REG - Asia Dragon Trust - Annual Financial Report
25/11/2024 07:30
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RNS Number : 3982N Asia Dragon Trust PLC 25 November 2024
ASIA DRAGON TRUST PLC
LEI: 549300W4KB0D75D1N730
ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 AUGUST 2024
Performance Highlights
Net asset value total return(A) Net asset value per share
+9.3% 452.9p
2023 (16.7)% 2023 421.3p
Share price total return(A) Share price
+16.7% 404.0p
2023 (19.5)% 2023 353.0p
Benchmark total return (in sterling terms) Ongoing charges(AB)
+12.0% 0.75%
2023 (8.4)% 2023 0.91%
Earnings per share (revenue) Dividend per share
6.73p 6.60p
2023 7.06p 2023 6.60p
(A) Considered to be an Alternative Performance Measure. .
(B) Including fee waiver (see Note 23).
Dividends and Highlights
Dividends
Rate xd date Record date Payment date
Interim 2024(A) 6.60p 5 December 2024 6 December 2024 31 December 2024
Final 2023 6.60p 26 October 2023 27 October 2023 15 December 2023
(A) Interim dividend in lieu of final for 2024.
Highlights
31 August 2024 31 August 2023 % change
Performance
Total shareholders' funds(A) (£'000) 711,626 479,169 +48.5
Net asset value per share (capital return basis) (p) 452.93 421.26 +7.5
Net asset value per share (total return basis) (%) 9.3 -16.7
Share price (capital return basis) (p) 404.00 353.00 +14.4
Market capitalisation(A) (£'000) 634,751 401,521 +58.1
MSCI AC Asia (ex Japan) Index (in sterling terms; capital return basis) 1,003.12 918.92 +9.2
MSCI AC Asia (ex Japan) Index (in sterling terms; total return basis) (%) 12.0 -8.4
Revenue return per share (p) 6.73 7.06 -4.7
Total return per share (p) 39.44 (88.66)
Dividend
Dividend per share (p) 6.60 6.60 -
Gearing
Net gearing (%)(B) 6.2 5.8
Discount
Discount to net asset value (%)(B) 10.8 16.2
Operating costs
Ongoing charges ratio including fee waiver(BC) 0.75 0.91
Ongoing charges ratio excluding fee waiver(BD) 0.86 0.91
(A) Increase during the year includes the impact of assets acquired following
the transaction with abrdn New Dawn Investment Trust plc
(B) Considered to be an Alternative Performance Measure.
(C) 31 August 2024 includes the management fee waiver agreed between the
Company and the Manager following the transaction with abrdn New Dawn
Investment Trust plc during the year (see note 4 of the financial statements
for further details).
(D) 31 August 2024 is calculated on the assumption that the management fee
waiver agreement between the Company and the Manager following the transaction
with abrdn New Dawn Investment Trust plc during the year (see note 4 of the
financial statements for further details) is excluded.
Strategic Report
Chairman's Statement
Future of the Company
In May of this year, your Board announced its intention to undertake a
strategic review of the future of the Company, including its ongoing
investment management arrangements. The Board of the Company announced on 28
October 2024 that it had concluded such review.
The outcome of the review was a proposal by the Board (the "Proposal") that
the Company should combine with Invesco Asia Trust plc ("Invesco Asia"), an
investment trust managed by Invesco Fund Managers Limited ("IFML"). The
enlarged Invesco Asia would continue to be managed by IFML under Invesco
Asia's existing investment objective and investment policy.
Under the strategic review the Board undertook a full and robust review
process and considered a wide range of options for the Company. The proposal
to combine the Company with Invesco Asia was considered the most attractive
outcome for shareholders, providing a partial capital return alongside the
continuation of shareholders' investment in an investment trust that has
delivered strong long-term performance managed by a highly regarded team at
IFML. The combination, if approved, will create a vehicle of scale with a
diversified shareholder base, a significant increase in dividend for Asia
Dragon shareholders who roll over into Invesco Asia and a more competitive
management fee. Furthermore, the introduction of a triennial unconditional
100 per cent. tender offer alongside ongoing buyback activity by the enlarged
Invesco Asia provides a compelling approach to discount management that we
expect to serve its shareholders well over time.
I set out below under 'Result of the Review' more background on the Proposal
and its rationale and benefits to the Company's shareholders. The Proposal is
subject to shareholder approval at general meetings to be held in early 2025.
Results
In the 12 months to 31 August 2024, the MSCI AC Asia ex Japan Index rose 12.0%
in sterling total return terms. The Company's net asset value ("NAV")
increased 9.3% on the same total return basis after accounting for dividends.
The share price rose from 353p to 404p over the year, which, with dividends
added back, yielded a total return of 16.7%. This reflected a narrowing of the
discount to NAV to 10.8% as at the year end, from 16.2% as at the previous
financial year end.
Performance
Your Company posted mixed returns over the reporting year, with initial
weakness in late 2023 but with performance stabilising by August 2024. The
stabilisation followed a portfolio "reset" after the Company's combination
with abrdn New Dawn Investment Trust plc in November 2023, allowing the larger
portfolio to invest in Australasia and up to 30% in non-benchmark holdings.
This broadened investment universe flexibility enabled the Manager to invest
in quality stocks that had previously been inaccessible, positively impacting
performance. Key contributors over the year included non-benchmark stocks like
ASML and ASM International in the semiconductor and technology hardware
segments. As AI-related apps and chips start to proliferate, rising demand in
terms of usage and complexity is boosting the semiconductor and consumer
electronics segments. Other key contributors included Taiwan Semiconductor
Manufacturing Co, power testing services provider Chroma ATE and passive
component supplier Yageo in Taiwan, as well as Indian real estate group Godrej
Properties.
I would also highlight that China, which was the biggest detractor from
performance over the interim period, remained a key detractor for the full
financial year. As I mentioned in my interim statement, the Manager has
undertaken a thorough review of the Company's Chinese holdings, and resized
exposures where appropriate. This was implemented in view of the near-term
headwinds in China, namely, a slower than expected consumer recovery and a
still-weak property sector, amid a broader soft macro backdrop.
As a result, the Manager significantly reduced overall Chinese exposure. With
a focus on good earnings visibility and steady cash flow generation, the
Manager has added or increased exposure to Chinese holdings that show such
attributes but exited positions where the outlook is more uncertain. The
Manager retains high conviction in the Chinese holdings that remain in the
portfolio, and continues to see significant value opportunities in this
market. However, the Manager remains watchful of structural challenges in the
country as well as more details on the recent stimulus measures and execution
and implementation of policies. Encouragingly, in the latter part of the
financial year from 1 January 2024 to 31 August 2024, the Chinese exposure has
turned around to become a marginal contributor to the Company's relative
performance.
The Manager's Report covers the Company's performance in greater detail.
Result of the Review
In May this year, your Board announced its intention to undertake a strategic
review of the future of the Company, including its ongoing investment
management arrangements. Under the review, the Board gave consideration to
retaining the existing manager, appointing a new external third-party manager
and entering into a combination with another investment trust. The Board was
pleased by the interest it received from a large number of high-quality
management groups, which were evaluated by the Board with the assistance of
Stanhope Consulting. The Board announced on 28 October 2024 that it had agreed
heads of terms with Invesco Asia and IFML for a combination of the assets of
the Company with Invesco Asia by means of a section 110 scheme of
reconstruction and voluntary winding up of the Company.
In reaching this decision, the Board noted a number of attractions to a
combination with Invesco Asia:
· Strong Long-Term Investment Performance: Invesco Asia has delivered a
total return of 49.4 per cent. over the five years to 30 September 2024,
representing outperformance of 23.2 per cent. against the MSCI AC Asia ex
Japan Index which has delivered a five-year total return of 26.2 per cent.
over the same period.
· Unconstrained Investment Approach: Invesco Asia has a highly rated and
experienced investment team with an unconstrained investment approach and a
focus on valuation whereby the managers seek to identify stocks that have
become dislocated from fair value with a potential catalyst for change. The
Board of the Company was impressed by the distinctive and disciplined
value-oriented investment approach employed by IFML which has delivered
attractive returns for Invesco Asia shareholders over the long term.
· Aligned Investment Exposure: The Proposal will allow shareholders to
continue their investment in a core Asia (ex-Japan) equity strategy.
· Increased Dividend: The Company's shareholders will benefit from a
significant increase in dividend as a result of Invesco Asia's policy of
paying a distribution of 4 per cent. of NAV per annum which will move from
semi-annual to four quarterly payments each equal to 1 per cent. of NAV.
