REG - abrdn China Inv.Co. - Annual Financial Report
16/02/2024 16:15
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RNS Number : 5017D abrdn China Investment Company Ltd. 16 February 2024
Legal Entity Identifier (LEI): 213800RIA1NX8DP4P938
abrdn China Investment Company Limited
Annual Report 31 October 2023
Seeking long-term capital growth by investing predominantly in Chinese
equities
Financial Highlights
Financial Highlights
31 October 2023 31 October 2022 % change
Total equity shareholders' funds (net assets) £213,247,000 £231,843,000 -8.0
Market capitalisation 167,197,000 202,870,000
Net asset value per Ordinary share (including current year income) 499.97p 511.98p -2.3
Net asset value per Ordinary share (excluding current year income)(A) 499.00p 507.89p -1.8
Share price (mid market) 392.00p 448.00p -12.5
Discount to net asset value per Ordinary share (including current year 21.6% 12.5%
income)(B)
Discount to net asset value per Ordinary share (excluding current year 21.4% 11.8%
income)(A)
MSCI AC China All Shares Index (currency adjusted, capital gains basis) 1,953.68 1,885.64 +3.6
Net gearing/(cash)(B) 3.1% -3.6%
Dividend and earnings
Revenue return per share 0.95p 4.00p -76.3
Dividends per share(C) - 3.20p -100.0
Dividend cover N/A 1.25
Revenue reserve(D) (£3,226,000) (£3,640,000)
Operating costs
Ongoing charges ratio(BE) 1.07% 0.60%
(A) Based on capital only NAV.
(B) Considered to be an Alternative Performance Measure .
(C) The figures for dividends reflect the years in which they were earned (see
note 8).
(D) Prior to payment of proposed Interim dividend.
(E) 2022 includes the effect of the management fee waiver arrangement
following the combination with Aberdeen New Thai Investment Trust in November
2021.
Performance (total return)
1 year 3 years 5 years since 31/10/2021
% return % return % return % return
Net asset value(A) -1.9 -26.0 -8.1 -38.2
Share price(A) -12.0 -32.7 -14.6 -43.3
MSCI China All Shares Index (currency adjusted) +6.1 -31.8 +6.4 -27.3
(A) Alternative Performance Measure.
Strategic Report - Chairman's Statement
Overview
China has proved a challenging country for many investors over the 12 months
to 31 October 2023 ("the Financial Year"). Overall, Chinese equities (as
represented by the MSCI China All Shares Index), were up 6.1% in sterling
terms, but this belies the significant volatility investors experienced during
the Financial Year in which investors sought out value stocks over those
considered higher quality. The abrdn China Investment Company Limited ("the
Company" or "ACIC") net asset value ("NAV") total return for the Financial
Year was -1.9% and the Ordinary share price total return was -12.0% in
sterling terms, with the discount ranging from 10.8% in February 2023 to 21.6%
in October 2023, trading at an average discount of 14.4% throughout the
Financial Year.
Market review
The Financial Year began with optimism for recovery as the zero-Covid measures
swiftly rolled back on 1 November 2022. Investors hoped that pent-up
consumer demand would herald a strong economic recovery. However, the
reality did not live up to market expectations. The economic recovery was not
as smooth as many had anticipated and the predicted rebound fell short of
expectations.
Meanwhile, investor confidence was also eroded by several lingering issues.
Alongside geopolitical tensions between the US and China, there have been
concerns over liquidity in China's real estate sector and the country's Local
Government Financing Vehicles, which have amassed large levels of debt funding
China's infrastructure boom. While government policy has been supportive, it
has come through in small ripples rather than one big wave as investors had
hoped. Again, the mismatch in expectations has been the cause of market
volatility over the Financial Year.
Against this backdrop, many investors switched their focus away from
high-quality structural growth companies favoured by your Manager and backed
short-term trends, notably artificial intelligence ("AI") and China's
state-owned enterprises ("SOE"). Investors were focused on deep value
opportunities in SOE-heavy sectors such as energy and financials. Your Manager
remains cautious about investing in these areas, preferring to take a
long-term view. While AI-related businesses have seen a large rise in their
share prices in a very short time, the popularity among investors is not
necessarily matched by the relevant companies' fundamentals. While SOE reform
is promising for some companies, it is important to consider whether the
reforms are aligned with the needs of minority shareholders.
Performance
In terms of the Company's performance, the area hardest hit was the
portfolio's consumption-focused holdings. With consumer confidence fragile
across a wide section of the Chinese economy, these businesses saw their share
prices suffer despite strong fundamentals and solid results. The strongest
relative contribution to performance at a sector level was from communication
services. You can read in more detail about the performance and portfolio
activity in the Investment Managers Report.
The Board visited China and Hong Kong in October 2023. Due to the previous
limitations of zero-Covid travel restrictions, this was the Board's first
opportunity to meet the Company's wider investment and support teams in person
since the Company's change of investment mandate in November 2021. The visit
was an excellent chance to talk to the team in more detail about the current
challenges and long-term opportunities in the Chinese market and how the
portfolio can best reflect these.
Earnings & Dividend
Net revenue earnings after tax for the Financial Year to 31 October 2023 were
£414K as compared to £1,851K in 2022. Most of the difference can be
attributed to the Company having benefited from a fee waiver for six months of
the previous year and the rise in the cost of debt as interest rates have
risen.
The Company will not be declaring a dividend for the Financial Year (2022: 3.2
pence per share). Last year's dividend was required to be paid because the
surplus earnings generated as a result of the fee waiver from your Manager
reduced the cost base, such that a dividend was required for the Company to
qualify as an investment trust. This year the costs are normalised and there
is not sufficient excess income to necessitate a dividend.
Proposal for the Reconstruction and Voluntary Winding-up of the Company
On 28 November 2023, the Board announced that heads of terms had been agreed
in principle for a proposed combination of the assets of the Company with the
assets of Fidelity China Special Situations PLC ("Fidelity China") (the
"Proposals"). The Board believes the Proposals will benefit shareholders in
the Company ("Shareholders") going forward. Fidelity China is the top
performing, largest and most liquid UK investment trust investing in China.
The combination, if approved by each company's shareholders, will be
implemented through a Guernsey scheme of reconstruction, under which the
Company will be placed into voluntary liquidation and part of its cash, assets
and undertaking will be transferred to Fidelity China in exchange for the
issue of new ordinary shares in Fidelity China to Shareholders.
We have posted a circular to shareholders convening general meetings for
Monday 11 March 2024 and Wednesday 13 March 2024 at which Shareholders will be
asked to approve the resolutions necessary to effect the Proposals. Details
of the business to be considered at each general meeting and directions for
voting are included in the circular. It is expected that the effective date
for the completion of the Proposals and members' voluntary liquidation, will
take place before the deadline for the convening of an Annual General Meeting
in respect of the Financial Year, which is 30 April 2024. In the event that
the effective date of the Proposals is delayed beyond 30 April 2024 a Notice
of AGM will be published and an Annual General Meeting in respect of the
Financial Year will have to be convened, but this is viewed as unlikely.
Loan Facility and Gearing
During the Financial Year, the Company amended its two year £15 million
revolving credit facility with the Industrial and Commercial Bank of China
("ICBC"). In September 2023, the Company agreed with ICBC an amendment to
the financial covenants within the Loan Facility with ICBC. It was agreed
that the acceptable Net Asset Value ("NAV") of the Company should be reduced
from £200 million to £175 million. It was also agreed that, should the
Company's NAV reach £250 million then the minimum NAV covenant would revert
back to £200 million. The Company's option to increase the level of the
commitment from £15 million to £30 million is subject to a minimum NAV of
£200 million.
The Loan Facility was due to expire on 13 April 2024. However, on 15 January
2024, the loan was fully repaid and cancelled in anticipation of the
completion of the Proposals.
Discount and buy backs
During the Financial Year, the Board closely monitored the Company's share
price discount to NAV. The Board's intention is that ACIC's shares should not
trade at a price which, on average, represents a discount that is out of line
with its direct peer group over the long-term.
The Board seeks authority from Shareholders annually to buy back shares to
assist the management of the discount.
Shares may be repurchased when, in the opinion of the Board, and taking into
account factors such as market conditions and the discounts of comparable
companies, the Company's discount is out of line with ACIC's direct peers and
shares are available to purchase in the market. The Board believes that the
principal purpose of share repurchases is to enhance the NAV for remaining
shareholders, although it may also assist in addressing the imbalance between
the supply of and demand for ACIC's shares and thereby reduce the scale and
volatility of the discount at which the shares trade in relation to the
underlying NAV.
During the Financial Year, ACIC bought back 2,631,266 shares or 4.2% of the
share capital in issue at a cost of £13.78 million and a weighted average
discount of 13.78%. This enhanced the Company's NAV by 0.79%.
The Company has not bought back any shares since the Financial Year End.
Management Team
The Board has been impressed by the calibre, experience and insight of the
investment team that has been managing the Company's portfolio, and commends
it to Shareholders. The Board is keen to stress the rationale for the
Proposals is not driven by any shortcomings in the portfolio management, but
by issues of liquidity which have proved insurmountable given the market's
change in sentiment towards China.
Board Composition
There have been no changes to the Board Composition during the financial year.
It is expected that the Board will all resign when the Company is put into
liquidation at the end of the combination process.
I would like to thank my fellow Board Members for their support and guidance
during a challenging year and for their assistance in the coming months.
Change of Portfolio Administrator, Depositary, Registered Office, Custodian and Company Secretary
In April 2023, the Company completed the process of moving most of its support
functions to various entities within BNP Paribas S.A. Group ("BNP"). The
depositary and administration of the portfolio moved to BNP Paribas S.A.,
Guernsey Branch. The registered office of the Company moved to BNP Paribas
House, St Julian's Avenue, St Peter Port, Guernsey, GY1 1WA. The custodian was
also moved to BNP Paribas S.A. At the same time abrdn Holdings Limited was
appointed Company Secretary.
The Board decided to make these changes as BNP is the preferred service
partner of the Company's Investment Manager, abrdn plc, and currently BNP
provides these services to the majority of the investment companies that abrdn
plc manages.
Annual General Meeting ("AGM")
Normally, the notice of the Company's AGM would accompany this Annual Report
and the AGM would take place in mid-April.
However, in light of the Proposals, it is likely that the Company will be
placed into voluntary liquidation before the Company's AGM would be scheduled
to take place. The Board will update shareholders on the timings of all
shareholder meetings once these are confirmed by notice of meeting as usual
and by announcement on the London Stock Exchange.
Outlook
The Company's portfolio retains a significant exposure to stocks which are
heavily influenced by Chinese consumers and, although the quick economic
rebound some had expected has yet to emerge and recovery has been slower than
anticipated, it is surely a matter of when, not if this gathers momentum.
While negative headlines may have discouraged many foreign investors in recent
months, there are still reasons for optimism for those investors looking for
long-term capital growth in China.
Policy guidance is likely to remain supportive. China's government is
introducing fiscal and monetary measures that should promote domestic
consumption and enhance liquidity in the system. A large step forward came
when the government announced plans to provide 1 trillion renminbi of low-cost
financing for urban village renovations and affordable housing programmes.
While not a panacea, this should help stabilise the country's property sector,
generate demand and restore household confidence.
In terms of geopolitics, after the Financial Year end, US president Joe Biden
met China's premier Xi Jinping. While most commentators considered this
meeting as not an unqualified success, dialogue between the two states is a
positive step toward easing relations.
The Board remains convinced of the long-term investment potential in China and
hope that Shareholders will embrace the opportunity to be part of the larger,
more liquid, Fidelity China Special Situations PLC and will benefit from the
latter's extensive experience of investing in China.
Helen Green
Chairman
16 February 2024
Investment Managers Report
Market Environment
The Financial Year was marked by considerable market volatility, with a sharp
contrast between strong performance in the first six months, followed by an
extended period of weakness in the second half. At the beginning of the
Financial Year, the central government's strict Covid policies hampered
economic progress. As the authorities pivoted to reliance on herd immunity,
policies were removed more quickly than expected. This effectively brought to
an end to the nationwide zero-Covid policy. Share prices briefly surged on
hopes of a big increase in activity, fuelled by the knowledge that
considerable demand had built up during the Covid lockdowns. However, the
strength of the recovery proved rather underwhelming and short-lived and
company reports began to indicate that the market had run ahead of corporate
fundamentals.
Other factors also began to influence sentiment. Among them was the difficult
global macroeconomic backdrop, as many central banks tightened monetary policy
as they attempted to stem inflationary pressures. Added to this was a flare-up
in geopolitical tensions between the US and China. At home, there were growing
concerns about the financial health of China's domestic real estate sector.
Liquidity problems made life very difficult for some of the heavily indebted
property giants, epitomised by Country Garden, one of the country's top three
developers, which subsequently defaulted on an international bond. The high
level of debt held by local government was also a concern, given the cost of
servicing the debt and the fact that it is not permitted to sell land.
As China's economic recovery faltered, calls mounted for central government
measures to support demand. Gradually some measures were implemented, but it
became clear government was hesitant to provide the level of support investors
expected, preferring to drip-feed a range of small, targeted measures, as
opposed to an immediate and powerful boost.
The mood was lifted by a Politburo meeting in July when the government
indicated a significantly increased level of economic support, aimed at
improving the operating environment for private enterprises and the platform
economy, boosting capital markets, and increasing investor confidence. Other
measures included support aimed at the struggling property sector, including 1
trillion yuan in planned government bond issuance for infrastructure
investment. Towards the end of the Financial Year there were signs the
medicine was beginning to work, with third-quarter Gross Domestic Product
("GDP") better than expected.
If the global macroeconomic picture remains soft, more support may well be
necessary, especially in the real estate sector. For investors, history
suggests a patient, long-term approach leads to the best returns and that is
likely to be the case once again in China.
Investment Themes
In constructing and managing the Company's portfolio, we employ a five-pronged
thematic approach to identifying companies which we believe will deliver
superior returns over the long-term. While this approach will not prevent us
from buying into a position where we see fundamental value, we would expect
most of the holdings to benefit from one of the themes below:
Aspiration: We expect consumer companies to fare well as China strives for a
self-sufficient economic model. Positioning goods and services as
high-quality, in part to gain pricing power is a powerful consumer trend. We
believe urbanisation and rising middle-class wealth will drive demand for
premium goods and services in the long-run.
Digital: This theme is aligned with the government's objectives of
localisation, improving productivity, lowering costs, increasing innovation
and helping to propel economic growth. Our holdings in this segment are
primarily software-related names. Chinese companies have historically
performed strongly given their knowledge of the domestic market and preference
for localisation in areas such as cybersecurity and cloud services.
Green: This theme is set to benefit from government policy on decarbonisation
and net-zero emissions by 2060. China dominates global manufacturing capacity
for renewable energy and storage, accounting for 90% of solar and 75% of
battery capacity and is well positioned to benefit from the huge global
investment required in renewable energy and electricity storage. Other
industries also need to decarbonise, so we expect greater investment in
upgrading machinery and increasing energy efficiency. Our holdings include
solar wafer-producers, component-makers, battery and related component-makers
and automation-related firms.
Health: This theme aligns with government policy objectives to make healthcare
cheaper and more accessible. This is particularly relevant in view of China's
rapidly ageing society. The portfolio is overweight in healthcare services,
including companies providing innovative research and clinical trial services
that seek to bring high-quality therapies to market.
Wealth: This theme aligns with the government's objective of China becoming a
moderately prosperous society by 2035. The financial services sector plays a
key role in creating and protecting wealth. Our holdings contribute to the
creation of strong financial and capital markets, and also include software
companies that support the development of capital markets, such as trading and
portfolio management. The adoption of insurance services remains low in China
relative to the rest of the world. We see a large potential market in terms of
life and health insurance, especially given China's ageing population.
