REG - abrdn China Inv.Co. - Final Results
24/02/2022 16:46
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RNS Number : 7529C abrdn China Investment Company Ltd. 24 February 2022
abrdn China Investment
Company Limited
LEI: 213800RIA1NX8DP4P938
(Formerly Aberdeen Emerging Markets Investment Company Limited)
Seeking long-term capital growth by investing predominantly in Chinese
equities
Annual Report
31 October 2021
Visit our Website
To find out more about abrdn China Investment Company Limited, please visit
abrdnchina.co.uk
abrdn China Investment Company Limited is a closed-end investment company with
its Ordinary shares listed on the Premium Segment of the London Stock
Exchange.
The Company's name, objective and investment policy were changed following
approval by shareholders at an Extraordinary General Meeting on 26 October
2021, and in November 2021 the Company completed its combination with Aberdeen
New Thai Investment Trust PLC.
The Company's new objective is to produce long-term capital growth by
investing predominantly in Chinese equities.
Financial Highlights
Net asset value ("NAV") per NAV per Ordinary share(2) Ordinary share price total return(1,3,4)
Ordinary share total return(1,3,4)
+19.8% 813.2p +18.7%
2020 2020 2020
+8.9% 698.3p +12.2%
Ordinary share price - mid market Discount(3) Reference Index Net Total
Return in sterling terms
695.0p -14.5% +10.7%
2020 2020 2020
605.0p -13.4% +8.2%
Net Assets Net gearing(3) Revenue return per Ordinary share
£373.8m 0.0% (0.61p)
2020 2020 2020
£321.0m 1.6% 1.60p
Ongoing charges ratio ('OCR')(3)
0.98%
2020
1.02%
(1 )Performance figures stated above include reinvestment
of dividends on the ex-date
(2 )See note 14 in the Notes to these Financial Statements
for basis of calculation
(3 )Definitions of these Alternative Performance Measures
('APMs') together with how these have been calculated can be found further
below
(4 )The Company's performance was attributable to the fund
being managed in accordance with its previous investment objective, which was
to achieve consistent returns for shareholders in excess of the MSCI Emerging
Markets Net Total Return Index in sterling terms and the new investment
objective, following approval by shareholders at the EGM on 26 October 2021,
which is to produce long-term capital growth by investing predominantly in
Chinese equities.
Financial Calendar
"I would like to extend a warm welcome to all shareholders to the newly formed Financial Calendar
abrdn China Investment Company Limited. Many of you have been long-term
shareholders in Aberdeen Emerging Markets Investment Company Limited and I
also very much welcome those of you who previously held shares in Aberdeen New
Thai Investment Trust PLC."
Online Shareholder Presentation 30 March 2022
Annual General Meeting ("AGM") (London) 12 April 2022
Half year end 30 April 2022
Announcement of Half-Yearly Financial Report for the six months ending 30 June 2022
April 2022
Financial year end 31 October 2022
Announcement of Annual Report and Accounts for the year ending 31 October 2022 January / February 2023
Mark Hadsley-Chaplin, Chairman
Chairman's Statement
Introduction The described events took place towards the end of our financial year, so this
Annual Report necessarily covers the activity of the Company during the
First, I would like to extend a warm welcome to all shareholders to our newly financial year and therefore overwhelmingly refers to the emerging markets
formed abrdn China Investment Company Limited ("ACIC" or the "Company"). Many mandate under AEMC. Recognising the unusual position of the Company was in at
of you have been long-term shareholders in Aberdeen Emerging Markets the year end, where it was transitioning from being invested in emerging
Investment Company Limited ("AEMC") and I also very much welcome those of you markets, Bernard Moody and Andrew Lister have produced the Investment
who previously held shares in Aberdeen New Thai Investment Trust PLC ("ANW" or Manager's Report covering the activity in the year and we have asked Nicholas
"New Thai"). Yeo and Elizabeth Kwik, our new portfolio managers, to provide an introduction
to the Chinese portfolio and the investment process they will be using. We
The last six months have been momentous for the Company. In the Half-Yearly have also provided two portfolio listings. The first, which is required under
Report I set out the challenges we were facing with AEMC - a lack of liquidity accounting standards, reflects the position as at 31 October 2021. The more
with a small free float, a persistently wide discount and a reluctance from interesting one is the positioning as at 31 December 2021 as this shows how
many investors to engage with a fund of funds structure. Even after a period the new team have positioned the portfolio and therefore gives current and
of sustained absolute and relative outperformance these headwinds persisted. prospective investors a much better pointer to the future direction of the
We therefore decided that a significant change in the mandate was in Company. I should stress that we have only requested this additional
shareholders' interests. Our objective was to remain within the emerging disclosure for this year because of the extremely unusual position the Company
market universe but to invest directly in equities. We considered a number of was in at the year end and should not be seen as a precedent. I very much look
options but kept returning to the fact that after the New York Stock Exchange forward to reporting on the progress of ACIC which will be the focus of the
and NASDAQ, the Shanghai Stock Exchange is now the largest in the world. China upcoming 2022 Half-Yearly Report to be published in June.
represented AEMC's largest country exposure, and the Chinese stock market
offers a wide range of companies with compelling long-term growth prospects. Management Fee
China is also under represented in the Investment Trust world. Before putting
the proposal for a new China mandate to shareholders, we wanted to secure a At the same time, the management fee arrangements were renegotiated. From 9
first class investment management team with the experience and track record in November 2021, the management fee is based on the Company's market
China equity investment as we seek to deliver strong long-term performance for capitalisation, rather than net assets. This better aligns the interests of
the future. We also sought an investment manager with experience in the shareholders and the Manager as the latter is incentivised to narrow the
Investment Trust sector that was not already managing a UK China Investment discount. The new fee is tiered, with the first £150 million of market
Trust. Our comprehensive selection process steered us back to abrdn which capitalisation being charged at 0.80%, the next £150 million at 0.75% and the
fulfils these criteria. Furthermore, we deemed the opportunity to merge with the balance over £300 million being charged at 0.65%. In addition, as part of
New Thai advantageous to shareholders. This merger helped to shore up assets the arrangement, the Manager has agreed to waive this management fee for the
even after allowing for the 15% tender offer and gave us the opportunity to first six months as a contribution to the costs of the reorganisation of the
bring on two excellent directors, Anne Gilding and Sarah MacAulay, to Company.
strengthen the board of the newly formed ACIC with the revised investment
objective "to produce long-term capital growth by investing predominantly in Performance
Chinese equities".
I am pleased to report that over the year to 31 October 2021 the Company's net
The change in investment policy was approved by shareholders at an asset value ("NAV") total return per Ordinary share was 19.8%. This compares
Extraordinary General Meeting ("EGM") held on 26 October 2021, and the Scheme favourably with a blended Reference Index total return of 10.7% in sterling
of Arrangement with the shareholders of New Thai was completed on 9 November terms against which the Company was measured during the year. The Reference
2021. Index of the Company was changed to the MSCI China All Shares Index with
effect from 1 November 2021.
The Ordinary share price total return for the year was 18.7%, as the discount Changes to Share Capital and Discount Management Policy
to NAV at which the Company's shares trade widened slightly, to 14.5% as
compared to 13.4% at the start of the financial year. I am pleased to note The Company did not buy back or issue any shares during the year.
that at the time of writing, the discount to NAV has narrowed to around 11%.
The Board believes that an element of this narrowing can be attributed to the However, immediately following the year end and as part of the scheme of
market recognising the opportunities that the Company's new mandate offers. arrangement with New Thai, the Company made a tender offer to all shareholders
that it would buy back up to 15% of the Ordinary shares in issue at a 2%
Dividends discount to NAV. As a result of the offer, 6,894,773 Ordinary shares were
tendered and bought back into treasury at a price of 801.92p per Ordinary
Prior to the merger with New Thai, the Company's policy was to make quarterly share.
distributions by way of dividends funded from a combination of income and
capital. Accordingly, three interim dividends, each of 5.75p per Ordinary Simultaneously, 7,554,440 new Ordinary shares were issued to the shareholders
share were paid on 26 March, 25 June and 24 September 2021. of New Thai who elected to roll their shareholding into the Company. Following
the completion of the Scheme of Arrangement, the number of Ordinary shares in
Given the new investment objective, which is to deliver capital growth, the issue was 46,624,826.
Board has revised its dividend policy to bring it in line with this objective.
The Board has also revised the dividend policy to bring distributions in line The Board's discount control policy is that the Company's shares should not
with the income delivered by the portfolio with the objective of distributing trade at a price which, on average, represents a discount that is out of line
a sufficient proportion of the net income to ensure that the Company retains with the Company's direct peer group. To assist the Board in taking action to
its investment trust status. In this context, this requires that the Company deal with a material and sustained deviation in the Company's discount from
retains no more than 15% of the income generated by the portfolio in the year. its peer group, it seeks authority from Shareholders annually to buy back
The Board therefore expects that the dividend will be materially lower than shares. Shares may be repurchased when, in the opinion of the Board and taking
has been the case in the past and will vary year on year. As the distributions into account factors such as market conditions and the discounts of comparable
are expected to be significantly lower, the Board has also determined that the companies, the Company's discount is higher than desired and shares are
Company will in future look to make a single dividend payment each year which available to purchase in the market. The Board is of the view that the
will be paid once the annual results are known. principal purpose of share repurchases is to enhance the net asset value
("NAV") for remaining shareholders, although it may also assist in addressing
Loan Facility and Gearing the imbalance between the supply of and demand for the Company's shares and
thereby reduce the scale and volatility of the discount at which the shares
The Company has a £25 million multi-currency revolving loan facility which is trade in relation to the underlying NAV.
due to mature on 25 March 2022. The Board believes that the use of gearing,
which is one of the advantages of a closed ended structure, within Shares in Public Hands
pre-determined ranges and at times when the Investment Manager sees attractive
investment opportunities, is beneficial to the longer term performance of the The Board has previously announced that the number of Ordinary shares which
Company. are deemed by the Listing Rules to be held in public hands is below the
minimum 25% threshold. The Listing Rules provide that shares are not
At the year end the facility was undrawn as the portfolio was being considered to be held in public hands (free float) if they are held by persons
restructured. Since the end of the year the loan has remained undrawn. (or persons in the same group or persons acting in concert) who have an
interest in 5% or more of a listed company's share capital, as well as shares
The Company has commenced discussions with its bankers and other potential held by directors of a listed company. On this basis, at 31 October 2021, we
lenders and the Board expects to renew or replace the facility when it matures calculated that 16% of the issued share capital was in public hands.
in March.
On 3 December 2021 the FCA announced that it was reducing the proportion of The Company will, however, be liable to pay UK corporation tax on its net
shares required to be in public hands from 25% to 10%. As a consequence, the income in the normal way. Income arising from overseas investments may be
Company no longer breaches the regulation. The Board estimates that, following subject to foreign withholding taxes at varying rates, but double taxation
the merger, the concentration of the largest holders has been reduced and that relief may be available. The Company should in practice be exempt from UK
around 24% of the Company's shares are currently in public hands. corporation tax on dividend income received, provided that such dividends fall
within one of the "exempt classes" in Part 9A of the Corporation Tax Act 2009.
The Board will continue to monitor the Company's free float, but believes that
the combination of the improved liquidity of the Company's shares and the Annual General Meeting ("AGM") and Online Shareholder Presentation
lower threshold applied by the FCA means that the issue is no longer of key
concern at this time. AGM
Continuation Vote and Future Performance Linked Tender Offers The AGM will be held at 12 noon on 12 April 2022 at the offices of abrdn plc,
Bow Bells House, 1 Bread Street, London EC4M 9HH. The meeting will include a
At the EGM held on 26 October 2021, shareholders approved new Articles of presentation from the Investment Manager and will be followed by lunch.
Association which contain a provision for continuation resolutions to be put
to shareholders such that, at the Company's annual general meeting to be held We encourage all shareholders to complete and return the proxy form enclosed
in 2027 and at every fifth annual general meeting thereafter, the Directors with the Annual Report so as to ensure that your votes are represented at the
undertake to propose an ordinary resolution that the Company continue in meeting. If you hold your shares in the Company via a share plan or a platform
existence (the "Continuation Resolution"). If the Continuation Resolution is and would like to attend and/or vote at the AGM, then you will need to make
not passed then within four months of the vote to continue failing the arrangements with the administrator of your share plan or platform. For this
Directors shall formulate and put to shareholders proposals relating to the purpose, investors who hold their shares in the Company via the abrdn
future of the Company, having had regard to, inter alia, prevailing market Investment Plan for Children, Share Plan or ISA will find a Letter of
conditions and applicable regulations and legislation. Direction enclosed. Shareholders are encouraged to complete and return the
Letter of Direction in accordance with the instructions.
