Committee on an annual basis. The Committee believes that the continuing
appointment of the Manager on the terms agreed is in the interests of
shareholders as a whole.
Remuneration Committee
Under the UK Listing Authority rules, where an investment trust has only
non-executive directors, the Code principles relating to directors'
remuneration do not apply. Accordingly, matters relating to remuneration are
dealt with by the full Board, which acts as the Remuneration Committee, and is
chaired by the Chair.
The Company's remuneration policy is to set remuneration at a level to attract
individuals of a calibre appropriate to the Company's future development.
Further information on remuneration is disclosed in the Directors'
Remuneration Report on pages 55 to 57 of the published Annual Report and
Financial Statements for the year ended 31 July 2023.
Terms of Reference
The terms of reference of all the Board Committees may be found on the
Company's website asia-focus.co.uk and copies are available from the Company
Secretary upon request. The terms of reference are reviewed and re-assessed by
the Board for their adequacy on an annual basis.
Internal Control
In accordance with the Disclosure and Transparency Rules (DTR 7.2.5), the
Board is ultimately responsible for the Company's system of internal control
and for reviewing its effectiveness and confirms that there is an ongoing
process for identifying, evaluating and managing the significant risks faced
by the Company. This process has been in place for the year under review and
up to the date of approval of this Annual Report and Financial Statements. It
is regularly reviewed by the Board and accords with the FRC Guidance.
The Board has reviewed the effectiveness of the system of internal control. In
particular, it has reviewed and updated the process for identifying and
evaluating the significant risks affecting the Company and policies by which
these risks are managed.
The Directors have delegated the investment management of the Company's assets
to the abrdn Group within overall guidelines, and this embraces implementation
of the system of internal control, including financial, operational and
compliance controls and risk management. Internal control systems are
monitored and supported by the abrdn Group's internal audit function which
undertakes periodic examination of business processes, including compliance
with the terms of the management agreement, and ensures that recommendations
to improve controls are implemented.
Risks are identified and documented through a risk management framework by
each function within the abrdn Group's activities. Risk includes financial,
regulatory, market, operational and reputational risk. This helps the internal
audit risk assessment model identify those functions for review. Any
weaknesses identified are reported to the Board, and timetables are agreed for
implementing improvements to systems. The implementation of any remedial
action required is monitored and feedback provided to the Board.
The significant risks faced by the Company have been identified as being
financial; operational; and compliance-related.
The key components of the process designed by the Directors to provide
effective internal control are
outlined below:
· the Manager prepares forecasts and management accounts which allow
the Board to assess the Company's activities and review its performance;
· the Board and Manager have agreed clearly defined investment
criteria, specified levels of authority and exposure limits. Reports on these
issues, including performance statistics and investment valuations, are
regularly submitted to the Board and there are meetings with the Manager and
Investment Manager
as appropriate;
· as a matter of course the Manager's compliance department
continually reviews abrdn's operations and reports to the Board on a six
monthly basis;
· written agreements are in place which specifically define the roles
and responsibilities of the Manager and other third party service providers
and, where relevant, ISAE3402 Reports, a global assurance standard for
reporting on internal controls for service organisations, or their equivalents
are reviewed;
· the Board has considered the need for an internal audit function
but, because of the compliance and internal control systems in place within
abrdn, has decided to place reliance on the Manager's systems and internal
audit procedures; and
· at its October 2023 meeting, the Audit Committee carried out an
annual assessment of internal controls for the year ended 31 July 2023 by
considering documentation from the Manager, Investment Manager and the
Depositary, including the internal audit and compliance functions and taking
account of events since 31 July 2023. The results of the assessment, that
internal controls are satisfactory, were then reported to the Board at the
next Board meeting.
Internal control systems are designed to meet the Company's particular needs
and the risks to which it is exposed. Accordingly, the internal control
systems are designed to manage rather than eliminate the risk of failure to
achieve business objectives and by their nature can only provide reasonable
and not absolute assurance against mis-statement and loss.
Going Concern
In accordance with the Financial Reporting Council's guidance the Directors
have undertaken a rigorous review of the Company's ability to continue as a
going concern. The Company's assets consist of equity shares in companies
listed on recognised stock exchanges and are considered by the Board to be
realisable within a relatively short timescale under normal market conditions.
The Board has set overall limits for borrowing and reviews regularly the
Company's level of gearing, cash flow projections and compliance with banking
covenants. The Board has also reviewed stress testing and liquidity analysis
to ensure that even in significant negative markets the Company would still be
able to raise sufficient capital to repay its liabilities.
The Directors are mindful of the Principal Risks and Uncertainties disclosed
in the Strategic Report on pages 20 and 21 of the published Annual Report and
Financial Statements for the year ended 31 July 2023and they believe that the
Company has adequate financial resources to continue its operational existence
for a period of 12 months from the date of approval of this Annual Report.
They have arrived at this conclusion having confirmed that the Company's
diversified portfolio of realisable securities is sufficiently liquid and
could be used to meet short-term funding requirements were they to arise,
including in potentially less favourable market conditions. The Directors have
also reviewed the revenue and ongoing expenses forecasts for the coming year.
Accordingly, the Directors believe that it is appropriate to continue to adopt
the going concern basis in preparing the financial statements.
Management of Conflicts of Interest
The Board has a procedure in place to deal with a situation where a Director
has a conflict of interest. As part of this process, the Directors prepare a
list of other positions held and all other conflict situations that may need
to be authorised either in relation to the Director concerned or his connected
persons. The Board considers each Director's situation and decides whether to
approve any conflict, taking into consideration what is in the best interests
of the Company and whether the Director's ability to act in accordance with
his or her wider duties is affected. Each Director is required to notify the
Company Secretary of any potential, or actual, conflict situations that will
need authorising by the Board. Authorisations given by the Board are reviewed
at each Board meeting.
No Director has a service contract with the Company although Directors are
issued with letters of appointment upon appointment. The Directors' interests
in contractual arrangements with the Company are as shown in note 18 to the
financial statements. No other Directors had any interest in contracts with
the Company during the period or subsequently.
The Board has adopted appropriate procedures designed to prevent bribery.
The Company receives periodic reports from its service providers on the
anti-bribery policies of these third parties. It also receives regular
compliance reports from the Manager.
The Criminal Finances Act 2017 introduced a new corporate criminal offence of
"failing to take reasonable steps to prevent the facilitation of tax
evasion". The Board has confirmed that it is the Company's policy to conduct
all of its business in an honest and ethical manner. The Board takes a
zero-tolerance approach to facilitation of tax evasion, whether under UK law
or under the law of any foreign country.
Accountability and Audit
The respective responsibilities of the Directors and the auditors in
connection with the financial statements are set out on pages 58 and 69 of the
published Annual Report and Financial Statements for the year ended 31 July
2023respectively.
Each Director confirms that:
· so far as he or she is aware, there is no relevant audit
information of which the Company's auditors are unaware; and,
· each Director has taken all the steps that they could reasonably be
expected to have taken as a Director in order to make themselves aware of any
relevant audit information and to establish that the Company's auditors are
aware of that information.
Additionally there have been no important events since the year end that
impact this Annual Report.
The Directors have reviewed the independent auditors' procedures in connection
with the provision of non-audit services. No non-audit services were
provided by the independent auditors during the year and the Directors remain
satisfied that the auditors' objectivity and independence has been
safeguarded.
Independent Auditors
At the November 2022 AGM shareholders approved the re-appointment of
PricewaterhouseCoopers LLP ("PwC") as independent auditors to the Company. PwC
has expressed its willingness to continue to be the Company's auditors and a
Resolution to re-appoint PwC as the Company's auditors and to authorise the
Directors to fix the auditors' remuneration will be put to the forthcoming
Annual General Meeting.
Substantial Interests
The Board has been advised that the following shareholders owned 3% or more of
the issued Ordinary share capital of the Company at 31 July 2023:
Shareholder No. of Ordinary shares held % held
City of London Investment 37,115,489 23.7
Management Company
AllSpring Global Investments 20,431,685 13.1
Interactive Investor (non-beneficial) 12,756,311 8.2
abrdn Savings Scheme (non-beneficial) 11,586,710 7.4
Hargreaves Lansdown (non-beneficial) 11,010,815 7.0
Funds managed by abrdn 5,523,368 3.5
1607 Capital Partners 5,340,300 3.4
Charles Stanley 5,060,341 3.2
There have been no significant changes notified in respect of the above
holdings between 31 July 2023 and 19 October 2023.
The UK Stewardship Code and Proxy Voting
Responsibility for actively monitoring the activities of portfolio companies
has been delegated by the Board to the AIFM which has sub-delegated that
authority to the Manager.
The Manager is a tier 1 signatory of the UK Stewardship Code which aims to
enhance the quality of engagement by investors with investee companies in
order to improve their socially responsible performance.