Portfolio Performance
During the Financial Year, the Company's NAV total return was -1.9%,
underperforming the total return of the MSCI China All Shares Index ("the
Benchmark"). The Ordinary share price total return was -12.0% in sterling
terms.
As referenced by your Chairman, while the market rose over the Financial Year,
many of the top performing stocks were clustered around two specific themes:
artificial intelligence ("AI") systems, including the rise of ChatGPT, and the
reform of state-owned enterprises ("SOEs"). There was a notable move away from
growth-orientated stocks to those offering more value, so our focus on quality
companies detracted from performance.
Looking in more detail at the portfolio, the underperformance relative to the
Benchmark was driven mainly by poor stock selection in three sectors:
financials, consumer discretionary and information technology. With fragile
domestic consumer confidence across a wide section of the Chinese economy,
initial hopes of a strong recovery faded, and domestic investors rotated away
from consumer names. As a result, some of our consumption-focused holdings
suffered despite having strong fundamentals and posting solid results. Travel
retailer China Tourism Group Duty Free (China Tourism) and food flavourings
group Foshan Haitian were examples of this. Despite the negative sentiment,
some of the Company's other consumer holdings were still able to deliver
earnings growth, including Kweichow Moutai, Midea Group and Fuyao Glass.
There were also some contrasting fortunes from our China internet names over
the year. Pinduoduo ("PDD") performed well after it exceeded the market's
expectations with higher merchandise volumes, lower costs, and improved
profitability. We brought it into the portfolio in the first half of the year
for several reasons. It has expanded into the US through its Temu subsidiary
and, in China, gained market share by offering its customers better value for
money. We think the value of the overseas operations is not yet fully
reflected in the stock. In the same space, JD.com underperformed due to some
investors concerned about increasing competition in the e-commerce space.
The gaming sector proved more resilient than other consumer activities and
returns from our holdings were strong, especially Tencent and Netease, which
outperformed over the year. Steady growth and diversified revenue streams were
the main attractions at Tencent while Netease benefited from product launches
which were well received.
On a less positive note, two of our holdings in the alternative energy sector,
Longi Green Energy Technology (Longi) and Sungrow Power Supply, proved to be a
drag on performance. Solar panel producer Longi fell back on concerns over a
potential drop in demand as well as geopolitical tensions. We reduced our
position in the stock, although Longi remains the world's leading solar
mono-wafer manufacturer with a cost advantage versus peers and a strong
distribution network. Elsewhere, Yunnan New Material was also weak over the
year, affected by the market's concerns about over capacity in the battery
separator segment and rising geopolitical tension obstructing its growth
overseas.
Within the information technology sector, construction software company Glodon
dropped back after underwhelming results and concerns about the real estate
sector. We remain confident about the company's prospects as property
developers focus increasingly on cost management and operational efficiency.
Helping to mitigate some of the losses in the sector was a strong contribution
from component maker Maxscend Microelectronics, which delivered solid results
and was boosted by signs of a pickup in mobile phone sales.
Portfolio Activity
The changes made to existing holdings over the year fell broadly into two
categories. Firstly, we exited stocks where we did not want to hold a position
through volatile market conditions, or where we expected fundamental weakness
to outweigh promising long-term potential. Secondly, we increased our
positions in existing holdings in quality businesses when valuations reached
very attractive levels and we had more confidence in near-term earnings. As
such, adjustments have been stock-specific and not related to broad themes or
sectors.
In terms of new positions, we introduced BYD, a leading new-energy electric
vehicle manufacturer that controls multiple steps in its supply chain. We also
established a new position in drivetrain components manufacturer Zhejiang
Shuanghuan. The company's products have wide application across a range of
machinery, including internal combustion engine vehicles, electric vehicles,
and motorcycles.
We added China Resources Beer, a conglomerate with businesses including
retail, beverages, food processing and distribution, which is run by a strong
management team, for its balanced combination of defensive and growth brands.
In financial services, we established a new position including China Life,
which looks set to benefit from improving life insurance sales in China.
Finally, in the property sector, we added China's largest online real estate
broker, KE Holdings, which boasts a diverse range of growing businesses
related to property. As restrictions on property transactions begin to ease,
we expect the company will see growing transaction volumes in the secondary
market and, over the long-term, continue to increase its market share.
As mentioned in the Interim Report, the Company received regulatory approval
for a Qualified Foreign Investor ("QFI") licence status, which provides access
to the broader Chinese equity market. As a result of this, we purchased two
new stocks: Centre Testing International and OPT Machine Vision.
Conversely, we exited real estate firm China Vanke, following sustained
pressure on property developers and piecemeal support from the government and
sold our stake in data-centre operator GDS as increased competition from large
cloud businesses and state-owned enterprises had raised the level of
uncertainty over GDS's earnings recovery. Other sales included Anhui Conch
Cement, Shenzhou International and
Meidong Auto.
Outlook
China's post-Covid economic recovery was weaker than expected, but the central
government is implementing incremental measures to support the economy and we
remain optimistic about the longer-term case for investing in Chinese
equities.
There are already signs the economy is responding to the economic stimulus
measures implemented so far by the central government. While some property
developers continue to struggle under large debt burdens, further support
measures may be required.
At a time when markets in Europe and the US are having to cope with the higher
interest rate environment, China's market offers a differentiated opportunity
to investors. Some high-quality names have been sold off into the cyclical
downturn, but the potential for a recovery could now provide a dual tailwind
for these stocks. We have already seen early signs of this in the IT hardware
sector, one of the first industries where de-stocking has been completed.
We continue to believe the best strategy is to focus on quality companies. It
was reassuring to see that, despite the challenging conditions, around 74% of
the companies we hold reported results that were at least in line with market
expectations. Towards the end of the Financial Year, we saw nascent signs that
investors are refocusing on fundamentals.
Volatile markets can often throw up compelling opportunities for investors.
Across several sectors we are finding high-quality companies trading at
attractive valuations. In some cases, these are businesses with strong growth
profiles trading on valuations more typical of companies with little or no
growth.
We expect a focus on quality and a disciplined approach to stock-picking
should bear fruit as the recovery gathers pace. Stimulus measures will
gradually lead to better prospects for consumers, helped further as they begin
to use some of the considerable household savings built up in recent years. As
a result, we continue to believe strongly in the long-term growth potential of
China.
Nicholas Yeo and Elizabeth Kwik
abrdn Hong Kong Limited
16 February 2024
Portfolio - Ten Largest Investments
As at 31 October 2023
Tencent Holdings Ltd Kweichow Moutai Co Ltd
(9.7% of net assets) (7.0% of net assets)
An innovative leader in China's internet sector with a strong presence in The largest maker of Chinese alcohol spirit Baijiu, positioned in the ultra
fintech and cloud segments, backed by an entrenched social media and payment premium space where there are few competitors. The company is well placed to
ecosystem. capture rising domestic consumption trends in China.
Alibaba Group Holding Ltd China Merchants Bank Co Ltd
(5.9% of net assets) (4.0% of net assets)
A leading global e-commerce company with leading platforms including Taobao A best-in-class retail bank in China, offering diversified financial services
and T-mall. The company also has interests in logistics and media as well as with a solid track record and sound risk management practices.
cloud computing platforms and payments.
PDD Holdings Inc AIA Group Ltd
(3.7% of net assets) (3.2% of net assets)
The owner of popular shopping app Pinduoduo, which is gaining market share A leading pan-Asian life insurance company, it is poised to take advantage of
within China's e-commerce sector. Asia's growing affluence, backed by an effective agency sales force and a
strong balance sheet.
Contemporary Amperex Technology Co Ltd Meituan Dianping
(3.0% of net assets) (2.8% of net assets)
The largest lithium battery maker in the world with leading technology and A diversified online services platform with over 400 million users, offering
supply chain advantage, which is set to benefit from rise of electric vehicles services including food delivery, travel bookings and wedding planning. It is
and energy storage. optimally placed to capture rising consumption in mainland China.
BYD Bank of Ningbo Co Ltd
(2.8% of net assets) (2.7% of net assets)
The largest electric vehicle OEM in China, with its vertical integration A city bank focused on lending to small and medium enterprises in the affluent
providing the company with a cost advantage, strong supply chain management, Ningbo-Zhejiang region. The bank has shown superior returns and asset quality
and flexibility in the battery technology roadmap. over the years.
Portfolio
As at 31 October 2023
Percentage
Value of net assets
Company Industry (sub-sector) (£'000) (%)
Tencent Holdings Ltd Interactive Media & Services 20,740 9.7
Kweichow Moutai Co Ltd (A) Beverages 14,874 7.0
Alibaba Group Holding Ltd Broadline Retail 12,640 5.9
China Merchants Bank Co Ltd (AH) Banks 8,573 4.0
PDD Holdings Inc Broadline Retail 7,772 3.7
AIA Group Ltd Insurance 6,885 3.2
Contemporary Amperex Technology Co Ltd (A) Electrical Equipment 6,338 3.0
Meituan Dianping - Class B Hotels, Restaurants & Leisure 6,066 2.8
BYD (AH) Automobile Components 5,965 2.8
Bank of Ningbo Co Ltd (A) Banks 5,738 2.7
Top ten investments 95,591 44.8
NetEase Inc Entertainment 5,311 2.5
Wuxi Biologics Cayman Inc Life Sciences Tools & Services 4,244 2.0
Aier Eye Hospital Group Co Ltd (A) Health Care Providers & Services 4,204 2.0
Maxscend Microelectronics Co Ltd (A) Electronic Equipment Instruments & Components 4,180 2.0
Shenzhen Mindray Bio-Medical Electronics Co Ltd (A) Health Care Equipment & Supplies 4,170 2.0
Hong Kong Exchanges & Clearing Ltd Capital Markets 4,165 1.9
JD.com Inc - Class A Broadline Retail 3,988 1.9
Proya Cosmetics Co Ltd (A) Personal Care Products 3,916 1.8
China Life Insurance (AH) Insurance 3,806 1.8
Fuyao Glass Industry Group Co Ltd (H) Automobile Components 3,660 1.7
Top twenty investments 137,235 64.4
Wanhua Chemical Group Co Ltd (A) Chemicals 3,611 1.7
Ping An Bank Co Ltd (A) Banks 3,595 1.7
China Tourism Group Duty Free Corp Ltd (AH) Specialty Retail 3,416 1.6
Sungrow Power Supply Co Ltd (A) Electrical Equipment 2,939 1.4
Sinoma Science & Technology Co Ltd (A) Chemicals 2,891 1.3
China Resources Land Limited Real Estate Management & Development 2,851 1.3
Nari Technology Co Ltd (A) Electrical Equipment 2,847 1.3
Chacha Food Co Ltd (A) Food Products 2,767 1.3
Centre Testing International Group Co Ltd (A) Professional Services 2,766 1.3
Shanghai M&G Stationery Inc (A) Commercial Services & Supplies 2,734 1.3
Top thirty investments 167,652 78.6
Hefei Meiya Optoelectronic Technology Inc (A) Machinery 2,639 1.2
Midea Group Co Ltd (A) Household Durables 2,598 1.2
Hundsun Technologies Inc (A) Software 2,530 1.2
Jiangsu Hengrui Medicine Co Ltd (A) Pharmaceuticals 2,479 1.2
Luxshare Precision Industry Co Ltd (A) Electronic Equipment Instruments & Components 2,442 1.2
Foshan Haitian Flavouring & Food Co Ltd (A) Food Products 2,360 1.1
Zhejiang Weixing New Building Materials Co Ltd (A) Building Products 2,301 1.1
China Resources Beer Beverages 2,230 1.0
Silergy Corp Semiconductors & Semiconductor Equipment 2,177 1.0
Amoy Diagnostics Co Ltd (A) Biotechnology 2,161 1.0
Top forty investments 191,569 89.8
Li Ning Co Ltd Textiles, Apparel & Luxury Goods 2,144 1.0
Venustech Group Inc (A) Software 2,100 1.0
Inner Mongolia Yili Industrial Group Co Ltd (A) Food Products 2,083 1.0
Estun Automation Co Ltd (A) Machinery 2,020 0.9
Yantai China Pet Foods Co Ltd (A) Food Products 1,958 0.9
LONGi Green Energy Technology Co Ltd (A) Semiconductors & Semiconductor Equipment 1,955 0.9
KE Holdings - Class A Real Estate Management & Development 1,938 0.9
Zhejiang Shuanghuan Driveline Co Ltd (A) Automobile Components 1,818 0.9
Glodon Co Ltd (A) Software 1,680 0.8
StarPower Semiconductor Ltd (A) Semiconductors & Semiconductor Equipment 1,661 0.8
Top fifty investments 210,926 98.9
By-Health Co Ltd (A) Personal Care Products 1,634 0.8
Yunnan Energy New Material Co Ltd Chemicals 1,616 0.8
Hangzhou Tigermed Consulting Co Ltd (H) Life Sciences Tools & Services 1,331 0.6
OPT Machine Vision Tech Co Ltd (A) Electronic Equipment Instruments & Components 1,243 0.6
Zai Lab Ltd Biotechnology 1,173 0.6
China International Capital Corporation (H) Capital Markets 1,146 0.5
Komodo Fund Unit Trusts 909 0.4
Wuliangye Yibin Co Ltd (A) Beverages 504 0.2
Total investments 220,482 103.4
Cash plus other net current assets and liabilities (7,235) (3.4)
Net assets 213,247 100.0
Directors' Report (Extract)
The Directors of abrdn China Investment Company Limited ("the Company")
present the report and financial statements for the Financial Year ended 31
October 2023.
Investment Objective
The Company's investment objective is to produce long-term capital growth by
investing predominantly in Chinese equities.
Investment Policy
The Company invests in companies listed, incorporated or domiciled in the
People's Republic of China ("China"), or companies that derive a significant
proportion of their revenues or profits from China operations or have a
significant proportion of their assets there. In furtherance of the investment
policy, the portfolio will normally consist principally of quoted equity
securities and depositary receipts although unlisted companies, fixed interest
holdings or other non-equity investments may be held. Investments in unquoted
companies will be made where the Investment Manager has a reasonable
expectation that the company will seek a listing in the near future. The
portfolio is actively managed and may be invested in companies of any size and
in any sector.
The Company is expected to have an ESG rating equal to, or better than, the
MSCI China All Shares Index and have meaningfully lower carbon intensity than
the Index.
The portfolio is actively managed and the Company aims to outperform the MSCI
China All Shares Index (in sterling terms). This index is used as a reference
point for portfolio construction and as a basis for setting risk constraints,
but does not incorporate any sustainability criteria. In order to achieve its
objective, the Company will take positions whose weightings diverge from the
index or invest in securities which are not included in the index. Investments
may deviate significantly from the components of, and their respective
weightings in, the MSCI China All Shares Index. Due to the active nature of
the management process, the Company's performance profile may deviate
significantly from that of the index.
The portfolio is expected normally to comprise between 30 and 60 securities
(including any unlisted securities held) but may hold up to 100. No individual
issuer will represent a greater weight in the portfolio than the lower of (i)
10% or (ii) its weight in the MSCI China All Shares Index (in sterling terms)
plus 5%, as measured at the time of investment. The maximum permitted exposure
to a single group is 20% of the Company's total assets, as measured at the
time of investment.
The Company may continue to hold certain illiquid assets which were acquired
prior to adoption of this policy pending their orderly disposal. These assets
are not expected to represent a significant proportion of the portfolio.
Risk Management
The Company will at all times be invested in several sectors. While there are
no specific limits placed on exposure to any one particular sector, the
Company will at all times invest and ensure that the portfolio is managed in a
manner consistent with spreading investment risk.