In addition, the Board intends that, if the Company's NAV total return over
five years ending December 2026 does not exceed the total return of the MSCI Given the evolving nature of the Covid-19 pandemic, should circumstances
China All Shares Index (in sterling terms), the Company will undertake a change significantly, rendering an in-person AGM inadvisable or not
tender offer for up to 25% of the Company's issued share capital (excluding permissible, we will notify shareholders of any changes to the arrangements by
any Shares held in treasury). Any such tender offer will be at a price equal updating the Company's website, abrdnchina.co.uk, and through an RNS
to the then prevailing formula asset value ("FAV") per Share less 2%. announcement, where appropriate, with as much notice as possible.
Investment Trust status The Notice of the Meeting is contained in the Annual report.
Following the merger with New Thai, the Company applied to HMRC for approval Online Shareholder Presentation
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 will In order to encourage as much interaction as possible with our shareholders,
be considered to be an investment trust from the start of the current we will also be hosting an Online Shareholder Presentation, which will be held
financial year and will become resident in the United Kingdom for tax at 10.00am on 30 March 2022. At this event you will receive a presentation
purposes. In respect of each accounting period for which the Company is from the Investment Manager and have the opportunity to ask live questions of
approved by HMRC as an investment trust, the Company will be exempt from UK the Chairman and the Investment Manager. The online presentation is being held
taxation on its chargeable gains. ahead of the AGM to allow shareholders to submit their proxy votes prior to
the meeting.
Full details on how to register for the online event can be found at: As previously advised, it is my intention to retire from the Board once my
http://bit.ly/abrdn-China-webinar (http://bit.ly/abrdn-China-webinar) . succession is agreed and at least one new Director has been appointed. I
envisage that this shall be achieved well before the 2023 AGM, we shall of
Details are also contained on the Company's website. course keep shareholders fully informed.
You will be able to submit questions in advance of the Online Shareholder Outlook
Presentation and the AGM at the following email address:
abrdn.china@abrdn.com. The Chinese Equities team has now been running the portfolio for almost four
months and I am delighted to report that the portfolio has got off to a good
Should you be unable to attend the online event, the Investment Manager's start, outperforming the investment trust sector average in that time, albeit
presentation will be made available on the Company's website shortly after the in testing times, particularly since the start of 2022. This is early evidence
presentation. of the capabilities of the team, who are all based in Hong Kong and Shanghai
and are able to bring their experience of investing in an "All China" mandate,
In the meantime, the Board strongly encourages all shareholders to exercise incorporating as it does companies listed on exchanges in Hong Kong, Shanghai
their votes in respect of the AGM in advance of the meeting, and to appoint and Shenzen. The Investment Manager is in the process of applying for a
the Chairman of the meeting as their proxy, by completing the enclosed form of Qualified Foreign Investor ("QFI") licence which will allow the Company to
proxy, or letter of direction for those who hold shares through the abrdn exploit this expertise more fully and the Investment Manager expects the
savings plans. This should ensure that your votes are registered. number of holdings to stabilise at around 50 positions.
Management Team We hope that the timing of the change of the mandate may yet prove to be
fortuitous - Chinese equity markets fell over 20% in sterling terms in 2021,
abrdn recommended appointing Nicholas Yeo and Elizabeth Kwik to lead the while the FTSE All-Share Index was up 14%. Consensus is that China will become
Chinese equities team when the decision was made to change the investment the largest economy in the world by the end of the decade and, while we would
mandate. They will manage the Company's portfolio from Hong Kong and Shanghai, be naive to expect that there will not be bumps in the road, we believe that
where the 13 strong Chinese equities team is based. As part of the search the prospects for a portfolio focused on this growth market are good. We
process, the Board met the team and were impressed by them and their track believe that the regulatory changes that we saw the Chinese Government impose
record. last year have now been priced into the market and we do not expect to see
much further intervention by the Government on such a scale. When this is
At the same time, Bernard Moody and Andrew Lister will cease to be involved in coupled with the early signs of easing of Covid restrictions in some Western
the day-to-day running of the portfolio. On behalf of the Board, I would like markets and a more benign economic backdrop in China, the Board is optimistic
to thank Bernard, Andrew and the whole of the Closed End Fund Strategies team that the long-term prospects of the Company are compelling.
who have done an excellent job of managing the portfolio and it should be
stressed that the change of mandate and management team is not in any way a Mark Hadsley-Chaplin
reflection of the service that they provided. We wish them well.
Chairman
Board Composition
24 February 2022
I am delighted to welcome Anne Gilding and Sarah MacAulay to the Board. They
joined following the Scheme of Arrangement, both having been directors of New
Thai.
William Collins has announced his intention to retire from the Board at the
Company's AGM, he has made an invaluable contribution over his ten-year
tenure, and I shall make further tribute to him in the Half-Yearly Report
after his departure. In the meantime, his role as Senior Independent Director
has now been passed to Helen Green.
Strategic
Report
We see the brightest future for firms able to adapt to changing regulatory
frameworks and align with policy objectives in areas such as digital
innovation, green technology, access to affordable healthcare and improved
livelihoods. We are focused on five themes that we believe will drive returns
in 2022.
Investment Manager's Report
Market Environment holdings traded were a small detractor. The Ordinary share price total return
was 18.7%, as the discount to NAV at which the Company's Ordinary shares trade
Emerging markets began the period strongly as the prospect of vaccine widened to 14.5% from 13.4% at the start of the financial year.
roll-outs led investors to focus on the potential for a rebound in global
economic activity. This, in turn, resulted in significant style rotation, with Portfolio Positioning
those markets, sectors and stocks which had suffered the greatest economic
impact in the early stages of the pandemic rallying strongly. The "risk-on" During the latter part of the period, we worked to improve portfolio liquidity
environment saw the US dollar weaken and a rally in the prices of energy and whilst retaining market exposure, notably through reducing exposure to less
most industrial commodities as well as emerging market currencies. By late liquid investments while adding to exchange traded funds. Following
February, the MSCI Emerging Markets Index was up by almost 23%, but it gave up shareholder approval of the new investment policy on 26 October 2021 we began
some of those gains as increasing concerns about the outlook for inflation the process of exiting remaining legacy investments. Good progress was made
pushed US bond yields higher, negatively impacting sentiment towards emerging over the final days of the month and 69.8% of the Company's net assets were in
market assets. As the year progressed, the MSCI Emerging Markets Index was cash or pending settlement by period end. The Hong Kong team began the process
largely range-bound and performance was hampered by increased regulatory of deploying the cash and building the Chinese portfolio in early November
scrutiny of companies with internet enabled business models in China. 2021.
Sentiment towards China deteriorated further late in the period as investors
focused on default risks in the real estate sector and the potential for the
situation to spiral into a broader financial crisis. For the financial year in
its entirety, the MSCI Emerging Markets Index rose by 10.7%. Aberdeen Asset Managers Limited
24 February 2022
Fund Performance
During the financial year the Company's net asset value ("NAV") total return
was 19.8% which compares favourably with the return of 10.7% from the
Reference Index. Performance attribution analysis shows that fund selection
was the largest contributor to the Company's NAV outperformance. In
particular, the Company's investments in Aberdeen Standard SICAV I - China A
Share Equity Fund, Neuberger Berman China Equity Fund and Weiss Korea
Opportunity Fund performed well in comparison with their respective
benchmarks. Another meaningful contributor to performance was Russian holding
Baring Vostok Investments, which had an excellent period as several underlying
portfolio holdings completed successful initial public offerings. The only
significant detractor was Naspers which suffered from its exposure to Chinese
internet giant Tencent. Asset allocation was also a positive contributor to
relative performance. An overweight allocation to Russia and underweight
positioning in China were significant positives, in part offset by a negative
contribution from being underweight in Taiwan. Changes in the discounts to NAV
at which underlying closed-end fund
Investment Manager's Report
(New Investment Objective)
The China Opportunity and Why Now? Digital: This theme aligns with the government's objectives of localisation,
improving productivity, lowering costs, increasing innovation and helping to
The enduring strength of China's vast consumer market allied to pro-growth propel economic growth. Our holdings in this segment are primarily
domestic policies underscore our optimism about the prospects for A-shares in software-related names which have advantages given their knowledge of the
2022 and beyond. domestic market and preference for localisation in areas such as cyber
security and cloud services. One of our holdings in this area is Venustech, a
In contrast to developed markets such as the US and UK, where authorities are leading cyber security provider in China.
tightening policy to tame inflation, China has moved to ease financial
conditions and access to funding. Although the Covid-19 pandemic has curtailed Green: This theme aligns with government policy on decarbonisation and
Chinese consumption for the past two years, the market's size means even net-zero emissions by 2060. Our holdings include solar wafer producers,
sluggish retail sales growth generates a big increase in absolute terms. We component makers, battery and related component makers, automation-related
predict China's consumer market will surpass the US in dollar terms by 2040. firms and a company focused on upgrading electricity grids for a renewable
future. We hold Contemporary Amperex Technology, the world's largest electric
Looking ahead, we suspect China's zero-Covid approach will allow life to go on vehicle battery maker.
largely as normal, but there will also be bouts of volatility as the
authorities react to spikes in incidences of the virus. Still, we expect any Health: The portfolio is overweight healthcare services, including firms
pain to be short term. It won't change the government's commitment to bringing providing innovative research and clinical trial services that bring
domestic consumption back to China. Investors will benefit by maintaining high-quality therapies to market cheaply and quickly. Our holdings align with
exposure to this structural trend. policy objectives to make healthcare cheaper and more accessible which is
important given that China has a rapidly ageing society. Hangzhou Tigermed
We see the brightest future for firms able to adapt to changing regulatory Consulting, a leading contract research organization company primarily serving
frameworks and align with policy objectives in areas such as digital Chinese pharmaceutical firms, is one of key holdings in healthcare.
innovation, green technology, access to affordable healthcare and improved
livelihoods. We are focused on five themes that we believe will drive returns Wealth: This theme aligns with China's policy objectives of becoming a
in 2022. moderately prosperous society by 2035. The financial services sector plays a
key role in creating and protecting wealth. We hold China Merchants Bank,
Aspiration: We expect consumer names to fare well as China strives for a which is arguably China's highest quality consumer banking franchise and
self-sufficient economic model. We buy into the "premiumisation" story - that Hundsun Technologies, the leading financial software service provider
urbanisation and rising middle-class wealth will drive demand for premium supporting the development of capital markets such as trading and portfolio
goods and services in the long run. China Tourism Group Duty Free, the largest management.
duty free retailer in China, is our core holding in this space to capitalise
on middle-class growth.
Investment Process investment returns in portfolios. We utilise a bottom-up, fundamental stock
picking approach, which guides selection decisions in sector, regional and
We believe that deep fundamental research into companies, mediated through country allocations, constrained by appropriate risk controls of course.
team debate and a rigorous stock selection process, is the key to unlocking
investment insight and driving
Idea generation Research Peer review Portfolio construction
Universe c.1800 stocks
Extensive coverage c.210 stocks
Buy Rec. c.110 stocks
30-60 stocks
Broad Universe Deep Analysis Rigorous Team Debate Focused on Client Outcomes
· Wide & dynamic opportunity set · Common investment language · Informed peer review of insights · Pods drive clear accountability
· Quant tools refine coverage · Fully embedded ESG · Collaboration on sectors & themes · Bottom up. best ideas led
· Outstanding corporate access · Clear non-consensus insights · Cross asset class insights · Quant and risk analytics
· Deep sector expertise · Continuous review of outputs · Effective diversification
Universe c.1800 stocks
Research
Extensive coverage c.210 stocks
Peer review
Buy Rec. c.110 stocks
Portfolio construction
30-60 stocks
Broad Universe
· Wide & dynamic opportunity set
· Quant tools refine coverage
· Outstanding corporate access
· Deep sector expertise
Deep Analysis
· Common investment language
· Fully embedded ESG
· Clear non-consensus insights
· Continuous review of outputs
Rigorous Team Debate
· Informed peer review of insights
· Collaboration on sectors & themes
· Cross asset class insights
Focused on Client Outcomes
· Pods drive clear accountability
· Bottom up. best ideas led
· Quant and risk analytics
· Effective diversification
ESG considerations embedded throughout the process
Comprehensive independent oversight of investment process and client mandate
parameters
Source: abrdn, 31 December 2021
We aim to run a portfolio of 30-60 holdings, focusing on companies that our ownership of these assets. It is one of the key dimensions on which we assess
research analysts identify as having the most attractive quality and valuation the investment case for any company in which we invest.
characteristics, offering the best expected risk-adjusted returns, within a
diversified portfolio. Our quality assessment focuses on five key factors; Our primary risk control is at the stock level with our rigorous company
namely the durability of the business model and competitive advantage, the research process helping us to avoid stock-specific errors. However, we do
attractiveness of the industry, the strength of financials, the capability of also pay close attention to portfolio level risks and we have access to a
management, and our assessment of the company's Environmental, Social and number of on desk quantitative risk tools. This ensures that we are well
Governance ("ESG") credentials. informed of, and comfortable with, the risk positions that result from our
bottom-up stock picking.