Relations with Shareholders
The Directors place a great deal of importance on communication with
shareholders. The Annual Report is widely distributed to other parties who
have an interest in the Company's performance. Shareholders and investors may
obtain up to date information on the Company through the Manager's freephone
information service and the Company's website asia-focus.co.uk. The Company
responds to letters from shareholders on a wide range
of issues.
The Board's policy is to communicate directly with shareholders and their
representative bodies without the involvement of the abrdn Group (either the
Company Secretary or the Manager) in situations where direct communication is
required and usually a representative from the Board meets with major
shareholders on an annual basis in order to gauge their views.
The Notice of the Annual General Meeting, included within the Annual Report
and financial statements, is sent out at least 20 working days in advance of
the meeting. All shareholders have the opportunity to put questions to the
Board or the Manager, either formally at the Company's Annual General Meeting
or, where possible, at the subsequent buffet luncheon for shareholders. The
Company Secretary is available to answer general shareholder queries at any
time throughout the year.
Consumer Duty
The FCA's Consumer Duty rules were published in July 2022. The rules comprise
a fundamental component of the FCA's consumer protection strategy and aim to
improve outcomes for retail customers across the entire financial services
industry through the assessment of various outcomes, one of which is an
assessment of whether a product provides value. Under the Consumer Duty, the
Manager is the product 'manufacturer' of the Company and therefore the Manager
was required to publish its assessment of value from April 2023. Using a newly
developed assessment methodology, the Manager assessed the Company as
'expected to provide fair value for the reasonably foreseeable future'. As
this was the first year of assessment, the Board gained an understanding of
the Manager's basis of assessment and no concerns were identified with either
the assessment method or the outcome of the assessment.
Special Business at the Annual General Meeting
Directors' Authority to Allot Relevant Securities
Approval is sought in Resolution 10, an ordinary resolution, to renew the
Directors' existing general power to allot securities but will also, provide a
further authority (subject to certain limits), to allot shares under a fully
pre-emptive rights issue. The effect of Resolution 10 is to authorise the
Directors to allot up to a maximum of 103.9m shares in total (representing
approximately 2/3 of the existing issued capital of the Company), of which a
maximum of 51.9m shares (approximately 1/3 of the existing issued share
capital) may only be applied to fully pre-emptive rights issues. This
authority is renewable annually and will expire at the conclusion of the next
Annual General Meeting. The Board has no present intention to utilise this
authority.
Disapplication of Pre-emption Rights
Resolution 11 is a special resolution that seeks to renew the Directors'
existing authority until the conclusion of the next Annual General Meeting to
make limited allotments of shares for cash of up to 10% of the issued share
capital other than according to the statutory pre-emption rights which require
all shares issued for cash to be offered first to all existing shareholders.
This authority includes the ability to sell shares that have been held in
treasury (if any), having previously been bought back by the Company. The
Board has established guidelines for treasury shares and will only consider
buying in shares for treasury at a discount to their prevailing NAV and
selling them from treasury at or above the then prevailing NAV.
New shares issued in accordance with Resolution 11 and subject to the
authority to be conferred by Resolution 10 will always be issued at a premium
to the NAV per Ordinary share at the time of issue. The Board will issue new
Ordinary shares or sell Ordinary shares from treasury for cash when it is
appropriate to do so, in accordance with its current policy. It is therefore
possible that the issued share capital of the Company may change between the
date of this document and the Annual General Meeting and therefore the
authority sought will be in respect of 10% of the issued share capital as at
the date of the Annual General Meeting rather than the date of this document.
Purchase of the Company's Shares
Resolution 12 is a special resolution proposing to renew the Directors'
authority to make market purchases of the Company's shares in accordance with
the provisions contained in the Companies Act 2006 and the Listing Rules of
the Financial Conduct Authority. The minimum price to be paid per Ordinary
share by the Company will not be less than 5p per share (being the nominal
value) and the maximum price should not be more than the higher of (i) 5%
above the average of the middle market quotations for the shares for the
preceding five business days; and (ii) the higher of the last independent
trade and the current highest independent bid on the trading venue where the
purchase is carried out.
The Directors do not intend to use this authority to purchase the Company's
Ordinary shares unless to do so would result in an increase in NAV per share
and would be in the interests of shareholders generally. The authority sought
will be in respect of 14.99% of the issued share capital as at the date of the
Annual General Meeting rather than the date of this document.
The authority being sought in Resolution 12 will expire at the conclusion of
the next Annual General Meeting unless it is renewed before that date. Any
Ordinary shares purchased in this way will either be cancelled and the number
of Ordinary shares will be reduced accordingly or under the authority granted
in Resolution 11 above, may be held in treasury. During the year the Company
has not bought back any Ordinary shares for Treasury.
If Resolutions 10 to 12 are passed then an announcement will be made on the
date of the Annual General Meeting which will detail the exact number of
Ordinary shares to which each of these authorities relate.
These powers will give the Directors additional flexibility going forward and
the Board considers that it will be in the interests of the Company that such
powers be available. Such powers will only be implemented when, in the view of
the Directors, to do so will be to the benefit of shareholders as a whole.
Notice of Meetings
Resolution 13 is a special resolution seeking to authorise the Directors to
call general meetings of the Company (other than Annual General Meetings) on
14 days' notice. This approval will be effective until the Company's next
Annual General Meeting in 2024. In order to utilise this shorter notice
period, the Company is required to ensure that shareholders are able to vote
electronically at the general meeting called on such short notice. The
Directors confirm that, in the event that a general meeting is called, they
will give as much notice as practicable and will only utilise the authority
granted by Resolution 13 in limited and time sensitive circumstances.
Dividend Policy
As a result of the timing of the payment of the Company's quarterly dividends,
the Company's Shareholders are unable to approve a final dividend each year.
In line with good corporate governance, the Board therefore proposes to put
the Company's dividend policy to Shareholders for approval at the Annual
General Meeting and on an annual basis thereafter.
The Company's dividend policy shall be that dividends on the Ordinary Shares
are payable quarterly in relation to periods ending October, January, April
and July. It is intended that the Company will pay quarterly dividends
consistent with the expected annual underlying portfolio yield. The Company
has the flexibility in accordance with its Articles to make distributions from
capital. Resolution 4, an ordinary resolution, will seek shareholder approval
for the dividend policy.
Recommendation
Your Board considers Resolutions 10 to 13 to be in the best interests of the
Company and its members as a whole and most likely to promote the success of
the Company for the benefit of its members as a whole. Accordingly, your
Board unanimously recommends that shareholders should vote in favour of
Resolutions 10 to 13 to be proposed at the AGM, as they intend to do in
respect of their own beneficial shareholdings amounting to 14,060 Ordinary
shares.
By order of the Board
abrdn Holdings Limited -Secretaries
280 Bishopsgate
London EC2M 4AG
19 October 2023
Statement of Comprehensive Income
Year ended 31 July 2023 Year ended 31 July 2022
Revenue Capital Total Revenue Capital Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
Gains/(losses) on investments 10 - 25,318 25,318 - (22,324) (22,324)
Income 3 19,984 - 19,984 18,071 - 18,071
Exchange (losses)/gains - (384) (384) - 72 72
Investment management fees 4 (753) (2,259) (3,012) (801) (2,403) (3,204)
Administrative expenses 5 (1,312) (16) (1,328) (1,163) (398) (1,561)
Net return/(loss) before finance costs and taxation 17,919 22,659 40,578 16,107 (25,053) (8,946)
Finance costs 6 (501) (1,502) (2,003) (499) (1,497) (1,996)
Net return/(loss) before taxation 17,418 21,157 38,575 15,608 (26,550) (10,942)
Taxation 7 (1,279) (2,107) (3,386) (956) 876 (80)
Net return/(loss) after taxation 16,139 19,050 35,189 14,652 (25,674) (11,022)
Return/(loss) per share (pence): 9
Basic 10.29 12.14 22.43 9.34 (16.36) (7.02)
Diluted 9.66 11.65 21.31 8.75 n/a n/a
For the year ended 31 July 2023 the conversion option for potential Ordinary
shares within the Convertible Unsecured Loan Stock was dilutive to the revenue
and capital return per Ordinary share (2022 - dilutive to revenue but
non-dilutive to capital).
The total column of this statement represents the profit and loss account of
the Company. There is no other comprehensive income and therefore the net
return after taxation is also the total comprehensive income for the year.
All revenue and capital items in the above statement derive from continuing
operations.
The accompanying notes are an integral part of the financial statements.