· Depth of Resource: Invesco Ltd, a global asset manager with $1.8 trillion
of AUM, including $15.9 billion in Asia and EM Equities (as at 30 September
2024), will remain as the investment manager of the combined entity. Invesco
Asia will continue to benefit from the expertise of its portfolio managers,
Fiona Yang and Ian Hargreaves, and from the depth of resource and experience
offered by the wider Asian & Emerging Markets Equities Team.
· Partial Cash Exit: The Proposal will provide the Company's shareholders
with the opportunity to elect to exit part or all of their holding in the
Company for cash, subject to an overall limit of 25 per cent. of the issued
share capital of the Company (excluding shares held in treasury) (the "Cash
Exit").
· Continued Scale: The combination with Invesco Asia will allow the
Company's shareholders to continue to participate in a vehicle of scale,
with the enlarged Invesco Asia expected to be a constituent of the FTSE 250,
notwithstanding the potential substantial return of capital by the Company
pursuant to the Cash Exit.
· Periodic Exit Opportunity: Following completion of the Proposal, Invesco
Asia will introduce a triennial unconditional tender offer of up to 100 per
cent. of the issued share capital of Invesco Asia, with the first tender offer
expected to take place in 2028.
· Discount Management Policy: Invesco Asia will maintain its stated average
discount target of less than 10 per cent. of NAV calculated on a cum-income
basis over the financial year.
· Competitive Management Fee: IFML has agreed that, with effect from the
admission to listing and trading of the new Invesco Asia shares issued in
connection with the Proposal, the management fee payable by Invesco Asia to
IFML will be reduced to 0.75 per cent. on the initial £125m of net assets;
0.6 per cent. of net assets between £125m and £450m; and 0.5 per cent. on
net assets in excess of £450m. The new Invesco Asia fee structure will result
in a lower blended management fee than is currently payable by the Company.
· Shareholder Register: The Proposal will allow a number of shareholders to
consolidate their holdings across the two companies while also creating a more
diversified shareholder base through a combination of the balance of the two
share registers.
The Proposal will be subject to approval by the shareholders of both the
Company and Invesco Asia in addition to regulatory and tax approvals. The
Company and Invesco Asia have each received an irrevocable undertaking from
City of London Investment Management Limited representing 30 per cent. of the
Company's issued share capital and 21 per cent. of Invesco Asia's issued share
capital (in each case excluding treasury shares) and letters of intent or
indications of support from shareholders representing a further 25 per cent.
of the Company's issued share capital and 17 per cent. of Invesco Asia's
issued share capital (in each case excluding treasury shares), to support the
Proposal.
A circular providing further details of the Proposal and convening general
meetings to approve the Proposal, and a prospectus in respect of the issue of
new Invesco Asia shares in connection with the Proposal, are expected to be
posted to the Company's shareholders in due course. The Proposal is
anticipated to become effective in early 2025. In the event of the Proposal
becoming effective, a number of the Company's Directors will join the four
existing directors of Invesco Asia on the board of the enlarged company.
Gearing
The Board continues to believe that the sensible use of modest financial
gearing should enhance returns to shareholders over the longer term, being one
of the advantages of the closed end structure. Cognisant of the ongoing
strategic review, the Company extended the maturity of its unsecured £50
million multi-currency revolving credit facility (the "RCF") with The Royal
Bank of Scotland International Limited, London Branch (the "Lender") which was
due to expire on 29 July 2024, out to 29 March 2025. At the same time the
principal amount available under the RCF was increased to £75 million. The
£25 million increase was used to repay the Company's £25 million Fixed Rate
Loan with the Lender which also matured on 29 July 2024. As a consequence,
the Company now has a single unsecured £75m RCF with the Lender, under which
the Company retains flexibility to repay and cancel the facility at any time
during its remaining life, subject to five business days' notice. Under the
new facility, the Company has made short term revolving drawings of GBP 25
million at a current all-in rate of 6.15% and HKD 480 million at a current
all-in rate of 5.28%. The Company's total borrowings remained broadly
unchanged at £71.8 million in Sterling terms at year end, giving a net
gearing figure of 6.2%. The amounts drawn down were unchanged at the time of
writing and remain comfortably within the covenant limits.
Discounts and Share Buybacks
The discount level of the Company's shares is closely monitored by the Board
and share buybacks are undertaken when appropriate. During the year ended 31
August 2024, 9.5 million shares were bought back into treasury at a cost of
£34.2 million (2023: 5.9 million shares were bought back into treasury at a
cost of £23.7 million). Since 31 August 2024, a further 891,234 shares have
been bought back into treasury at a cost of £3.7 million. The discount at the
financial year end was 10.8% (2023: 16.2%). As at 21 November 2024 the
discount was 10.6%.
Annual General Meeting and Dividend
In the light of the outcome of the strategic review, the Board intends to
convene the AGM in respect of the financial year ended 31 August 2024 to align
with the dates for the general meetings of the Company required to implement
the combination with Invesco Asia. Accordingly, the Notice of AGM, which will
include an explanation of the proposed AGM business, will be sent to
shareholders as a separate standalone document at the same time as the
shareholder circular relating to the combination with Invesco Asia.
The Company's revenue return per share was 6.7p for the year to 31 August 2024
(2023 - 7.1p). As the posting date for the circular and Notice of AGM will be
after the publication of the Annual Report, the Board has declared an interim
dividend for the year ended 31 August 2024 of 6.6p per Ordinary share (2023 -
6.6p), in lieu of a final dividend, to allow for a similar dividend payment
date as in recent years. The interim dividend will be paid on 31 December 2024
to shareholders on the register on 6 December 2024. Following implementation
of the Proposal it is expected that the enlarged Invesco Asia will maintain
its current policy of paying an annual dividend equal to 4 per cent. of its
Net Asset Value but it will increase the frequency of its dividend payments
from the current half-yearly basis (2 per cent. in each of November and April)
to a quarterly basis (four dividends of 1 per cent. every three months). The
first dividend payable by the enlarged Invesco Asia to which the Company's
shareholders will be entitled is expected to be the quarterly dividend payable
in late April/early May 2025.
Composition of the Board
As outlined in last year's Annual Report, as part of the combination with
abrdn New Dawn, Donald Workman, Stephen Souchon and Nicole Yuen joined the
Board as non-executive Directors of the Company on 9 November 2023 and were
subsequently elected by shareholders at the AGM in December 2023. Following
completion of a six month transition period, on 9 May 2024, Donald Workman,
Charlie Ricketts and Gaynor Coley retired from the Board. On behalf of the
Board I would like to reiterate our thanks to Charlie, Gaynor and Donald for
their dedication, service and contributions to the Company.
Outlook
The US monetary policy easing cycle has begun, boosting companies and
economies across Asia. Lower interest rates improve borrowing conditions,
encouraging spending and investment. However, central banks must balance this
with inflation and currency stability concerns. The election of Trump and
Republican dominance of Capitol Hill clearly present challenges to Asia. The
most obvious issue is the increased threat of tariffs, and this time not just
on Chinese exports. The impact may be in part offset by the clearly
stimulatory nature of the Trump package, although this may have implications
for monetary conditions given the influence of US monetary conditions across
the region.However, as our investment managers point out, Asia is a diverse
region, and does not suffer from many of the macro-economic imbalances seen
elsewhere given generally strong fiscal positions, high domestic savings,
scope to stimulate domestic growth and robust external positions. There should
be plenty of opportunities for active stock pickers.
Consequently, the Board remains positive about the outlook for Asian equities.
The corporate outlook is strong due to broad-based growth and strong
fundamentals among leading companies. More broadly, Asia is evolving, with
more growth opportunities beyond China. India is fast growing as an economic
power in its own right, while Southeast Asia is benefiting from supply chain
diversification amid geopolitical uncertainty. The AI boom in Asia's
semiconductor industry highlights the region's role in global innovation,
presenting investment opportunities in Korea and Taiwan. Other growth themes
include the green transition, with Asia leading in electric vehicles, smart
grids, and renewable energy. Rising affluence spurs growth in financial
services, while urbanisation and the infrastructure boom benefit property
developers and mortgage providers.