We seek to build high-conviction portfolios where stock-specific insights
drive performance, giving investors direct access to our best investment This strategy is managed with a greater emphasis on a traditional buy-and-hold
ideas. Conviction is built through idea sharing, peer review and effective approach, resulting in low turnover which we would expect to be in the range
debate. of 10-20% in normal market conditions. Typically, the strategy will have
higher return on equity/assets and lower debt to equity than the MSCI China
The analysis of ESG risks and opportunities is fully integrated into the All Shares Index.
entire investment process with the aim to make better-informed investment
decisions and benefit from active
Portfolio Listing as at 31 December 2021
Due to the scheme of reconstruction and resultant material change of the
portfolio, we present an unaudited breakdown of the investment portfolio of
investments held by the Company as at 31 December 2021 as follows.
Security investment name Industry Value** Percentage of
(Sub-Sector)
(£'000)
portfolio (%)
Tencent Holdings Ltd Interactive Media & Services 25,485 7.4%
Aberdeen Standard SICAV I - China A Share Equity Fund * Unit Trusts 21,606 6.3%
Kweichow Moutai Co Ltd Beverages 17,853 5.2%
China Merchants Bank Co Ltd Banks 17,767 5.1%
Meituan Internet & Direct Marketing Retail 14,639 4.2%
China Tourism Group Duty Free Corp Ltd Specialty Retail 14,215 4.1%
Alibaba Group Holding Ltd Internet & Direct Marketing Retail 11,935 3.5%
Contemporary Amperex Technology Co Ltd Electrical Equipment 11,914 3.5%
JD.com Inc Internet & Direct Marketing Retail 10,870 3.2%
Bank of Ningbo Co Ltd Banks 9,498 2.8%
Wanhua Chemical Group Co Ltd Chemicals 7,835 2.3%
Sungrow Power Supply Co Ltd Electrical Equipment 7,758 2.3%
Fuyao Glass Industry Group Co Ltd Auto Components 7,349 2.1%
Li Ning Co Ltd Textiles, Apparel & Luxury Goods 7,267 2.1%
Wuliangye Yibin Co Ltd Beverages 7,034 2.0%
Shenzhou International Group Holdings Ltd Textiles, Apparel & Luxury Goods 6,973 2.0%
AIA Group Ltd Insurance 6,800 2.0%
LONGi Green Energy Technology Co Ltd Semiconductors & Semiconductor Equipment 6,304 1.8%
Ping An Bank Co Ltd Banks 6,089 1.8%
Shenzhen Mindray Bio-Medical Electronics Co Ltd Health Care Equipment & Supplies 6,059 1.8%
Nari Technology Co Ltd Electrical Equipment 6,017 1.7%
China Vanke Co Ltd Real Estate Management & Development 5,952 1.7%
Hundsun Technologies Inc Software 5,916 1.7%
Hong Kong Exchanges & Clearing Ltd Capital Markets 5,827 1.7%
Foshan Haitian Flavouring & Food Co Ltd Food Products 5,728 1.7%
Wuxi Biologics Cayman Inc Life Sciences Tools & Services 5,658 1.6%
Sinoma Science & Technology Co Ltd Chemicals 5,251 1.5%
By-health Co Ltd Personal Products 5,078 1.5%
Hangzhou Tigermed Consulting Co Ltd Life Sciences Tools & Services 4,971 1.4%
Aier Eye Hospital Group Co Ltd Health Care Providers & Services 4,946 1.4%
Chacha Food Co Ltd Food Products 4,834 1.4%
Luxshare Precision Industry Co Ltd Electronic Eqpt Instruments & Components 4,803 1.4%
China Meidong Auto Holdings Ltd Specialty Retail 4,531 1.3%
CIFI Ever Sunshine Services Group Ltd Real Estate Management & Development 4,212 1.2%
Proya Cosmetics Co Ltd Personal Products 4,206 1.2%
Hefei Meiya Optoelectronic Technology Inc Machinery 3,959 1.2%
Shanghai M&G Stationery Inc Commercial Services & Supplies 3,914 1.1%
Yantai China Pet Foods Co Ltd Food Products 3,759 1.1%
Jiangsu Hengrui Medicine Co Ltd Pharmaceuticals 3,634 1.1%
GDS Holdings Ltd IT Services 3,557 1.0%
Qingdao TGOOD Electric Co Ltd Electrical Equipment 3,554 1.0%
China Conch Venture Holdings Ltd Construction & Engineering 3,519 1.0%
Zai Lab Ltd Biotechnology 3,476 1.0%
Amoy Diagnostics Co Ltd Biotechnology 3,456 1.0%
Maxscend Microelectronics Co Ltd Electronic Eqpt Instruments & Components 3,151 0.9%
Venustech Group Inc Software 2,817 0.8%
Shanghai MicroPort MedBot Group Co Ltd Health Care Equipment & Supplies 1,824 0.5%
Komodo Fund * Unit Trusts 1,154 0.3%
Weiss Korea Opportunity Fund Limited * Unit Trusts 396 0.1%
Total investments 345,350 100.0%
* Security also held at 31 October 2021
** Unaudited
Sector Breakdown as at 31 December 2021
Further to the portfolio listing above, the sector breakdown of the portfolio
as at 31 December 2021 was as follows.
Sector breakdown %
Consumer Discretionary 22.5
Financials 20.0
Consumer Staples 14.0
Industrials 11.8
Health Care 9.9
Information Technology 7.7
Communication Services 7.4
Materials 3.8
Real Estate 2.9
Source: Datastream
Nicholas Yeo and Elizabeth Kwik
abrdn Hong Kong Limited
24 February 2022
The Investment Manager's Approach to ESG
Whilst the management of the Company's investments is not undertaken with any At the investment stage, ESG factors and analysis help to frame where best to
specific instructions to exclude certain asset types or classes, the invest by considering material risks and opportunities alongside other
Investment Manager embeds Environmental, Social and Governance ("ESG") factors financial metrics. Due diligence can ascertain whether such risks are being
into the research of each asset class as part of the investment process. ESG adequately managed, and whether the market has understood and priced them
investment is about active engagement, in the belief that the performance of accordingly.
assets owned by the Company can be improved over the longer term.
The Investment Manager is an active owner, voting at shareholder meetings in a
What is ESG, and why do we do it? deliberate manner, working with companies to drive positive change, and
engaging with policymakers on ESG and stewardship matters.
ESG considerations have been an integral part of the Investment Manager's
decision-making process for almost 30 years. The Investment Manager believes Can we measure it?
that ESG factors are financially material and can meaningfully affect a
company's performance. Hence, a company's ability to generate returns There are elements of ESG that can be quantified, for example the diversity of
sustainably for investors depends on the management of its environmental a board, the net carbon impact of a company, and the level of employee
impact, its consideration of the interests of society and all stakeholders, turnover. While diversity can be monitored, measuring inclusion is more of a
and on the way it is governed. By putting ESG factors at the heart of its challenge. Although it is possible to measure the level of staff turnover, it
investment process, the Investment Manager aims to generate better outcomes is more challenging to quantify corporate culture. Relying on calculable
for the Company's shareholders. The three factors can be considered as metrics alone would lead potentially to misleading insights. As active
follows: managers, quantitative and qualitative assessments are blended to better
understand the ESG performance of a company.
• Environmental factors relate to how a company conducts itself with
regard to environmental conservation and sustainability. Types of The Investment Manager's analysts consider such factors in a systematic and
environmental risks and opportunities include a company's energy consumption, globally-applied approach to assess and compare companies consistently on
waste disposal, land development and carbon footprint, among others. their ESG credentials, both regionally and against their peer group. Some of
the key questions asked of companies include:
• Social factors pertain to a company's relationship with its employees
and suppliers. Risks and opportunities can include (but are not limited to) a • How material are ESG issues for this company, and how are they being
company's initiatives on employee health and well-being, and how supplier addressed?
relationships align with corporate values.
• What is the quality of this company's governance, ownership structure
• Corporate governance factors can include the corporate decision-making and management?
structure, independence of board members, the treatment of minority
shareholders, executive compensation and political contributions, among • Are incentives and key performance indicators aligned with the
others. company's strategy and the interests of shareholders?
The questions asked differ from company to company; the type of questions
poised to a bank would be quite different from those of a semi-conductor
manufacturing firm.
The ESG Scoring System
Having considered the regional universe and peer group in which a company
operates, the Investment Manager allocates it an ESG score between one and
five. This is applied across every stock covered globally. Examples of each
category and a small sample of the criteria used are detailed below:
1. Best in class 2. Leader 3. Average 4. Below average 5. Laggard
ESG considerations are material part of the company's core business strategy ESG considerations not market leading ESG risks are considered as a part of principal business Evidence of some financially material controversies Many financially material controversies
Excellent disclosure Disclosure is good, but not best in class Disclosure in line with regulatory requirements Poor governance or limited oversight of key ESG issues Severe governance concerns
Makes opportunities from strong ESG risk management Governance is generally very good Governance is generally good but some minor concerns Some issues in treating minority shareholders poorly Poor treatment of minority shareholders
Climate Change • Physical risks and opportunities
Climate change is one of the most significant challenges of the 21st century Insufficient climate change mitigation action will lead to more severe and
and has big implications for investors. The energy transition is underway in frequent physical damage. This results in financial implications, including
many parts of the world, and policy changes, falling costs of renewable damage to crops and infrastructure, and the need for physical adaptation such
energy, and a change in public perception are happening at a rapid pace. as flood defences.
Assessing the risks and opportunities of climate change is a core part of the
investment process. In particular, the Investment Manager considers: The Investment Manager has aligned its approach with that advocated by the
investor agenda of the Principles for Responsible Investment ("PRI") - a
• Transition risks and opportunities United Nations-supported initiative to promote responsible investment as a way
of enhancing returns and better managing risk.
Governments could take robust climate change mitigation actions to reduce
emissions and transition to a low-carbon economy. This is reflected in
targets, policies and regulation and can have a considerable impact on
high-emitting companies.
The PRI provides an intellectual framework to steer the massive transition of
financial capital towards a more sustainable global economy. It also
encourages fund managers to demonstrate climate action across four areas:
investments; corporate engagement; investor disclosure; and policy advocacy as
explained below:
Focus
Objective
Aim
Investments Research & Data à Provide high-quality climate change insights and thematic research across à Provide relevant
asset classes and regions. This includes using climate-related data as an
high-quality data
input into the investment process.
and insights on
climate-change
trends, risks and
opportunities
that are fully
integrated into
our decision
making and drive
positive outcomes
for our clients
Investment Integration à Understand the potential financial impacts of climate-change risks and à
opportunities across regions and sectors, integrate these into our investment
decisions and understand the implications for our portfolios.
Client Solutions à Undertand client needs in relation to climate change and low-carbon product à
demand. Develop innovative climate-related client solutions and products
across all asset classes.
Corporate Engagement Investee Engagement & Voting à Better understand investee exposure and management of climate change risks and à
opportunities.
Influence investee companies on management of climate change risks and
opportunities via engagement and voting. Highlight expectation to apply the
TCFD framework when reporting on climate-related data.
Policy Advocacy Collaboration & Influence à Collaborate with climate-change-related industry associations and participate à
in relevant
initiatives. Engage with peers and policymakers to drive industry developments
and best practice.
Investor Disclosure Disclosure à Disclose climate-change-related data using the TCFD reporting framework across à
the four pillars: governance, strategy, risk management, metrics &
targets.
Alignment with PRI Investor Agenda
ESG engagements are conducted with consideration of the ten principles of the
United Nations Global Compact, and companies are expected to meet fundamental
Importance of Engagement responsibilities in the areas of human rights, labour, the environment and
anti-corruption.
The Investment Manager is committed to regular, ongoing engagement with the
companies in which it invests, to help to maintain and enhance their ESG This engagement is not limited to a company's management team. It can include
standards into the future. many other stakeholders such as non-government agencies, industry and
regulatory bodies, as well as activists and the company's customers and
As part of the investment process, the Investment Manager undertakes a clients.
significant number of company meetings each year on behalf of the Company. The
Company is supported by on-desk ESG analysts, as well as a well-resourced
specialist ESG Investment team. These meetings provide an opportunity to
discuss various relevant ESG issues including board composition, remuneration,
audit, climate change, labour issues, human rights, bribery and corruption.
Companies are strongly encouraged to set clear targets or key performance
indicators on all material ESG risks.
Information about the Manager, Investment Manager and Investment Management
Team
Manager (Aberdeen Standard Fund Managers Limited) Investment Manager (abrdn Hong Kong Limited)
The Company's Alternative Investment Fund Manager is Aberdeen Standard Fund Following approval of the change to the Company's investment policy at the EGM
Managers Limited ("ASFML" or the "Manager"), which is a wholly owned on 26 October 2021, the Company's portfolio is managed by abrdn Hong Kong
subsidiary of abrdn plc and is authorised and regulated by the FCA. ASFML has Limited ("aHKL") by way of a group delegation agreement in place between ASFML
been appointed to provide investment management, risk management and and aHKL. aHKL is authorised and regulated by the Securities and Futures
promotional activities to the Company. Commission of Hong Kong.
The abrdn Group's assets under management and administration were £532
billion as at 30 June 2021, managed for a range of clients including 22
UK-listed closed end investment companies.