The Company may invest in unquoted securities and/or securities with lock-up
periods provided that such investments, in aggregate, are limited to 10% of
the Company's net assets at the time any such investment
is made.
With prior approval of the Board, the Company may use derivatives for the
purposes of efficient portfolio management in order to reduce, transfer or
eliminate investment risk in the Company's portfolio. Derivative instruments
in which the Company may invest may include foreign exchange forwards,
exchange-listed and over-the-counter options, futures, options on futures,
swaps and similar instruments. The Company does not intend to enter into
derivative or hedging transactions to mitigate against wholesale general
currency or interest rate risk.
The Company may invest no more than 10% in aggregate of its gross asset value
at the time of acquisition in other listed closed-ended investment funds, but
this restriction will not apply to investments in such funds which themselves
have stated investment policies to invest no more than 15% of their gross
asset value in other closed-ended investment funds.
Gearing
The Company may employ gearing and may in aggregate, borrow amounts equalling
up to 20% of gross asset value, although the Board expects that borrowings
will typically not exceed 15% of gross asset value at the time of drawdown.
While it is intended that the Company will be fully invested in normal market
conditions, the Company may hold cash on deposit or invest on a temporary
basis in a range of cash equivalent instruments. There is no restriction on
the amount of cash or cash-equivalent instruments that the Company may hold.
Business Activities
The Company is a closed-ended investment company incorporated and resident in
Guernsey and holds a Premium Listing on the London Stock Exchange.
The Company became an investment trust with effect from 9 November 2021 and is
registered in the UK for tax purposes.
Results
The Company's total comprehensive income for the Financial Year was a loss of
£3,390,000 (2022: loss of £140,954,000). The Company's revenue return for
the Financial Year amounted to a profit of £414,000 (2022: profit of
£1,851,000).
Investment Report and Outlook
The Chairman's Statement and Investment Managers Report incorporate a review
of the highlights during the Financial Year and the outlook for the
forthcoming year.
Key Performance Indicators ("KPIs")
The Company's success in attaining its objectives is measured by reference to
the following KPIs:
a) The Company seeks to generate consistent relative returns ahead of
those generated by its Benchmark.
b) The Company seeks to achieve a positive absolute return over the
longer term through its exposure to Chinese equities.
Performance
An overview of the Company's performance is contained in the Chairman's
Statement and Investment Managers Report.
Ongoing Charges
For the Financial Year ended 31 October 2023, the Company's ongoing charges
figure, calculated using the Association of Investment Companies' ("AIC")
methodology, was 1.07% (2022: 0.60%), the calculation of which can be found in
the Alternative Performance Measures section of this Report. The ongoing
charges figure for 2022 includes the effect of the management fee waiver
arrangement following the combination with Aberdeen New Thai Investment Trust
in November 2021.
Principal Risks and Uncertainties
The Board and Audit Committee carry out a regular review of the risk
environment in which the Company operates, changes to the environment and
individual risks. The Board also identifies emerging risks which might affect
the Company.
The Board is aware that there are a number of principal risks and
uncertainties which, if realised, could have a material adverse effect on the
Company and its financial condition, performance and prospects. The Board,
through the Audit Committee carries out a robust assessment of the Company's
principal and emerging risks, which include those that would threaten its
business model, future performance, solvency, liquidity or reputation.
The principal risks and uncertainties faced by the Company have been reviewed
by the Audit Committee in the form of a risk matrix and the Committee also
gives consideration to the emerging risks facing the Company.
During the Financial Year, the Board identified the implications for the
Company's investment portfolio of a changing climate, and the increased use of
AI, as emerging risks which could impact investee companies in the future.
The global geopolitical situation and investor attitudes towards China are
also emerging, and crystalising risks.
The Board has continued to assess these emerging risks and their impact on the
portfolio as they develop. The Board receives regular reporting from the
Manager on its approach to engagement with investees on these emerging risks
amongst a variety of different topics.
The principal risks currently facing the Company, together with a description
of the mitigating actions the Board has taken, are set out in the table below.
The Board considers its risk appetite in relation to each principal risk and
monitors this on an ongoing basis. Where a risk is approaching or is outside
the tolerance level, the Board will consider taking action to manage the risk.
Currently, the Board considers the risks to be managed within acceptable
levels.
The principal risks associated with an investment in the Company's shares are
published monthly in the Company's factsheet and they can be found in the
pre-investment disclosure document ("PIDD") published by the Manager, both of
which are available on the Company's website.
Risk Trend Mitigating Action
Strategy - the Company's objectives or the investment trust sector as a whole ì Through regular updates from the Manager, the Board has monitored the
become unattractive to investors, leading to a fall in demand for the
relevance of the Company's strategy, the performance of equity markets, the
Company's shares. economic and political environment, risks to the delivery of the Company's
strategy in light of the external environment and the discount/ premium at
which the Company's shares have traded relative to the net asset value. It
receives feedback from the Company's broker and updates from the Manager's
investor relations team at Board meetings to help to better understand
investor sentiment towards the Company and its strategy. The Company engaged
with its largest shareholders extensively during the development of the
Proposals.
The Company consulted with a number of its major shareholders during the
development of the Proposals. Those shareholders, which comprise
approximately 73 per cent of the Company's shareholder register, have
indicated support for the Proposals.
Investment Performance - the Board recognises that market risk is significant ì The Board meets the Manager on a regular basis and has kept investment
in achieving performance and it reviews investment guidelines to ensure that
performance under close review. The Board recognises that market risk is
they are appropriate. The Board regularly reviews the impact of geopolitical significant in achieving performance and consequently it reviews strategy and
instability and change on market risk. investment guidelines to ensure that these are appropriate.
The Board has set and has monitored the investment restrictions and guidelines
and regular reports are received from the Manager on stock selection, asset
allocation, gearing, revenue forecasts and the costs of running the Company.
Representatives of the Manager attend all Board meetings and a detailed formal
appraisal of the Manager is carried out by the Management Engagement Committee
on an annual basis to ensure that the continued appointment of the Manager
remains in the best interests of the shareholders.
The Board engages with shareholders at its AGM and with larger shareholders at
least annually to listen to sentiment towards the Company and its performance
directly. As set out above, the Company engaged with its largest
shareholders extensively during the development of the Proposals in light of
performance challenges during the year.
Exogenous risks such as health, social, financial, economic and geopolitical - ì The Board has discussed issues as they emerged with the Manager. During the
the effects of instability or change arising from these risks could have an
year under review, such issues included increased inflation and interest rates
adverse impact on stock markets and the value of the investment portfolio. and the resulting volatility that it created in global stock markets, the
Russian invasion of Ukraine and associated sanctions, investor attitudes
towards China and equity markets, and the steps that the Manager had taken or
might take to limit their impact on the portfolio and the operations of the
Company.
The Board oversees the Manager's performance at each Board Meeting and
formally considers whether the Company's strategy remains fit for purpose, in
light of exogenous risks. The Board also regularly discusses the economic
environment, geopolitical risks, industry trends and the potential impact on
the Company with the Company's broker.
Operational Risk - in common with most investment trusts, the Board delegates ó The Audit Committee receives and reviews reports from the Manager on its
the operation of the business to third parties, the principal delegate being
internal controls and risk management (including an annual ISAE3402 Report).
the Manager. Failure of internal controls and poor performance of any It also receives and reviews report from all its other significant service
service provider could lead providers on at least an annual basis, including on matters relating to
to disruption, reputational damage or loss to business continuity and cyber security. Written agreements are in place with
the Company. all third party service providers.
The Manager has monitored closely the control environments and quality of
services provided by third parties, including those of the Depositary, through
service level agreements, regular meetings and key performance indicators.
A formal appraisal of the Company's main third party service providers is
carried out by the Management Engagement Committee on an annual basis.
Governance Risk - the Directors recognise the impact that an ineffective ó The Board is aware of the importance of effective leadership and board
board, unable to discuss, review and make decisions, could have on the Company
composition. The Board regularly reviews its own performance and, at least
and its shareholders. annually, formally reviews the performance of the Board and Chair through its
performance evaluation process.
Discount / Premium to NAV - a significant share price discount or premium to ì The Board has kept the level of the Company's discount / premium under regular
net asset value per share could lead to high levels of uncertainty for
review and has agreed parameters with the Manager for the management of share
shareholders. premium / discount to NAV.
The Company has participated in the Manager's investment trust promotional
programme where the Manager has an annual programme of meetings with
institutional shareholders and reports back to the Board on these meetings.
Financial obligations - inadequate controls over financial record keeping and ó At each Board meeting, the Board reviewed management accounts and revenue
forecasting, the setting of an inappropriate gearing strategy or the breaching
forecasts.
of loan covenants could result in the Company being unable to meet its
financial obligations, losses to the Company and its ability to continue The Directors set the gearing policy within which the portfolio is managed.
trading as a going concern.
The Company's annual financial statements are audited by the independent
auditor.
Legal and regulatory Risks - the Company operates in a complex legal and ó The Board has ensured that there is a breadth and depth of expertise within
regulatory environment. As a Guernsey company investing in China with shares
the Board and the organisations to which the Company has delegated to manage
publicly quoted on the London Stock Exchange, as an alternative investment legal and regulatory risks. There are also authorities whereby the Board or
fund and an investment trust, there are several layers of risk of this nature. individual Directors can take further advice by employing experts should that
ever be considered necessary.
Borrowings
The Company may employ gearing and may in aggregate borrow amounts equalling
up to 20% of gross asset value, although the Board expects that borrowings
will typically not exceed 15% of gross asset value at the time of drawdown.
On the 13 April 2022 the Company entered into an unsecured 2 year
multicurrency revolving loan facility with Industrial and Commercial Bank of
China Limited, London Branch ("ICBC"), under which loans with a maximum
principal amount of £15 million may be drawn (with a £15 million accordion
option). The revolving loan facility agreement with ICBC terminates on 12
April 2024. As at 31 October 2023, CNH 137m was drawn down (equivalent to
£15.4m) (2022: £nil). Subsequent to the year end, the loan facility was
repaid and cancelled on 15 January 2024 in anticipation of the Proposals.
The Directors monitor the Company's gearing on a regular basis in accordance
with the Company's investment policy and under advice from the Investment
Manager.
Market Information
The NAV per Ordinary share is calculated for each business day and is
published through a regulatory information service.
Ordinary Shares in Issue
As at 31 October 2023, the Company had 42,652,309
(2022: 45,283,575) Ordinary shares in issue (excluding shares held in
treasury). The Company also held 19,520,638 Ordinary shares in treasury
(2022: 16,889,372).
Purchase of Own Shares
The Company purchased 2,631,266 Ordinary shares during the Financial Year
(2022: 1,341,251). The Company has not bought back any shares since the
Financial Year End.
As described above, the Company normally seeks authority from shareholders
annually to buy back shares, in order to assist the Board in taking action to
deal with material and sustained deviation in the Company's discount from its
peer group.
The Company's present authority to make market purchases of its own Ordinary
shares will expire at the earlier of the General Meeting to approve the
Proposals (more details are set out in the Chairman's Statement), or
conclusion of the Annual General Meeting ("AGM") at which time a new authority
to buy back shares will be sought. The timing of any purchase will be decided
by the Board. Any shares bought back by the Company will either be cancelled,
or if the Directors so determine, held in treasury (and may be re-sold).
Purchases of own shares will only be made at a price representing a discount
to NAV per Ordinary share.
The Panel on Takeovers and Mergers (the "Panel") must be consulted in advance
in any case where Rule 9 of the Takeover Code (the "Code") might be relevant.
The Company has consulted with the Panel in relation to its buy-back
authority. On the basis that City of London Investment Management Company
Limited ("CoL") has not appointed a representative to the Board of the Company
and that none of the directors of the Company are acting in concert with CoL,
the Panel has confirmed on an ex parte basis to the Company that the increase
in CoL's shareholding, as a result of the purchase by the Company of its own
shares pursuant to the authority granted at the last AGM, will not trigger an
obligation for CoL to make a mandatory offer for the Company under Rule 9 of
the Code.
Significant Shareholders
As at 31 October 2023 and as at the date of this report, the Company had noted
the following significant shareholdings of the issued Ordinary shares
(excluding treasury shares):
Number of Ordinary Shares % held
City of London Investment Management 12,804,675 30.02
Lazard Asset Management 9,274,384 21.74
Allspring Global Investments 9,149,451 21.45
1607 Capital Partners 2,576,195 6.04
West Yorkshire Pension Fund 1,522,656 3.57
The Company has not been notified of any changes to these holdings as at the
date of this Report.
Non-Mainstream Pooled Investments ("NMPIs")
Financial Conduct Authority ("FCA") rules determine which investment products
can be promoted to ordinary retail investors. Under these rules, certain
investment products are classified as NMPIs and as a result face restrictions
on their promotion to retail investors.
The Company currently conducts its affairs so that its shares can be
recommended by Independent Financial Advisers ("IFAs") to retail investors in
accordance with the FCA rules in relation to NMPIs and intends to continue to
do so for the foreseeable future.
The Board has been advised that the Company's shares are excluded from the
FCA's restrictions which apply to NMPIs because they are shares issued by a
non-UK company which would qualify as an investment trust if resident in the
UK.
Continuation Vote and Future Performance Linked Tender Offers
The Company does not have a fixed life but the Directors consider it desirable
that shareholders have the opportunity to review the future of the Company at
appropriate intervals.
The Company's Articles of Association, adopted on 26 October 2021, contain a
provision for continuation ordinary resolutions to be put to shareholders at
the Company's AGM to be held in 2027 and at every fifth AGM thereafter (the
"Continuation Resolution"). If the Continuation Resolution is not passed then
within four months of the continuation vote failing the Directors shall
formulate and put to Members proposals relating to the future of the Company
having had regard to, inter alia, prevailing market conditions and applicable
regulations and legislation.
In addition, the Board intends that, if the Company's net asset value total
return over the five years ending October 2026 does not exceed the total
return of the MSCI China All Shares Index (in sterling terms), the Company
will undertake a tender offer for up to 25% of the Company's issued share
capital (excluding any shares held in treasury). Any such tender offer will be
at a price equal to the then prevailing formula asset value ("FAV") per share
less 2%.
However, as set out in the Proposals, the Company is expected to be placed
into voluntary liquidation before any continuation vote.
Automatic Exchange of Information
Foreign Account Tax Compliance Act ("FATCA")
FATCA legislation, which was introduced in the United States of America,
places obligations on foreign financial institutions such as the Company. In
Guernsey, local law has been introduced that gives effect to the FATCA
requirements and certain reporting obligations are placed on financial
institutions as defined by this act. The Company is registered as a reporting
financial institution and is subject to ongoing reporting obligations under
the legislation.
The Common Reporting Standard ("CRS")
CRS is the result of the drive by the G20 nations to develop a global standard
for the automatic exchange of financial account information, developed by the
Organisation for Economic Cooperation and Development. Guernsey has introduced
local legislation to give effect to CRS. Guernsey financial institutions are
required to identify, review and report on accounts maintained by them which
are held by account holders resident in jurisdictions with which Guernsey has
agreed to exchange information.
Depositary and Custody Services
In April 2023, the depositary of the portfolio moved from Northern Trust
(Guernsey) Limited to BNP Paribas S.A., Guernsey Branch. The custody
services were also moved to BNP Paribas S.A from Northern Trust (Guernsey) at
the same time.
Management
Since 1 June 2016, the Company's Alternative Investment Fund Manager has been
abrdn Fund Managers Limited (previously called Aberdeen Standard Fund Managers
Limited) ("AFML"), which is a wholly owned subsidiary of abrdn plc and is
authorised and regulated by the FCA. AFML has been appointed to provide
investment management, risk management and promotional activities to the
Company.