Statement of Financial Position
As at As at
31 July 2023 31 July 2022
Notes £'000 £'000
Fixed assets
Investments at fair value through profit or loss 10 549,672 524,841
Current assets
Debtors and prepayments 11 2,237 1,464
Cash and short term deposits 5,807 9,471
8,044 10,935
Creditors: amounts falling due within one year
Other creditors 12 (1,250) (2,864)
Net current assets 6,794 8,071
Total assets less current liabilities 556,466 532,912
Non-current liabilities
2.25% Convertible Unsecured Loan Stock 2025 13 (36,175) (35,940)
3.05% Senior Unsecured Loan Note 2035 13 (29,898) (29,892)
Deferred tax liability on Indian capital gains 13 (4,609) (2,684)
(70,682) (68,516)
Net assets 485,784 464,396
Capital and reserves
Called up share capital 14 10,435 10,435
Capital redemption reserve 2,062 2,062
Share premium account 60,441 60,428
Equity component of 2.25% Convertible Unsecured Loan Stock 2025 13 1,057 1,057
Capital reserve 15 393,238 375,450
Revenue reserve 18,551 14,964
Total shareholders' funds 485,784 464,396
Net asset value per share (pence):
Basic 16 310.49 295.88
Diluted 16 308.93 295.25
The financial statements were approved by the Board of Directors and
authorised for issue on 19 October 2023 and were signed on behalf of the Board
by:
Krishna Shanmuganathan
Chair
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Equity
For the year ended 31 July 2023
Capital Share Equity
Share redemption premium Component Capital Revenue
capital reserve account CULS 2025 reserve reserve Total
Note £'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
For the year ended 31 July 2022
Capital Share Equity
Share redemption premium Component Capital Revenue
capital reserve account CULS 2025 reserve reserve Total
Note £'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 August 2021 10,435 2,062 60,412 1,057 401,124 12,868 487,958
Conversion of 2.25% CULS 2025 13 - - 16 - - - 16
Net return/(loss) after taxation - - - - (25,674) 14,652 (11,022)
Dividends paid 8 - - - - - (12,556) (12,556)
Balance at 31 July 2022 10,435 2,062 60,428 1,057 375,450 14,964 464,396
The accompanying notes are an integral part of the financial statements.
Statement of Cash Flows
Year ended Year ended
31 July 2023 31 July 2022
Notes £'000 £'000
Cash flows from operating activities
Net return/(loss) before finance costs and tax 40,578 (8,946)
Adjustments for:
Dividend income 3 (19,798) (18,057)
Interest income 3 (186) (14)
Dividends received 20,094 18,307
Interest received 169 10
Interest paid (1,743) (1,742)
(Gains)/losses on investments 10 (25,318) 22,324
Foreign exchange movements 384 (72)
(Increase)/decrease in prepayments (5) 18
(Increase)/decrease in other debtors (15) 11
(Decrease)/increase in other creditors (1,621) 1,439
Stock dividends included in investment income (25) (174)
Overseas withholding tax suffered 7 (1,432) (1,439)
Net cash inflow from operating activities 11,082 11,665
Cash flows from investing activities
Purchase of investments (76,870) (81,319)
Sales of investments 76,321 77,032
Net cash outflow from investing activities (549) (4,287)
Cash flows from financing activities
Purchase of own shares for treasury (1,261) -
Equity dividends paid 8 (12,552) (12,556)
Net cash outflow from financing activities (13,813) (12,556)
Decrease in cash and cash equivalents (3,280) (5,178)
Analysis of changes in cash and short term deposits
Opening balance 9,471 14,577
Decrease in cash and short term deposits (3,280) (5,178)
Foreign exchange movements (384) 72
Closing balance 5,807 9,471
The accompanying notes are an integral part of the financial statements.
Notes to the Financial Statements
For the year ended 31 July 2023
1. Principal activity
The Company is a closed-end investment company, registered in England &
Wales No 03106339, with its Ordinary shares being listed on the London Stock
Exchange.
2. Accounting policies
(a) Basis of preparation. The financial statements have been prepared in
accordance with Financial Reporting Standard 102, the Companies Act 2006 and
the AIC's Statement of Recommended Practice 'Financial Statements of
Investment Trust Companies and Venture Capital Trusts' issued in July 2022.
The financial statements are prepared in Sterling which is the functional
currency of the Company and rounded to the nearest £'000. They have also been
prepared on a going concern basis and on the assumption that approval as an
investment trust will continue to be granted by HMRC.
Going concern. In accordance with the Financial Reporting Council's guidance
the Directors have undertaken a rigorous review of the Company's ability to
continue as a going concern. The Company's assets consist of equity shares in
companies listed on recognised stock exchanges and are considered by the Board
to be realisable within a relatively short timescale under normal market
conditions. The Board has set overall limits for borrowing and reviews
regularly the Company's level of gearing, cash flow projections and compliance
with banking covenants. The Board has also reviewed stress testing and
liquidity analysis covering the impact of significant historical market events
such as the 2008 Global Financial Crisis, Covid-19 and the Chinese Devaluation
on the liquidity of the portfolio to ensure that even in significant negative
markets the Company would still be able to raise sufficient capital to repay
its liabilities.
The Directors are mindful of the Principal Risks and Uncertainties disclosed
in the Strategic Report on pages 20 and 21 of the published Annual Report and
Financial Statements for the year ended 31 July 2023 and they believe that the
Company has adequate financial resources to continue its operational existence
for a period of 12 months from the date of approval of this Annual Report.
They have arrived at this conclusion having confirmed that the Company's
diversified portfolio of realisable securities is sufficiently liquid and
could be used to meet short-term funding requirements were they to arise,
including in potentially less favourable market conditions. The Directors have
also reviewed the revenue and ongoing expenses forecasts for the coming year.
Accordingly, the Directors believe that it is appropriate to continue to adopt
the going concern basis in preparing the financial statements.
Significant accounting judgements, estimates and assumptions. The preparation
of financial statements requires the use of certain significant accounting
judgements, estimates and assumptions which requires management to exercise
its judgement in the process of applying the accounting policies and are
continually evaluated. Special dividends are assessed and credited to capital
or revenue according to their circumstances and are considered to require
significant judgement. The Directors do not consider there to be any
significant estimates within the financial statements.
(b) Valuation of investments. The Company has chosen to apply the recognition and
measurement provisions of IAS 39 Financial Instruments: Recognition and
Measurement and investments have been designated upon initial recognition at
fair value through profit or loss. Investments are recognised and
de-recognised at trade date where a purchase or sale is under a contract whose
terms require delivery within the time frame established by the market
concerned, and are initially measured at fair value. Subsequent to initial
recognition, investments are measured at fair value. For listed investments,
this is deemed to be bid market prices. Gains and losses arising from changes
in fair value and disposals are included as a capital item in the Statement of
Comprehensive Income and are ultimately recognised in the capital reserve.
(c) Borrowings. Bank loans are initially recognised at cost, being the fair value
of the consideration received, net of any issue expenses. Subsequently, they
are measured at amortised cost using the effective interest method. Finance
charges are accounted for on an accruals basis using the effective interest
rate method. The Company charges 25% of finance charges to revenue and 75% to
capital (previously 100% to revenue).
(d) Income. Dividends, including taxes deducted at source, are included in revenue
by reference to the date on which the investment is quoted ex-dividend.
Special dividends are reviewed on a case-by-case basis and may be credited to
capital, if circumstances dictate. Dividends receivable on equity shares where
no ex-dividend date is quoted are brought into account when the Company's
right to receive payment is established. Fixed returns on non-equity shares
are recognised on a time apportioned basis so as to reflect the effective
yield on shares. Other returns on non-equity shares are recognised when the
right to return is established. Where the Company has elected to receive its
dividends in the form of additional shares rather than cash, the amount of the
cash dividend is recognised as income. Any excess in the value of the shares
received over the amount of the cash dividend is recognised in capital
reserves. Interest receivable on bank balances is dealt with on an accruals
basis.
(e) Expenses. Expenses are accounted for on an accruals basis. Expenses are
charged through the revenue column of the Statement of Comprehensive Income
except as follows:
- expenses directly relating to the acquisition or disposal of an investment,
which are charged to the capital column of the Statement of Comprehensive
Income and are separately identified and disclosed in note 10; and
- with effect from 1 August 2021, the Company charges 25% of investment
management fees and finance costs to the revenue column and 75% to the capital
column of the Statement of Comprehensive Income, in accordance with the
Board's expected long term return in the form of revenue and capital gains
respectively from the investment portfolio of the Company. Previously the
allocation was 100% to revenue.
(f) Taxation. The tax expense represents the sum of tax currently payable and
deferred tax. Any tax payable is based on the taxable profit for the year.
Taxable profit differs from net profit as reported in the Statement of
Comprehensive Income because it excludes items of income or expense that are
taxable or deductible in other years and it further excludes items that are
never taxable or deductible. The Company's liability for current tax is
calculated using tax rates that were applicable at the Statement of Financial
Position date.