The Investment Management Team
Nicholas Yeo Elizabeth Kwik
Director and Head of Equities, China Investment Manager
Nicholas Yeo is the Head of China/Hong Kong Equities team at abrdn. Nicholas
Elizabeth Kwik is an Investment Manager on the China/Hong Kong Equities Team
joined abrdn in 2000 via the acquisition of Murray Johnstone. He was seconded at abrdn where she is responsible for researching the Consumer Discretionary,
to the London Global Emerging Market team for two years where he covered EMEA Automobiles & Components and Banking sectors. Elizabeth sits on the China
and Latin American companies, before returning to the Asian Equities team in A share and All China equity fund portfolio construction groups. She joined
Singapore in March 2004. In March 2007, he transferred to Hong Kong to lead abrdn in 2013.
Chinese equity research.
Elizabeth holds a Bachelor of Science in Economics from the London School of
Nicholas holds a BA (Hons) in Accounting and Finance from The University of Economics. She is a CFA charterholder.
Manchester and an MSc in Financial Mathematics from Warwick Business School.
He is a CFA charterholder.
Portfolio
The Company's NAV total return for the year was 19.8%, which compares
favourably to a total return of 10.7% from the Reference Index for the year.
Investments
Portfolio listing as at 31 October 2021
Security investment name Country of Value Percentage of
establishment
(£'000)
net assets (%)
Aberdeen Standard SICAV I - China A Share Equity Fund Luxembourg 21,874 5.8
Korea Value Strategy Fund Ltd British Virgin Islands 16,282 4.4
Weiss Korea Opportunity Fund Limited Guernsey 15,543 4.2
Diversified Growth Company QIC GCC Equity Fund Luxembourg 15,371 4.1
Aberdeen New India Investment Trust PLC United Kingdom 10,826 2.9
Ton Poh Fund Cayman Islands 9,903 2.6
Laurium Limpopo Africa Fund Cayman Islands 8,227 2.2
Baring Vostok Investments PCC Limited Guernsey 7,306 1.9
Aberdeen Asian Income Fund Limited United Kingdom 6,215 1.7
Komodo Fund Cayman Islands 1,358 0.4
Total investments 112,905 30.2
Cash plus other net current assets and liabilities 260,883 69.8
Net assets 373,788 100.0
Governance
The Company is committed to high standards of corporate governance
and applies the principles identified in the UK Corporate Governance
Code and the AIC Code of Corporate Governance.
All Directors are considered by the Board to be independent
of the Company and the Manager and free of any material
relationship with the Manager.
New Investment Objective and Investment Policy Principal Risks, Emerging Risks and Uncertainties
A change of investment objective and investment policy was approved by Together with the issues discussed in the Chairman's Statement and the
shareholders on 26 October 2021. The new investment objective and investment Investment Manager's Report, the Board considers that the main risks and
policy is set out below: uncertainties faced by the Company fall into the following categories:
Investment Objective (i) Risks relating to the Company
The Company's investment objective is to produce long-term capital growth by • The Company has no employees and the Directors have been appointed on
investing predominantly in Chinese equities. a non-executive basis. The Company is therefore reliant upon the performance
of third-party service providers for its executive functions and is exposed to
Investment Policy the risk that misconduct by employees of those service providers, any failure
by any service provider to carry out its obligations to the Company in
The Company invests in companies listed, incorporated or accordance with the terms of its appointment, or the termination of those
appointments could have an adverse effect on the portfolio and the Company's
domiciled in the People's Republic of China ("China"), or financial condition, results of operations and prospects, with a consequential
adverse effect on the market value of its Ordinary shares.
companies that derive a significant proportion of their
(ii) Risks relating to the investment policy
revenues or profits from China operations or have a significant
There can be no guarantee that the Company will achieve its investment
proportion of their assets there. In furtherance of the objective or that investors will get back the full value of their investment.
investment policy, the portfolio will normally consist principally • The investments of the Company are subject to the risk of changes in
market prices or macroeconomic factors. Any such changes could have an adverse
of quoted equity securities and depositary receipts although effect on the value of the portfolio, the Company's financial condition,
results of operations and prospects, with a consequential adverse effect on
unlisted companies, fixed interest holdings or other non-equity returns to shareholders and the market value of its Ordinary shares.
investments may be held. Investments in unquoted companies • The Company's NAV is inherently sensitive to the performance of
Chinese equity markets which could result in the Company's Ordinary shares
will be made where the Investment Manager has a reasonable trading at a discount or being less liquid.
expectation that the company will seek a listing in the near • The portfolio will be concentrated in a single country and will
therefore be exposed to risks associated with geographical concentration,
future. The portfolio is actively managed and may be invested including being exposed to the fluctuations of a more limited geographical
market and fewer currencies than a less concentrated portfolio.
in companies of any size and in any sector.
• The Company is exposed to particular economic, regulatory, political,
geopolitical, environmental and taxation risks associated with investments in
the People's Republic of China, which could have an adverse effect on the
The Company is expected to have an ESG rating equal to, or better than, the portfolio, the Company's financial condition, results of operations and
MSCI China All Shares Index and have meaningfully lower carbon intensity than prospects were they to materialise, with a consequential adverse effect on the
the Index. market value of its Ordinary shares.
The portfolio is actively managed and the Company aims to outperform the MSCI • The Company is exposed to currency and foreign exchange risk as a
China All Shares Index (in sterling terms). This index is used as a reference result of holding investments denominated in currencies other than sterling
point for portfolio construction and as a basis for setting risk constraints, which could have an adverse effect on the portfolio and the Company's
but does not incorporate any sustainability criteria. In order to achieve its financial condition, results of operations and prospects, with a consequential
objective, the Company will take positions whose weightings diverge from the adverse effect on the market value of its Ordinary shares.
index or invest in securities which are not included in the index. Investments
may deviate significantly from the components of, and their respective (iii) Risks relating to the Manager/Investment Manager
weightings in, the MSCI China All Shares Index. Due to the active nature of
the management process, the Company's performance profile may deviate • The success of the Company is dependent on the Alternative Investment
significantly from that of the index. Fund Manager ("AIFM") and the Investment Manager and their expertise, key
personnel, and ability to source and advise appropriately on investments. As a
The portfolio is expected normally to comprise between 30 and 60 securities result of this, the Company's portfolio, financial condition, results of
(including any unlisted securities held) but may hold up to 100. No individual operations, prospects and the value of the shares could be adversely affected
issuer will represent a greater weight in the portfolio than the lower of (i) by: competitive pressures on the AIFM or the Investment Manager's ability to
10% or (ii) its weight in the MSCI China All Shares Index (in sterling terms) source and make successful investments; any failure by the AIFM or the
plus 5%, as measured at the time of investment. The maximum permitted exposure Investment Manager to carry out due diligence and obtain relevant information
to a single group is 20% of the Company's total assets, as measured at the on prospective investments; or any loss of key personnel of the AIFM or the
time of investment. Investment Manager and any inability to recruit appropriate replacements in a
timely fashion.
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.
(iv) Risks relating to regulation, taxation and the Company's operating Management or mitigation of emerging risks
environment
A risk management register and associated risk heat map, providing a visual
• The Covid-19 pandemic may adversely affect the performance of investee reflection of the Company's identified and emerging risks have been
companies due to ongoing macroeconomic and market uncertainty, which may in established to monitor and mitigate risks to the Company, with both a risk pre
turn adversely impact the Company's financial performance and prospects and mitigation and risk post mitigation score determined, depending on the impact
the value of its portfolio. of the risk combined with the probability of the risk occurring.
• Changes in the laws or regulations in Guernsey or the UK which govern (vii) Failure to manage premium and/or discount
the Company's and the Investment Manager's operations may have an adverse
effect on the ability of the Company and the Manager / Investment Manager to The Board's discount control policy is that the Company's shares should not
carry on their respective businesses and any such changes could have an trade at a price which, on average, represents a discount that is out of line
adverse effect on the portfolio and on the Company's financial condition, with the Company's direct peer group. To assist the Board in taking action to
results of operations and prospects, with a consequential adverse effect on deal with a material and sustained deviation in the Company's discount from
the market value of the Shares. its peer group, it seeks authority from Shareholders annually to buy back
shares. Shares may be repurchased when, in the opinion of the Board and taking
Management or mitigation of the above risks into account factors such as market conditions and the discounts of comparable
companies, the Company's discount is higher than desired and shares are
The Company has a risk management process in place. This mechanism enables the available to purchase in the market. The Board is of the view that the
Board to monitor the Company's spread of investments across several sectors. principal purpose of share repurchases is to enhance the net asset value
The Board receives and monitors reports from the Manager and the Administrator ("NAV") for remaining shareholders, although it may also assist in addressing
on a quarterly basis at the minimum. the imbalance between the supply of and demand for the Company's shares and
thereby reduce the scale and volatility of the discount at which the shares
(v) Internal Risks trade in relation to the underlying NAV.
Poor allocation of the Company's assets by the Investment Manager, poor
governance, compliance or administration, including poor controls over cyber
security, could result in shareholders not making acceptable returns on their
investment in the Company.
Management or mitigation of internal risks
The Board monitors the performance of the Manager and the other key service
providers at regular Board meetings. The Manager provides reports to the Board
on compliance matters and the Administrator provides reports to the Board on
compliance and other administrative matters. The Board has established various
committees to ensure that relevant governance matters are addressed by the
Board.
(vi) Emerging Risks
Emerging risks are slow moving trends, innovations and shifts with potential
consequence to a specific industry or sector in the long term. They can
include movements in: demographics, economics, society, technological
innovations, national policy and governance. Long term shifts in temperatures
and weather patterns caused by human activity, primarily due to the burning of
fossil fuels, or by natural phenomena may have a negative effect on ecological
and socioeconomic wellbeing.
Statement of Directors' Responsibilities
In Respect of the Annual Report and Accounts The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website, but not
The Directors are responsible for preparing the Annual Report and Accounts in for the content of any information included on the website that has been
accordance with applicable law and regulations. prepared or issued by third parties. Legislation in Guernsey governing the
preparation and dissemination of financial statements may differ from
Guernsey company law requires the Directors to prepare financial statements legislation in other jurisdictions.
for each financial year. The Directors have elected to prepare the financial
statements in accordance with International Financial Reporting Standards as Disclosure of Information to the Auditor
issued by the IASB and applicable law.
The Directors who held office at the date of approval of the Directors' Report
Under company law the Directors must not approve the financial statements confirm that, so far as they are each aware, there is no relevant audit
unless they are satisfied that they give a true and fair view of the state of information of which the Company's auditor is unaware; and each Director has
affairs of the Company and of its profit or loss for that period. In preparing taken all the steps that they ought to have taken as a Director to make
these financial statements, the directors are required to: themselves aware of any relevant audit information and to establish that the
Company's auditor is aware of that information.
• select suitable accounting policies and then apply them consistently;
Responsibility Statement of the Directors in Respect of the Annual Report
• make judgements and estimates that are reasonable, relevant and
reliable; We confirm that to the best of our knowledge:
• state whether applicable accounting standards have been followed, • the financial statements, prepared in accordance with the applicable
subject to any material departures disclosed and explained in the financial set of accounting standards, give a true and fair view of the assets,
statements; liabilities, financial position and profit or loss of the Company; and
• assess the Company's ability to continue as a going concern, • the Management Report (comprising the Chairman's Statement, the
disclosing, as applicable, matters related to going concern; and Investment Manager's Report and the Governance reports including the
Directors' Report) includes a fair review of the development and performance
• use the going concern basis of accounting unless they either intend to of the business and the position of the Company, together with a description
liquidate the Company or to cease operations or have no realistic alternative of the principal risks and uncertainties that it faces.
but to do so.
The Board considers that the Annual Report and Accounts, taken as a whole, is
The Directors are responsible for keeping proper accounting records that are fair, balanced and understandable and provides the information necessary for
sufficient to show and explain the Company's transactions and disclose with shareholders to assess the Company's position and performance, business model
reasonable accuracy at any time the financial position of the Company and and strategy.
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 Helen Green
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 Director
irregularities.
William Collins
Director
24 February 2022
Financial Statements
Net assets per Ordinary share increased by 16.5% to 813.2p,
while the revenue loss was 0.61p per Ordinary share as
compared to a profit of 1.60p per Ordinary share in 2020.