James Will
Chairman
22 November 2024
Investment Manager's Review
Performance
As the Chairman notes in his statement, we continued to see macro factors play
an outsized role in influencing investor sentiment and equity markets across
Asia and globally over the review period. These included a slowing China amid
a slower than expected consumer recovery post-Covid and property downturn, US
monetary policy trajectory and geopolitical uncertainty. At the same time, we
saw optimism over potential US rate cuts, signs of resilience in corporate
earnings and strength in the technology sector. Over the 12 months to 31
August 2024, the MSCI AC Asia ex Japan benchmark index rose 12.0% in sterling
total return terms, while the Company's net asset value ("NAV") increased 9.3%
on the same total return basis after accounting for dividends.
Over the financial year, we witnessed mixed market fortunes across the Asia
Pacific ex Japan region (see chart 1 below). Within the China market, we saw a
meaningful style rotation out of quality into value, and a chase for thematic
names with AI and state-owned enterprise (SOE) reform in vogue. The Hong Kong
market bore the brunt of the spillover impact, which was also exacerbated by
heavy foreign capital outflows. In contrast, Taiwan and India were the best
performing markets. Taiwan benefitted from a big uplift in optimism around a
semiconductor sector turnaround and positive demand trends in AI applications.
India's strength was supported by a resilient macro backdrop, including a
property boom, strong urban consumer sentiment, and robust infrastructure
capex.
Against this backdrop, the portfolio posted mixed returns with a weak start
but stabilising performance towards the end of the financial year. We
highlight three key areas of performance drivers: China and Hong Kong,
technology and finally India.
1. China and Hong Kong
Together, China and Hong Kong were the biggest detractors, where our still
significant exposure to the Chinese consumer weighed on performance (see Chart
2 below). We do like many of the domestic consumption-oriented companies in
China. They have been largely insulated from the geopolitical headwinds
buffeting the country for years now. They have also been broadly aligned with
domestic policy and the multi-year effort to shift China's economic growth
model away from a reliance on exports and investment to one that is domestic
consumption-driven. Most importantly, many of these companies are evidently
high-quality stocks with great brands, superior margins and return metrics,
healthy cash flow and balance sheets. They still offer huge long-term growth
potential tied to the rise of the Chinese middle class. However, over the past
18 months, this has not been a rewarding part of the market to be invested in.
The Chinese consumer emerged from the pandemic with massive pent-up savings,
but this did not convert into spending as China failed to follow the
re-opening playbook seen in most other countries around the world. Instead,
the gloom around the all-important property sector, in which so much of
China's household wealth is tied up, weighed heavily on consumer sentiment.
This was compounded by slowing economic growth and rising job insecurity.
Policymakers attempted to stimulate consumption and support the property
sector, but these moves proved insufficient and consumer stocks and their
proxies continued to get punished despite sometimes resilient underlying
fundamentals. For example, our holding in Hong Kong-listed life insurer AIA
Group was amongst the largest performance detractors despite the fact that it
delivered solid earnings growth. Baijiu maker Kweichow Moutai was another such
example. Other consumer holdings saw some deterioration in underlying growth
given the challenging macro backdrop, for example, quick service restaurant
operator Yum China and brewer Budweiser APAC, but this was not commensurate
with their declines in share prices, which signalled to us that these stocks
had been oversold. As detailed in the Portfolio Activity section below, we
tightened up our exposure to the Chinese consumer over the period in light of
the headwinds, but retained core holdings given their quality and value.
Encouragingly, towards the financial year end, we saw stabilising performance
from China and Hong Kong, leading to improved overall performance of the
portfolio over the final quarter.
2. Technology
We had proactively built up the portfolio's exposure to the technology
hardware sector in anticipation of a rebound in the semiconductor cycle. Our
overweight position to the sector significantly contributed to performance, as
the sector rallied on a cyclical upturn in semiconductor pricing and strong
demand linked to AI. Contributors included several of the Company's Taiwanese
holdings, namely leading passive components maker Yageo Corp and semiconductor
chip manufacturer Taiwan Semiconductor Manufacturing Co (TSMC). Both companies
posted better than expected results in the first quarter of 2024 and TSMC
raised its medium term guidance thanks to the rapidly growing contribution
from AI-related demand. Elsewhere, our non-benchmark Netherlands-based
holdings in ASML and ASM International also benefited from improved prospects
in the advanced semiconductor industry.
3. India
Our Indian holdings were a key driver of positive performance, accounting for
4 out of the top 10 biggest contributors. These were residential real estate
developer Godrej Properties, which has been capitalising on the boom in the
housing cycle in India; leading life insurer SBI Life Insurance; online
insurance aggregator PB Fintech, and Power Grid Corporation of India which
operates the majority of the electricity transmission network across the
country. All four names have seen robust earnings growth tied to structural
growth stories and themes within India that we believe have many years still
to run. Rising affluence in India, for instance, is leading to fast-growing
premium consumption patterns in areas like financial services, automobiles,
food, and personal care, while urbanisation and the current boom in
infrastructure development is benefiting property developers, materials
producers such as in cement, and industrial and utility plays.
Portfolio Activity
Throughout this turbulent macro-economic and political period, we have
continued to focus on quality companies for both their resilience and long
term structural growth potential. Four key areas we wish to highlight are as
follows:
1. China: Scaling back the consumer exposure and focusing on nearer-term cash flow generation and earnings visibility
China presented us with a dilemma. On the one hand, the headwinds buffeting
the Chinese consumer were strong, making life hard-going for even the best-run
companies (see Chart 4 below). On the other hand, investor sentiment towards
the consumer sector and its proxies was so poor that it was also clear that
many of the stocks had been oversold and were trading at very attractive
valuations. Whilst we were confident that our companies would weather the
storm given their superior quality, it was also difficult to pinpoint any
obvious catalyst on the horizon that would trigger a re-rating in the stocks.
Balancing these two opposing forces, we chose to reposition the portfolio in
China, re-evaluating more carefully our exposure to the Chinese consumer given
the obvious headwinds, whilst also retaining positions in high-quality
holdings with strong cash flow generation and solid near-term earnings
visibility that were trading at deeply discounted valuations. In some cases,
this involved completely exiting certain names where visibility was less
clear, including China Tourism Group Duty Free, GDS, Glodon and Wuxi
Biologics. However, we also introduced a new name, Asia's leading online
travel agency Trip.com, which was benefiting from the recovery in both
domestic and international travel and has a long runway for growth. Overall,
our decisions resulted in a reduced exposure to China.
2. India: increased exposure with new initiations across broad swathe of sectors
India stands in stark contrast to China, being perhaps the most attractive
macro-economic story in the region currently, with accelerating economic
growth and sound macro-economic indicators (see Chart 5 below). The dilemma
for us in this market is that much of that positive story has seemingly
already been priced into the market, with few quality stocks trading at
attractive valuations. We have been highly cognisant of the valuation
challenge, but selectively we were still able to find multiple new ideas
centred on companies benefitting from the economic tailwinds and delivering
robust earnings growth that underpin and support the valuations.
One good example is Bharti Airtel, a leading telecom service provider with a
pan-India reach and sophisticated customer base with higher than average
mobile spending. The domestic telecom market has rapidly consolidated and
Bharti is now capitalising on the improved economics and rising tariffs in the
sector. Another example is Indian Hotels (IHCL), India's largest hospitality
company, which is well placed to tap into the industry's multi-year upcycle
with improving occupancy rates and rising average room rates. We also
introduced conglomerate Mahindra & Mahindra, which has been delivering
healthy growth in its autos business, with market share gains in the passenger
vehicle business, especially within the sports utility vehicle segment.
Pidilite Industries was another addition. This is a quality consumer and
specialty chemicals business with leading brands in the home improvement
category that will benefit from the robust recovery in the housing cycle.
Conversely, we exited Kotak Mahindra Bank and Maruti Suzuki.
3. Technology: Broadening exposure to the AI supply chain with a focus on Taiwan and Korea
We broadened our exposure to the AI supply chain and cyclical laggards, given
the positive structural growth outlook for Asia's technology sector (see chart
6 below). We focused on Taiwan and South Korea, which are key players in the
global tech supply chain and benefiting from increased demand for
semiconductors, AI and other advanced technologies. We invested in Taiwan's
GlobalWafers, a silicon wafer manufacturer that ranks as one of the global
leaders in a consolidating industry. We introduced Yageo Corp, Taiwan's
leading supplier of passive components and the world's third largest provider.
We also added South Korea's SK Hynix, the second largest DRAM and NAND
manufacturer globally by revenues. We view it as well positioned and
benefiting from growing demand for high bandwidth memory (HBM) for AI
processing, such as machine learning and neural network AI. This reflects our
rising conviction in the structural growth memory demand backed by AI.