The Company's portfolio is managed by abrdn Hong Kong Limited ("aHKL") by way
of a group delegation agreement in place between AFML and aHKL. Promotional
activities have been delegated to abrdn Investments Limited ("AIL")
(previously called Aberdeen Asset Managers Limited).
Further details of the key terms of the agreement and fees payable to the
Manager can be found in note 4 to the financial statements.
Alternative Investment Fund Managers Directive ("AIFMD")
The Company appointed AFML as its Alternative Investment Fund Manager ("AIFM")
with effect from 1 June 2016.
An AIFM must ensure that an Annual Report for the Company is made available to
investors for each financial year, provide the Annual Report to investors on
request and make the Annual Report available to the FCA. The investment funds
sourcebook of the FCA details the requirements of the Annual Report.
All the information required by those rules and relevant AIFM remuneration
disclosures are or will be available on the Company's website
(abrdnchina.co.uk).
Company Secretary and Administrators
BNP Paribas S.A., Guernsey Branch was appointed as the Company's Administrator
in April 2023, replacing Vistra Fund Services (Guernsey) Limited ("Vistra"),
abrdn Holdings Limited was appointed as Company Secretary in April 2023, in
place of Vistra..
Further details on the fees payable under these agreements can be found in
note 5 to the financial statements.
Payment of Suppliers
It is the Company's payment policy to obtain the best terms for all business
and therefore there is no consistent policy as to the terms used. The Company
contracts with its suppliers setting out the terms on which business will take
place and abides by such terms. A high proportion of expenses, including
management and administration fees, are paid within the month when invoiced.
Settlement of Share Transactions
Transactions in the Company's Ordinary shares are settled by the CREST share
settlement system.
Donations
The Company did not make any political or charitable donations during the
Financial Year under review.
Going Concern
The Board has considered and sought advice on the appropriateness of
continuing to prepare the Financial Statements on a going concern basis given
the material uncertainty in relation to the announcement of the Proposals -
which would involve a scheme of reconstruction resulting in the voluntary
liquidation of the Company - the Board concluded that it remained appropriate
to continue to prepare the Financial Statements on a going concern basis.
The Directors believe that, should the Proposals not proceed, the Company has
adequate resources to continue in operational existence for at least 12 months
from the date of approval of this document. In reaching this conclusion, the
Directors have considered the liquidity of the Company's portfolio of
investments as well as its cash position, income and expense flows.
As at 31 October 2023, the Company held £8.7 million (2022: £8.5 million) in
cash and £220.5 million in investments (2022: £224.1 million). It is
estimated that approximately 99% (2022: 99%) of the investments held at the
Financial Year end could be realised in one month. The total operating
expenses for the Financial Year ended were £2.9 million (2022: £1.9
million), which on an annualised basis represented approximately 1.07% (2022:
0.60%) of average net assets during the Financial Year. At the date of
approval of this report, based on the aggregate of investments and cash held,
the Company has substantial operating expenses cover. The Company's net assets
at 14 February 2024 were £187.1 million.
The Company's assets consist of equity shares in companies listed on
recognised stock exchanges and in normal circumstances are realisable within a
short timescale. The Board has reviewed the results of stress testing prepared
by the Manager in relation to the ability of the assets to be realised in the
current market environment.
The Company does not have a fixed life. However, as required by the
Company's Articles of Association, adopted on 26 October 2021, in normal
circumstances, the Company would submit a continuation resolution to
shareholders at the Annual General Meeting to be held in 2027.
At the year end, the Company had a £15 million revolving loan facility with
Industrial and Commercial Bank of China limited, London Branch (`ICBC'),
terminating in April 2024., As at 31 October 2023, CNH 137m was drawn down
(equivalent to £15.4m) (2022: £nil). The liquidity of the Company's
portfolio supports the Company's ability to repay its borrowings at short
notice. However, subsequent to the year end, the loan facility was repaid and
cancelled on 15 January 2024 in anticipation of the Proposals. The Board is
confident that the Company could obtain a broadly similar loan facility if the
Proposals do not proceed.
Taking the above factors into consideration, the Board has a reasonable
expectation that the Company has adequate resources to continue in operational
existence and discharge its liabilities as they fall due for a period of at
least twelve months from the date of approval of these financial statements,
subject to approval of the Proposals. Accordingly, the Board continues to
adopt the going concern basis in preparing the financial statements.
Material Uncertainty
On 28 November 2023, the Board announced that heads of terms had been agreed
in principle for a proposed combination of the Company with the assets of
Fidelity China Special Situations PLC ("Fidelity China") ("the Proposals").
The Proposals, if approved by each company's shareholders, will be implemented
through a Guernsey scheme of reconstruction under which the Company will be
placed into voluntary liquidation and part of its cash, assets and undertaking
will be transferred to Fidelity China in exchange for the issue of new
ordinary shares in Fidelity China to Shareholders. More detail can be found in
the Chairman's Statement and in the RNS announcement itself.
The Board believes that the Proposals are in the best interests of
shareholders and recommends that shareholders vote in favour of the relevant
resolutions. However, there can be no certainty of the outcome at the date
of this Annual Report and, therefore, there remains material uncertainty which
may cast significant doubt on the Company's ability to continue as a going
concern.
Should the Proposals not receive the necessary shareholder approvals the Board
has a reasonable expectation that the Company has adequate resources to
continue in operational existence and discharge its liabilities as they fall
due for a period of at least twelve months from the date of approval of these
financial statements. Accordingly, the Board continues to adopt the going
concern basis in preparing the financial statements.
Viability Statement
The Directors have assessed the prospects of the Company over the period from
the date of this report up until 31 October 2026 (the "Period"). They have
done this on the basis, which they consider highly unlikely as 73 per cent of
the Company's share register has indicated support for the Proposals, that the
Proposals are rejected by Shareholders at the General meeting in March 2024.
The Directors believe that the Period, being approximately three years, is an
appropriate time horizon over which to assess the viability of the Company,
particularly when taking into account the long-term nature of the Company's
investment strategy.
In their evaluation of the prospects of the Company, the Directors have
carried out a robust assessment of the emerging and principal risks facing the
Company in the event that the Proposals are rejected, including those that
would threaten its business model, future performance, solvency or liquidity.
Developments in Chinese and other Asian markets and portfolio changes are
discussed at quarterly Board meetings and the internal control framework of
the Company is subject to formal review on at least an annual basis. Under
normal market conditions, over 99% of the investments held by the Company
could be sold within one month. However, there are circumstances which could
lead to a reduction in market liquidity and, therefore, the ability of the
Company to realise its investments.
The Directors do not expect there to be any material increase in the annual
ongoing charges of the Company over the Period. The Company's income from
investments and cash realisable from the sale of its investments provide
substantial cover to the Company's operating expenses, and any other costs
likely to be faced by the Company over the Period.
In normal circumstances, the continuation of the Company is subject to the
approval of shareholders every five years, with the next vote due to take
place at the Annual General Meeting in 2027.
Taking the above into account, the Directors have a reasonable expectation
that, should the Proposals not proceed, the Company will be able to continue
in operation and meet its liabilities as they fall due over the Period.
Auditor
KPMG Channel Islands Limited ("KPMG ") was re-appointed as auditor of the
Company at the AGM held on 13 April 2023.
Annual General Meeting ("AGM")
Normally, the notice of the Company's AGM would accompany this Annual Report
and the AGM would take place in mid-April. The deadline for the convening of
an AGM in respect of the Financial Year is 30 April 2024. The Company has
not scheduled the AGM for 2024 in light of the Proposals. If the Company is
not placed into member's voluntary liquidation before then, the Company will
issue an RNS announcement convening an AGM.
Corporate Governance
The Corporate Governance Statement in set out in the Annual Report.
Statement of Directors' Responsibilities
The Statement of Directors' Responsibilities on forms part of this report.
Helen Green
Chairman
16 February 2024
Corporate Governance Statement
This Corporate Governance Statement forms part of the Directors' Report.
The Board of abrdn China Investment Company Limited ("the Company") has
considered the principles and recommendations of the Association of Investment
Companies' ("AIC") Code of Corporate Governance ("AIC Code") by reference to
the AIC Corporate Governance Guide for Investment Companies ("AIC Guide") as
issued in February 2019 and available on the AIC's website (theaic.co.uk). The
AIC Code, as explained by the AIC Guide, addresses all of the principles set
out in the UK Corporate Governance Code, issued in July 2018 and available on
the FRC's website (frc.org.uk), as well as setting out additional principles
and recommendations on issues that are of specific relevance to the Company.
The Board considers that reporting against the principles and recommendations
of the AIC Code, and by reference to the AIC Guide (which incorporates the UK
Corporate Governance Code), will provide better information to shareholders.
The Guernsey Financial Services Commission revised its Code of Corporate
Governance (the "Guernsey Code") in 2021.
Companies which report under the AIC Code are deemed to meet the requirements
of the Guernsey Code.
The Company has complied with the recommendations of the AIC Code and the
relevant provisions of the UK Corporate Governance Code, except as set out
below.
The UK Corporate Governance Code includes provisions relating to:
· interaction with the workforce (provisions 2, 5 and 6);
· the role and responsibility of the chief executive (provisions 9 and 14);
· previous experience of the chairman of a remuneration committee
(provision 32); and
· executive directors' remuneration (provisions 33 and 36 to 41).
The Board considers these provisions are not relevant to the position of the
Company, being an externally managed investment company. The Company has
therefore not reported further in respect of these provisions.
The Board
The Board aims to provide effective leadership so the Company has the platform
from which it can achieve its investment objective. Its role is to guide the
overall business strategy for the benefit of shareholders and stakeholders,
ensuring that their interests are its primary consideration. The intention is
to create a supportive working environment which allows the Investment Manager
the opportunity to manage the portfolio in accordance with the investment
policy, through a framework of effective controls which enable risks to be
assessed and managed.
A procedure has been adopted for the Directors, in the furtherance of their
duties, to take independent professional advice at the expense of the Company.
Directors are encouraged to attend industry and other seminars, including
courses run by the AIC, covering issues and developments relevant to
investment companies.
Upon joining the Board, new Directors receive an induction and other relevant
training is available to Directors on an ongoing basis.
Composition
Helen Green was appointed by the Board on 1 July 2016, Eleonore de
Rochechouart was appointed by the Board on 16 April 2019, Anne Gilding and
Sarah MacAulay were appointed by the Board on 9 November 2021, and Mark
Bridgeman was appointed by the Board on 1 August 2022. All the Directors hold
their office in accordance with the Company's Articles of Incorporation.
All Directors are considered by the Board to be independent at the date of
this report.
Directors' and Officers' Liabilities Insurance
An insurance policy covering Directors' and officers' liabilities is
maintained by the Company.
Board Diversity
The Board recognises the importance of having a range of skilled and
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 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 its Directors. In view
of its size, the Board will continue to ensure that all appointments are made
on the basis of merit against the specification prepared for each appointment.
In doing so, the Board will take account of the targets set out in the FCA's
Listing Rules, which are set out in the tables below.
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. There
have been no changes since the year end.
Board Gender as at 31 October 2023
Number of Board members Percentage of the Board Number of senior positions on the Board Number in executive management Percentage of executive management
(note 3)
Men 1 20% 1
n/a n/a
Women 4 80% 2
(note 1)
Not specified/prefer not to say - - -
Board Ethnic Background as at 31 October 2023
Number of Board members Percentage of the Board Number of senior positions on the Board Number in executive management Percentage of executive management
(note 3)
White British or other White 5 100% 3
(including minority-white groups)
(note 2)
n/a n/a
Not specified/prefer not to say - - -
Notes:
1. Meets the target of at least 40% as set out in LR 9.8.6R (9)(a)(i).
2. Does not meet the target of at least one individual on the board of
directors being from a minority ethnic background as set out in LR 9.8.6R
(9)(a)(iii).
3. The Company considers that the role of Chairman, who is also the
Chairman of the Management Engagement Committee, the role of the Senior
Independent Director ("SID") who is also the Chairman of the Remuneration
Committee and Nomination Committee, and the Chairman of the Audit Committee
are senior positions.
Directors' Shareholdings
At 31 October 2023 and at the date of this report, the Directors had the
following shareholdings in the Company.
Ordinary shares at the date of this report Ordinary shares At 31 October Ordinary shares At 31 October
2023 2022
Helen Green 1,800 1,800 1,800
Mark Bridgeman (appointed on 1 August 2022) - - -
Eleonore de Rochechouart 142 142 142
Anne Gilding 1,667 1,667 1,667
Sarah MacAulay 2,779 2,779 2,779
Board Meetings
The number of scheduled meetings of the Board and Committees for the Financial
Year under review is given below, together with individual Directors'
attendance at those meetings. The first number in the table is the meetings
attended by the individual Director and the second number is the number of
meetings that Director was eligible to attend.
Nomination Committee Audit Committee Management Engagement Committee
Remuneration Committee
Board
Helen Green 4/4 1/1 2/2* 1/1 1/1
Mark Bridgeman 4/4 1/1 3/3 1/1 1/1
Eleonore de Rochechouart 4/4 1/1 3/3 1/1 1/1
Anne Gilding 4/4 1/1 3/3 1/1 1/1
Sarah MacAulay 4/4 1/1 3/3 1/1 1/1
* Helen Green stepped down as a Member of the Audit Committee when she was
appointed as Chairman of the Board. Helen Green was re-appointed to the
Audit Committee on 21 June 2023.
There were several ad hoc meetings of the Board and its Committee which dealt
with the Proposals (further details of which are set out in the Chairman's
Statement) and general administration matters. There were also two meetings
held to authorise the publication of the respective interim and annual
reports.
Board's Policy on Tenure
In normal circumstances, it is the Board's expectation that Directors will not
serve beyond the Annual General Meeting following the ninth anniversary of
their appointment. However, the Board takes the view that independence of
individual Directors is not necessarily compromised by length of tenure on the
Board and that continuity and experience can add significantly to the Board's
strength. The Board believes that recommendation for re-election should be on
an individual basis following a rigorous review which assesses the
contribution made by the Director concerned, but also taking into account the
need for regular refreshment and diversity.
It is the Board's policy that the Chairman of the Board will not normally
serve as a Director beyond the Annual General Meeting following the ninth
anniversary of his or her appointment to the Board. However, this may be
extended in certain circumstances or to facilitate effective succession
planning and the development of a diverse Board. In such a situation the
reasons for the extension will be fully explained to shareholders and a
timetable for the departure of the Chairman clearly set out.
The Role of the Chairman and Senior Independent Director
The Chairman 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 Chairman facilitates the
effective contribution and encourages active engagement by each Director. In
conjunction with the Company Secretary, the Chairman ensures that Directors
receive accurate, timely and clear information to assist them with effective
decision making. The Chairman acts upon the results of the Board evaluation
process by recognising strengths and addressing any weaknesses and also
ensures that the Board engages with major shareholders and that all Directors
understand shareholder views.
The Senior Independent Director acts as a sounding board for the Chairman and
acts as an intermediary for other Directors, when necessary. Working closely
with the Nomination Committee, the Senior Independent Director takes
responsibility for an orderly succession process for the Chairman and leads
the annual appraisal of the Chairman's performance. The Senior Independent
Director is also available to shareholders to discuss any concerns they may
have.
Re-election of Directors
The services of each of the Directors are provided under the terms of letters
of appointment between each of them and the Company. Each Director's
appointment is for an initial three year period subject to renewal and
termination upon three months' notice.