Statement of Comprehensive Income
Year ended 31 October 2021 Year ended 31 October 2020
Note Revenue Capital Total Revenue Capital Total
£'000
£'000
£'000
£'000
£'000 £'000
Gains on investments at fair value through profit or loss 4 - 64,438 64,438 - 25,522 25,522
Losses on currency movements - - - - (166) (166)
Net investment gains - 64,438 64,438 - 25,356 25,356
Investment income 5 3,667 - 3,667 4,187 - 4,187
3,667 64,438 68,105 4,187 25,356 29,543
Investment management fees 6 (2,753) - (2,753) (2,216) - (2,216)
Other expenses 6 (882) - (882) (842) - (842)
Operating profit before finance costs and taxation 32 64,438 64,470 1,129 25,356 26,485
Finance costs 9 (176) - (176) (212) - (212)
Operating profit before taxation (144) 64,438 64,294 917 25,356 26,273
Withholding tax expense (138) - (138) (183) - (183)
Total profit and comprehensive income for the year (282) 64,438 64,156 734 25,356 26,090
Earnings per Ordinary share 10 (0.61p) 140.19p 139.58p 1.60p 55.16p 56.76p
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
Note As at As at
31 October 2021
31 October 2020
£'000
£'000
Non-current assets
Investments at fair value through profit or loss 4 112,905 324,975
Current assets
Cash and cash equivalents 201,795 8,315
Sales for future settlement 59,838 924
Other receivables 119 367
261,752 9,606
Total assets 374,657 334,581
Current liabilities
Other payables (835) (1,111)
Finance costs payable 9 (34) -
Bank loan payable 9 - (12,500)
Total liabilities (869) (13,611)
Net assets 373,788 320,970
Equity
Share capital 12 148,735 149,616
Capital reserve 13 230,544 176,563
Revenue reserve (5,491) (5,209)
Total equity 373,788 320,970
Net assets per Ordinary share 14 813.20p 698.29p
Approved by the Board of Directors and authorised for issue on 24 February
2022 and signed on its behalf by:
Helen Green
Director
William Collins
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 2021
Note Share Capital Revenue Total
capital
reserve
reserve
£'000
£'000
£'000
£'000
Balance at 1 November 2020 149,616 176,563 (5,209) 320,970
Profit for the year - 64,438 (282) 64,156
Dividends paid 11 - (10,457) - (10,457)
Tender offer and share issue costs 20 (881) - - (881)
(Scheme of Reconstruction)
Balance at 31 October 2021 148,735 230,544 (5,491) 373,788
For the year ended 31 October 2020
Note Share Capital Revenue Total
capital
reserve
reserve
£'000
£'000
£'000
£'000
Balance at 1 November 2019 149,616 161,204 (5,943) 304,877
Profit for the year - 25,356 734 26,090
Dividends paid 11 - (9,997) - (9,997)
Balance at 31 October 2020 149,616 176,563 (5,209) 320,970
The capital reserve at 31 October 2021 is split between realised gains of
£183,241,000 and unrealised gains of £47,303,000 (2020: realised gains of
£85,726,000 and unrealised gains of £90,837,000).
The revenue reserve and realised element of the capital reserve represents the
amount of the Company's retained reserves.
The notes form part of these financial statements.
Statement of Cash Flows
Note Year ended 31 Year ended 31
October 2021
October 2020
£'000
£'000
Operating activities
Cash inflow from investment income 3,885 4,184
Cash outflow from management expenses (4,093) (2,305)
Cash inflow from disposal of investments* 401,220 93,513
Cash outflow from purchase of investments* (183,626) (65,209)
Cash outflow from withholding tax (138) (183)
Net cash flow from operating activities 15 217,248 30,000
Financing activities
Repayment of bank borrowings 9 (25,000) (12,500)
Proceeds from bank borrowings 9 12,500 -
Borrowing commitment fee and interest charges 9 (142) (212)
Dividend paid 11 (10,457) (9,997)
Tender offer and share issue costs (Scheme of reconstruction) 20 (669) -
Net cash flow used in financing activities (23,768) (22,709)
Net increase in cash and cash equivalents 193,480 7,291
Effect of foreign exchange - (166)
Cash and cash equivalents at start of the year 8,315 1,190
Cash and cash equivalents at end of the year 201,795 8,315
* Receipts from the disposal and purchase of investments have been
classified as components of cash flow from operating activities because they
form part of the Company's operating activities.
The notes form part of these financial statements.
Notes to the Financial Statements
For the Year Ended 31 October 2021
1. Reporting entity
abrdn China Investment Company Limited (the "Company") is a closed-ended
investment company, registered in Guernsey on 16 September 2009. 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. The Company changed its name to
abrdn China Investment Company Limited on 26 October 2021 (formerly Aberdeen
Emerging Markets Investment Company Limited). The financial statements of the
Company are presented for the year ended 31 October 2021.
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. Prior to the combination with
Aberdeen New Thai Investment Trust PLC on 26 October 2021, the Company was
managed in accordance with its previous investment objective, which was to
achieve consistent returns for shareholders in excess of the MSCI Emerging
Markets Net Total Return Index in sterling terms. In furtherance of the new
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 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.
Manager
The investment activities of the Company were managed by Aberdeen Standard
Fund Managers Limited ("ASFML") during the year ended 31 October 2021.
Non-mainstream pooled investments ("NMPIs")
The Company currently conducts its affairs so that the shares issued by the
Company can be recommended by Independent Financial Advisers to ordinary
retail investors in accordance with the Financial Conduct Authority's rules in
relation to NMPIs and intends to continue to do so for the foreseeable future.
2. Basis of preparation
(a) Statement of compliance
The financial statements, which give a true and fair view, 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 were no significant changes in the accounting policies of the
Company in the year to 31 October 2021.
Where presentational guidance set out in the Statement of Recommended Practice
("SORP") for Investment Companies issued by the Association of Investment
Companies ("AIC") in April 2021 is consistent with the requirements of IFRS,
the Directors have prepared the financial statements on a basis compliant with
the recommendations of the SORP.
The "Total" column of the Statement of Comprehensive Income is the profit or
loss account of the Company. The "Capital" and "Revenue" columns provide
supplementary information prepared under guidance published by the AIC.
The financial statements were approved and authorised for issue by the Board
on 24 February 2022.
This report will be sent to shareholders and copies will be made available to
the public at the Company's registered office. It will also be made available
on the Company's website: abrdnchina.co.uk.
(b) Going concern
The Directors have adopted the going concern basis in preparing the financial
statements. The Board formally considered the Company's going concern status
at the time of the publication of these financial statements and a summary of
the assessment is provided below.
Since the adoption of the new investment policy, as approved by shareholders
at the EGM held on 26 October 2021, the Board considered it appropriate to
reset the five year interval between Continuation Resolutions so that the next
Continuation Resolution will be put to shareholders at the Annual General
Meeting of the Company to be held in 2027.
The Directors believe that 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 2021, the Company held £201.8 million in cash and £112.9
million in investments. It is estimated that approximately 99% of the
investments held at the year end could be realised in one month. The total
operating expenses for the year ended were £3.6 million, which on an
annualised basis represented approximately 0.98% of average net assets during
the year. The Company also incurred £0.2 million of finance costs. 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 11 February 2022 were £341.1 million.
The Company has a £25 million revolving loan facility with RBSI, terminating
on 26 March 2022. As at 31 October 2021, none of the RBSI facility was drawn
down. The liquidity of the Company's portfolio, as mentioned above,
sufficiently supports the Company's ability to repay its borrowings at short
notice.
In light of the Covid-19 pandemic, the Directors have fully considered and
assessed the Company's portfolio of investments. A prolonged and deep market
decline could lead to falling values of the investments or interruptions to
cashflow. However, the Company currently has more than sufficient liquidity
available to meet any future obligations.
The Directors are satisfied that it is appropriate to adopt the going concern
basis in preparing the financial statements and, after due consideration, that
the Company is able to continue in operation for a period of at least 12
months from the date of approval of these financial statements.
(c) Basis of measurement
The financial statements have been prepared on the historical cost basis
except for investments held at fair value through profit or loss which are
measured at fair value.
(d) Functional and presentation currency
The Company's investments are largely exposed to Chinese markets. However, the
Company's Ordinary shares are issued in GBP sterling and the majority of its
investors are UK based. The vast majority of service providers are also
denominated in sterling. Therefore, the financial statements are presented in
sterling, which is the Company's functional currency. All financial
information presented in sterling has been rounded to the nearest thousand
pounds.
(e) Capital reserve
Profits achieved by selling investments and changes in fair value arising upon
the revaluation of investments that remain in the portfolio are all charged to
profit or loss in the capital column of the Statement of Comprehensive Income
and allocated to the capital reserve. The capital reserve attributable to
realised profits is also used to fund dividend distributions.
(f) Revenue reserve
The balance of all items allocated to the revenue column of the Statement of
Comprehensive Income in each year is transferred to the Company's revenue
reserve. The revenue reserve is also used to fund dividend distributions.
(g) Use of estimates, assumptions and judgements
The preparation of the financial statements in conformity with IFRS requires
management to make judgements, estimates and assumptions that affect the
application of accounting policies and the reported amounts of assets,
liabilities, income and expenses. Actual results may differ from these
estimates.
Use of estimates and assumptions
Estimates and underlying assumptions are reviewed on an on-going basis.
Revisions to accounting estimates are recognised in the period in which the
estimates are revised and in future periods affected.
Information about significant areas of estimation uncertainty and critical
judgements in applying accounting policies that have the most significant
effect on the amounts recognised in the financial statements are described
below.
Classification and valuation of investments
Investments are designated as fair value through profit or loss on initial
recognition and are subsequently measured at fair value. The valuation of such
investments requires estimates and assumptions made by the management of the
Company depending on the nature of the investments as described in notes 3 (a)
and 18 and fair value may not represent actual realisable value for those
investments.
Allocation of investments to fair value hierarchy
IFRS requires the Company to measure fair value using the following fair value
hierarchy that reflects the significance of the inputs used in making the
measurements. IFRS establishes a fair value hierarchy that prioritises the
inputs to valuation techniques used to measure fair value. The hierarchy gives
the highest priority to unadjusted quoted prices in active markets for
identical assets or liabilities (Level 1 measurements) and the lowest priority
to unobservable inputs (Level 3 measurements). The three levels of fair value
hierarchy under IFRS are as follows:
Level 1 - quoted prices (unadjusted) in active markets for identical assets or
liabilities;
Level 2 - inputs other than quoted prices included within level 1 that are
observable for the asset or liability, either directly (that is, as prices) or
indirectly (that is, derived from prices); and
Level 3 - inputs for the asset or liability that are not based on observable
market data (that is, unobservable inputs).
The level in the fair value hierarchy within which the fair value measurement
is categorised in its entirety is determined on the basis of the lowest level
input that is significant to the fair value measurement in its entirety. For
this purpose, the significance of an input is assessed against the fair value
measurement in its entirety. If a fair value measurement uses observable
inputs that require significant adjustment based on unobservable inputs, that
measurement is a Level 3 measurement. Assessing the significance of a
particular input to the fair value measurement in its entirety requires
judgement, considering factors specific to the asset or liability.
Use of judgements
The determination of what constitutes 'observable' requires significant
judgement by the Company. The Company considers observable data to be that
market data that is readily available, regularly distributed or updated,
reliable and verifiable, not proprietary and provided by independent sources
that are actively involved in the relevant market.
3. Significant accounting policies
(a) Investments
As the Company's business is investing in financial assets with a view to
profiting from their total return in the form of increases in fair value,
financial assets are designated as fair value through profit or loss on
initial recognition. These investments are recognised on the trade date of
their acquisition at which the Company becomes a party to the contractual
provisions of the instrument. At this time, the best evidence of the fair
value of the financial assets is the transaction price. Transaction costs that
are directly attributable to the acquisition or issue of the financial assets
are charged to profit or loss in the Statement of Comprehensive Income as a
capital item. Subsequent to initial recognition, investments designated as
fair value through profit or loss are measured at fair value with changes in
their fair value recognised in profit or loss in the Statement of
Comprehensive Income and determined by reference to:
i) investments quoted or dealt on recognised stock exchanges in an active
market are valued by reference to their market bid prices;
ii) investments other than those in i) above which are dealt on a trading
facility in an active market are valued by reference to broker bid price
quotations, if available, for those investments;
iii) investments in underlying funds, which are not quoted or dealt on a
recognised stock exchange or other trading facility or in an active market,
are valued at the net asset values provided by such entities or their
administrators. These values may be unaudited or may themselves be estimates
and may not be produced in a timely manner. If such information is not
provided, or is insufficiently timely, the Investment Manager uses appropriate
valuation techniques to estimate the value of investments. In determining fair
value of such investments, the Investment Manager takes into consideration the
relevant issues, which may include the impact of suspension, redemptions,
liquidation proceedings and other significant factors. Any such valuations are
assessed and approved by the Directors. The estimates may differ from actual
realisable values;
iv) investments which are in liquidation are valued at the estimate of their
remaining realisable value; and
v) any other investments are valued at the directors' best estimate of fair
value.
Transfers between levels of the fair value hierarchy are recognised as at the
end of the reporting period during which the change has occurred.
Investments are derecognised on the trade date of their disposal, which is the
point where the Company transfers substantially all the risks and rewards of
the ownership of the financial asset. Gains or losses are recognised in profit
or loss in the capital column of the Statement of Comprehensive Income. The
Company uses the weighted average cost method to determine realised gains and
losses on disposal of investments.
(b) Foreign currency
Transactions in foreign currencies are translated into sterling at the
exchange rate at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies at the reporting date are retranslated into
sterling at the spot exchange rate at that date. Non-monetary assets and
liabilities denominated in foreign currencies that are measured at fair value
through profit or loss are retranslated into sterling at the exchange rate at
the date that the fair value was determined. Non-monetary assets and
liabilities that are measured in terms of historical cost in a foreign
currency are translated into sterling using the exchange rate at the date of
the transaction.