4. Vietnam: increased exposure to this attractive non-benchmark growth market
Finally, we increased our exposure to Vietnam, a non-benchmark market with
tremendous long-term growth potential given its young demographics, rising
wealth levels and entrepreneurial spirit. More broadly, the liquidity of the
stock market has improved through the years, along with market capitalisation,
and this has enhanced its eligibility for the Company from a liquidity and
risk perspective. The country is also emerging as an alternative supply chain
option amid geopolitical uncertainties, attracting foreign direct investment
in high-tech sectors, especially automotive and electronics (see chart 7
below). At the time of writing, we have invested in Joint Stock Commercial
Bank For Foreign Trade Of Vietnam (Vietcombank), which we rate as among the
highest quality banks in the country, with scale, a strong deposit franchise
and a good long-term track record. The bank has been able to manage through
multiple cycles and deliver growth over time, too. As for fundamentals, it
leads its peers in profitability and efficiency, with a higher return on
equity, lower cost-to-income ratio and lower cost of funding versus its
domestic rivals. This is our second stock holding in Vietnam after FPT Corp.
Outlook
The US has elected Donald Trump as its next president, and he has also secured
control of both Houses of Congress. Asset prices have moved along with a focus
on the reflationary aspects of Trump's pre-election pledges and promises. We
expect tax cuts and deregulation, but also higher tariffs. This could mean
higher nominal GDP, mainly via inflation, and potentially higher for longer
interest rates. We continue to monitor Trump developments closely, and higher
nominal GDP growth and higher-than-otherwise interest rates are the macro
implications that we are most confident about for now.
As for the implications for Asia, it is a complex picture. Trump is likely to
drive uncertainty and volatility, but this could also create opportunities for
long-term investors. Higher tariffs and barriers to trade are bad news, and
this seems likely under Trump. China could be affected, and this might prompt
the Chinese government to ramp up domestic economic growth efforts with
aggressive stimulus measures. It is also possible that with a more
transactional US President, the US and China could arrive at some mutually
beneficiary agreement; we should remember the first Trump presidency did see
the Chinese equity market outperform. We should not ignore the risks though as
unmitigated; the imposition of huge tariff hikes would have a significant
impact on China's economy. Similarly, export markets, too, with trade-oriented
countries potentially facing pressure from higher tariffs and limited rate
cuts in the US.
Geopolitical tensions remain difficult to navigate and whilst the world's
focus is on Ukraine and the Middle East, Asia could also see shifts if Trump
follows a similar playbook to his first term. So, we are likely to be in for a
period of change, uncertainty, and volatility across multiple fronts.
Asia, however, is a diverse region and it is wrong to paint it with the same
broad brush. Largely domestic driven economies like India will be insulated
and may even benefit from continued supply diversification away from China.
Intra-regional trade continues unhindered. Asia also does not have the macro
imbalances that the West is saddled with, so economies should be resilient.
And there is still growth. All of which means quality companies should remain
structurally well positioned.
From a portfolio perspective, we believe we are well-prepared for a Trump
victory due to our quality-focused stock picking approach. We have tightened
quality characteristics, adding names with greater near-term earnings
visibility and steady cash flow generation, while reducing and exiting names
with less visible earnings. We have managed down our exposure to
tariff-related risks. For our China exposure, we have focused on each
holding's ability to defend and grow market share, expand overseas with
limited tariff risks, and deliver shareholder returns through dividends and
buybacks. We have also reduced our technology exposure. We maintain our
conviction in our holdings and their ability to navigate market crosswinds,
given their quality and fundamentals.
Finally, Asia remains home to some of the highest quality and most dynamic
companies in the world. The region continues to offer rich pickings,
underpinned by long-term structural growth trends such as the rising middle
classes, rapid adoption of emerging technologies and continued urbanisation,
enabling bottom-up stock pickers like us to deliver sustainable returns over
the long term.
Pruksa Iamthongthong and James Thom
abrdn (Asia) Limited
22 November 2024
Overview of Strategy
Future of the Company
Shareholders' attention is drawn to the Proposal for the combination with
Invesco Asia Trust plc detailed under the 'Future of the Company' section of
the Chairman's Statement and 'Result of Review'.
Business Model
The business model of the Company is to operate as an investment trust for UK
capital gains tax purposes in line with its investment objective. The
Directors are of the opinion that the Company has conducted its affairs for
the year ended 31 August 2024 so as to enable it to comply with the relevant
eligibility conditions for investment trust status as defined by Section 1158
of the Corporation Tax Act 2010.
Combination with abrdn New Dawn
On 21 July 2023 the Company announced that it had agreed terms with the board
of abrdn New Dawn Investment Trust plc ("New Dawn") in respect of a proposed
combination of the assets of the Company with those of New Dawn. This was
effected by way of a scheme of reconstruction and winding up of New Dawn under
section 110 of the Insolvency Act 1986 (the "Scheme") and the associated
transfer of the majority of the cash, assets and undertaking of New Dawn to
the Company in exchange for the issue of new Ordinary shares in the Company to
those New Dawn shareholders who elected to roll over. The Company's
shareholders approved the proposals at the General Meeting held on 25 October
2023 with over 99.9% of votes in favour of all resolutions. Subsequently, on 8
November 2023 New Dawn's shareholders approved the proposals at its general
meeting. On that date, the Company acquired approximately £214.7 million of
net assets from New Dawn in consideration for the issue of 52,895,670 new Asia
Dragon shares in accordance with the Scheme.
Investment Policy (up to 25 October 2023)
For the period up to the General Meeting held on 25 October 2023 the Company's
Investment Policy was
as follows:
Investment Objective
To achieve long-term capital growth through investment in Asia, with the
exception of Japan and Australasia. Investments are made primarily in stock
markets in the region, principally in large companies. When appropriate, the
Company will utilise gearing to maximise long term returns.
Investment Policy
The Company's assets are invested in a diversified portfolio of securities in
quoted companies spread across a range of industries and economies in the Asia
Pacific region, excluding Japan and Australasia. The shares that make up the
portfolio are selected from companies that have proven management and whose
shares are considered to be attractively priced. The Company invests in a
diversified range of sectors and countries. Investments are not limited as to
market capitalisation, sector or country weightings within the region.
The Company's policy is to invest no more than 15% of gross assets in other
listed investment companies (including listed investment trusts).
The Company complies with Chapter 4 of Part 24 of the Corporation Tax Act 2010
and the Investment Trust (Approved Company) (Tax) Regulations 2011 and does
not invest more than 15% of its assets in the shares of any one company.
When appropriate the Company will utilise gearing to maximise long-term
returns, subject to a maximum gearing level of 20% of net assets imposed by
the Board.
The Company does not currently utilise derivatives but keeps this under
review.
Investment Policy (from 25 October 2023)
Following the receipt of approval from shareholders at the General Meeting
held on 25 October 2023 the Company's new Investment Policy was amended to
include Australasia and is now as follows:
Investment Objective
The Company aims to achieve long-term capital growth principally through
investment in companies in the Asia Pacific region, excluding Japan (the
"Investment Region").
Investment Policy
Asset allocation
The Company's assets are invested principally in a diversified portfolio of
public securities of companies that are incorporated, domiciled or listed in
the Investment Region. The Company invests in a diversified range of sectors
and countries. Investments are not limited as to market capitalisation, sector
or country weightings within the Investment Region.
The Company may invest, directly or indirectly, up to 30 per cent. of its
gross assets in public securities of companies which are not incorporated,
domiciled or listed in the Investment Region but which generate more than 50
per cent. of their annual turnover or revenue from the Investment Region, all
as measured at the time of the Company's investment.
The Company will primarily invest in equities and equity-related securities
(including, but not limited to, preference shares, depositary receipts,
convertible unsecured loan stock, rights, warrants and other similar
securities).
For the avoidance of doubt, however, the Company may, in pursuance of the
investment objective:
· hold cash and cash equivalents, including money market mutual funds
(which is not subject to any investment limit);
· hold equity-linked derivative instruments (including options and futures
on indices and individual securities) which are primarily exposed to the
Investment Region; and
· invest in index funds, listed funds, open-ended funds, mutual funds and
exchange traded funds that invest primarily in the Investment Region.
Risk diversification
The Company's aggregate exposure to any single holding or issuer (or issuer
group), whether direct or indirect, will not exceed 15 per cent. of its gross
assets (calculated at the time of investment).