Deferred taxation is recognised in respect of all timing differences that have
originated but not reversed at the Statement of Financial Position date, where
transactions or events that result in an obligation to pay more tax in the
future or right to pay less tax in the future have occurred at the Statement
of Financial Position date. This is subject to deferred tax assets only being
recognised if it is considered more likely than not that there will be
suitable profits from which the future reversal of the underlying timing
differences can be deducted. Timing differences are differences arising
between the Company's taxable profits and its results as stated in the
financial statements which are capable of reversal in one or more subsequent
periods. Deferred tax is measured on a non-discounted basis at the tax rates
that are expected to apply in the periods in which timing differences are
expected to reverse, based on tax rates and laws enacted or substantively
enacted at the Statement of Financial Position date.
The tax effect of different items of income/gain and expenditure/loss is
allocated between capital and revenue within the Statement of Comprehensive
Income on the same basis as the particular item to which it relates using the
Company's effective rate of tax for the year, based on the marginal basis.
(g) Foreign currency. Assets and liabilities in foreign currencies are translated
at the rates of exchange ruling on the Statement of Financial Position date.
Transactions involving foreign currencies are converted at the rate ruling on
the date of the transaction. Gains and losses on dividends receivable are
recognised in the Statement of Comprehensive Income and are reflected in the
revenue reserve. Gains and losses on the realisation of investments in foreign
currencies and unrealised gains and losses on investments in foreign
currencies are recognised in the Statement of Comprehensive Income and are
then transferred to the capital reserve.
(h) Convertible Unsecured Loan Stock. Convertible Unsecured Loan Stock ("CULS")
issued by the Company is regarded as a compound instrument, comprising of a
liability component and an equity component. At the date of issue, the fair
value of the liability component of the 2.25% CULS 2025 was estimated by
assuming that an equivalent non-convertible obligation of the Company would
have an effective interest rate of 3.063%. The fair value of the equity
component, representing the option to convert liability into equity, is
derived from the difference between the issue proceeds of the CULS and the
fair value assigned to the liability. The liability component is subsequently
measured at amortised cost using the effective interest rate and the equity
component remains unchanged.
Direct expenses associated with the CULS issue are allocated to the liability
and equity components in proportion to the split of the proceeds of the issue.
Expenses allocated to the liability component are amortised over the life of
the instrument using the effective interest rate.
(i) Cash and cash equivalents. Cash comprises cash in hand and short term
deposits. Cash equivalents includes bank overdrafts repayable on demand and
short term, highly liquid investments, that are readily convertible to known
amounts of cash and that are subject to an insignificant risk of change in
value.
(j) Nature and purpose of reserves
Capital redemption reserve. The capital redemption reserve arose when Ordinary
shares were redeemed and cancelled, at which point an amount equal to the par
value of the Ordinary share capital was transferred from the share capital
account to the capital redemption reserve. This is not a distributable
reserve.
Share premium account. The balance classified as share premium includes the
premium above nominal value from the proceeds on issue of any equity share
capital comprising Ordinary shares of 5p (2022 - 5p). This is not a
distributable reserve.
Capital reserve. This reserve reflects any gains or losses on investments
realised in the period along with any movement in the fair value of
investments held that have been recognised in the Statement of Comprehensive
Income. These include gains and losses from foreign currency exchange
differences arising on monetary assets and liabilities except for dividend
income receivable. Share buybacks to be held in treasury, which is considered
to be a distribution to shareholders, is also deducted from this reserve. The
realised gains part of this reserve is also distributable for the purpose of
funding dividends.
Revenue reserve. This reserve reflects all income and costs which are
recognised in the revenue column of the Statement of Comprehensive Income. The
revenue reserve is distributable by way of dividend. The amount of the revenue
reserve as at 31 July 2023 may not be available at the time of any future
distribution due to movements between 31 July 2023 and the date of
distribution.
(k) Treasury shares. When the Company purchases the Company's equity share capital
as treasury shares, the amount of the consideration paid, which includes
directly attributable costs is recognised as a deduction from equity. When
these shares are sold or reissued subsequently, the amount received is
recognised as an increase in equity, and the resulting surplus or deficit on
the transaction is transferred to or from the capital reserve.
(l) Dividends payable. Final dividends are recognised in the financial statements
in the period in which Shareholders approve them.
(m) Segmental reporting. The Directors are of the opinion that the Company is
engaged in a single segment of business activity, being investment business.
Consequently, no business segmental analysis is provided however an analysis
of the geographic exposure of the Company's investments is provided on page 35
of the published Annual Report and Financial Statements for the year ended 31
July 2023.
3. Income
2023 2022
£'000 £'000
Income from investments
Overseas dividends 19,055 17,292
UK dividend income 718 591
Stock dividends 25 174
19,798 18,057
Other income
Deposit interest 186 14
Total income 19,984 18,071
4. Investment management fees
2023 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment management fees 753 2,259 3,012 801 2,403 3,204
The Company has an agreement with abrdn Fund Managers Limited ("aFML") for the
provision of management services, under which investment management services
have been delegated to abrdn Asia Limited ("abrdn Asia").
The management fee is payable monthly in arrears, on a tiered basis, exclusive
of VAT where applicable, based on market capitalisation at an annual rate of
0.85% for the first £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 £506,000 (2022 -
£2,138,000) which represents two months' fees (2022 - nine months).
The management agreement may be terminated by either the Company or the
Manager on the expiry of three months' written notice. On termination, the
Manager would be entitled to receive fees which would otherwise have been due
to that date.
5. Administrative expenses
2023 2022
£'000 £'000
Administration fees(A) 112 103
Directors' fees(B) 161 144
Promotional activities(C) 219 219
Auditors' remuneration(D)
- fees payable to the auditors for the audit of the annual financial 48 42
statements
Custodian charges 278 293
Depositary fees 46 49
Registrar fees 55 51
Legal and professional fees 93 87
Other expenses 300 175
1,312 1,163
(A) The Company has an agreement with aFML for the provision of administration
services. The administration fee is payable quarterly in advance and is
adjusted annually to reflect the movement in the Retail Prices Index. The
balance due to aFML at the year end was £86,000 (2022 - £52,000). 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 £219,000 (2022 - £219,000). There was a £73,000
(2022 - £73,000) balance due to abrdn plc at the year end.
(D) There are no non-audit fees charged.
6. Finance costs
2023 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Bank interest paid 1 2 3 - - -
Interest on 3.05% Senior Unsecured Loan Note 2035 230 691 921 230 691 921
Interest on 2.25% CULS 2025 208 623 831 207 620 827
Notional interest on 2.25% CULS 2025 39 115 154 39 115 154
Amortisation of 2.25% CULS 2025 issue expenses 23 71 94 23 71 94
501 1,502 2,003 499 1,497 1,996
Finance costs have been charged 25% to revenue and 75% to capital.
7. Taxation
2023 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
(a) Analysis of charge for the year
Overseas taxation 1,279 182 1,461 956 71 1,027
Total current tax charge for the year 1,279 182 1,461 956 71 1,027
Deferred tax charge on Indian capital gains - 1,925 1,925 - (947) (947)
Total tax charge for the year 1,279 2,107 3,386 956 (876) 80
The Company has recognised a deferred tax liability of £4,609,000 (2022 -
£2,684,000) on capital gains which may arise if Indian investments are sold.
At 31 July 2023 the Company had surplus management expenses and loan
relationship deficits of £76,652,000 (2022 - £70,420,000) in respect of
which a deferred tax asset has not been recognised. This is due to the Company
having sufficient excess management expenses available to cover the potential
liability and the Company is not expected to generate taxable income in the
future in excess of deductible expenses. The Finance Act 2021 received Royal
Assent on 10 June 2021 and the rate of Corporation Tax of 25% effective from 1
April 2023 has been used to calculate the potential deferred tax asset of
£19,163,000 (2022 - £17,605,000).