Foreign currency differences arising on retranslation are recognised in profit
or loss and, depending on the nature of the gain or loss, are allocated to the
revenue or capital column of the Statement of Comprehensive Income. Foreign
currency differences on retranslation of financial instruments designated as
fair value through profit or loss are shown in the "Losses on currency
movements" line.
(c) Income from investments
Dividend income is recognised when the right to receive it is established and
is reflected in the Statement of Comprehensive Income as Investment income in
the revenue column. For quoted equity securities this is usually on the basis
of ex-dividend dates. For unquoted investments this is usually on the
entitlement date confirmed by the relevant holding. Income from bonds is
accounted for using the effective interest rate method.
Special dividends and distributions described as capital distributions are
assessed on their individual merits and may be credited to the capital reserve
if considered to be closely linked to reconstructions of the investee company
or other capital transactions. Bank interest receivable is accounted for on a
time apportionment basis and is based on the prevailing variable interest
rates for the Company's bank accounts.
(d) 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
determining NAV per share.
(e) Cash and cash equivalents
Cash comprises cash and demand deposits. Cash equivalents, which include bank
overdrafts, are short term, highly liquid investments that are readily
convertible to known amounts of cash, are subject to insignificant risks of
changes in value, and are held for the purpose of meeting short-term cash
commitments rather than for investment or other purposes.
(f) Investment management fees and finance costs
Investment management fees and finance costs are charged to the Statement of
Comprehensive Income as a revenue item and are accrued monthly in arrears.
Finance costs include interest payable and direct loan costs.
Performance-related fees, if any, are payable directly by reference to the
capital performance of the Company and are therefore charged to profit or loss
in the Statement of Comprehensive Income as a capital item.
(g) Financial liabilities
Financial liabilities (including bank loans) are classified according to the
substance of the contractual arrangements entered into. Financial liabilities
held at fair value through profit or loss are measured initially at fair
value, with transaction costs recognised in profit or loss in the Statement of
Comprehensive Income.
(h) Taxation
The Company has exempt status under the Income Tax (Exempt Bodies) (Guernsey)
Ordinance 1989 and is charged an annual exemption fee of £1,200 (2020:
£1,200).
Dividend and interest income received by the Company may be subject to
withholding tax imposed in the country of origin. The tax charges shown in
profit or loss in the Statement of Comprehensive Income relate to overseas
withholding tax on dividend income.
(i) Operating segments
IFRS 8, 'Operating segments' requires a 'management approach', under which
segment information is presented on the same basis as that used for internal
reporting purposes. The Board, as a whole, has been determined as constituting
the chief operating decision maker of the Company. The Board has considered
the requirements of the standard and is of the view that the Company is
engaged in a single segment of business, which is investing in a portfolio of
funds and products which give exposure to developing and emerging market
economies. The key measure of performance used by the Board is the NAV of the
Company (which is calculated under IFRS). Therefore, no reconciliation is
required between the measure of profit or loss used by the Board and that
contained in the financial statements.
Further information on the Company's operating segment is provided in note 19.
(j) Offsetting
Financial assets and liabilities are offset and the net amount presented in
the Statement of Financial Position when, and only when, the Company has a
legal right to set off the recognised amounts and it intends to either settle
on a net basis or to realise the asset and settle the liability
simultaneously.
Income and expenses are only presented on a net basis when permitted under
IFRS.
(k) Structured entities
A structured entity is an entity that has been designed so that voting or
similar rights are not the dominant factor in deciding who controls the
entity, such as when any voting rights relate to administrative tasks only and
the relevant activities are directed by means of contractual arrangements. A
structured entity often has some or all of the following features or
attributes; (a) restricted activities, (b) a narrow and well-defined
objective, such as to provide investment opportunities for investors by
passing on risks and rewards associated with the assets of the structured
entity to investors, (c) insufficient equity to permit the structured entity
to finance its activities without subordinated financial support and (d)
financing in the form of multiple contractually linked instruments to
investors that create concentrations of credit or other risks.
The Company holds shares, units or partnership interests in the funds or
investment products presented in the Company's portfolio. The Company does not
consider its investments in listed funds to be structured entities but does
consider its investments in unlisted funds to be investments in structured
entities because the voting rights in such entities are limited to
administrative tasks and are not the dominant factor in deciding who controls
those entities.
Changes in fair value of investments, including structured entities, are
included in profit or loss in the Statement of Comprehensive Income.
(l) Dividend payable
Final dividends payable to equity shareholders are recognised in the financial
statements when they have been approved by shareholders and become a liability
of the Company. Interim dividends payable are recognised in the period in
which they are paid. The capital and revenue reserve may be used to fund
dividend distributions.
(m) New standards, interpretations and/or amendments relevant to the Company
Effective in the current financial year
There are no new standards, interpretations, and/or amendments, relevant to
the Company which became effective during the financial year under review.
Not yet in effect
There are a number of new standards, interpretations, and/or amendments, which
did not become effective during the financial year under review.
At the date of approval of these financial statements, the following standards
and interpretations were amended during the year:
• IAS 1 and IFRS 2 - Disclosure of Accounting policies (effective 1
January 2023).
• IAS 8 - Definition of Accounting Estimates (effective 1 January 2023).
The Board have assessed new but not yet effective standards applicable to the
Company and have concluded that they will not have a material impact to the
Company.
4. Investments at fair value through profit or loss and classification
of financial instruments
2021 2020
£'000
£'000
Quoted and listed closed end fund investments 39,890 159,968
Open ended fund and limited liability partnership investments 73,015 165,007
Total fair value investments at 31 October 112,905 324,975
Investments held at fair value through profit or loss
Opening book cost 234,136 259,025
Opening investment holding gains 90,839 69,688
Opening fair value 324,975 328,713
Analysis of transactions made during the year
Purchases at cost 183,626 65,105
Sales proceeds received (460,134) (94,365)
Gains on investments at fair value through profit or loss 64,438 25,522
Closing fair value 112,905 324,975
Closing book cost 65,600 234,136
Closing investment holding gains 47,305 90,839
Closing fair value 112,905 324,975
The company received £460,134,000 (2020: £94,365,000) from investments sold
during the year. The book cost of these investments when they were purchased
was £352,162,000 (2020: £89,994,000). 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.
The table below sets out the classifications of the carrying amounts of the
Company's financial assets and financial liabilities into categories of
financial instruments.
Financial instruments as at 31 October 2021
Financial Financial Financial Financial Total
assets
assets
liabilities
liabilities
£'000
measured at
measured at
measured at
measured at
fair value
amortised cost
fair value
amortised cost
£'000
£'000
£'000
£'000
Investments at fair value through profit or loss 112,905 - - - 112,905
Cash and cash equivalents - 201,795 - - 201,795
Sales for future settlement and other receivables - 59,957 - - 59,957
Purchases for future settlement and other payables - - (869) - (869)
Total 112,905 261,752 (869) - 373,788
Financial instruments as at 31 October 2020
Financial Financial Financial Financial Total
assets
assets
liabilities
liabilities
£'000
measured at
measured at
measured at
measured at
fair value
amortised cost
fair value
amortised cost
£'000
£'000
£'000
£'000
Investments at fair value through profit or loss 324,975 - - - 324,975
Cash and cash equivalents - 8,315 - - 8,315
Sales for future settlement and other receivables - 1,291 - - 1,291
Purchases for future settlement and other payables - - (1,111) - (1,111)
Bank loan payable - - - (12,500) (12,500)
Total 324,975 9,606 (1,111) (12,500) 320,970
5. Investment income
2021 2020
£'000
£'000
Dividends from UK Investments 2,824 3,168
Dividends from Overseas Investments 843 1,018
Other income - 1
Total Investment income 3,667 4,187
6. Investment Management fee and other expenses
2021 2020
£'000
£'000
Management fee 2,753 2,216
Administration fees 202 200
Depositary and custody service fees 172 157
Registration fees 34 36
Directors' fees 140 155
Auditor's fees:
Audit services 47 40
Non-audit services 17 16
Promotional fees 123 94
Broker fees 51 52
Miscellaneous expenses 96 92
Total other expenses 882 842
Total Investment Management fee and other expenses 3,635 3,058
Management fee (during the year ended 31 October 2021 and up to 9 November
2021)
Management services are provided by Aberdeen Standard Fund Managers Limited
("ASFML"). During the year, 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 Aberdeen Standard Fund Managers
Limited ("ASFML"), pursuant to which the management fee payable by the Company
to ASFML 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%.
ASFML 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.
Promotional fee
During the year the Company paid fees of £123,400 (2020: 123,400) to ASFML
for the provision of promotional activities.
Company Secretary and Administrator fees
Vistra Fund Services (Guernsey) Limited ("Vistra") is appointed as
Administrator and Secretary to the Company. Vistra is appointed under a
contract subject to ninety days' written notice and receives a fee at a rate
of £40,000 per annum plus certain additional fees (during the year ended 31
October 2021, Vistra's fee for ad hoc meetings held amounted to £8,250 (2020:
£8,250)). Vistra also receives the fees payable to the UK Administration
Agent.
UK Administration agent fees
Sanne Fund Services (UK) Limited (formerly PraxisIFM Fund Services (UK)
Limited) is appointed by Vistra to act as administration agent in the United
Kingdom. Sanne is appointed under a contract subject to not less than ninety
days' notice. The UK Administration Agent receives from the Administrator a
monthly fee equal to one twelfth of 0.1% of NAV subject to a maximum fee for
the year ended 31 October 2021 of £153,774 (2020: £151,736) per annum. The
maximum fee is increased annually, in November, by the change in the UK Retail
Price Index (all items) over the preceding 12 months.
Depositary and custody services and fees
Northern Trust (Guernsey) Limited, receives fees for Depositary services
calculated at the rate of 2.95 basis points per annum subject to a minimum
annual fee of £20,000, effective 1 August 2018. Northern Trust (Guernsey)
Limited also receives a fee for custody services. It receives an asset based
fee equal to between 1.00 basis points and 60.00 basis points of the value of
the assets of the Company. Transaction based fees are also payable of between
£10 and £140 per transaction. The variable fees are dependent on the
countries in which the individual holdings are registered. The fees for
depositary and custody services payable for the year were £172,200 (2020:
£157,000).
7. Directors' fees
The Director's fees payable for the year were £140,200 (2020: £155,000).
There were no other emoluments paid to the Directors.
8. Transaction charges
2021 2020
£'000
£'000
Transaction costs on purchases of investments 137 106
Transaction costs on sales of investments 250 56
Total transaction costs included in gains on investments 387 162
9. Bank loan payable and finance costs
On 29 March 2018, the Company entered into an unsecured 12 month revolving
credit facility with The Royal Bank of Scotland plc, under which loans with a
maximum aggregate value of £25 million may be drawn. The facility was renewed
with The Royal Bank of Scotland International Limited (London Branch) ("RBSI")
on 26 March 2021 for a further 12 month period, with a termination date of 26
March 2022.
Bank loan 2021 2020
£'000
£'000
Opening balance 12,500 25,000
Proceeds from bank borrowings (drawdowns) 12,500 -
Repayment of bank borrowings (repayments) (25,000) (12,500)
Closing balance - 12,500
Finance costs 2021 2020
£'000
£'000
Interest payable 151 184
Facility arrangement fees and other charges 25 28
Total finance costs 176 212
At 31 October 2021, Finance costs payable of £34,000 (2020: £nil) was
accrued in the Statement of Financial Position.
10. Earnings per Ordinary share
Earnings per Ordinary share is based on the total comprehensive income for the
year ended 31 October 2021, being a profit of £64,156,000 (2020: profit of
£26,090,000) attributable to the weighted average of 45,965,159 (2020:
45,965,159) Ordinary shares in issue (excluding shares held in treasury)
during the period ended 31 October 2021.
Supplementary information is provided as follows: revenue per share is based
on the net revenue loss of £282,000 (2020: profit of £734,000) and capital
earnings per share is based on the net capital profit of £64,438,000 (2020:
£25,356,000) attributable to the above Ordinary shares.