In order to comply with the Listing Rules, the Company will not invest more
than 10 per cent. of its gross assets in other listed closed-ended investment
funds, except that this restriction shall not apply to investments in listed
closed-ended investment funds which themselves have stated investment policies
to invest no more than 15 per cent. of their gross assets in other listed
closed-ended investment funds. Additionally, in any event, the Company will
itself not invest more than 15 per cent. of its gross assets in other listed
closed-ended investment funds.
Gearing
The Company may deploy gearing to seek to enhance long-term capital growth.
The Company may be geared through bank borrowings, the use of derivative
instruments that have the effect of gearing the Company's portfolio, and any
such other methods as the Board may determine. Gearing will not exceed 20 per
cent. of the Company's net asset value at the time of drawdown of the relevant
borrowings or entering into the relevant transaction, as appropriate.
Derivatives
With prior approval of the Board, the Company may use derivatives for the
purpose of efficient portfolio management (for the purpose of reducing,
transferring or eliminating investment risk in its investment portfolio,
including protection against currency risk) and for investment purposes.
Notwithstanding the above, the Company does not intend to utilise derivatives
or other financial instruments to increase the Company's gearing in excess of
the limit set out in 'Gearing' above, and any restrictions set out in this
investment policy shall apply equally to exposure through derivatives.
Company Benchmark
The total return of the MSCI All Country Asia (ex Japan) Index (sterling
adjusted).
Alternative Investment Fund Manager ("AIFM")
The AIFM is abrdn Fund Managers Limited, (aFML or the "Manager") which is
authorised and regulated by the Financial Conduct Authority. The Company's
portfolio is managed on a day-to-day basis by abrdn (Asia) Limited ("abrdn
Asia" or the "Investment Manager") by way of a delegation agreement. abrdn
Asia and aFML are both wholly owned subsidiaries of abrdn plc.
Achieving the Investment Policy and Objective
The Directors are responsible for determining the investment policy and the
investment objective of the Company. Day-to-day management of the Company's
assets has been delegated to the Investment Manager. The Investment Manager
follows a bottom-up investment process based on a disciplined evaluation of
companies through direct contact by its fund managers and analysts. Stock
selection is the major source of added value. No stock is bought without the
Investment Manager having first met management, either in person, where
possible, or virtually. The Investment Manager evaluates a company's worth in
two stages: quality then price. Quality is defined by reference to management,
business focus, the balance sheet and corporate governance. Price is evaluated
by reference to key financial ratios, the market, the peer group and business
prospects. Stock selection is key in constructing a diversified portfolio of
companies.
A comprehensive analysis of the Company's portfolio by country and by sector
is disclosed on pages 39 to 41 of the published Annual Report and Financial
Statements for the year ended 31 August 2024, including a description of the
ten largest investments, the full investment portfolio by value, and
sector/geographical analysis. At 31 August 2024, the Company's portfolio
consisted of 56 holdings.
Gearing is used to leverage the Company's portfolio in order to enhance
returns when this is considered appropriate to do so. At 31 August 2024, the
Company's net gearing was 6.2%.
Principal and Emerging Risks and Uncertainties
The Board carries out a regular review of the risk environment in which the
Company operates, changes to that environment and to individual risks. The
Board also identifies emerging risks which might impact the Company. There are
a number of other risks which, if realised, could have a material adverse
effect on the Company and its financial condition, performance and prospects.
The most significant direct issue that the Company has faced over the year has
been the impact of long-term poor relative portfolio performance. This led the
Board to implement a strategic review of the Company using external advisers
and this is addressed in the Chairman's Statement. Beyond this, the increasing
discounts to net asset value that have affected the entire investment company
sector, resulting from selling pressure and lack of investor demand due to
well documented cost disclosure issues and budget concerns, have heightened
concerns.
The Board considers the Company's principal and emerging risks, which include
those that would threaten its business model, future performance, solvency,
liquidity or reputation. The Company's risks have been regularly assessed by
the Audit & Risk Committee and managed by the Board through the adoption
of a risk matrix which identifies the key risks for the Company, including
emerging risks, and covers strategy, investment management, operations,
shareholders, regulatory and financial obligations and third-party service
providers. A deep dive review of the Risk Register has been performed during
the year.
Outwith the outcome of the strategic review, the principal risks and
uncertainties facing the Company, which have been identified by the Board, are
described in the table below, together with mitigating actions.
The Board notes that there are a number of contingent risks stemming from the
global geo-political environment that may impact the operation of the Company.
Inflation and the resultant volatility that it created in global stock markets
continued to be a key risk during the financial year, as well as the ongoing
tensions between China and Taiwan, China and the West, and the conflagrations
in the Middle East and Ukraine, all of which have created geo-political
uncertainty which further increased market risk and volatility.
The Board is also conscious of the risks resulting from increasing ESG
challenges. The scrutiny of human rights violations in China by Western
governments is one example of the need for continued vigilance and engagement
regarding supply chains and the fair treatment of workers. Likewise, as
climate change pressures increase, the Board continues to monitor, through its
Manager, the potential risk that investee companies may fail to maintain
acceptable standards.
Risk Mitigating Action
Investment Risk The Board continually monitors the investment performance of the Company,
taking account of stock-market factors, and reviews the Company's performance
· The Company's investment performance is the most critical factor to the compared to its benchmark index and peer group at every Board Meeting. A
Company's long-term success. formal annual review is undertaken by the Management Engagement Committee.
The Board has regard to the skills, depth of resources and wider capability of
· The Company is exposed to the risk of Sustained Underperformance as a the abrdn group in arriving at its conclusions.
result of implementing an unattractive investment strategy.
In May 2024 the Board initiated a full strategic review of the Company. The
· The Company is exposed to the risk of Portfolio Stock Concentration as a results of the review were announced on 28 October 2024 and further details
result of the combined market share of the Manager's investments. can be found in the Chairman's Statement.
· The Company is exposed to ESG Risk in the event that its investee The Chairman and Senior Independent Director have communicated with major
companies act unethically, undertake environmentally detrimental practices or shareholders, particularly with respect to the strategic review, to gauge
fail to integrate ESG factors adequately. their views on the Company, including performance.
At each Board meeting the Board reviews the concentration and liquidity risk
of the portfolio including the number of days required to liquidate the
Risk Unchanged during the year portfolio.
The Manager undertakes extensive due diligence on each investment prior to
purchase including a review of the ESG credentials. Post purchase the Manager
continues to monitor and actively engage with investee company managements.
Operational Risk The Board reviews the performance of the Manager on a regular basis and its
compliance with the management contract formally on an annual basis. As part
· The Company is dependent on a number of third-party providers, in of that review, the Board assesses the Manager's succession plans, risk
particular those of the Manager, Depositary and Registrar. Failure by any management framework and marketing activities.
service provider to carry out its contractual obligations could have a
detrimental impact or disruption on the Company's operations, including that The Audit & Risk Committee reviews reports from the Manager on its
caused by information technology breakdown or other cyber-related issues. internal controls and risk management (including an annual ISAE Report) and
considers assurances from all its other significant service providers on at
Risk Unchanged during the year least an annual basis, including on matters relating to business continuity
and cyber security. The Audit & Risk Committee meets representatives from
the Manager's Compliance and Internal Audit teams on at least an annual basis
and discusses any findings and recommendations relevant to the Company.
Written agreements are in place with all third-party service providers.
The Manager monitors closely the control environments and quality of services
provided by third parties, including those of the Depositary, through service
level agreements, regular meetings and key performance indicators.
A formal appraisal of the Company's main third-party service providers is
carried out by the Management Engagement Committee on an annual basis.
Governance and Regulatory Risk The Board receives updates on relevant changes in regulation from the Manager,
industry bodies and external advisers and the Board and Audit & Risk
· The Company operates in a complex regulatory environment and faces a Committee monitor compliance with regulations by review of internal control
number of regulatory risks. Serious breaches of regulations, such as the tax reports from the Manager. Directors are encouraged to attend relevant external
rules for investment companies, the FCA's Listing Rules and the Companies Act. training courses.