(b) Factors affecting the tax charge for the year. The tax assessed for the year
is lower (2022 - higher) than the current standard rate of corporation tax in
the UK for a large company of 25% (2022 - 19%). The differences are explained
below:
2023 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Return before taxation 17,418 21,157 38,575 15,608 (26,550) (10,942)
Return multiplied by the effective tax rate of corporation tax of 21% (2022 - 3,658 4,443 8,101 2,966 (5,045) (2,079)
standard rate of 19%)
Effects of:
(Gains)/losses on investments not taxable - (5,317) (5,317) - 4,242 4,242
Exchange losses/(gains) - 81 81 - (14) (14)
Overseas tax 1,279 182 1,461 956 71 1,027
Movement in deferred tax liability on Indian capital gains - 1,925 1,925 - (947) (947)
UK dividend income (151) - (151) (112) - (112)
Non-taxable dividend income (4,007) - (4,007) (3,319) - (3,319)
Expenses not deductible for tax purposes 4 3 7 25 76 101
Movement in unutilised management expenses 391 474 865 345 457 802
Movement in unutilised loan relationship deficits 105 316 421 95 284 379
Total tax charge for the year 1,279 2,107 3,386 956 (876) 80
8. Dividends
2023 2022
£'000 £'000
Third interim dividend for 2022 - 1.6p (2021 - nil) 2,511 -
Final dividend for 2022 - nil (2021 - 3.0p) - 4,708
Special dividend for 2022 - 1.6p (2021 - 0.2p) 2,511 314
First interim dividend for 2023 - 1.6p (2022 - 3.2p) 2,511 5,023
Second interim dividend for 2023 - 1.6p (2022 - 1.6p) 2,511 2,511
Third interim dividend for 2023 - 1.6p (2022 - nil) 2,508 -
12,552 12,556
Dividends declared and paid subsequent to the year end are not included as a
liability in the financial statements.
We set out below the total dividends paid and proposed in respect of the
financial year, which is the basis on which the requirements of Sections 1158
- 1159 of the Corporation Tax Act 2010 are considered. The revenue available
for distribution by way of dividend for the current year is £16,139,000
(2022- £14,652,000).
2023 2022
£'000 £'000
First interim dividend for 2023 - 1.6p (2022 - 3.2p) 2,511 5,023
Second interim dividend for 2023 - 1.6p (2022 - 1.6p) 2,511 2,511
Third interim dividend for 2023 - 1.6p (2022 - 1.6p) 2,508 2,511
Fourth interim dividend for 2023 - 1.61p (2022 - nil) 2,516 -
Proposed special dividend for 2023 - 2.25p (2022 - 1.6p) 3,507 2,511
13,553 12,556
The amount reflected above for the cost of the special dividend for 2023 is
based on 155,862,978 Ordinary shares, being the number of Ordinary shares in
issue excluding shares held in treasury at the date of this Report.
9. Return per share
2023 2022
Revenue Capital Total Revenue Capital Total
Basic
Net return/(loss) after taxation (£'000) 16,139 19,050 35,189 14,652 (25,674) (11,022)
Weighted average number of shares in issue(A) 156,862,299 156,951,436
Return per share (p) 10.29 12.14 22.43 9.34 (16.36) (7.02)
2023 2022
Diluted Revenue Capital Total Revenue Capital Total
Net return/(loss) after taxation (£'000) 16,366 19,730 36,096 14,831 (25,139) (10,308)
Weighted average number of shares in issue(AB) 169,366,591 169,459,584
Return per share (p) 9.66 11.65 21.31 8.75 n/a n/a
(A) Calculated excluding shares held in treasury.
(B) The calculation of the diluted total, revenue and capital returns per
Ordinary share is carried out in accordance with IAS 33, "Earnings per Share".
For the purpose of calculating total, revenue and capital returns per Ordinary
share, the number of Ordinary shares used is the weighted average number used
in the basic calculation plus the number of Ordinary shares deemed to be
issued for no consideration on exercise of all 2.25% Convertible Unsecured
Loan Stock 2025 ("CULS"). The calculations indicate that the exercise of CULS
would result in an increase in the weighted average number of Ordinary shares
of 12,504,292 (2022- 12,508,148) to 169,366,591 (2022 - 169,459,584)
Ordinary shares.
For the year ended 31 July 2023 the assumed conversion for potential Ordinary
shares was dilutive to the revenue and the capital return per Ordinary share
(2022 - dilutive to the revenue return but non-dilutive to the capital
return). Where dilution occurs, the net returns are adjusted for interest
charges and issue expenses relating to the CULS (2023 - £907,000; 2022 -
£714,000). Total earnings for the period are tested for dilution. Once
dilution has been determined individual revenue and capital earnings are
adjusted.
10. Investments at fair value through profit or loss
2023 2022
£'000 £'000
Opening book cost 377,733 346,431
Opening investment holding gains 147,108 194,490
Opening fair value 524,841 540,921
Analysis of transactions made during the year
Purchases at cost 76,896 79,496
Sales proceeds received (77,383) (73,252)
Gains/(losses) on investments 25,318 (22,324)
Closing fair value 549,672 524,841
Closing book cost 397,237 377,733
Closing investment gains 152,435 147,108
Closing fair value 549,672 524,841
2023 2022
£'000 £'000
Investments listed on an overseas investment exchange 537,379 510,984
Investments listed on the UK investment exchange 12,293 13,857
549,672 524,841
The Company received £77,383,000 (2022 - £73,252,000) from investments sold
in the period. The book cost of these investments when they were purchased was
£57,392,000 (2022 - £48,194,000). These investments have been revalued over
time and until they were sold any unrealised gains/losses were included in the
fair value of the investments.
Transaction costs. During the year expenses were incurred in acquiring or
disposing of investments classified as fair value through profit or loss.
These have been expensed through capital and are included within
gains/(losses) on investments in the Statement of Comprehensive Income. The
total costs were as follows:
2023 2022
£'000 £'000
Purchases 95 91
Sales 159 147
254 238
The above transaction costs are calculated in line with the AIC SORP. The
transaction costs in the Company's Key Information Document are calculated on
a different basis and in line with the PRIIPs regulations.
11. Debtors: amounts falling due within one year
2023 2022
£'000 £'000
Amounts due from brokers 1,343 280
Other debtors 754 766
Prepayments and accrued income 140 418
2,237 1,464
None of the above amounts is past their due date or impaired (2022 - same).
12. Creditors
2023 2022
Amounts falling due within one year £'000 £'000
Other creditors 1,250 2,864
1,250 2,864
13. Non-current liabilities
2023 2022
Number of Liability Equity Number of Liability Equity
units component component units component component
(a) CULS £'000 £'000 £'000 £'000 £'000 £'000
2.25% CULS 2025
Balance at beginning of year 36,642 35,940 1,057 36,658 35,708 1,057
Conversion of 2.25% CULS 2025 (13) (13) - (16) (16) -
Notional interest on CULS transferred to revenue reserve - 154 - - 154 -
Amortisation and issue expenses - 94 - - 94 -
Balance at end of year 36,629 36,175 1,057 36,642 35,940 1,057
The 2.25% CULS 2025 can be converted at the election of holders into Ordinary
shares during the months of May and November each year throughout their life,
commencing 30 November 2018 to 31 May 2025 at a rate of 1 Ordinary share for
every 293.0p (2022 - 293.0p) nominal of CULS. Interest is payable on the CULS
on 31 May and 30 November each year, commencing on 30 November 2018. The
interest is charged 25% to revenue and 75% to capital, in line with the
Board's expected long-term split of returns from the investment portfolio of
the Company.
The CULS has been constituted as an unsecured subordinated obligation of the
Company by the Trust Deed between the Company and the Trustee, the Law
Debenture Trust Corporation p.l.c., dated 23 May 2018. The Trust Deed details
the 2025 CULS holders' rights and the Company's obligations to the CULS
holders and the Trustee oversees the operation of the Trust Deed. In the event
of a winding-up of the Company the rights and claims of the Trustee and CULS
holders would be subordinate to the claims of all creditors in respect of the
Company's secured and unsecured borrowings, under the terms of the Trust Deed.
In 2023 the Company received elections from CULS holders to convert £12,753
(2022 - £15,343) nominal amount of CULS into 4,347 (2022 - 5,211) Ordinary
shares.
The fair value of the 2025 CULS at 31 July 2023 was £34,890,000 (2022 -
£37,009,000).
2023 2022
(b) Loan Note £'000 £'000
3.05% Senior Unsecured Loan Note 2035 30,000 30,000
Unamortised Loan Note issue expenses (102) (108)
29,898 29,892
On 1 December 2020 the Company issued £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 the Company for
the purpose of repaying the CULS, which has not been unutilised. The Company
has complied with the Note Purchase Agreement that the ratio of total
borrowings to adjusted net assets will not exceed 0.20 to 1.00, that the ratio
of total borrowings to adjusted net liquid assets will not exceed 0.60 to
1.00, that net tangible assets will not be less than £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 2023 was
£26,603,000 (2022 - £28,804,000), the value being based on a comparable
quoted debt security.
2023 2022
£'000 £'000
(c) Deferred tax liability on Indian capital gains 4,609 2,684
14. Called up share capital
2023 2022
£'000 £'000
Allotted, called-up and fully paid
Ordinary shares of 5p (2022 - 5p) 7,823 7,848
Treasury shares 2,612 2,587
10,435 10,435
Ordinary Treasury Total
shares shares shares
Number Number Number
At 31 July 2022 156,953,631 51,744,590 208,698,221
Conversion of CULS 4,347 - 4,347
Buyback of own shares (500,000) 500,000 -
At 31 July 2023 156,457,978 52,244,590 208,702,568
During the year 500,000 Ordinary shares of 5p were purchased (2022 - no
Ordinary shares of 5p were purchased) by the Company at a total cost of
£1,262,000 (2022 - total cost of £nil ), all of which were held in treasury.