11. Dividends paid
Dividends paid during the year ended 31 October 2021
Dividend type (in respect of the year) - Pay date Pence per £'000
Ordinary
share
Fourth interim (2020) - paid 18 December 2020 5.50 2,528
First interim (2021) - paid 26 March 2021 5.75 2,643
Second interim (2021) - paid 25 June 2021 5.75 2,643
Third interim (2021) - paid 24 September 2021 5.75 2,643
Total dividends 22.75 10,457
Dividends paid during the year ended 31 October 2020
Dividend type (in respect of the year) - Pay date Pence per £'000
Ordinary
share
Fourth interim (2019) - paid 20 December 2019 5.25 2,413
First interim (2020) - paid 27 March 2020 5.50 2,528
Second interim (2020) - paid 26 June 2020 5.50 2,528
Third interim (2020) - paid 25 September 2020 5.50 2,528
Total dividends 21.75 9,997
12. Share capital
For the year ended Authorised Ordinary shares of Allotted, Ordinary shares with Treasury
31 October 2021
1 p nominal value
issued and
voting rights (excluding
shares
£'000
fully paid
treasury shares)
Opening number of shares Unlimited 546 54,618,507 45,965,159 8,653,348
Purchase of own shares - - - - -
Closing number of shares Unlimited 546 54,618,507 45,965,159 8,653,348
For the year ended Authorised Ordinary shares of Allotted, Ordinary shares with Treasury
31 October 2020
1 p nominal value
issued and
voting rights (excluding
shares
£'000
fully paid
treasury shares)
Opening number of shares Unlimited 546 54,618,507 45,965,159 8,653,348
Purchase of own shares - - - - -
Closing number of shares Unlimited 546 54,618,507 45,965,159 8,653,348
Purchases of own shares
There were no Ordinary shares purchased during the year (2020: none)).
Share capital account
The aggregate balance (including share premium) standing to the credit of the
share capital account as at 31 October 2021 was £148,735,000 (2020:
£149,616,000).
Ordinary shares
Voting rights (as at 31 October 2021)
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 202 registered shareholders. At 31
October 2021, the Company was notified of 4 shareholders who each held more
than 10% of the issued share capital and their holdings were 28.7% (2020:
28.8%), 22.1% (2020: 22.5%), 21.8% (2020: 19.6%) and 11.3% (2020: 12.2%)
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.
13. Capital reserve
2021 2020
£'000
£'000
Realised gains on investments and other capital reserve movements
Opening balance 85,726 91,515
Dividends paid from capital reserves (10,457) (9,997)
Gains from disposal of investments* 114,954 15,107
Losses from disposal of investments* (6,982) (10,733)
Foreign exchange losses - (166)
Balance at 31 October 183,241 85,726
Investments held
Opening balance 90,837 69,689
Movement in unrealised gain on revaluation of investments held* 27,661 38,149
Movement in unrealised loss on revaluation of investments held* (71,195) (17,001)
Balance at 31 October 47,303 90,837
Capital reserve balance at 31 October 230,544 176,563
* Net gains on investments held at fair value through profit or loss
figure for the year ended 31 October 2021 totalled £64,438,000 (2020:
£25,522,000).
14. Net asset value ("NAV") per Ordinary share
The NAV per Ordinary share is based on net assets of £373,788,000 (2020:
£320,970,000) divided by 45,965,159 (2020: 45,965,159) Ordinary shares in
issue (excluding shares held in treasury) at the year end.
The table below is a reconciliation between the NAV per Ordinary share as
announced on the London Stock Exchange and the NAV per Ordinary share
disclosed in these financial statements.
As at As at
31 October 2021
31 October 2020
Net assets NAV per Net assets NAV per
(£'millions)
Ordinary
(£'millions)
Ordinary
share (p)
share (p)
NAV as published on 1 November 2021 and 1 November 2020 respectively 373.7 813.09 321.2 698.72
Revaluation adjustments - delayed prices 0.1 0.11 (0.2) (0.43)
NAV as disclosed in these financial statements 373.8 813.20 321.0 698.29
15. Reconciliation of operating profit to net cash flow from operating
activities
2021 2020
£'000
£'000
Operating profit before finance costs and taxation 64,470 26,485
Less: Tax deducted at source on income from investments (138) (183)
Add: Realisation of investments at book cost 352,162 89,994
Less: Purchase of investments (183,626) (65,105)
Less: Adjustment for unrealised losses / (gains) 43,534 (21,151)
Less: Adjustment for accrued (Scheme of reconstruction) (212) -
Effect of foreign exchange - 166
Increase in trade receivables (58,666) (869)
(Decrease)/increase in trade payables (276) 663
Net cash flow from operating activities 217,248 30,000
16. Related party disclosures
Manager
Management fees payable are shown in the Statement of Comprehensive Income and
note 6. As at 31 October 2021, management fees of £472,000 (2020: £951,000)
were accrued in the Statement of Financial Position. Total management fees for
the year were £2,753,000 (2020: £2,216,000).
Details of promotional fees payable can be found in note 6. The balance
outstanding at the financial year end was £41,000 (2020: £61,000).
Investments held by the Company which are managed by the abrdn plc Group
As at 31 October 2021, the Company held the following investments managed by
the abrdn Group;
As at As at
31 October 2021
31 October 2020
£'000
£'000
Aberdeen Standard SICAV I - China A Share Equity Fund 21,874 16,688
Aberdeen New India Investment Trust PLC 10,826 9,061
Aberdeen Asian Income Fund Limited 6,215 11,414
Aberdeen Standard SICAV I - Frontier Markets Bond Fund - 13,457
Asia Dragon Trust PLC - 5,282
Total 38,915 55,902
Directors
Total fees for the Directors in the year ended 31 October 2021 were £140,200
(2020: £155,200). There were no outstanding fees due to the Directors at the
year end (2020: £nil).
17. Financial instruments - risk profile
Risk Management Framework
The Company has established procedures to enable it to manage its financial
risks. The main financial risks faced from its financial instruments are
market risk, liquidity risk and credit risk, which are discussed as follows.
Market risk
i) Risks associated with Chinese and emerging markets
Investment in certain emerging securities markets, including China, may
involve a greater degree of risk than that associated with investment in more
developed securities markets. In particular, in certain countries in which the
Company is proposing to invest:
• liquidity and settlement risks may be greater;
• accounting standards may not provide the same degree of shareholder
protection as would generally apply internationally;
• national policies may restrict the investment opportunities available
to foreign investors, including restrictions on investing in issuers or
industries deemed sensitive to relevant national interests;
• the fiscal and monetary systems remain relatively undeveloped and this
may affect the stability of the economic and financial markets of those
countries;
• substantial limitations may exist with respect to the Company's
ability to repatriate investment income, capital or the proceeds of sales of
securities by foreign investors; and
• assets may be subject to increased political and/or regulatory risk.
The day to day management of the market risks is the responsibility of the
Investment Manager, which analyses markets within a framework of quality,
value, growth and change. The Board believes the Investment Manager utilises
its proven research and management selection experience to ensure that these
risks are minimised, as far as is possible. 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 market positions are monitored by the Board in the monthly
portfolio valuations and at Board meetings.
ii) Currency risk
As stated under i) above, the Company invests in Chinese markets. It is
therefore exposed to currency risks which affect both the performance of its
investee funds and also the value of the Company's holdings against the
Company's functional currency, sterling. The Company holds sterling and
occasionally other foreign currencies for brief periods in its account with
the custodian, but only at times when it expects to invest that currency into
portfolio holdings shortly after.
It is not the Company's policy to hedge against foreign currency movements,
nor does the Company use financial instruments to mitigate the currency
exposure in the period between the time that income is included in the
financial statements and its receipt. Movements in exchange rates are likely
to affect directly and indirectly the value of the Company's investments.
Currency price risk sensitivity
The effect of a 1% appreciation/depreciation in the exchange rate of the US
dollar over sterling would have resulted in an increase/decrease of £830,000
(2020: £1,526,000) in the Company's investments held at fair value through
profit or loss at the Statement of Financial Position date. This analysis
assumes that all other variables remain constant.
iii) Interest rate risk
No significant interest rate risks arise in respect of any current asset. The
Company, generally, does not hold significant cash balances, with short-term
borrowings being used when required. All cash held as a current asset is
sterling or US dollar.
On 29 March 2018, the Company entered into an unsecured 12 month revolving
credit facility with The Royal Bank of Scotland plc, under which loans with a
maximum aggregate value of £25 million may be drawn. The facility was renewed
with The Royal Bank of Scotland International Limited (London Branch) ("RBSI")
on 26 March 2021 for a further 12 month period, with a termination date of 26
March 2022. As at 31 October 2021, nothing was drawn down (2020: £12.5
million was drawn down at an all-in monthly rate of 0.76925%)
Movements in interest rates are likely to indirectly affect the value of the
Company's investments.
Interest rate risk sensitivity
Movements in interest rates are likely to directly affect bank loan interest
payments and commitment fees and are likely to indirectly affect the value of
the Company's investments. Both of which are not likely to affect the
Company's net assets to a material extent. However, it is not possible to give
an accurate assessment of how significant changes in interest rates would
affect the prices of equity investments held by the Company.
Quantitative analysis
A breakdown of the pricing denominations of the funds in which the Company is
invested is shown below.
The Company's financial assets and liabilities at 31 October comprised:
As at 31 October 2021 As at 31 October 2020
Cash flow Non Total % of net Cash flow No Total % of net
Interest
interest
£'000
assets
Interest
interest
£'000
assets
rate risk
rate risk
rate risk
rate risk
£'000
£'000
£'000
£'000
Non-current asset investments at fair value:
EUR denominated - - - - - 8,335 8,335 2.6
GBP denominated - 32,584 32,584 8.7 - 164,017 164,017 51.1
USD denominated - 80,321 80,321 21.5 - 152,623 152,623 47.5
Cash and cash equivalents
GBP* 182,718 182,718 48.9 6,697 6,697 2.1
USD* 19,077 19,077 5.1 1,618 1,618 0.5
Short term receivables - 59,957 59,957 16.0 - 1,291 1,291 0.4
Short term payables (34) (835) (869) (0.2) (12,500) (1,111) (13,611) (4.2)
(34) 373,822 373,788 100.0 (12,500) 333,470 320,970 100.0
* Cash held at the custodian is in a 0% interest bearing account
iv) Other price risks
The principal price risk for the Company is the price volatility on the
investment portfolio. The Investment Manager attempts to diversify the price
risk by spreading the Company's investments across a number of geographical
regions and economic sectors. The Board meets regularly to review the
Investment Manager's performance and the asset allocation.
Market price risk sensitivity
The effect on the portfolio of a 10% increase or decrease in market prices
would have resulted in an increase or decrease of £11,290,500 (2020:
£32,497,000) in the investments designated as fair value through profit or
loss at the Statement of Financial Position date, equivalent to 3.0% (2020:
10.1%) of the net assets attributable to equity holders. This analysis assumes
that all other variables remain constant.
Liquidity risks
A large portion of the Company's investments are in quoted securities. A high
percentage of securities are listed on the Chinese, London or New York Stock
Exchanges and are considered to be readily realisable by comparison with most
emerging market securities. The Company also holds unquoted investments, which
are predominantly in open-ended funds. The Company has made application to
fully redeem its investments in unquoted and open-ended investments. Some
delay may be encountered in obtaining liquidity in respect of these
securities; the Company may utilise its borrowing powers on a short-term basis
to avoid delays in reinvestment of the proceeds of redemptions.
The Investment Manager has estimated the percentages of the portfolio that
could be liquidated within various timescales, assuming one third of daily
trading volumes. The results are shown below.
Liquidation Period 2021* 2020
(%)
(%)
One month 39.7 68
Three months 78.3 84
One year 95.9 91
* Towards the year ended 31 October 2021, in preparation of
implementing the Scheme of reconstruction, the majority of the Company's
assets were liquidated.
The analysis above supports the Company's ability to repay borrowings,
considering the Company is permitted to borrow, at the point of borrowing, up
to 15% of its net assets compared to the Company's ability to realise an
estimated 39.7% of its portfolio within one month.
The Company had no (2020: £nil) purchase transactions and £59,838,000 (2020:
£924,000) sales transactions awaiting settlement at the year end.
The liquidity of the underlying holdings in the funds in which the Company is
invested may have an impact on the ability of the Company to realise its
holdings in those funds.
Credit risks
The Company's principal direct credit risk is the risk of default on cash held
at the custodian. Cash at bank at 31 October 2021 included £201,795,000
(2020: £8,315,000) held by the custodian, Northern Trust (Guernsey) Limited.
The Company monitors the credit quality of the custodian. Interest is based on
the prevailing money market rates.
Credit risk arising on transactions with brokers relates to transactions
awaiting settlement. Risk relating to unsettled transactions is considered to
be low as trading is almost always done on a delivery versus payment basis.
When investments are made in open-ended funds, the Investment Manager performs
due diligence on those funds before making any investment.
All of the assets of the Company are held by the custodian or through the
custodian's nominated sub custodians. Bankruptcy or insolvency of the
Company's custodian, Northern Trust (Guernsey) Limited, or its sub custodians
may cause the Company's rights with respect to securities held by them to be
delayed or limited. The latest credit ratings at the time of approval of this
document for Northern Trust (Guernsey) Limited's parent company, The Northern
Trust Company, were as follows:
Standard & Poor's Moody's Fitch Ratings
Short-term/deposit A-1+ P-1 F1+
Long-term/deposit AA- Aa2 AA
The Company's investments may be exposed to credit risk.
Capital management
The Company considers that its capital consists of its net assets.
The Company's authorised share capital consists of an unlimited number of
Ordinary shares of £0.01 par value. At 31 October 2021, there were 45,965,159
(2020: 45,965,159) Ordinary shares in issue (excluding shares held in
treasury).