Risk Unchanged during the year
Major Events and Geopolitical Risk Exogenous risks over which the Company has no control are always a risk. The
Company does what it can to address these risks where possible, not least
· The Company is exposed to supply chain risk, stock-market volatility or operationally and to try and meet the Company's investment objectives.
illiquidity as a result of a major market shock due to a national or global
crisis. The impact of such risks, associated with the portfolio or the As part of its investment processes, the Manager regularly assesses the
Company itself, could result in disruption of the operations of the Company Company's portfolio as a whole, and each constituent part, and, during the
and losses. financial year, remained in close communication with the underlying investee
companies in order to navigate and guide the Company through macroeconomic and
· The Company is exposed to the impact of Live Conflict, sanctions and geopolitical challenges.
instability in the region as well as the indirect impact of global conflicts.
The Manager's focus on quality companies with sustainable business models and
· The Company is exposed to Pandemic Risk which could result in disruption robust finances, the diversified nature of the portfolio and a managed level
to supply chains. of gearing all serve to provide a degree of protection in times of
market volatility.
· The Company is exposed to the risk of a major environmental event as a
result of the consequences of climate change. The Board discusses issues affecting the region at each Board meeting and the
Manager has an effective business continuity plan in place to ensure that
Risk Unchanged during the year material processes will continue to operate. The Audit & Risk Committee
reviews controls reports from third party service providers.
The Manager undertakes due diligence on investee companies prior to and post
purchase and provides updates at each Board meeting.
Shareholder and Stakeholder Risk The Board regularly monitors the marketplace for changes in sentiment.
· The Company is exposed to the risk of Shareholder Dissatisfaction, The Board regularly reviews the performance of the Company against the
Activism and Influence stemming from a failure to adapt to changes in the benchmark and peer group.
market and investor demand.
The Board monitors the discount level of the Company's shares against
· Liquidity Risk to shareholders due to share price trading at a discount
the peer group and has in place an active buyback mechanism whereby
to its underlying NAV and reduced investor sentiment.
the Broker and/or the Manager is authorised to buy back shares within
certain limits.
Risk Unchanged during the year
The Board and Manager engage regularly with shareholders to understand their
views on key topics including discount volatility and shareholder views are
discussed at each Board meeting.
The Manager conducts extensive PR and promotional activities during
the year.
Shareholders are given the opportunity to vote on continuation at every fifth
AGM and there is a conditional performance-linked tender offer mechanism
in place.
In May 2024 the Board announced its intention to undertake a strategic review
of the future of the Company, including its ongoing investment management
arrangements. The strategic review culminated in the announcement on 28
October 2024 of the Proposal to combine with Invesco Asia Trust plc (refer to
the Chairman's Statement).
The principal risks associated with an investment in the Company's shares can
be found in the pre-investment
disclosure document ("PIDD") published by the Manager, which is available from
the Company's website: www.asiadragontrust.co.uk.
Performance
Key Performance Indicators
At each Board meeting, the Directors consider a number of performance measures
to assess the Company's success in achieving its objectives. The key
performance indicators ("KPIs") are established industry measures and are
detailed below with further analysis provided in the Chairman's Statement.
KPI Description
Net asset value and share price (total return) The Board monitors the NAV and share price performance of the Company over
different time periods. Performance figures for one, three and five years
are provided in the Results section on page 29 of the published Annual Report
and Financial Statements for the year ended 31 August 2024.
Performance against benchmark Performance is measured against the Company's benchmark, the MSCI All Country
Asia (ex Japan) Index (in sterling terms), on a total return basis. Charts
showing the Company's performance against the benchmark by quarter during the
financial year, and over one, three and five years, and are shown on page 30
of the published Annual Report and Financial Statements for the year ended 31
August 2024.
The Board also considers peer group comparative performance over a range of
time periods, taking into consideration the differing investment policies and
objectives employed by those companies.
Discount/Premium to net asset value The discount/premium relative to the NAV represented by the share price is
closely monitored by the Board. The objective is to avoid large fluctuations
in the discount relative to similar investment companies investing in the
region by the use of share buy backs subject to market conditions. A graph
showing the share price discount relative to the NAV is shown on page 31 of
the published Annual Report and Financial Statements for the year ended 31
August 2024.
Promoting the Success of the Company
The Board is required to report on how it has discharged its duties and
responsibilities under section 172 of the Companies Act 2006 (the "s172
Statement"). Under section 172, the Directors have a duty to promote the
success of the Company for the benefit of its members as a whole, taking into
account the likely long-term consequences of decisions, the need to foster
relationships with the Company's stakeholders and the impact of the Company's
operations on the environment.
The Company consisted of five Directors at 31 August 2024 and has no employees
or customers in the traditional sense. As the Company has no employees, the
culture of the Company is embodied in the Board of Directors. The Board
seeks to promote a culture of strong governance, high standards of business
conduct and to challenge, in a constructive and respectful way, the Company's
third-party service providers and advisers, whilst considering the impact on
the Company and other stakeholders.
The Board's principal concern has been, and continues to be, the interests of
the Company's shareholders and potential investors and the need to act fairly
between shareholders. The Manager undertakes an annual programme of meetings
with the largest shareholders and investors and reports back to the Board on
issues raised at these meetings. The Investment Manager, who is based in
Singapore, will attend such meetings, where possible. The Board encourages all
shareholders to attend and participate in the Company's AGM and shareholders
can contact the Directors via the Company Secretary. Shareholders and
investors can obtain up-to-date information on the Company through its website
and the Manager's information services and have direct access to the Company
through the Company Secretary.
As an investment trust, a number of the Company's functions are outsourced to
third parties. The key outsourced function is the provision of investment
management services to the Manager and other third-party providers support the
Company by providing administration, depositary, custodial, banking and audit
services.
The Board undertakes a robust evaluation of the Manager, including investment
performance and responsible ownership, to ensure that the Company's objective
of providing capital growth for its investors is met. The Board typically
visits the investment region on an annual basis and meets with the Manager's
on the ground investment teams. This enables the Board to conduct due
diligence of the fund management and research teams. During the year the Board
has met with the senior management team and the fund management team and
attended investee company meetings alongside the Manager.
The portfolio activities undertaken by the Manager on behalf of the Company
can be found in the Investment Manager's Review and details of the Board's
relationship with the Manager and other third-party providers, including
oversight, is provided in the Statement of Corporate Governance.
During the year, the Board continued to focus on the performance of the
Manager in achieving the
Company's investment objective within an appropriate risk framework.
A significant amount of time was also expended in the process of combining
with abrdn New Dawn and overseeing the effective assimilation of the new
assets.
In addition to the Combination activities a number of key decisions have been
taken by the Board during the year, including:
· The Board appointed Stanhope Consulting to assist in a full strategic
review of the future of the Company, including the ongoing investment
management arrangements.
· The Board has declared an interim dividend of 6.6p per Ordinary share
(2023 - 6.6p) which will be paid on 31 December 2024.
· The Board has successfully completed its succession planning activities.
· The Board has continued the Company's discount control policy through the
buyback of shares which provides a degree of liquidity to the market at times
when the discount widens.
· The Board continues to believe that the sensible use of modest financial
gearing should enhance returns to shareholders over the longer term. As
indicated in the Chairman's Statement the Company has consolidated its loan
facilities into a new extended revolving credit facility offering the Company
short term flexibility.
In summary, the Directors are cognisant of their duties under section 172 and
decisions made by the Board take into account the interests of all the
Company's key stakeholders and reflect the Board's belief that the long-term
success of the Company is linked directly to its key stakeholders.
Duration
Shareholders' attention is drawn to the Proposal for the combination with
Invesco Asia Trust plc which will be voted upon in early 2025 and which, if
successful, will trigger the liquidation of the Company. Outwith the outcome
of the Proposal, the Company does not have a fixed life, but shareholders are
given the opportunity to vote on the continuation of the Company at every
fifth Annual General Meeting. The last continuation vote was passed at the
AGM on 15 December 2021. The frequency of continuation votes was extended
from triennial continuation votes to five-yearly continuation votes at the AGM
in 2021 in order to align them with the assessment period for
performance-related conditional tender offers approved by shareholders at the
AGM in 2021. The next performance related conditional tender offer will
cover the period from 1 September 2021 to 31 August 2026 and the continuation
vote would be due to take place at the AGM in December 2026.
Board Diversity
The Board's statement on diversity is set out in the Statement of Corporate
Governance. At 31 August 2024 there were three male Directors and two female
Directors. The Company meets the target that at least one Director is from a
minority ethnic background as set out in LR 6.6.6R (9)(a)(iii).
Environmental, Social and Human Rights Issues
The Company has no employees and therefore no disclosures are required to be
made in respect of employees. More information on socially responsible
investment is set out on pages 25 to 28 of the published Annual Report and
Financial Statements for the year ended 31 August 2024.