In line with corporate governance best practice, all of the Directors, apart
from those stepping down, will normally retire and offer themselves for
re-election at the Annual General Meeting of the Company. However, as set
out in the Proposals, the Company is expected to be placed into voluntary
liquidation prior to the next Annual General Meeting.
Conflicts of Interest
As required by law, a Director must avoid a situation where he or she has an
interest that conflicts with the Company's interests. The Company's Articles
of Incorporation provide the Directors authority to authorise potential
conflicts of interest. The Directors are able to impose limits or conditions
when giving authorisation if they think this is appropriate. The procedure
observed by the Board in considering dealing with conflicted matters is as
follows:
· Any Board member so conflicted must excuse themself from the discussion
involving the relevant conflict;
· Only Directors who have no interest in the matter being considered are
able to debate the matter and take the relevant decision; and
· In taking the decision the Directors must act in a way they consider, in
good faith, will be most likely to promote the Company's success.
The Directors have declared any potential conflicts of interest to the
Company. These are entered into the Company's register of potential conflicts,
which is reviewed regularly by the Board. The Directors are obliged to advise
the Company Secretary as soon as they become aware of any potential conflicts
of interest.
Board Committees
The Company has established an Audit Committee, a Management Engagement
Committee, a Nomination Committee and a Remuneration Committee. Other
committees of the Board may be formed from time to time to deal with specific
matters.
Audit Committee
The Audit Committee Report in the Annual Report provides details of the role,
composition and meetings of the Audit Committee together with a description of
the work of the Committee in discharging its responsibilities.
Mark Bridgeman is the Chairman of the Audit Committee. The Audit Committee has
formal terms of reference and copies of these are available on request from
the Company Secretary and on the Company's website.
Management Engagement Committee
The Company has established a Management Engagement Committee which at the
Financial Year end comprised all members of the Board. The Committee meets on
at least an annual basis to consider the appointment and remuneration of the
Manager. The Committee also considers the appointment and remuneration of
other suppliers of services to the Company.
Helen Green is Chairman of the Management Engagement Committee. The Committee
has formal terms of reference and copies of these are available on request
from the Company Secretary.
During the year, the Management Engagement Committee supported the Board in
its review of the Proposals and whether to retain AFML as the Manager of the
Company.
Nomination Committee
The Company has established a Nomination Committee which at the Financial Year
end comprised all members of the Board. Sarah MacAulay is Chairman of the
Nomination Committee. The Committee has been established for the purpose of
considering the composition of the Board as a whole and for identifying and
putting forward candidates for the office of Director of the Company and meets
on at least an annual basis. The Committee considers job specifications and
assesses whether candidates have the necessary skills and time available to
devote to the job. When considering the appointment of new Directors, the
Nomination Committee will engage the services of an external recruitment
firm. The Nomination Committee appointed Fletcher Jones to assist in its
latest search for a Director, which resulted in the appointment of Mark
Bridgeman on 1 August 2022. The Company does not have any other connection
with Fletcher Jones.
The Nomination Committee has formal terms of reference and copies of these are
available on request from the Company Secretary and on the Company's website.
Remuneration Committee
The Company has established a Remuneration Committee, which at the Financial
Year end comprised all members of the Board. The Committee meets at least on
an annual basis to consider the remuneration of the Directors. The Committee
reviews the remuneration of the Directors and Chairman against the fees paid
to the directors of other investment companies of a similar size and nature,
as well as taking into account other comparable data.
Sarah MacAulay is the Chairman of the Remuneration Committee. The Remuneration
Committee has formal terms of reference and copies of these are available on
request from the Company Secretary and on the Company's website.
Performance Evaluation
A formal annual performance appraisal process is performed to consider the
performance of the Board, the committees, and the individual Directors. The
appraisal was performed internally during the year led by the Chairman with
support from the Company Secretary. The Board considers that an internal
evaluation was appropriate given the nature and size of the Company.
A questionnaire consisting of open and closed end questions was completed by
all Directors. The results were reviewed by the Chairman and were then
discussed with the Board and an action list of suggestions for improvements
compiled. A separate appraisal of the Chairman was carried out under the
supervision of the Senior Independent Director and the results were reviewed
and reported back to the Chairman. The results of the performance appraisal
carried out in the Financial Year ended 31 October 2023 demonstrated that the
structure of the Board and the diverse experience of the Directors are
appropriate to meet the Company's requirements.
The Directors are aware that the Board should have an appropriate balance of
skills, experience, independence and knowledge. The annual performance
evaluation report covers this issue and the Board understands the requirement
for this balance to be maintained.
Internal Controls
The AIC Code requires the Board to review the effectiveness of the Company's
system of internal controls. The Board recognises its ultimate responsibility
for the Company's system of internal controls and for monitoring its
effectiveness and has applied the Financial Reporting Council's ("FRC")
guidance on internal controls. The system of internal controls is designed to
manage rather than eliminate the risk of failure to achieve business
objectives. It can provide only reasonable assurance against material
misstatement or loss. The Board has undertaken a review of the aspects covered
by the guidance and has identified risk management controls in the key areas
of business objectives, accounting, compliance, operations and secretarial as
being matters of particular importance upon which it requires reports. The
Board believes that the existing arrangements, set out below, represent an
appropriate framework to meet the internal control requirements. Through these
procedures the Directors have kept under review the effectiveness of the
internal control system throughout the Financial Year and up to the date of
this report.
The Board uses a risk assessment matrix to consider the main risks and
controls for the Company. The matrix is reviewed and updated on a frequent
basis by the Audit Committee on behalf of the Board.
The Board has contractually delegated to external agencies, including the
Manager, the management of the investment portfolio, the custodial services
(which include the safeguarding of the assets), the registration services and
the accounting and company secretarial requirements. Each of these contracts
was entered into after full and proper consideration of the quality and cost
of services offered, including the financial control systems in operation in
so far as they relate to the affairs of the Company.
Financial Aspects of Internal Control
The Directors are responsible for the internal financial control systems of
the Company and for reviewing their effectiveness. These aim to ensure the
maintenance of proper accounting records, the reliability of the financial
information upon which business decisions are made and which is used for
publication and that the assets of the Company are safeguarded. As stated
above, the Board has contractually delegated to external agencies the services
the Company requires, but it is fully informed of the internal control
framework established by the Manager and the Administrator to provide
reasonable assurance on the effectiveness of internal financial controls.
The key procedures include monthly production of management accounts and NAV
calculations, monitoring of performance monthly and at regular Board meetings,
review by the Directors of the valuation of securities, segregation of the
administrative function from that of securities and cash custody and of both
from investment management, maintenance of appropriate insurance and adherence
to physical and computer security procedures. In addition, the Board keeps
under its own direct control all material payments out of the Company other
than for investment purposes.
The Statement of Directors' Responsibilities in respect of the financial
statements is set out below and a statement of going concern is set out above.
The Independent Auditor's Report is in the Annual Report
Other Aspects of Internal Control
The Board holds at least four regular meetings each year, plus ad hoc meetings
and committee meetings as required.
Between these meetings there is regular contact with the Manager, the
Administrator and the external Auditor.
The Company Secretary reports in writing to the Board on operational and
compliance issues prior to each meeting, and otherwise as necessary.
Directors receive and consider monthly reports from the Administrator, giving
full details of all holdings in the portfolio and of all transactions and of
all aspects of the financial position of the Company. The Administrator
reports separately in writing to the Board concerning risks and internal
control matters within the scope of their services, including internal
financial control procedures. Additional ad hoc reports are received as
required and Directors have access at all times to the advice and services of
the Company Secretary, which is responsible to the Board for ensuring that
Board procedures are followed, and that applicable rules and regulations are
complied with.
The contracts with the Manager, Administrator and the external Auditor enable
the Board to monitor the Company's progress towards its objectives and
encompasses an analysis of the risks involved.
These matters are assessed on an ongoing basis through the year.
Despite the change in service providers, please see the Chairman's Statement,
there are no significant findings to report from the review of internal
controls during the Financial Year.
Principal Risks
The Directors confirm that they have carried out a robust assessment of the
principal risks facing the Company, including those that would threaten its
business model, future performance, solvency or liquidity. The principal risks
and how they are being managed are set out in the Directors' Report.
Shareholder Relations
The Board welcomes feedback from the Company's shareholders. The Board
receives shareholder feedback directly and via the Company's Manager and
Brokers through their programme of meetings with shareholders.
All Directors are available to shareholders if they have concerns over issues
they feel have not been dealt with through the normal mode of communication
with the Chairman.
Exercise of Voting Powers
The Company is committed to exercise diligently its rights as a shareholder
and usually votes on relevant decisions of its holdings. In making a voting
decision all relevant factors are taken into account, including the
performance of the investee company, its corporate governance where this bears
meaningfully upon the responsiveness of its management to shareholders' needs
and the readiness of its management to address any areas where improvements
might be expected to strengthen its share price or otherwise create real
benefit for shareholders.
UK Stewardship Code and Proxy Voting as an Institutional Shareholder
Responsibility for actively monitoring the activities of portfolio companies
has been delegated by the Board to the Manager and in turn to the Investment
Manager.
Further information on stewardship and ESG matters may be found on the
Company's website (www.abrdnchina.co.uk).
Environmental, Social and Corporate Governance ("ESG") Policy
The Company is a closed end investment company and therefore has no staff,
premises, manufacturing or other operations. However, as set out in the
Company's Investment Policy, the Company expects to have an ESG rating equal
to, or better than, the MSCI China All Shares Index and have meaningfully
lower carbon intensity than the Index. The Investment Manager ensures ESG
considerations are key to and fully integrated into the investment process.
The Investment Manager places constructive engagement and ESG risk
considerations at the heart of all investment research, ensuring that it is a
responsible steward of its clients' assets.
The Investment Manager pursues a constructive approach to encourage
improvements to the benefit of all shareholders.
To reinforce its messages, the team votes at all shareholder meetings.
Promoting the Success of the Company
This section of the Annual Report covers the Board's considerations and
activities in discharging its duties in promoting the success of the Company
for the benefit of its members as a whole.
This statement includes consideration of the likely consequences of the
decisions of the Board in the longer term, how the Board has taken wider
stakeholders' needs into account and the impact of the Company's operations on
the environment.
The most significant consideration by the Board during the Financial Year was
in relation to the Proposals, which are explained in more detail within the
Chairman's Statement.
The Board, together with the Investment Manager, sets an overall investment
strategy and reviews this on an ongoing basis. In order to ensure strong
governance of the Company, the Board has implemented an investment policy
which includes various limits on the size of individual holdings, investments
in derivatives and the level of gearing. These limits and guidelines are
regularly monitored.
The Board is ultimately responsible for all stakeholder engagement. As an
externally managed investment company, the Company does not have any
employees; rather it employs external suppliers to fulfil a range of
functions, including investment management, secretarial, administration,
promotional activities, corporate brokering, depositary and banking services.
All these service providers, which are stakeholders in the Company themselves,
help the Board to fulfil its responsibility to engage with the shareholders
and other stakeholders.
The Board has identified the major stakeholders in the Company's business. On
an ongoing basis the Board monitors both potential and actual impacts of the
decisions it makes in respect of the Company upon those major stakeholders
identified.
Shareholders The Board's principal concern is the interests of the Company's shareholders
and potential investors. As a public company listed on the London Stock
Exchange, the Company is subject to the FCA's Listing Rules and Disclosure
Guidance and Transparency Rules. The Listing Rules include a listing principle
that a listed company must ensure that it treats all shareholders of the same
class of shares that are in the same position equally in respect of the rights
attaching to such shares. With the assistance of regular discussions with and
the formal advice of the Company's legal counsel, secretary and corporate
brokers; the Board abides by the Listing Rules at all times.
The Company's investment objective is to produce long-term capital growth by
investing predominantly in Chinese equities. The portfolio will normally
consist principally of quoted equity securities and depositary receipts
although unlisted companies, fixed interest holdings or other non-equity
investments may be held. The portfolio is actively managed and may be invested
in companies of any size and in any sector. The Investment Manager believes
this is an attractive profile in the circumstances and one that should hold
broad appeal.
The Board maintains an open dialogue between shareholders, the Manager and
other service providers. The Manager along with the Company's corporate
brokers regularly meet with the Company's shareholders to provide Company
updates and to foster dialogue. Feedback from meetings between the Manager and
shareholders is communicated to the Board. The Chairman and other members of
the Board are available to support these meetings and to address shareholder
questions and consult major shareholders at least on an annual basis.
These interactions with shareholders were instrumental during the Board's
development of the Proposals (see the Chairman's Statement for more details on
the Proposals).
The Company's Annual and Half Yearly Reports are made available on the
Company's website and also circulated to shareholders, providing an in-depth
review of the Company's financial position and portfolio. This information is
supplemented by the daily calculation and publication of the NAV per share and
a monthly factsheet and portfolio data, which are announced via a Regulatory
Information Service and are also available on the Company's website.
In addition, the Board oversees the maintenance and integrity of the corporate
and financial information included on the Company's website. The Company has
engaged abrdn Fund Managers Limited ("AFML") for the provision of promotional
activities to ensure that information and news about the Company is regularly
available for existing and potential shareholders.
For more information on shareholder engagement please see the Corporate
Governance section of this report which contains further information on
shareholder engagement.
Manager / Investment Manager The most significant service provider for the Company's long-term success is
AFML, which has been appointed as the Company's AIFM in accordance with the
Alternative Investment Fund Managers Directive (AIFMD), for the purpose of
providing investment advisory services to the Company. The portfolio is
managed by abrdn Hong Kong Limited which is responsible for the management of
the Company's portfolio in accordance with the Company's investment policy and
the terms of the Management Agreement.
The Board monitors the Company's investment performance in relation to its
objectives, investment policy and strategy. The Board regularly assesses the
experience and resources of the investment management team and the commitment
of the Manager; to promote the Company and foster shareholder relations and to
ensure that the Company's objective is met. The Board receives and reviews
regular reports and presentations from the Manager. An open and active
relationship is maintained with the Investment Manager at Board meetings and
additional meetings when needed.
Suppliers As an externally managed investment company, the Company conducts all its
business through its key service providers. On an annual basis, the Board
reviews the continuing appointment of each service provider to ensure
re-appointment is in the best interests of the Company's shareholders.
Separately, the Auditor is invited to attend the Audit Committee meeting at
least twice per year. The Audit Committee Chair maintains regular contact with
the Audit partner to ensure the audit process is undertaken effectively.
During the Financial Year under review, the Board appointed a new Company
Secretary, Custodian, Administrator and Depositary. Please see the
Chairman's Statement for more details on those changes..
Lenders The Company may employ gearing and may in aggregate, borrow amounts equalling
up to 20% of gross asset value, although the Board expects that borrowings
will typically not exceed 15% of gross asset value at the time of drawdown.
Regulators The Company and its appointed professional suppliers keep abreast of the
rules, regulations and guidance affecting the listed investment company
sector. The Board, Company Secretary and AIFM are responsible for ensuring
that various regulatory and statutory obligations are met.
Wider community and the Environment Under its investment objective, the Company seeks to have an ESG rating equal
to, or better than, the MSCI China All Shares Index and have meaningfully
lower carbon intensity than the Index. The Investment Manager places
constructive engagement and ESG risk considerations at the heart of all
investment research, ensuring that it is a responsible steward of its clients'
assets. The Investment Manager believes this approach can mitigate risks and
actively enhance returns for shareholders over the longer term.
In summary, the Directors are cognisant of their duties to make decisions
taking into account the long-term consequences of all the Company's key
stakeholders and reflect the Board's belief that the long-term sustainable
success of the Company is linked directly to its key stakeholders.
For and on behalf of the Board
Helen Green
Director
16 February 2024
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report and Accounts in
accordance with applicable law and regulations.