At the year end 52,244,590 (2022- 51,744,590) shares were held in treasury,
which represents 25.03% (2022 - 24.79%) of the Company's total issued share
capital at 31 July 2023. During the year there were a further 4,347 (2022 -
5,211) Ordinary shares issued as a result of CULS conversions.
Since the year end the Company bought back for treasury a further 595,000
Ordinary shares for a total consideration of £1,543,000.
15. Reserves
2023 2022
£'000 £'000
Capital reserve
At 31 July 2022 375,450 401,124
Movement in investment holdings fair value 5,327 (47,382)
Gains on realisation of investments at fair value 19,991 25,058
Purchase of own shares to treasury (1,262) -
Movement in deferred liability on Indian capital gains (1,925) 947
Withholding tax charged on capital dividends (182) (71)
Foreign exchange movement (384) 72
Capital expenses (3,777) (4,298)
At 31 July 2023 393,238 375,450
The capital reserve includes investment holding gains amounting to
£152,435,000 (2022 - £147,108,000) as disclosed in note 10. The above split
in capital reserve is shown in accordance with provisions of the Statement of
Recommended Practice 'Financial Statements Of Investment Trust Companies and
Venture Capital Trusts'.
16. Net asset value per share
2023 2022
Basic
Net assets attributable £485,784,000 £464,396,000
Number of shares in issue(A) 156,457,978 156,953,631
Net asset value per share 310.49p 295.88p
2023 2022
Diluted
Net assets attributable £521,959,000 £500,336,000
Number of shares in issue(A) 168,959,568 169,459,574
Net asset value per share(B) 308.93p 295.25p
(A) Calculated excluding shares held in treasury.
(B) The diluted net asset value per share has been calculated on the
assumption that £36,629,659 (2022 - £36,642,412) 2.25% Convertible Unsecured
Loan Stock 2025 ("CULS") is converted at 293.0p (2022 - 293.0p) per share,
giving a total of 168,959,568 (2022- 169,459,574) shares. Where dilution
occurs, the net assets are adjusted for items relating to the CULS.
Net asset value per share - debt converted. In accordance with the Company's
understanding of the current methodology adopted by the AIC, convertible
financial instruments are deemed to be "in the money" if the cum income net
asset value ("NAV") exceeds the conversion price of 293.0p (2022 - 293.0p)
per share. In such circumstances a net asset value is produced and disclosed
assuming the convertible debt is fully converted. At 31 July 2023 the cum
income NAV was 310.49p (2022- 295.88p) and thus the CULS were 'in the money'
(2022 - same).
17. Analysis of changes in net debt
At At
31 July Currency Cash Non-cash 31 July
2022 differences flows movements 2023
£'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)
At At
31 July Currency Cash Non-cash 31 July
2021 differences flows movements 2022
£'000 £'000 £'000 £'000 £'000
Cash and short term deposits 14,577 72 (5,178) - 9,471
Debt due after more than one year (69,225) - - 709 (68,516)
(54,648) 72 (5,178) 709 (59,045)
A statement reconciling the movement in net funds to the net cash flow has not
been presented as there are no differences from the above analysis.
18. Related party transactions and transactions with the Manager
Fees payable during the year to the Directors and their interests in shares of
the Company are considered to be related party transactions and are disclosed
within the Directors' Remuneration Report on pages 56 and 57 of the published
Annual Report and Financial Statements for the year ended 31 July 2023. The
balance of fees due to Directors at the year end was £nil (2022 - £nil).
During the year a fee of £75,000 plus VAT has been paid to Mr Martin Gilbert,
a former Director of the Company who retired in November 2019, in respect of
independent consultancy services provided to the Company in the three year
period ending 31 July 2023.
The Company's Investment Manager, abrdn Asia, is a wholly-owned subsidiary of
abrdn plc, which has been delegated, under an agreement with aFML, to provide
management services to the Company, the terms of which are outlined in notes 4
and 5 along with details of transactions during the year and balances
outstanding at the year end.
19. Financial instruments
Risk management. The Company's investment activities expose it to various
types of financial risk associated with the financial instruments and markets
in which it invests. The Company's financial instruments comprise equities and
other investments, cash balances, loans and debtors and creditors that arise
directly from its operations; for example, in respect of sales and purchases
awaiting settlement, and debtors for accrued income.
The Board has delegated the risk management function to aFML under the terms
of its management agreement with aFML (further details of which are included
under note 4 and in the Directors' Report) however, it remains responsible for
the risk and control framework and operation of third parties. The Board
regularly reviews and agrees policies for managing each of the key financial
risks identified with the Manager. The types of risk and the Manager's
approach to the management of each type of risk, are summarised below. Such
approach has been applied throughout the year and has not changed since the
previous accounting period. The numerical disclosures exclude short-term
debtors and creditors.
Risk management framework. The directors of aFML collectively assume
responsibility for aFML's obligations under the AIFMD including reviewing
investment performance and monitoring the Company's risk profile during the
year.
aFML is a fully integrated member of the abrdn Group ("the Group"), which
provides a variety of services and support to aFML in the conduct of its
business activities, including in the oversight of the risk management
framework for the Company. The AIFM has delegated the day to day
administration of the investment policy to abrdn Asia, which is responsible
for ensuring that the Company is managed within the terms of its investment
guidelines and the limits set out in its pre-investment disclosures to
investors (details of which can be found on the Company's website). The AIFM
has retained responsibility for monitoring and oversight of investment
performance, product risk and regulatory and operational risk for the Company.
The Group's Internal Audit Department is independent of the Risk Division and
reports directly to the Group CEO and to the Audit Committee of the Group's
Board of Directors. The Internal Audit Department is responsible for providing
an independent assessment of the Group's control environment.
The Manager conducts its risk oversight function through the operation of the
Group's risk management processes and systems which are embedded within the
Group's operations. The Group's Risk Division supports management in the
identification and mitigation of risks and provides independent monitoring of
the business. The Division includes Compliance, Business Risk, Market Risk,
Risk Management and Legal. The team is headed up by the Group's Chief Risk
Officer, who reports to the CEO of the Group. The Risk Division achieves its
objective through embedding the Risk Management Framework throughout the
organisation using the Group's operational risk management system ("SHIELD").
The Group's corporate governance structure is supported by several committees
to assist the board of directors, its subsidiaries and the Company to fulfil
their roles and responsibilities. The Group's Risk Division is represented on
all committees, with the exception of those committees that deal with
investment recommendations. The specific goals and guidelines on the
functioning of those committees are described in the committees' terms of
reference.
Risk management. The main risks the Company faces from these financial
instruments are (i) market risk (comprising interest rate, foreign currency
and other price risk), (ii) liquidity risk and (iii) credit risk.
Market risk. The fair value of or future cash flows from a financial
instrument held by the Company may fluctuate because of changes in market
prices. This market risk comprises three elements - interest rate risk,
currency risk and other price risk.
Interest rate risk. Interest rate movements may affect:
- the level of income receivable on cash deposits;
- valuation of debt securities in the portfolio.
Management of the risk. The possible effects on fair value and cash flows that
could arise as a result of changes in interest rates are taken into account
when making investment and borrowing decisions. When drawn down, interest
rates are fixed on borrowings.
Interest rate risk profile. The interest rate risk profile of the Company's
financial assets and liabilities, excluding equity holdings which are all
non-interest bearing, at the reporting date was as follows:
Weighted average Weighted
period for 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 -
Weighted average Weighted
period for which average Fixed Floating
rate is fixed interest rate rate rate
At 31 July 2022 Years % £'000 £'000
Assets
Sterling - - - 8,585
Taiwan Dollar - - - 458
Vietnam Dong - - - 371
Sri Lanka Rupee - - - 32
Pakistan Rupee - - - 11
Indian Rupee - - - 9
Thailand Baht - - - 3
Malaysian Ringgit - - - 2
- - - 9,471
Liabilities
2.25% Convertible Unsecured Loan Stock 2025 2.83 2.3 35,940 -
3.05% Senior Unsecured Loan Note 2035 13.35 3.1 29,892 -
- - 65,832 -
The weighted average interest rate is based on the current yield of each asset
or liability, weighted by its market value.
The floating rate assets consist of cash deposits on call earning interest at
prevailing market rates.
The Company's equity portfolio and short term debtors and creditors have been
excluded from the above tables.
Interest rate sensitivity. Movements in interest rates would not significantly
affect net assets attributable to the Company's shareholders and total return.