The Manager and the Company's brokers monitor the demand for the Company's
shares and the Directors review the position at Board meetings. Details on the
Company's policies for issuing further shares and buying back shares can be
found in the Directors' Report.
The Company entered into an unsecured revolving credit facility with RBSI on
29 March 2018, under which loans with a maximum aggregate value of £25
million may be drawn. The facility was renewed with The Royal Bank of Scotland
International Limited (London Branch) ("RBSI") on 26 March 2021 for a further
12 month period, with a termination date of 26 March 2022. As at 31 October
2021, nothing was drawn down (2020: £12.5 million was drawn down at an all-in
monthly rate of 0.76925%).
Restrictions imposed by RBSI in connection with the loan facility include the
following covenants:
• Consolidated net tangible assets are not less than £175 million.
• Consolidated gross borrowings expressed as a percentage of the
investment portfolio value shall not exceed 15%.
• Consolidated gross borrowings expressed as a percentage of the
adjusted investment portfolio value shall not exceed 22.5%.
• The Borrower's portfolio must contain a minimum of 20 eligible
Investments of which a minimum of 5 shall be of a closed-ended structure.
The Company does not have any externally imposed capital requirements other
than disclosed above.
Operational risk
Operational risk is the risk of direct or indirect loss arising from a wide
variety of causes associated with the processes, technology and infrastructure
supporting the Company's activities with financial instruments either
internally within the Company or externally at the Company's service
providers, and from external factors other than credit, market and liquidity
risks such as those arising from legal and regulatory requirements and
generally accepted standards of investment management behaviour.
The Company's objective is to manage operational risk so as to balance
limiting of financial losses and damage to its reputation with achieving its
investment objective of generating returns to investors.
The primary responsibility for the development and implementation of controls
over operational risk rests with the Board of Directors. This responsibility
is supported by the development of overall standards for the management of
operational risk, which encompasses the controls and processes at the service
providers and the establishment of service levels with the service providers,
in the following areas:
• requirements for appropriate segregation of duties between various
functions, roles and responsibilities;
• requirements for the reconciliation and monitoring of transactions;
• compliance with regulatory and other legal requirements;
• documentation of controls and procedures;
• requirements for the periodic assessment of operational risk faced,
and the adequacy of controls and procedures to address the risks identified;
• contingency plans;
• ethical business standards;
• insurance; and
• risk mitigation.
The Directors' assessment over the adequacy of the controls and processes in
place at the service providers with respect to operational risk is carried out
via regular discussions with the main service providers to the Company and a
review of their internal controls documents prepared under industry recognised
guidance, if available.
18. Valuation of financial instruments
The Company's financial assets and liabilities held at fair value through
profit or loss are valued at fair value in accordance with the provisions of
IFRS as described in note 2 (g).
The classification of the Company's investments held at fair value is detailed
in the table below:
31 October 2021 31 October 2020
£'000
£'000
Level 1 69,419 277,526
Level 2 42,128 45,320
Level 3 1,358 2,129
Total 112,905 324,975
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 (2020:
three investments transferred between levels).
Level 1 classification basis
Investments, whose values are based on quoted market prices in active markets,
and therefore classified within level 1, include listed equities in active
markets. The Company does not adjust the quoted price for these instruments.
Level 2 classification basis
Investments that trade in markets that are not considered to be active but are
valued based on quoted market prices, dealer quotations or alternative pricing
sources supported by observable inputs are classified within level 2. These
include monthly priced investment funds. The underlying net asset values of
the open ended funds included under level 2 are prepared using industry
accepted standards and the funds have a history of accepting and redeeming
funds on a regular basis at net asset value. The net asset values of regularly
traded open ended funds are considered to be reasonable estimates of the fair
values of those investments and such investments are therefore classified
within level 2 if they do not meet the criteria for inclusion in level 1.
Level 3 classification basis
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 movement on the level 3 classified investments during the year is shown
below:
2021 2020
£'000
£'000
Opening balance 2,129 1,779
Additions during the year - -
Disposals during the year - (5,592)
Profit or loss on disposals during the year - 1,837
Transfer of investment from level 2 to level 3 - 6,852
Valuation adjustments* (771) (2,747)
Closing balance at 31 October 1,358 2,129
* Total gains/(losses) included in profit or loss on assets held at
year end.
Level 3 classified investments sensitivity analysis
If the fair value of level 3 classified investments changed by 5%, the impact
on the Company's net assets attributable to equity holders would be 0.01%
(2020: 0.02%). As at 31 October 2021, the Company's net assets attributable to
equity holders would be adversely affected by a maximum of 0.3% (2020: 0.3%)
if level 3 classified investments were written off to £nil.
Structured entities
The Company had invested in a portfolio of funds and products which gave
diversified exposure to developing and emerging market economies. The Company
does not consider those investments in listed funds to be structured entities
but does consider those investments in unlisted funds to be investments in
structured entities because the voting rights in such entities are limited to
administrative tasks and are not the dominant factor in deciding who controls
those entities.
The investments in structured entities are subject to the terms and conditions
of offering documents and/or constitutional documents. These investments are
subject to market price and other risks arising from their underlying
portfolios. Investee funds are managed by portfolio managers who are
compensated by the respective funds for their services. Such compensation
generally may consist of an asset based fee and/or a performance based fee.
The investments in structured entities are financial assets which are
designated as fair value through profit or loss in the Company's financial
statements. During the year ended 31 October 2021, the Fund did not provide
financial support to unconsolidated structured entities and has no intention
of providing financial or other support.
The exposure to investments in investee funds and products at fair value by
strategy employed is disclosed in the following table.
2021
Strategy Number of Fair value Weighted average Investment % of total
investee
range
fair value
at fair value
net assets of
funds
£'000
£'000
£'000
underlying funds
Equity long-only 5 1,358 - 16,282 13,081 51,141 45.3%
2020
Strategy Number of Fair value Weighted average Investment % of total
investee
range
fair value
at fair value
net assets of
funds
£'000
£'000
£'000
underlying funds
Equity long-only 9 1,059 - 35,730 19,088 100,754 31.0%
Equity long-only
Portfolio managers implementing equity long-only strategies generally take
long positions in equity related instruments such as ordinary shares,
preferred shares, convertible bonds, Depositary receipts, exchange traded
funds and market access products such as index futures with the expectation
that the asset will rise in value.
19. Operating segments
The Board of Directors is responsible for ensuring that the Company's
objective and investment strategy is followed. The day-to-day implementation
of the investment strategy has been delegated to the Investment Manager 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 5.8% (2020: 11.1%) 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.
20. Post balance sheet events
Scheme of Reconstruction
On 9 November 2021 the Company completed and announced its Scheme of
Reconstruction. Further to the announcement of the proposed combination with
Aberdeen New Thai Investment Trust PLC on 30 July 2021, the announcement of
the publication of the Prospectus and Circular on 4 October 2021 and the
announcement of the results of the Tender Offer on 3 November 2021, the
Company announced that the scheme of reconstruction (the "Scheme") of Aberdeen
New Thai Investment Trust PLC had been approved by the shareholders of
Aberdeen New Thai Investment Trust PLC. As a result of the Scheme, the change
in share capital of the Company was as follows:
• Share issue - The Company acquired approximately £62 million of net
assets from ANW 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.
The cost of implementing the Scheme amounted to approximately £881,000 of
which £669,000 was paid within the year under review.
Purchase of own shares
In addition to the Scheme mentioned above, since the year ended 31 October
2021, the Company has purchased 29,048 of its own Ordinary shares and held
them in Treasury.
Appointment of New Directors
The Board of the Company also announced the appointment of two new Directors,
Anne Gilding and Sarah MacAulay, with effect from 9 November 2021.
Investment Trust status
Following the merger with New Thai, the Company applied to HMRC for approval
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 will
be considered to be an investment trust from the start of the current
financial year and will become resident in the United Kingdom for tax
purposes.
Depreciation notification
Subsequent to the period end, the Company's NAV has suffered as a result of a
decline in stockmarket values. The NAV per share as at the close of business
on 22 February 2022 the latest available prior to signing this report, was
710.44p, a decline of 12.6% compared with the NAV per share of 813.2p at the
year end.
Alternative Performance Measures ("APMs") (unaudited)
Discount
The amount, expressed as a percentage, by which the share price is less than
the NAV per Ordinary share.
As at 31 As at 31
October
October
2021
2020
NAV per Ordinary share (pence) a 813.20 698.29
Ordinary share price (pence) b 695.00 605.00
Discount 1-(b÷a) 14.5% 13.4%
Gearing
A way to magnify income and capital returns, but which can also magnify
losses. The revolving loan facility with RBSI is a common method of gearing.
As at 31 As at 31
October
October
2021
2020
Total assets less cash/cash equivalents (£'000) a 172,862 326,266
Net assets (£'000) b 373,788 320,970
Gearing (net) (a÷b)-1 Nil 1.6%
Leverage
Under the Alternative Investment Fund Managers Directive ("AIFMD"), leverage
is any method by which the exposure of an Alternative Investment Fund ("AIF")
is increased through borrowing of cash or securities or leverage embedded in
derivative positions.
Under AIFMD, leverage is broadly similar to gearing, but is expressed as a
ratio between the assets (excluding borrowings) and the net assets (after
taking account of borrowing). Under the gross method, exposure represents the
sum of the Company's positions after deduction of cash balances, without
taking account of any hedging or netting arrangements. Under the commitment
method, exposure is calculated without the deduction of cash balances and
after certain hedging and netting positions are offset against each other.
Ongoing charges
A measure, expressed as a percentage of average NAV, of the regular, recurring
annual costs of running an investment company.
As at 31 As at 31
October
October
2021
2020
Average NAV (£'000) a 372,698 299,662
Annualised expenses* (£'000) b 3,635 3,058
Ongoing charges b÷a 0.98% 1.02%
* 100% of the Company's portfolio is held in other funds. The
Company's ongoing charges figure does not reflect any costs of the underlying
funds as the underlying information is not readily available.
Total return
A measure of performance that includes both income and capital returns. This
takes into account capital gains and reinvestment of dividends paid out by the
Company into its Ordinary shares on the ex-dividend date.
Year ended 31 October 2021 Ordinary NAV
share price
Opening at 1 November 2020 (pence) a 605.00 698.29
Closing at 31 October 2021 (pence) b 695.00 813.20
Share price/NAV movement (b ÷ a) - 1 c 14.9% 16.5%
Dividend reinvestment d 3.8% 3.3%
Total return (c+d) 18.7% 19.8%
n/a = not applicable
Year ended 31 October 2020 Ordinary NAV
share price
Opening at 1 November 2019 (pence) a 561.00 663.28
Closing at 31 October 2020 (pence) b 605.00 698.29
Share price/NAV movement (b ÷ a) - 1 c 7.8% 5.3%
Dividend reinvestment d 4.4% 3.6%
Total return (c+d) 12.2% 8.9%
Additional Notes to the Annual Financial Report
The Annual General Meeting will be held at Bow Bells House, 1 Bread Street,
London EC4M 9HH on Tuesday 12 April 2022 at 12 noon.
The Annual Financial Report Announcement is not the Company's statutory
accounts. The above results for the year ended 31 October 2021 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
2020 and 2021 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 2020 is derived from the statutory
accounts for 2020 which have been delivered to the Registrar of Companies. The
2021 accounts will be filed with the Registrar of Companies in due course.
The Annual Report and Accounts will be posted to shareholders in March 2022.
Copies will be available during normal business hours from the Secretary,
Vistra Fund Services (Guernsey) Limited, 11 New Street, St Peter Port,
Guernsey GY1 2PF or from the Company's website, www.abrdnchina.com
(http://www.abrdnchina.com) . It will also be submitted to the National
Storage Mechanism where it will shortly be available for inspection at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) .
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
Vistra Fund Services (Guernsey) Limited
Company Secretary
24 February 2022
Aberdeen Standard Fund Managers Limited will be hosting an Online Shareholder
Presentation, which will be held at 10.00am on 30 March 2022. Full details on
how to register for the online event can be found at:
https://bit.ly/abrdn-China-webinar (https://bit.ly/abrdn-China-webinar)
Enquiries:
Aberdeen Standard Fund Managers Limited (Alternative Investment Fund Manager
to the Company)
Evan Bruce-Gardyne Tel: +44 (0)131 372 1692
Luke Mason Tel +44 (0)207 463
5971
Shore Capital Markets Limited (Financial adviser and stockbroker)
Robert Finlay Tel: +44 (0)777
176 5675
Vistra Fund Services (Guernsey) Limited (Company Secretary)
Lisa Garnham Tel: +44 1481
754134
Sanne Fund Services (UK) Limited (UK Administration Agent)
Brian Smith Tel: +44
(0)20 3327 9720
Ordinary Shares - Listing Category: Premium - Equity Closed-ended Investment
Funds
* Neither the content of the Company's website nor the content of any website
accessible from hyperlinks on the Company's website (or any other website) is
(or is deemed to be) incorporated into, or forms (or is deemed to form) part
of this announcement.
24 February 2022
END
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