Guernsey company law requires the Directors to prepare financial statements
for each financial year. The Directors have elected to prepare the financial
statements in accordance with International Financial Reporting Standards as
issued by the IASB and applicable law.
Under company law the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Company and of its profit or loss for that period. In preparing
these financial statements, the directors are required to:
· select suitable accounting policies and then apply them consistently;
· make judgements and estimates that are reasonable, relevant and reliable;
· state whether applicable accounting standards have been followed, subject
to any material departures disclosed and explained in the financial
statements;
· assess the Company's ability to continue as a going concern, disclosing,
as applicable, matters related to going concern; and
· use the going concern basis of accounting unless they either intend to
liquidate the Company or to cease operations or have no realistic alternative
but to do so.
The Directors are responsible for keeping proper accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that its financial statements comply with the Companies
(Guernsey) Law, 2008. They are responsible for such internal control as they
determine is necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error, and have
general responsibility for taking such steps as are reasonably open to them to
safeguard the assets of the Company and to prevent and detect fraud and other
irregularities.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website (but not
for the content of any information included on the website that has been
prepared or issued by third parties). Legislation in Guernsey governing the
preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
Disclosure of Information to the Auditor
The Directors who held office at the date of approval of the Directors' Report
confirm that, so far as they are each aware, there is no relevant audit
information of which the Company's auditor is unaware; and each Director has
taken all the steps that they ought to have taken as a Director to make
themselves aware of any relevant audit information and to establish that the
Company's auditor is aware of that information.
Responsibility Statement of the Directors in Respect of the Annual Report
We confirm that to the best of our knowledge:
the financial statements, prepared in accordance with the applicable set of
accounting standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company; and
· the Management Report (comprising the Chairman's Statement, the
Investment Managers Report and the Governance reports including the Directors'
Report) includes a fair review of the development and performance of the
business and the position of the Company, together with a description of the
principal risks and uncertainties that it faces.
The Board considers that the Annual Report and Accounts, taken as a whole, is
fair, balanced and understandable and provides the information necessary for
shareholders to assess the Company's position and performance, business model
and strategy.
Helen Green
Chairman
16 February 2024
Statement of Comprehensive Income
Year ended 31 October 2023 Year ended 31 October 2022
Revenue Capital Total Revenue Capital Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
Losses on investments at fair value through profit or loss 10 - (4,273) (4,273) - (143,283) (143,283)
Transaction costs - - - - 832 832
Gains/(losses) on currency movements - 500 500 - (354) (354)
Net investment losses - (3,773) (3,773) - (142,805) (142,805)
Investment income 3 3,997 - 3,997 4,108 - 4,108
Investment management fees 4 (1,700) - (1,700) (1,020) - (1,020)
Other administrative expenses 5 (1,067) - (1,067) (913) - (913)
Net return before finance costs and taxation 1,230 (3,773) (2,543) 2,175 (142,805) (140,630)
Finance costs 6 (562) - (562) (109) - (109)
Operating profit/(loss) before taxation 668 (3,773) (3,105) 2,066 (142,805) (140,739)
Taxation 7 (254) (31) (285) (215) - (215)
Total profit/(loss) and comprehensive income for the year 414 (3,804) (3,390) 1,851 (142,805) (140,954)
Basic earnings and diluted earnings per Ordinary share (pence) 9 0.95 (8.73) (7.78) 4.00 (308.70) (304.70)
The Total column of this statement represents the Company's Statement of
Comprehensive Income, prepared under IFRS. The revenue and capital columns,
including the revenue and capital earnings per Ordinary share data, are
supplementary information prepared under guidance published by the Association
of Investment Companies.
All revenue and capital items in the above statement derive from continuing
operations. No operations were acquired or discontinued during the year.
The notes form part of these financial statements.
Statement of Financial Position
As at As at
31 October 2023 31 October 2022
Notes £'000 £'000
Non-current assets
Investments at fair value through profit or loss 10 220,482 224,064
Current assets
Cash at bank 8,748 8,534
Other receivables 11 111 56
8,859 8,590
Total assets 229,341 232,654
Current liabilities
Bank loans 12 (15,359) -
Other payables 12 (735) (811)
(16,094) (811)
Net assets 213,247 231,843
Equity shareholders' funds
Share capital 13 133,945 147,744
Capital reserve 14 82,528 87,739
Revenue reserve (3,226) (3,640)
Equity shareholders' funds 213,247 231,843
Net asset value per Ordinary share (pence) 15 499.97 511.98
Approved by the Board of Directors and authorised for issue on 16 February
2024 and signed on its behalf by:
Helen Green
Director
Mark Bridgeman
Director
The notes form part of these financial statements.
Incorporated in Guernsey: Company registration number 50900
Statement of Changes in Equity
For the year ended 31 October 2023
Share Capital Revenue
capital reserve reserve Total
Notes £'000 £'000 £'000 £'000
Balance at 31 October 2022 147,744 87,739 (3,640) 231,843
Buyback of shares 13 (13,799) - - (13,799)
(Loss)/profit for year - (3,804) 414 (3,390)
Dividends paid 8 - (1,407) - (1,407)
Balance at 31 October 2023 133,945 82,528 (3,226) 213,247
For the year ended 31 October 2022
Share Capital Revenue
capital reserve reserve Total
£'000 £'000 £'000 £'000
Balance at 31 October 2021 148,735 230,544 (5,491) 373,788
Buyback of shares 13 (7,560) - - (7,560)
Profit/(loss) for year - (142,805) 1,851 (140,954)
Scheme of reconstruction: 13
Ordinary shares issued 62,037 - - 62,037
Ordinary shares repurchased (55,291) - - (55,291)
Tender offer and share issue costs (177) - - (177)
Balance at 31 October 2022 147,744 87,739 (3,640) 231,843
The capital reserve at 31 October 2023 is split between realised gains of
£178,862,000 (2022 - £207,445,000) and unrealised losses of £96,334,000
(2022 - £119,706,000).
The revenue reserve represents the amount of the Company's reserves
distributable by way of dividend.
The notes form part of these financial statements.
Statement of Cash Flows
Year ended Year ended
31 October 2023 31 October 2022
Notes £'000 £'000
Operating activities
Dividend income received 3,892 4,144
Interest income received 102 43
Foreign exchange losses on loans (724) -
Management expenses paid (2,085) (2,009)
Overseas withholding tax paid (286) (215)
Net cash from operating activities 899 1,963
Investing activities
Purchases of investments (80,168) (446,496)
Sales of investments 10 79,255 311,504
Net cash from investing activities (913) (134,992)
Financing activities
Equity dividends paid 8 (1,407) -
Borrowing commitment fee and interest paid (425) (118)
Drawdown of loan 16,083 -
Scheme of reconstruction(A)
Ordinary shares issued - 3,257
Ordinary shares repurchased - (55,291)
Tender offer and share issue costs paid - (388)
Buy back of Ordinary shares for treasury 13 (13,799) (7,338)
Net cash from/(used in) financing activities 452 (59,878)
Increase/(decrease) in cash 438 (192,907)
Analysis of changes in cash during the year
Opening balance 8,534 201,795
Effect of exchange rate fluctuations on cash held (224) (354)
Increase/(decrease) in cash as above 438 (192,907)
Closing balances 8,748 8,534
(A) Actual proceeds received as a result of the Scheme of Reconstruction on 9
November 2021 amounted to £3,257,000 with the remainder being received in the
form of a UK Treasury Bill amounting to £57,980,000. The UK Treasury Bill was
immediately sold on 10 November 2021 and subsequently deployed into Chinese
equities.
The notes form part of these financial statements
Notes to the Financial Statements
For the year ended 31 October 2023
1. Principal activity
The Company is a closed-ended investment company, registered in Guernsey on 16
September 2009, number 50900. The Company's registered office is 11 New
Street, St Peter Port, Guernsey, GY1 2PF. The Company's Ordinary shares have a
premium listing on the London Stock Exchange and commenced trading on 10
November 2009.
2. Accounting policies
(a) Basis of preparation. The financial statements have been prepared in
accordance with International Financial Reporting Standards ("IFRS") as issued
by the IASB and are in compliance with the Companies (Guernsey) Law, 2008.
There have been no significant changes in the accounting policies of the
Company in the year to 31 October 2023. They have also been prepared on the
assumption that approval as an investment trust will continue to be granted.
Where presentational guidance set out in the Statement of Recommended Practice
("SORP") for Investment Companies issued by the Association of Investment
Companies ("AIC") in July 2022 is consistent with the requirements of IFRS,
the Directors have prepared the financial statements on a basis compliant with
the recommendations of the SORP.
All values are rounded to the nearest thousand pounds (£'000) except where
indicated otherwise.
Going concern with Material Uncertainty. The Board has considered and sought
advice on the appropriateness of continuing to prepare the Financial
Statements on a going concern basis given the material uncertainty in relation
to the announcement of the Proposals - which would involve a scheme of
reconstruction resulting in the voluntary liquidation of the Company - the
Board concluded that it remained appropriate to continue to prepare the
Financial Statements on a going concern basis.
The Directors believe that, should the Proposals not proceed, the Company has
adequate resources to continue in operational existence for at least 12 months
from the date of approval of this document. In reaching this conclusion, the
Directors have considered the liquidity of the Company's portfolio of
investments as well as its cash position, income and expense flows.
As at 31 October 2023, the Company held £8,748,000 (2022: £8,534,000) in
cash and £220,482,000 in investments (2022: £224,064,000). It is estimated
that approximately 99% (2022: 99%) of the investments held at the financial
year end could be realised in one month. The total operating expenses for the
financial year ended were £2,767,000 (2022: £1,933,000), which on an
annualised basis represented approximately 1.07% (2022: 0.60%) of average net
assets during the financial year. At the date of approval of this report,
based on the aggregate of investments and cash held, the Company has
substantial operating expenses cover. The Company's net assets at 14 February
2024 were £187.1 million.
The Company's assets consist of equity shares in companies listed on
recognised stock exchanges and in normal circumstances are realisable within a
short timescale. The Board has reviewed the results of stress testing prepared
by the Manager in relation to the ability of the assets to be realised in the
current market environment.
The Company does not have a fixed life. However, as required by the
Company's Articles of Association, adopted on 26 October 2021, in normal
circumstances, the Company would submit a continuation resolution to
shareholders at the Annual General Meeting to be held in 2027.
At the year end, the Company had a £15 million revolving loan facility with
Industrial and Commercial Bank of China limited, London Branch ("ICBC"),
terminating in April 2024., As at 31 October 2023, CNH 136,833,000 (equivalent
to £15,359,000) was drawn down (2022: £nil). The liquidity of the Company's
portfolio supports the Company's ability to repay its borrowings at short
notice. However, subsequent to the year end, the loan facility was repaid and
cancelled on 15 January 2024 in anticipation of the Proposals. The Board is
confident that the Company could obtain a broadly similar loan facility if the
Proposals do not proceed.
Taking the above factors into consideration, the Board has a reasonable
expectation that the Company has adequate resources to continue in operational
existence and discharge its liabilities as they fall due for a period of at
least twelve months from the date of approval of these financial statements,
subject to approval of the Proposals. Accordingly, the Board continues to
adopt the going concern basis in preparing the financial statements.
On 28 November 2023, the Board announced that heads of terms had been agreed
in principle for a proposed combination of the Company with the assets of
Fidelity China Special Situations PLC ("Fidelity China") ("the Proposals").
The Proposals, if approved by each company's shareholders, will be implemented
through a Guernsey scheme of reconstruction under which the Company will be
placed into voluntary liquidation and part of its cash, assets and undertaking
will be transferred to Fidelity China in exchange for the issue of new
ordinary shares in Fidelity China to Shareholders. More detail can be found in
the Chairman's Statement and in the RNS announcement itself.
The Board believes that the Proposals are in the best interests of
shareholders and recommends that shareholders vote in favour of the relevant
resolutions. However, there can be no certainty of the outcome at the date of
this Annual Report and, therefore, there remains material uncertainty which
may cast significant doubt on the Company's ability to continue as a going
concern.
Should the Proposals not receive the necessary shareholder approvals the Board
has a reasonable expectation that the Company has adequate resources to
continue in operational existence and discharge its liabilities as they fall
due for a period of at least twelve months from the date of approval of these
financial statements. Accordingly, the Board continues to adopt the going
concern basis in preparing the financial statements.
Significant estimates and judgements. The preparation of financial statements
in conformity with IFRS requires the use of certain critical accounting
estimates which requires management to exercise its judgement in the process
of applying the accounting policies. The Directors do not believe that any
accounting judgements or estimates have been applied to these financial
statements that have a significant risk of causing material adjustment to the
carrying amount of assets and liabilities within the next financial year.
Functional currency. The Company's investments are made in China Yuan Renminbi
however the Board considers the Company's functional currency to be Sterling.
In arriving at this conclusion, the Board considered that the shares of the
Company are listed on the London Stock Exchange, it is regulated in the United
Kingdom, principally having its shareholder base in the United Kingdom and
also pays expenses in Sterling, as it would dividends, where declared by the
Company.
New and amended accounting standards and interpretations. The Company applied
certain Standards and Amendments, which are effective for annual periods
beginning on or after 1 January 2024. The adoption of these Standards and
Amendments did not have a material impact on the financial results of the
Company:
Classification of Liabilities as Current or non-current and non-current
liabilities with covenants (Amendments to IAS 1)
The amendments, as issued in 2020 and 2022, aim to clarify the requirements on
determining whether a liability is current or non-current, and require new
disclosures for non-current liabilities that are subject to future
covenants. The amendments apply for annual reporting periods beginning on or
after 1 January 2024.
As disclosed in note 12, the Company has an unsecured multicurrency revolving
loan facility with Industrial and Commercial Bank of China that is subject to
the covenants disclosed in same note. The loan was repaid after year end and
thus was classified as current.
At the date of authorisation of these financial statements, the following
amendments to Standards and Interpretations were assessed to be relevant and
are all effective for annual periods beginning on or after 1 January 2023 and
thereafter;
- IAS 1 Amendments (Classification of Liabilities as Current or Non-Current)
- IAS 1 Amendments (Disclosure of Accounting Policies and IFRS Practice
Statement 2)
- IAS 1 Amendments (Non-current Liabilities with Covenants)
- IAS 8 Amendments (Definition of Accounting Estimates)
- IAS 12 Amendments (Deferred Tax and OECD Pillar 2 Taxes)
- IAS 12 Amendments (Deferred Tax related to Assets and Liabilities arising
from a Single Transaction)
The Company intends to adopt the Standards and Interpretations in the
reporting period when they become effective and the Board does not anticipate
that the adoption of these Standards and Interpretations in future periods
will materially impact the Company's financial results in the period of
initial application although there may be revised presentations to the
Financial Statements and additional disclosures.
(b) Presentation of Statement of Comprehensive Income. In order to better reflect
the activities of an investment trust company and in accordance with guidance
issued by the AIC, supplementary information which analyses the Statement of
Comprehensive Income between items of a revenue and capital nature has been
presented in the Statement of Comprehensive Income.
(c) Segmental reporting. The Board has considered the requirements of IFRS 8
'Operating Segments' and is of the view that the Company is engaged in a
single segment business, which is one of investing in Chinese quoted equities
and that therefore the Company has only a single operating segment. The Board
of Directors, as a whole, has been identified as constituting the chief
operating decision maker of the Company. The key measure of performance used
by the Board to assess the Company's performance is the total return on the
Company's net asset value, as calculated under IFRS, and therefore no
reconciliation is required between the measure of profit or loss used by the
Board and that contained in the financial statements.