Foreign currency risk. Most of the Company's investment portfolio is invested
in overseas securities and the Statement of Financial Position, therefore, can
be significantly affected by movements in foreign exchange rates.
Management of the risk. It is not the Company's policy to hedge this risk on a
continuing basis but the Company may, from time to time, match specific
overseas investment with foreign currency borrowings.
The revenue account is subject to currency fluctuations arising on dividends
receivable in foreign currencies and, indirectly, due to the impact of foreign
exchange rates upon the profits of investee companies. It is not the Company's
policy to hedge this currency risk but the Board keeps under review the
currency returns in both capital and income.
Foreign currency risk exposure by currency of denomination:
31 July 2023 31 July 2022
Net monetary Total Net monetary Total
Overseas assets/ currency Overseas assets/ currency
investments (liabilities) exposure Investments (liabilities) exposure
£'000 £'000 £'000 £'000 £'000 £'000
Australian Dollar - - 7,940 - 7,940
Chinese Renminbi 21,839 775 22,614 15,756 - 15,756
Danish Krona 10,937 - 10,937 12,352 - 12,352
Hong Kong Dollar 49,118 - 49,118 64,947 - 64,947
Indian Rupee 89,410 - 89,410 82,097 9 82,106
Indonesian Rupiah 64,045 - 64,045 55,431 - 55,431
Korean Won 46,231 - 46,231 31,429 - 31,429
Malaysian Ringgit 30,827 - 30,827 35,339 2 35,341
Taiwan Dollar 69,008 - 69,008 56,994 458 57,452
New Zealand Dollar 12,605 - 12,605 14,061 - 14,061
Pakistan Rupee - - - - 11 11
Philippine Peso 20,287 - 20,287 19,825 - 19,825
Singapore Dollar 33,221 - 33,221 41,585 - 41,585
Sri Lankan Rupee 14,586 - 14,586 7,640 32 7,672
Thailand Baht 32,643 4 32,647 35,114 3 35,117
US Dollar 11,461 3 11,464 - - -
Vietnamese Dong 31,161 361 31,522 30,474 371 30,845
537,379 1,143 538,522 510,984 886 511,870
Sterling 12,293 (61,409) (49,116) 13,857 (57,247) (43,390)
Total 549,672 (60,266) 489,406 524,841 (56,361) 468,480
Foreign currency sensitivity. The Company's foreign currency financial
instruments are in the form of equity investments, fixed interest investments,
cash and bank loans. The sensitivity of the former has been included within
other price risk sensitivity analysis so as to show the overall level of
exposure. Due consideration is paid to foreign currency risk throughout the
investment process.
Investment in Far East equities or those of companies that derive significant
revenue or profit from the Far East involves a greater degree of risk than
that usually associated with investment in the securities in major securities
markets. The securities that the Company owns may be considered speculative
because of this higher degree of risk. It is the Board's policy to hold an
appropriate spread of investments in the portfolio in order to reduce the risk
arising from factors specific to a particular country or sector. Both the
allocation of assets and the stock selection process, as detailed on pages 103
to 105, of the published Annual Report and Financial Statements for the year
ended 31 July 2023 act to reduce market risk. The Manager actively monitors
market prices throughout the year and reports to the Board, which meets
regularly in order to review investment strategy. The investments held by the
Company are listed on various stock exchanges worldwide.
Other price risk sensitivity. If market prices at the reporting date had been
20% (2022 - 20%) higher or lower while all other variables remained constant,
the return attributable to Ordinary shareholders for the year ended 31 July
2023 would have increased/(decreased) by £109,934,000 (2022 -
increased/(decreased) by £104,968,000) and equity reserves would have
increased/(decreased) by the same amount.
Liquidity risk. This is the risk that the Company will encounter difficulty in
meeting obligations associated with financial liabilities.
Management of the risk. The Board imposes borrowing limits to ensure gearing
levels are appropriate to market conditions and reviews these on a regular
basis. Gearing comprises both senior unsecured loan notes and convertible
unsecured loan stock. The Board has imposed a maximum gearing level, measured
on the most stringent basis of calculation after netting off cash equivalents,
of 25%. Details of borrowings at the 31 July 2023 are shown in note 13.
Liquidity risk is not considered to be significant as the Company's assets
comprise mainly readily realisable securities, which can be sold to meet
funding commitments if necessary. Details of the Board's policy on gearing are
shown in the investment policy section on page 16 of the published Annual
Report and Financial Statements for the year ended 31 July 2023.
Liquidity risk exposure. At 31 July 2023 the Company had borrowings in the
form of the £36,629,000 (2022 - £36,642,000) nominal of 2.25% Convertible
Unsecured Loan Stock 2025 and £29,898,000 (2022 - £29,892,000 ) in the form
of the 3.05% Senior Unsecured Loan Note 2035.
At 31 July 2023 the amortised cost of the Company's 3.05% Senior Unsecured
Loan Note 2035 was £29,898,000 (2022 - £29,892,000). The maximum exposure at
31 July 2023 was £29,898,000 (2022 - £29,892,000) and the minimum exposure
at 31 July 2023 was £29,892,000 (2022 - £29,886,000).
The maturity profile of the Company's existing borrowings is set out below.
Due
Due between
Expected within 3 months Due after
cashflows 3 months and 1 year 1 year
31 July 2023 £'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
Due
Due between
Expected within 3 months Due after
cashflows 3 months and 1 year 1 year
31 July 2022 £'000 £'000 £'000 £'000
2.25% Convertible Unsecured Loan Stock 2025 38,282 - 827 37,455
3.05% Senior Unsecured Loan Note 2035 42,353 - 915 41,438
80,635 - 1,742 78,893
Credit risk. This is the risk of failure of the counterparty to a transaction
to discharge its obligations under that transaction that could result in the
Company suffering a loss.
Management of the risk. Investment transactions are carried out with a large
number of brokers, whose credit-standing is reviewed periodically by the
Investment Manager, and limits are set on the amount that may be due from any
one broker. Settlement of investment transactions are also done on a delivery
versus payment basis;
- the risk of counterparty exposure due to failed trades causing a loss to the
Company is mitigated by the review of failed trade reports on a monthly basis.
In addition, the third party administrator carries out a stock reconciliation
to Custodian records on a monthly basis to ensure discrepancies are picked up
on a timely basis. The Manager's compliance department carries out periodic
reviews of the Custodian's operations and reports its finding to the Manager's
risk management committee. This review will also include checks on the
maintenance and security of investments held; and
- cash is held only with reputable banks with high quality external credit
ratings.
It is the Manager's policy to trade only with A- and above (Long Term rated)
and A-1/P-1 (Short Term rated) counterparties.
None of the Company's financial assets is secured by collateral or other
credit enhancements.
Credit risk exposure. In summary, compared to the amounts in the Statement of
Financial Position, the maximum exposure to credit risk at 31 July was as
follows:
2023 2022
Statement Statement
of Financial Maximum of Financial Maximum
Position exposure Position exposure
Current assets £'000 £'000 £'000 £'000
Debtors and prepayments 2,237 2,237 1,464 1,464
Cash and short term deposits 5,807 5,807 9,471 9,471
8,044 8,044 10,935 10,935
None of the Company's financial assets is past due or impaired.
Fair values of financial assets and financial liabilities. The fair value of
the loan note has been calculated at £26,603,000 as at 31 July 2023 (2022 -
£28,804,000) compared to a value at amortised cost in the financial
statements of £29,898,000 (2022 - £29,892,000) (note 13). The fair value of
the loan note is determined by aggregating the expected future cash flows for
that loan discounted at a rate comprising the borrower's margin plus an
average of market rates applicable to loans of a similar period of time and
currency. Investments held at fair value through profit or loss are valued at
their quoted bid prices which equate to their fair values. The Directors are
of the opinion that the other financial assets and liabilities, excluding CULS
which are held at amortised cost, are stated at fair value in the Statement of
Financial Position and considered that this approximates to the carrying
amount.
20. Fair value hierarchy
FRS 102 requires an entity to classify fair value measurements using a fair
value hierarchy that reflects the significance of the inputs used in making
the measurements.
Level 1: unadjusted quoted prices in an active market for identical assets or
liabilities that the entity can access at the measurement date.
Level 2: inputs other than quoted prices included within Level 1 that are
observable (ie developed using market data) for the asset or liability, either
directly or indirectly.
Level 3: inputs are unobservable (ie for which market data is unavailable) for
the asset or liability.