Viability Statement
As set out in more detail in the Chairman's Statement, it is proposed that the
Company combines with Invesco Asia Trust plc ("Invesco Asia"). The
combination, if approved by each company's shareholders, will be effected by
way of a scheme of reconstruction and winding up of the Company under section
110 of the Insolvency Act 1986 and the associated transfer of part of the
assets and undertaking of the Company to Invesco Asia in exchange for the
issue of new ordinary shares in Invesco Asia (the "Proposal"). A circular
providing further details of the Proposal and convening general meetings to
approve the Proposal, and a prospectus in respect of the issue of new Invesco
Asia shares in connection with the Proposal, are expected to be published in
due course. The Proposal is anticipated to become effective by early 2025.
The outcome of the general meetings to make the Proposal effective represents
a material uncertainty in the context of the preparation of these financial
statements on a going concern basis.
Notwithstanding this material uncertainty, for the purposes of this viability
statement, the Board has decided that five years is an appropriate period over
which to report. The Board considers that this period reflects a balance
between looking out over a long term horizon and the inherent uncertainties of
looking out further than five years.
In assessing the viability of the Company over the review period, the
Directors have also focused upon the following factors:
· The principal risks and uncertainties detailed above and the steps taken
to mitigate these risks.
· ·The role of the Audit and Risk Committee in reviewing and monitoring
the Company's internal control and risk management systems (see the Audit and
Risk Committee's Report on pages 58 to 60 of the published Annual Report and
Financial Statements for the year ended 31 August 2024).
· The ongoing relevance of the Company's investment objective.
· The liquidity of the Company's portfolio. All of the Company's
investments are in quoted securities in active markets or in collective
investment schemes and are considered to be liquid.
· The closed-ended nature of the Company which means that it is not subject
to redemptions.
· The use of the Company's share buy back and share issuance policies to
help address any imbalance of supply and demand for the Company's shares.
· The current and maximum levels of gearing, compliance with loan covenants
and level of headroom within the financial covenants (see note 13 to the
financial statements for details of loan covenants).
· The ability of the Company to refinance its loan facilities, on or before
maturity.
· The requirement of the Board to propose a resolution to approve the
continuation of the Company at future Annual General Meetings (earliest
required 2026).
· Regulatory or market changes.
· The level of the Company's ongoing charges.
· The robustness of the operations of the Company's third party service
providers.
In making its assessment, the Board has considered that there are other
matters that could have an impact on the Company's prospects or viability in
the future, including the current conflicts in the Middle East and Ukraine,
economic shocks, significant stock market volatility, and changes in
regulation or investor sentiment.
The Strategic Report has been approved by the Board and signed on its behalf
by:
James Will,
Chairman
22 November2024
abrdn's Approach to ESG
This section of the Annual Report aims to present more information on the Investment Manager's ESG considerations.
ESG Highlights
· abrdn believes that ESG considerations can meaningfully affect a
company's performance.
· abrdn has been actively integrating ESG considerations into its
investment decision-making process for 30 years.
· Deep, on the ground ESG resources and expertise enables abrdn to glean
insights from company visits and obtain an ESG information advantage.
· The Company's portfolio is ESG A rated by MSCI, as is the Benchmark.
A 27% 109 18.1% 100%
A-rated by MSCI ESG (versus benchmark A) Lower carbon intensity than the benchmark Engagements with portfolio companies during the year Average ROE of portfolio companies (versus benchmark average 12.5%) of abrdn researched companies include ESG analysis
What is ESG?
· Environmental factors relate to how a company conducts itself with regard
to environmental impact and sustainability.
· Social factors pertain to a company's relationship with its employees,
vendors, and a broad set of societal stakeholders.
· Corporate Governance factors may include the corporate decision-making
structure, the independence of board members, treatment of minority
shareholders, executive compensation and political contributions, capital
allocation and the risk of bribery and corruption.
abrdn is a signatory to the UN supported Principles for Responsible Investment
(PRI) and has aligned its approach to that advocated by the PRI agenda. This
aims to promote responsible investment and better management of risk.
abrdn's Investment Process
abrdn is a pioneer in Asia Pacific markets and has a large, dedicated and
highly experienced investment team consisting of approximately 40 equity
investment professionals with a strong team culture. Three regional ESG
specialists, supported by the Investment Manager's central ESG team, work with
the Asia Pacific equity team to provide insight on ESG themes and sectors in
local markets.
Environmental, social and corporate governance factors (ESG) are part of our
approach to active equity investing at abrdn. abrdn believes that ESG factors
are financially material and can impact a company's performance, either
positively or negatively. abrdn also uses its ESG approach to encourage higher
standards and support companies that work towards a more sustainable and
equitable world.
abrdn's investment process considers both macro and micro ESG issues.
Macro ESG factors being broad thematic issues that impact companies and the
products and services they provide, whilst micro factors are company/industry
specific issues that relate to how a company's products or services are made
or delivered.
The Importance of Engagement
Engagement is an important part of the investment process: abrdn sees
engagement not only as a right but as an obligation of investors. In its role
as a responsible owner, abrdn engages actively and regularly with companies in
which it is or may become an investor. abrdn believes that informed and
constructive engagement helps to foster better companies, that can help
enhance the value of investments. There are generally two core reasons for
engagement: to understand more about a company's strategy and performance or
encourage best practice and drive change.
Active engagement involves regular, candid communication with management teams
(or boards of directors) of portfolio companies to discuss a broad range of
ESG issues that may impact returns, either positively or negatively. abrdn's
focus is on the factors which it believes to have the greatest potential to
enhance or undermine an investment case. Sometimes abrdn seeks more
information, exchanges views on specific issues, encourages better disclosure;
and at other times, encourages change (including either corporate strategy,
capital allocation, or climate change strategy). abrdn's engagements cover a
range of ESG issues, including but not limited to board composition,
remuneration, audit, climate change, labour issues, human rights, bribery and
corruption.
Moreover, and since ESG disclosure by Asian companies is often poor, these
engagements give abrdn an opportunity to source additional information and
potentially to:
· Exploit an information gap: if a company does not disclose ESG
information and the market is unable to form a robust view of its quality, its
shares may be priced inefficiently. Using abrdn's research capabilities
including on-site, face to face visits, an informed view may be developed of
every company helping to exploit any pricing inefficiency that is judged to
exist; and
· Close the information gap: if abrdn owns a company that is misunderstood
by the market, abrdn can work constructively with the company's management
team to encourage improved and enhanced disclosure, allowing the market to
better understand, and hence better price, the company's securities.
ESG engagements are conducted with consideration of the 10 principles of the
United Nations Global Compact and companies are expected to meet fundamental
responsibilities in the areas of human rights, labour, the environment and
anti-corruption.
Engagement is not limited to a company's management team. It can include many
other stakeholders such as non-government agencies, industry and regulatory
bodies, as well as activists and the company's customers and clients.
The Investment Manager regularly engages with companies in which the Company
invests. The below shows the engagements that have included responsible
investment themes, for the year to 30 June 2024. This does not include
positions the Investment Manager has sold out of or is considering investing
in. Below are the themes engaged during the year:
ESG Category % *
Climate 8
Environment 14
Labour Management, Diversity & Inclusion 20
Human Rights & Stakeholders 8
Corporate Behaviour 25
Corporate Governance 34
* a single meeting can have multiple topics
Measurement of ESG, including abrdn's Proprietary ESG Scoring System
Some ESG issues can be quantified, for example the diversity of a board, the
carbon footprint of a company, and the level of employee turnover. But not
everything that matters can be measured. While diversity can be monitored,
measuring inclusion is more of a challenge. Although it is possible to measure
the level of staff turnover, it is more challenging to quantify corporate
culture. Nevertheless, after researching and analysing a company, and after
meeting senior management, abrdn allocates a company an ESG score of between
one and five. This score of one to five 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 ESG risks are considered as a part of principal business Evidence of some financially material controversies Many financially material controversies
not market leading
Excellent disclosure
Disclosure in line with regulatory requirements Poor governance or limited oversight of key ESG issues Severe governance concerns
Disclosure is good, but not best in class
Makes opportunities from strong ESG risk management
Governance is generally good but some minor concerns Some issues in treating minority shareholders poorly Poor treatment of minority shareholders
Governance is
generally very good
abrdn also makes use of third party ESG data for two primary reasons:
· To help build a view of a company: third party ESG data provides insights
into a company based on that company's disclosure. Whilst that disclosure may
have limits there is still merit in reading research from a speciality
researcher. abrdn buys in research as a "sense check" against internal
analysis to ensure that issues or developments are not missed or weighted
incorrectly.