(d) Income. Dividends receivable on equity shares are recognised in the Statement
of Comprehensive Income on the ex-dividend date, and gross of any applicable
withholding tax. 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. Special dividends are credited to capital or revenue,
according to their circumstances. Where a company has elected to receive
dividends in the form of additional shares rather than in cash, the amount of
the cash dividend foregone is recognised in the Statement of Comprehensive
Income. Provision is made for any dividends not expected to be received.
Interest receivable from cash and short-term deposits is accrued to the end of
the financial year.
(e) Expenses and interest payable. All expenses, with the exception of interest
expenses, which are recognised using the effective interest method, are
accounted for on an accruals basis. Expenses are charged to the revenue column
of the Statement of Comprehensive Income except as follows:
- expenses which are incidental to the acquisition or disposal of an
investment are charged to the capital column of the Statement of Comprehensive
Income and separately identified and disclosed in note 10; and
- expenses are charged to the capital column of the Statement of Comprehensive
Income where a connection with the maintenance or enhancement of the value of
the investments can be demonstrated.
(f) Taxation. The tax expense represents the sum of the tax currently payable and
deferred tax. Tax payable is based on the taxable profit for the year. Taxable
profit differs from profit before tax 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 have been enacted or substantively enacted by
the Statement of Financial Position date.
Deferred tax. Deferred tax is recognised in respect of all temporary
differences 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 temporary differences can be deducted.
Deferred tax assets and liabilities are measured at the rates applicable to
the legal jurisdictions in which they arise, using enacted tax rates that are
expected to apply at the date the deferred tax position is unwound.
(g) Investments. Investments have been designated upon initial recognition as 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 timeframe established by the market concerned, and are
measured initially at fair value. Subsequent to initial recognition,
investments are recognised at fair value through profit or loss.
The Company classifies its investments based on their contractual cash flow
characteristics and the Company's business model for managing the assets. The
business model, which is the determining feature, is such that the portfolio
of investments is managed, and performance and risk is evaluated, on a fair
value basis. The Manager is also compensated based on the fair value of the
Company's assets. Consequently, all investments are measured 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 timeframe
established by the market concerned, and are measured at fair value. For
listed investments, this is deemed to be bid market prices or closing prices
(when bid market prices are unavailable) on a recognised stock exchange.
Gains and losses arising from the changes in fair value are included in net
profit or loss for the period as a capital item. Transaction costs are treated
as a capital cost and recognised within losses on investments at fair value
through profit or loss in the Statement of Comprehensive Income..
(h) Cash and cash equivalents. Cash comprises cash in hand and at banks and
short-term deposits. Cash equivalents are short-term, highly-liquid
investments that are readily convertible to known amounts of cash, and that
are subject to an insignificant risk of changes in value.
(i) Other receivables. The Company has adopted the classification and measurement
provisions of IFRS 9 'Financial Instruments' as other receivables are held to
collect contractual cash flows and give rise to cash flows representing solely
payments of principal and interest. As such they are measured at amortised
cost. Other receivables held by the Company do not carry any interest, they
have been assessed as not having any expected credit losses over their
lifetime due to their short-term nature and low credit risk.
(j) Other payables. The Company has adopted the classification and measurement
provisions of IFRS 9 'Financial Instruments'. Other payables are non-interest
bearing and are stated at amortised cost.
(k) 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 and are charged 100% to revenue.
(l) Nature and purpose of reserves
Share capital. Share capital represents the 1p nominal value of the issued
share capital plus any share premium arising from the net proceeds of issuing
shares less the aggregate cost of shares repurchased (to be held in treasury
or for cancellation).
Capital reserve. This reserve reflects any gains or losses on investments
realised in the period on a weighted average cost basis along with any
increases and decreases in the fair value of investments held that have been
recognised in the Statement of Comprehensive Income. The part of this reserve
represented by realised capital gains is available for distribution by way of
dividend. The capital reserve is used to fund share buy-backs by the Company.
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.
(m) Foreign currency. Overseas monetary assets and liabilities are converted into
Sterling at the rate of exchange ruling at the Statement of Financial Position
date. Transactions during the year involving foreign currencies are converted
at the rate of exchange ruling at the transaction date. Any gain or loss
arising from a change in exchange rates subsequent to the date of the
transaction is included as an exchange gain or loss and recognised in the
Statement of Comprehensive Income.
(n) Treasury shares. Where the Company purchases its own share capital, the
consideration paid, which includes any directly attributable costs, is
recognised as a deduction from equity shareholders' funds through the
Company's reserves. When such shares are subsequently sold or re-issued to the
market any consideration received, net of any directly attributable
incremental transaction costs, is recognised as an increase in equity
shareholders' funds through the share capital account. Shares held in treasury
are excluded from calculations when calculating the Company's net asset value
per share.
(o) Dividends payable. Interim dividends are recognised when the entity has an
obligation to make a payment and the amount to be paid can be determined.
3. Investment income
2023 2022
£'000 £'000
Income from investments
Overseas dividends 3,882 4,065
Interest income - 39
3,882 4,104
Other income
Deposit interest 115 4
Total income 3,997 4,108
4. Management fee
2023 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Management fee 1,700 - 1,700 1,020 - 1,020
Management fee (up to 9 November 2021)
Management services are provided by abrdn Fund Managers Limited ("aFML").
During the period, the management fee was payable monthly in arrears (and pro
rata for part of any month during which the management agreement is in force)
at an annualised rate of 0.80% of net assets, reduced by the proportion of the
Company's net assets invested in funds which are managed by the abrdn Group
("abrdn Funds"), other than the investments in Aberdeen Standard SICAV I -
China A Share Equity Fund and Aberdeen Standard SICAV I - Frontier Markets
Bond Fund, which are held in share classes not subject to management charges
at a fund level and the Manager was therefore entitled to a fee on the value
of those investments.
Management fee and Agreement (following the Completion of the Scheme of
Reconstruction on 9 November 2021) (the "Scheme")
Following completion of the Scheme, the Company entered into a new management
agreement (the "Management Agreement") with abrdn Fund Managers Limited
("aFML"), pursuant to which the management fee payable by the Company to aFML
is calculated by reference to the market capitalisation of the Company, rather
than its net assets (as was the case). The new management fee is structured on
a tiered basis, with the first £150 million of market capitalisation being
charged at 0.80%, the next £150 million being charged at 0.75%, and amounts
thereafter being charged at 0.65%. aFML has agreed to make a contribution to
the costs of implementing the Scheme by means of a waiver of the management
fee for the first six months following the completion of the Scheme. The
Management Agreement is terminable by either party on not less than six
months' written notice at any time.
The balance due to aFML at the year at the year end was £234,000 (2022 -
£291,000)
5. Administrative expenses
2023 2022
£'000 £'000
Administration fees 105 203
Promotional activities 156 -
Directors' fees 178 179
Safe custody fees 111 211
Depositary fees 11 -
Auditor's remuneration:
- fees payable for the audit of the Company's annual financial statements 57 51
- non-audit services 22 17
Registrar's fees 33 31
Broker fees 70 76
Other expenses 324 145
1,067 913
Directors' fees. The Director's fees payable for the year were £178,000 (2022
- £179,000). There were no other emoluments paid to the Directors.
Promotional fee. During the year £156,000 (2022 - £nil) was payable to aFML
for the provision of promotional activities. There was £156,000 (2022 -
£nil) due to aFML in respect of these promotional activities at the year end.
Company Secretary and Administrator fees. In April 2023, abrdn replaced Vistra
Fund Services (Guernsey) Limited ("Vistra") as Administrator and Secretary to
the Company. During the year to October 2023 the fee payable to abrdn was
£68,000. The balance due at the year end was £68,000. The fee payable to
Vistra was £19,000 (2022: £48,000).
UK Administration agent fees. In April 2023, BNP Paribas replaced Sanne Fund
Services (UK) Limited (formerly PraxisIFM Fund Services (UK) Limited) as
administration agent in the United Kingdom. During the year to October 2023
the fee payable to Sanne was £86,000 (2022: £163,000).
Depositary and custody services and fees. In April 2023, BNP Paribas replaced
Northern Trust (Guernsey) Limited, as depositary in the United Kingdom. During
the year to October 2023 the fee payable to BNP Paribas was £39,000. The fee
payable to Sanne was £84,000 (2022: £211,000).
6. Finance costs
2023 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Interest payable 531 - 531 70 - 70
Facility arrangement fees and other charges 31 - 31 39 - 39
562 - 562 109 - 109
7. Taxation
2023 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
(a) Analysis of charge for the year
Overseas withholding tax 285 - 285 215 - 215
Tax relief to capital (31) 31 - - - -
Total tax charge for the year 254 31 285 215 - 215
(b) Factors affecting the tax charge for the year. The UK corporation tax rate is
22.50% (2022 - 19%).The tax assessed for the year is higher (2022 - higher)
than the standard rate of corporation tax in the UK. The differences are
explained below:
2023 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Net return before taxation 668 (3,773) (3,105) 2,066 (142,805) (140,739)
Corporation tax at effective rate of 22.5% (2022 - standard rate of 19%) 150 (849) (699) 393 (27,133) (26,740)
Effects of: -
Non-taxable overseas dividend income (873) - (873) (769) - (769)
Overseas tax suffered 285 - 285 215 - 215
Tax effect of unrealised gains on non reporting offshore holdings (31) 31 - - - -
Overseas dividends not taxable - - - (3) - (3)
Capital losses not subject to tax - 823 823 - 27,133 27,133
Expenses not deductible for tax purposes 3 26 29 - - -
Other income not taxable - - - (8) - (8)
Finance costs not taxable - - - 21 - 21
Movement in unutilised management expenses 720 - 720 366 - 366
Total tax charge 254 31 285 215 - 215
(c) Provision for deferred taxation. No provision for deferred taxation has been
made in the current year or in the prior year. At 31 October 2023 the Company
had surplus management expenses and loan relationship debits with a tax value
of £1,000,000 (2022 - £234,000) in respect of which a deferred tax asset has
not been recognised. This is because the Company is not expected to generate
taxable income in a future period in excess of the deductible expenses of that
future period and, accordingly, it is unlikely that the Company will be able
to reduce future tax liabilities through the use of existing surplus expenses.
ACIC received approval by HMRC to be classified as an investment trust under
Chapter 4 of Part 24 CTA 2010 and Chapter 1 of Part 2 of The Investment Trust
Tax Regulations. As a result, the Company became an investment trust with
effect from 9 November 2021 and is registered in the United Kingdom for tax
purposes from that date.
8. Dividends
2023 2022
£'000 £'000
Amounts recognised as distributions to equity holders in the period:
Interim dividend for 2022 - 3.20p (2021 - nil) 1,407 -
The table below sets out the proposed Interim dividend in respect of the
financial year, which is the basis on which the requirements of Section 1158
of the Corporation Tax Act 2010 are considered. The revenue available for
distribution by way of dividend for the year is £414,000 (2022 -
£1,851,000).
2023 2022
£'000 £'000
Interim dividend for 2023 - nil (2022 - 3.20p) - 1,407
9. Return per Ordinary share
2023 2022
£'000 p £'000 p
Revenue return 414 0.95 1,851 4.00
Capital return (3,804) (8.73) (142,805) (308.70)
Total return (3,390) (7.78) (140,954) (304.70)
Weighted average number of Ordinary shares in issue(A) 43,585,131 46,260,167
(A) Calculated excluding shares held in treasury.
10. Investments at fair value through profit or loss
2023 2022
£'000 £'000
Opening book cost 343,770 65,600
Opening investment holding (loss)/gains (119,706) 47,305
Opening fair value 224,064 112,905
Analysis of transactions made during the year
Purchases at cost 79,946 446,496
Sales proceeds received (79,255) (193,446)
(Losses)/gains on investments (27,645) 25,119
Investment holding gains/(losses) 23,372 (167,010)
Closing fair value 220,482 224,064
Closing book cost 316,816 343,770
Closing investment losses (96,334) (119,706)
Closing fair value 220,482 224,064
The Company received £79,225,000 (2022 - £193,446,000) from investments sold
in the period. The book cost of these investments when they were purchased was
£106,900,000 (2022 - £168,888,000). 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 losses on
investments in the Statement of Comprehensive Income. The total costs were as
follows:
2023 2022
£'000 £'000
Purchases 96 620
Sales 132 212
228 832
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. Other receivables
2023 2022
£'000 £'000
Prepayments and accrued income 111 56
111 56
12. Current liabilities
Amounts falling due within one year 2023 2022
a) Bank loans £'000 £'000
Foreign currency loan 15,359 -
In April 2022, the Company entered into a £15 million unsecured multicurrency
revolving loan facility with Industrial and Commercial Bank of China, London
Branch ("the Lender") for a two year period. The facility will be utilised for
general working capital purposes and for the acquisition of investments in
accordance with the Company's investment policy. Under the terms of the
facility, the Company also has the option to increase the level of the
commitment from £15 million to £30 million at any time, subject to the
Lender's credit approval.
At 31 October 2023, CNH 136,833,000 (equivalent to £15,359,000) was drawn
down from the facility at an applicable interest rate of 5.30758% until 14
December 2023. Net gearing at the year end was 3.1%.
Subsequent to the year end, CNH 135,325,500 was drawn down until 15 January
2024 and this amount was repaid on that date.
Restrictions imposed by the Lender in connection with the credit facility
include the following financial covenants:
- Total borrowings do not exceed 20% of the total assets at any time:
- Its net asset value shall at all times be a minimum of £200 million; and
- The aggregate value of the unlisted investments does not exceed 10% of the
aggregate value of the investments at any time.
The Company does not have any externally imposed capital requirements other
than disclosed above
2023 2022
b) Other payables £'000 £'000
Amounts due to brokers - 222
Finance costs payable 107 25
Other creditors 628 564
735 811
13. Share capital
Year ended 31 October 2023
Ordinary Ordinary
shares of 1p Allotted, shares with
nominal value issued and voting Treasury
Authorised £'000 fully paid rights(A) shares
Opening number of shares Unlimited 622 62,172,947 45,283,575 16,889,372
Purchase of own shares - (2,631,266) 2,631,266
Closing number of shares Unlimited 622 62,172,947 42,652,309 19,520,638
Year ended 31 October 2022
Ordinary Ordinary
shares of 1p Allotted, shares with
nominal value issued and voting Treasury
Authorised £'000 fully paid rights(A) shares
Opening number of shares Unlimited 546 54,618,507 45,965,159 8,653,348
Scheme of reconstruction:
Ordinary shares issued - 76 7,554,440 7,554,440 -
Ordinary shares repurchased - - - (6,894,773) 6,894,773
Purchase of own shares - - - (1,341,251) 1,341,251
Closing number of shares Unlimited 622 62,172,947 45,283,575 16,889,372
(A) Excluding treasury shares.
Scheme of Reconstruction. On 9 November 2021, the Company completed and
announced a Scheme of Reconstruction (the "Scheme"). As a result of the
Scheme, the change in Ordinary share capital of the Company was as follows:
Share issue. The Company acquired approximately £62 million of net assets
from Aberdeen New Thai Investment Trust PLC in consideration for the issue of
7,554,440 new Ordinary shares in the Company.
Tender Offer. A total of 6,894,773 Ordinary shares were repurchased by the
Company on 10 November 2021 under the Tender Offer and held in treasury at an
aggregate cost to the Company of £55 million.
The costs incurred in implementing the Scheme amounted to £1,058,000.
Share capital account. The aggregate balance (including share premium)
standing to the credit of the share capital account at the year end was
£133,945,000 (2022 - £147,744,000).
Purchase of own shares. There were 2,631,266 Ordinary shares purchased during
the year (2022 - 1,341,251) at an aggregate cost to the Company of
£13,799,000 (2022 - £7,560,000).