The financial assets measured at fair value in the Statement of Financial
Position are grouped into the fair value hierarchy at 31 July 2023 as follows:
Level 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
Level 1 Level 2 Level 3 Total
As at 31 July 2022 Note £'000 £'000 £'000 £'000
Financial assets and liabilities at fair value through profit or loss
Quoted equities a) 511,540 - 9,664 521,204
Quoted preference shares b) - 3,203 - 3,203
Quoted warrants b) - 434 - 434
Net fair value 511,540 3,637 9,664 524,841
a) Quoted equities. The fair value of the Company's investments in quoted
equities has been determined by reference to their quoted bid prices at the
reporting date. Quoted equities included in Fair Value Level 1 are actively
traded on recognised stock exchanges.
b) Quoted preference shares and quoted warrants. The fair value of the
Company's investments in quoted preference shares and quoted warrants has been
determined by reference to their quoted bid prices at the reporting date.
Investments categorised as Level 2 are not considered to trade as actively as
Level 1 assets.
Year ended Year ended
31 July 2023 31 July 2022
Level 3 Financial assets at fair value through profit or loss £'000 £'000
Opening fair value 9,664 -
Transfers from level 1 - 9,664
Transfers from level 2 2,952 -
Total gains or losses included in losses on investments in the Statement of
Comprehensive Income:
- assets held at the end of the year 294 -
Closing balance 12,910 9,664
Transfers from level 2 during the year comprise Millennium & Copthorne
preference shares of £2,835,000 (2022 - £3,203,000) to reflect the absence
of a consistent market quote. These have been priced in line with their
Ordinary shares. In addition First Sponsor Group warrants of £117,000 (2022 -
£158,000) have been classified as level 3 to reflect their illiquidity. Their
fair value has been based on a trade executed in February 2023.
The Company's investee, CEBU Holdings is awaiting final regulatory approval to
merge with another company, Ayala Land, and new shares are expected to be
issued in Ayala Land in due course to satisfy the transaction by a share
conversion. The valuation methodology employed is based on the underlying
quoted price of Ayala Land and the implied conversion ratio providing a value
of £9,958,000 (2022 - £9,664,000).
21. Capital management policies and procedures
The Company manages its capital to ensure that it will be able to continue as
a going concern while maximising the return to shareholders through the
optimisation of the debt (comprising CULS and Loan Note) and equity balance.
The Company's capital comprises the following:
2023 2022
£'000 £'000
Equity
Equity share capital 10,435 10,435
Reserves 475,349 453,961
Liabilities
3.05% Senior Unsecured Loan Note 2035 29,898 29,892
2.25% Convertible Unsecured Loan Stock 2025 36,175 35,940
551,857 530,228
The Board's policy is to utilise gearing when the Manager believes it
appropriate to do so, up to a maximum of 25% geared at the time of drawdown.
Gearing for this purpose is defined as the excess amount above shareholders'
funds of total assets (including net current assets/liabilities) less
cash/cash equivalents, expressed as a percentage of the shareholders' funds.
If the amount so calculated is negative, this is shown as a 'net cash'
position.
2023 2022
£'000 £'000
Investments at fair value through profit or loss 549,672 524,841
Current assets excluding cash and cash equivalents 894 1,184
Current liabilities (1,250) (2,864)
Deferred tax liability on Indian capital gains (4,609) (2,684)
544,707 520,477
Net assets 485,784 464,396
Gearing (%) 12.1 12.1
The Board monitors and reviews the broad structure of the Company's capital on
an ongoing basis. The review includes:
- the planned level of gearing which takes account of the Manager's views on
the market;
- the level of equity shares in issue;
- the extent to which revenue in excess of that which is required to be
distributed should be retained.
The Company's objectives, policies and processes for managing capital are
unchanged from the preceding accounting period.
The Company does not have any externally imposed capital requirements.
Alternative Performance Measures
Alternative Performance Measures ("APMs") are numerical measures of the
Company's current, historical or future performance, financial position or
cash flows, other than financial measures defined or specified in the
applicable financial framework. The Company's applicable financial framework
includes FRS 102 and the AIC SORP. The Directors assess the Company's
performance against a range of criteria which are viewed as particularly
relevant for closed-end investment companies.
Discount to net asset value per Ordinary share
The difference between the share price and the net asset value per Ordinary
share expressed as a percentage of the net asset value per Ordinary share.
2023 has been presented on a diluted basis as the Convertible Unsecured Loan
Stock ("CULS") is "in the money" (2022 - same).
As at As at
31 July 2023 31 July 2022
NAV per Ordinary share (p) a 308.93 295.25
Share price (p) b 264.00 254.00
Discount (a-b)/a 14.5% 14.0%
Dividend cover
Revenue return per Ordinary share divided by dividends declared for the year
per Ordinary share expressed as a ratio.
Year ended Year ended
31 July 2023 31 July 2022
Revenue return per Ordinary share (p) a 10.29 9.34
Dividends declared (p) b 8.66 8.00
Dividend cover a/b 1.19 1.17
Net gearing
Net gearing measures the total borrowings less cash and cash equivalents
divided by shareholders' funds, expressed as a percentage. Under AIC reporting
guidance cash and cash equivalents includes net amounts due from and to
brokers at the year end as well as cash and short term deposits.
Year ended Year ended
31 July 2023 31 July 2022
Borrowings (£'000) a 66,073 65,832
Cash and short term deposits (£'000) b 5,807 9,471
Amounts due to brokers (£'000) c - -
Amounts due from brokers (£'000) d 1,343 280
Shareholders' funds (£'000) e 485,784 464,396
Net gearing (a-b+c-d)/e 12.1% 12.1%
Ongoing charges
The ongoing charges ratio has been calculated in accordance with guidance
issued by the AIC as the total of investment management fees and
administrative expenses and expressed as a percentage of the average published
daily net asset values with debt at fair value throughout the year.
2023 2022
Investment management fees (£'000) 3,012 3,204
Administrative expenses (£'000) 1,328 1,561
Less: non-recurring charges(A) (£'000) (67) (428)
Ongoing charges (£'000) 4,273 4,337
Average net assets (£'000) 462,127 490,446
Ongoing charges ratio 0.92% 0.88%
(A) Professional fees comprising corporate and legal fees considered unlikely
to recur.
The ongoing charges ratio provided in the Company's Key Information Document
is calculated in line with the PRIIPs regulations, which includes finance
costs and transaction charges.
Total return
NAV and share price total returns show how the NAV and share price has
performed over a period of time in percentage terms, taking into account both
capital returns and dividends paid to shareholders. NAV and share price total
returns are monitored against open-ended and closed-ended competitors, and the
Reference Index, respectively.
Share
Year ended 31 July 2023 NAV Price
Opening at 1 August 2022 a 295.25p 254.00p
Closing at 31 July 2023 b 308.93p 264.00p
Price movements c=(b/a)-1 4.6% 3.9%
Dividend reinvestment(A) d 3.0% 3.4%
Total return c+d +7.6% +7.3%
Share
Year ended 31 July 2022 NAV Price
Opening at 1 August 2021 a 309.02p 266.00p
Closing at 31 July 2022 b 295.25p 254.00p
Price movements c=(b/a)-1 -4.5% -4.5%
Dividend reinvestment(A) d 2.5% 2.8%
Total return c+d -2.0% -1.7%
(A) NAV total return involves investing the net dividend in the NAV of the
Company with debt at fair value on the date on which that dividend goes
ex-dividend. Share price total return involves reinvesting the net dividend in
the share price of the Company on the date on which that dividend goes
ex-dividend.
The Annual General Meeting will be held at 11.00 a.m. on 5 December 2023 at
Wallacespace Spitalfields, 15-25 Artillery Lane, London, E1 7HA.
Please note that past performance is not necessarily a guide to the future and
that the value of investments and the income from them may fall as well as
rise and may be affected by exchange rate movements. Investors may not get
back the amount they originally invested.
The Annual Financial Report Announcement is not the Company's statutory
accounts. The above results for the year ended 31 July 2023 are an abridged
version of the Company's full financial statements, which have been approved
and audited with an unqualified report. The 2022 and 2023 statutory accounts
received unqualified reports from the Company's auditors and did not include
any reference to matters to which the auditors drew attention by way of
emphasis without qualifying the reports and did not contain a statement under
s.498(2) or 498(3) of the Companies Act 2006. The financial information for
2022 is derived from the statutory accounts for 2021 which have been delivered
to the Registrar of Companies. The 2023 financial statements will be filed
with the Registrar of Companies in due course.
The audited Annual Report and financial statements will be posted to
shareholders in November. Copies may be obtained during normal business hours
from the Company's Registered Office, 280 Bishopsgate, London EC2M 4AG or from
the Company's website, asia-focus.co.uk*
* Neither the content of the Company's website nor the content of any website
accessible from hyperlinks on the Company's website (or any other website) is
(or is deemed to be) incorporated into, or forms (or is deemed to form) part
of this announcement.
By Order of the Board
abrdn Holdings Limited
Secretary
19 October 2023
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