Ordinary shares
Voting rights (as at 31 October 2023). Holders of Ordinary shares are entitled
to attend, speak and vote at general meetings of the Company. Each Ordinary
share (excluding shares in treasury) carries one vote. Treasury shares do not
carry voting rights.
At its financial year end, the Company had 365 registered shareholders. At 31
October 2023, the Company was notified of 3 shareholders who each held more
than 10% of the issued share capital and their holdings were 30.0% (2022:
27.8%), 21.7% (2022: 23.5%) and 21.5% (2022: 19.5%) respectively.
Dividends. The holders of Ordinary shares are entitled to such dividend as may
be declared by the Company from time to time. Shares held in treasury do not
receive dividends.
Capital entitlement. On a winding up, the Ordinary shares (excluding treasury
shares) shall rank pari passu for the nominal capital paid up thereon and in
respect of any surplus. Shares held in treasury have no capital entitlement on
a winding up of the Company.
14. Capital reserve
2023 2022
£'000 £'000
Opening balance 87,739 230,544
Movement in fair value gains (4,273) (142,451)
Foreign exchange movement 500 (354)
Taxation (31) -
Dividend (1,407) -
Balance at 31 October 82,528 87,739
The capital reserve includes investment holding losses amounting to
£96,334,000 (2022 - losses of £119,706,000), as disclosed in note 10.
15. Net asset value per share
The net asset value per share and the net asset values attributable to
Ordinary shareholders at the year end calculated in accordance with the
Articles of Association were as follows:
Net asset value Net asset values Net asset value Net asset values
per share attributable per share attributable
2023 2023 2022 2022
p £'000 p £'000
Ordinary shares 499.97 213,247 511.98 231,843
The net asset per Ordinary share is calculated based on 42,652,309 (2022 -
45,283,575) Ordinary shares, being the number of Ordinary shares in issue at
the year end excluding Ordinary shares held in treasury.
16. Analysis of changes in net debt
At At
31 October Currency Cash 31 October
2022 differences flows 2023
£'000 £'000 £'000 £'000
Cash and short term deposits 8,534 (224) 438 8,748
Debt due within one year - 724 (16,083) (15,359)
8,534 500 (15,645) (6,611)
At At
31 October Currency Cash 31 October
2021 differences flows 2022
£'000 £'000 £'000 £'000
Cash and short term deposits 201,795 (354) (192,907) 8,534
201,795 (354) (192,907) 8,534
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.
17. 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 securities
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 abrdn Fund Managers
Limited ("aFML") under the terms of its management agreement with aFML
(further details of which are included under note 4). 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.
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 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 Limited, 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 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 and
Risk Management. The team is headed up by the Group's Chief Risk Officer, who
reports to the Group CEO. 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 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 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 on the committees' terms of
reference.
Risk management. The main risks the Company faces from its financial
instruments are (i) market risk (comprising interest rate risk, currency risk
and price risk), (ii) liquidity risk and (iii) credit risk.
(i) 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,
foreign currency risk and other price risk.
Interest rate risk. Interest rate movements may affect:
- the level of income receivable on cash deposits; and,
- interest payable on the Company's variable rate borrowings.
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.
The Board imposes borrowing limits to ensure gearing levels are appropriate to
market conditions and reviews these on a regular basis. Borrowings comprise
fixed rate, revolving, and uncommitted facilities. The fixed rate facilities
are used to finance opportunities at low rates and, the revolving and
uncommitted facilities to provide flexibility in the short-term. Current bank
covenant guidelines state that the total borrowings will not exceed 20% of the
adjusted net assets of the Company as defined in note 12.
Interest risk profile. The interest rate risk profile of the portfolio of the
Company's financial assets and liabilities, excluding equity holdings which
are all non-interest bearing, at the Statement of Financial Position date was
as follows:
Weighted average Weighted
period for which average Fixed Floating
rate is fixed interest rate rate rate
At 31 October 2023 Years % £'000 £'000
Assets:
China Yuan Renminbi - - - 2,797
China Yuan Renminbi (Offshore) - - - 1,984
Hong Kong Dollar - - - 4
Sterling - 3.69 - 3,912
US Dollar - - - 51
- 8,748
Weighted average Weighted
period for which average Fixed Floating
rate is fixed interest rate rate rate
Years % £'000 £'000
Liabilities:
Bank loan - CNY 136,833,000 0.12 5.31 (15,359) -
(15,359) -
The weighted average interest rate is based on the current yield of each
asset, weighted by its market value. The weighted average interest rate on
bank loans is based on the interest rate payable, weighted by the total value
of the loans. The maturity date of the Company's loans are shown in note 12.
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 (excluding
bank loans) 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 profit.
Foreign currency risk. The Company's investment portfolio is primarily
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 Company's
borrowings, as detailed in note 12, are predominantly in sterling.
The revenue account is subject to currency fluctuation arising on dividends
paid in foreign currencies. The Company does not hedge this currency risk.
Foreign currency exposure by currency of denomination:
31 October 2023 31 October 2022
Net Total Net Total
monetary currency monetary currency
Investments assets exposure Investments assets exposure
£'000 £'000 £'000 £'000 £'000 £'000
China Yuan Renminbi 4,009 2,797 6,806 131,456 6 131,462
China Yuan Renminbi (Offshore) 112,137 1,984 114,121 - - -
Hong Kong Dollar 93,479 4 93,483 91,289 28 91,317
Taiwan Dollar 2,177 - 2,177 - - -
US Dollar 8,680 51 8,731 1,319 4 1,323
220,482 4,836 225,318 224,064 38 224,102
Foreign currency sensitivity. The following table details the Company's
sensitivity to a 10% increase and decrease in sterling against the foreign
currencies in which the Company has exposure. The sensitivity analysis
includes foreign currency denominated monetary items and adjusts their
translation at the period end for a 10% change in foreign currency rates.
2023 2022
£'000 £'000
China Yuan Renminbi 681 13,146
China Yuan Renminbi (Offshore) 11,412 -
Hong Kong Dollar 9,348 9,132
Taiwan Dollar 218 -
US Dollar 873 132
22,532 22,410
Price risk. Other price risks (ie changes in market prices other than those
arising from interest rate or currency risk) may affect the value of the
quoted investments.
Management of the 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 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.
Price risk sensitivity. If market prices at the Statement of Financial
Position date had been 10% higher or lower while all other variables remained
constant, the return attributable to Ordinary shareholders for the year ended
31 October 2023 would have increased/(decreased) by £22,048,000 (2022 -
increased/(decreased) by £22,406,000) and equity reserves would have
increased/(decreased) by the same amount.
(ii) Liquidity risk. This is the risk that the Company will encounter
difficulty in meeting obligations associated with financial liabilities as
they fall due in line with the maturity profile analysed below.
Within
1 year Total
At 31 October 2023 £'000 £'000
Bank loans 15,359 15,359
Interest cash flows on bank loans 107 107
Cash flows on other creditors 628 628
16,094 16,094
Within
1 year Total
At 31 October 2022 £'000 £'000
Bank loans - -
Interest cash flows on bank loans - -
Cash flows on other creditors 811 811
811 811
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. Borrowings comprise a £15,000,000 unsecured multicurrency revolving
loan facility with a £15,000,000 accordion option, which expires in April
2024. The Board has imposed a maximum gearing level, equalling up to 20% of
gross asset value. Details of borrowings at 31 October 2023 are shown in note
12.
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. Short-term flexibility is achieved through
the use of the loan facility, details of which can be found in note 12. Under
the terms of the loan facility, the Manager provides the lender with loan
covenant reports on a monthly basis, to provide the lender with assurance that
the terms of the facility are not being breached. The Manager will also review
the credit rating of a lender on a regular basis. Details of the Board's
policy on gearing are shown in the interest rate risk section of this note.
(iii) 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
Manager, and limits are set on the amount that may be due from any one broker.
Cash is held only with reputable banks with high quality external credit
enhancements. 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.
Credit risk exposure. In summary, compared to the amounts in the Statement of
Financial Position, the maximum exposure to credit risk at 31 October was as
follows:
2023 2022
Statement of Statement of
Financial Maximum Financial Maximum
Position exposure Position exposure
£'000 £'000 £'000 £'000
Current assets
Loans and receivables 111 111 56 56
Cash at bank and in hand 8,748 8,748 8,534 8,534
8,859 8,859 8,590 8,590
None of the Company's financial assets are past due or impaired.
Fair values of financial assets and financial liabilities. The carrying values
of fixed asset investments are stated at their fair values, which have been
determined with reference to quoted market prices. For all other short-term
debtors and creditors, their book values approximate to fair values because of
their short-term maturity. Bank loans are valued at amortised cost in
accordance with the Company's stated accounting policy.
18. Fair value hierarchy
IFRS 13 'Fair value measurement' 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. The fair value hierarchy has the
following classifications:
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 and liabilities measured at fair value in the Statement
of Financial Position are grouped into the fair value hierarchy at the
reporting date as follows:
Level 1 Level 2 Level 3 Total
As at 31 October 2023 £'000 £'000 £'000 £'000
Financial assets at fair value through profit or loss
Quoted equities 219,573 - - 219,573
Unquoted equities - - 909 909
Total fair value 219,573 - 909 220,482
Level 1 Level 2 Level 3 Total
As at 31 October 2022 £'000 £'000 £'000 £'000
Financial assets at fair value through profit or loss
Quoted equities 222,745 - - 222,745
Unquoted equities - - 1,319 1,319
Total fair value 222,745 - 1,319 224,064
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.
Unquoted securities Investments classified within Level 3 have significant
unobservable inputs, as they trade infrequently. The Level 3 figure consists
of an investment in Komodo Fund which is valued at the unadjusted net asset
values provided by the administrator of that fund.
The Company recognises transfers between levels of fair value hierarchy at the
date the change occurred. There were no investments transferred between levels
during the year (2022 - no transfers).
The movement on the Level 3 classified investments during the year is shown
below:
2023 2022
Opening balance 1,319 1,358
Additions during the year - -
Disposals during the year - -
Profit or loss on disposals during the year - -
Valuation adjustments(A) (410) (39)
909 1,319
(A) Total gains/(losses) included in profit or loss on assets held at year
end.
19. Related party transactions and transactions with the Manager
Fees payable during the period to the Directors are disclosed in note 5 and
within the Directors' Remuneration Report in the Annual Report, along with
their interests in shares of the Company.
Transactions with the Manager. The company has an agreement with the Manager
for the provision of investment management, secretarial, accounting and
administration and promotional activity services.
Details of transactions during the year and balance outstanding at the year
end are disclosed in notes 4 and 5.
20. Capital management policies and procedures
The Board of Directors is responsible for ensuring that the Company's
objective and investment strategy is followed. The Company's objective is to
produce long-term capital growth by investing predominantly in Chinese
equities across a number but the Board retains responsibility for the overall
direction of the Company. The Board reviews the investment decisions of the
Investment Manager at regular Board meetings to ensure compliance with the
investment strategy and to assess the achievement of the Company's objective.
The Investment Manager has been given full authority to make investment
decisions on behalf of the Company in accordance with the investment strategy
and analyses markets within a framework of quality, value, growth and change.
The investment policy employed by the Investment Manager ensures that
diversification within investee funds is taken into account when deciding on
the size of each investment so the Company's exposure to any one underlying
company should never be excessive. The Company's positions are monitored as a
whole by the Board in monthly portfolio valuations and at Board meetings. Any
significant change to the Company's investment strategy requires shareholder
approval.
No single investment accounted for more than 9.1% (2022 - 7.0%) of the
Company's net assets at the Company's year end. The Investment Manager aims to
identify funds which it considers are likely to deliver consistent capital
growth over the longer term.
21. Subsequent events
On 28 November 2023, the Board announced that heads of terms had been agreed
in principle for a proposed combination of the assets of the Company with the
assets of Fidelity China Special Situations PLC ("Fidelity China") (the
"Proposals"). The Proposals, if approved by each company's shareholders, will
be implemented through a Guernsey scheme of reconstruction under which the
Company will be placed into voluntary liquidation and part of its cash, assets
and undertaking will be transferred to Fidelity China in exchange for the
issue of new ordinary shares in Fidelity China to Shareholders.
On 15 January 2024, the Company repaid the amount previously drawn down under
its bank loan facility with Industrial and Commercial Bank of China, London
Branch.
Corporate Information - Alternative Performance Measures ("APMs") (unaudited)
Alternative performance measures 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 International
Financial Reporting Standards and the Statement of Recommended Practice issued
by Association of Investment Companies. 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 discount is the amount by which the share price is lower than the net
asset value per share with debt at fair value, expressed as a percentage of
the net asset value.
2023 2022
NAV per Ordinary share a 499.97p 511.98p
Share price b 392.00p 448.00p
Discount (a-b)/a 21.6% 12.5%
Net gearing/(cash)
Net gearing/(cash) 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 amounts due to and
from brokers at the year end.
2023 2022
Borrowings (£'000) a 15,359 -
Cash (£'000) 8,748 8,534
Amounts due to brokers (£'000) - (222)
Amounts due from brokers (£'000) - -
Cash and cash equivalents b 8,748 8,312
Shareholders' funds (£'000) c 213,247 231,843
Net gearing/(cash) (a-b)/c 3.1% (3.6%)
Ongoing charges
The ongoing charges ratio has been calculated in accordance with guidance
issued by the AIC as the total of annualised investment management fees and
administrative expenses and expressed as a percentage of the average daily net
asset values with debt at fair value published throughout the year.
2023 2022
Investment management fees(A) (£'000) 1,700 1,020
Administrative expenses (£'000) 1,067 913
Less: non-recurring charges(B) (£'000) (28) -
Ongoing charges (£'000) 2,739 1,933
Average net assets (£'000) 256,223 319,519
Ongoing charges ratio 1.07% 0.60%
(A) 2022 includes the effect of the management fee waiver arrangement
following the combination with Aberdeen New Thai Investment Trust in November
2021.
(B) Professional services 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 amongst other things,
includes the cost of borrowings and transaction costs.
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. Share price and NAV total
returns are monitored against open-ended and closed-ended competitors, and the
Benchmark, respectively.
Year ended 31 October 2023 NAV Share price
Opening at 1 November 2022 a 511.98p 448.00p
Closing at 31 October 2023 b 499.97p 392.00p
Price movements c=(b/a)-1 -2.3% -12.5%
Dividend reinvestment(A) d 0.4% 0.5%
Total return c+d -1.9% -12.0%
Year ended 31 October 2022 NAV Share price
Opening at 1 November 2021 a 813.20p 695.00p
Closing at 31 October 2022 b 511.98p 448.00p
Price movements c=(b/a)-1 -37.0% -35.5%
Dividend reinvestment(A) d N/A N/A
Total return c+d -37.0% -35.5%
(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.
Additional Notes to the Annual Financial Report
The Annual Financial Report Announcement is not the Company's statutory
accounts. The above results for the year ended 31 October 2023 have been
agreed with the auditor and are an abridged version of the Company's full
accounts, which have been approved and audited with an unqualified report. The
2022 and 2023 statutory accounts received unqualified reports from the
Company's auditor and did not include any reference to matters to which the
auditor 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 2022 which have been delivered to the Guernsey Financial Services
Commission. The 2023 accounts will be filed with the Guernsey Financial
Services Commission in due course.
The Annual Report and Accounts will be posted to shareholders in February
2024. Copies will be available during normal business hours from the
Secretary, abrdn Holdings Limited, 1 George Street, Edinburgh EH2 2LL or from
the Company's website, abrdnchina.com*.
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.
By order of the Board
abrdn Holdings Limited
Company Secretary
16 February 2024
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