· To provide a proxy for market perspective: abrdn uses third party data
and scoring as a proxy for market perception and makes use of these scores to
compare with internal assessments. If the market views a company as low
quality and abrdn sees the company as not only higher quality but also on a
positive trajectory, it may be appropriate to exploit this information
asymmetry. The market may react and change perceptions over time as
performance and disclosure on ESG issues improves, but abrdn is interested in
the journey as much as arrival.
Taking an independent view on ESG allows abrdn to anticipate upgrades and
drive change through engagement. External research agencies primarily use
backward looking data but through fundamental research abrdn forms a
forward-looking view of a company's ESG credentials and anticipates changes,
attempting to take advantage of this inefficiency.
Climate Change
Climate change is one of the most significant challenges of the 21st century
and has big implications for investors. The energy transition is underway in
many parts of the world, and policy changes, falling costs of renewable
energy, and a change in public perception are happening at a rapid pace.
Assessing the risks and opportunities of climate change is part of abrdn's
investment process.
abrdn believes that climate scenario analysis provides a forward looking,
quantitative assessment of the financial impact of climate risks and
opportunities on the value of assets under different climate pathways. As a
result, abrdn works in partnership with Planetrics to quantify the impact of
climate scenarios where a probability weighted view based on a range of off
the shelf and bespoke scenarios is taken. This allows abrdn to model a
quantitative financial impact under 15 different climate risk scenarios at
both the stock level and at the Company level.
abrdn is focused on real-world decarbonisation by investing in transition
leaders and climate solutions rather than the fast removal of carbon intensive
companies from the portfolios it manages. abrdn engages with the highest
carbon-emitting companies across these portfolios through a focused priority
watchlist, with a focus on clear expectations and outcomes combined with
time-bound milestones.
Important Note
The Company does not specifically exclude any sectors from its investment
universe. All investments have to pass a quality test and ESG issues are only
part of the investment analysis. abrdn may, for example, invest in, and
vigorously engage with, a well-managed, capitalised and attractively valued
fossil fuel company that is able to deploy a sizeable balance sheet and lower
cost of capital to that of a renewables-only alternative.
It is also important to recognise that there may be periods in the future
where it is impossible for abrdn to make sequential annual improvements in
some ESG factors like carbon intensity. abrdn intends to maintain a lower
carbon footprint relative to the benchmark but there may be times when
investments are made in companies that currently have a higher footprint but
have a commitment to improve this over time. abrdn will monitor and assess
their commitment on a regular basis.
abrdn (Asia) Limited
22 November 2024
Results
Year's Highs/Lows
High Low
Share price (p) 414.0 342.0
Net asset value (p) 462.7 397.8
Discount (%)(A) -18.8 -8.7
(A) Considered to be an Alternative Performance Measure.
Performance (total return)
1 year return 3 year return(B) 5 year return
% % %
Share price(A) +16.7 -17.1 +7.7
Net asset value(A) +9.3 -16.6 +5.2
MSCI AC Asia (ex Japan) Index (in sterling terms) +12.0 -4.7 +21.3
(A) Considered to be an Alternative Performance Measure.
(B) Also represents the period since the introduction of performance-related
conditional tender offer, which provided that, in the event that the NAV total
return per share fails to equal or exceed the MSCI All Country Asia ex Japan
Index (sterling adjusted) over a five year assessment period commencing 1
September 2021, the Board would put forward proposals to shareholders to
undertake a tender offer.
Ten Year Financial Record
Net asset Revenue Dividend Expenses
Equity value per return per Ordinary Share per as a
shareholders' Ordinary Ordinary share price Ordinary % of average
interest share share price discount share shareholders'
Year ended 31 August £'000 p p p % p funds(A)
2015 518,635 267.22 4.13 235.75 11.8 3.00 1.15
2016 664,159 348.62 4.50 302.00 13.4 3.20 1.14
2017 807,330 423.26 4.68 361.00 14.7 3.30 1.03
2018 788,019 421.54 5.03 370.00 12.2 4.00 0.80
2019 589,708 458.03 4.87 402.50 12.1 4.75 0.83
2020 599,431 474.39 5.01 416.00 12.3 4.75 0.89
2021 706,929 566.60 7.36 512.00 9.6 6.50 0.83
2022 614,369 513.32 6.38 446.00 13.1 6.50 0.84
2023 479,169 421.26 7.06 353.00 16.2 6.60 0.91
2024 711,626 452.93 6.73 404.00 10.8 6.60 0.75
(A) 2024 includes the impact of the management fee waiver implemented
following the transaction with abrdn New Dawn Investment Trust plc.
Ten Largest Investments
As at 31 August 2024
Taiwan Semiconductor Manufacturing Company Tencent Holdings
As the world's largest pure-play semiconductor manufacturer, TSMC provides a The internet giant continues to strengthen its ecosystem and we see great
full range of integrated foundry services, along with a robust balance sheet potential in its ability to balance its multiple revenue streams and monetise
and good cash generation that enables it to keep investing in cutting-edge its social media and payment platforms whilst navigating the regulatory
technology and innovation. landscape.
Samsung Electronics (Pref) AIA Group
One of the global leaders in the memory chips segment, and a major player in A leading pan-Asian life insurance company, it is poised to take advantage of
smartphones and display panels. It has a vertically integrated business model Asia's growing affluence, backed by an effective agency force and a strong
and robust balance sheet, alongside good free cash flow generation. balance sheet.
SBI Life Insurance ASML
Among the leading Indian life insurers, SBI Life's competitive edge comes from The Dutch company supplies lithography equipment that enables semiconductor
a wide reach of SBI branches, highly productive agents, a low cost ratio and a chip makers to mass produce patterns on silicon, helping to make computer
reputable SBI brand. chips smaller, faster and greener. It earns most of its revenue from Asia.
ICICI Bank Bank Central Asia
India's ICICI Bank has been delivering superior growth and returns improvement Among the largest non state owned banks in Indonesia, it is well capitalised
without compromising on asset quality. It has leveraged on its scale as well and has a big and stable base of low-cost deposits that funds its lending,
as retail and digital franchise to grow in mortgages and also grown off a low while asset quality has remained solid.
base in business banking and SMEs.
DBS ASM International
The largest bank in Singapore, it is also the best managed with a clear ASM International is the global leader in single-wafer atomic layer deposition
strategy. It is backed by good digital infrastructure, and operates with (ALD) technology. ALD is a high-precision process by which smooth and
obvious focus on efficiency of returns, as shown in the distinctively better ultra-thin films are deposited onto a wafer. As semiconductor chips get
return on equity than local peers. increasingly smaller, demand for ALD is rising across the logic, foundry and
memory segments and, in turn, expanding the addressable market for ASMI.
Investment Portfolio
At 31 August 2024
Valuation Total Valuation
2024 assets 2023
Company Industry Country £'000 % £'000
Taiwan Semiconductor Manufacturing Company Semiconductors & Semiconductor Equipment Taiwan 95,507 12.1 54,535
Tencent Interactive Media & Services China 63,088 8.0 36,024
Samsung Electronics (Pref) Technology Hardware, Storage & Peripherals South Korea 59,435 7.5 38,960
AIA Insurance Hong Kong 31,546 4.0 29,370
SBI Life Insurance Insurance India 19,298 2.5 12,761
ASML Semiconductors & Semiconductor Equipment Netherlands 19,015 2.4 -
ICICI Bank Banks India 18,921 2.4 -
Bank Central Asia Banks Indonesia 17,550 2.2 10,953
DBS Banks Singapore 16,128 2.0 9,697
ASM International Semiconductors & Semiconductor Equipment Netherlands 15,226 1.9 5,184
Top ten investments 355,714 45.0
Chroma ATE Electronic Equipment, Instruments & Components Taiwan 14,401 1.8 -
Meituan-Dianping Class B Hotels, Restaurants & Leisure China 13,558 1.7 8,869
Samsung Biologics Life Sciences Tools & Services South Korea 12,888 1.6 5,550
Info Edge (India) Interactive Media & Services India 12,868 1.6 5,725
Contemporary Amperex Technology - A Electrical Equipment China 12,748 1.6 6,868
Delta Electronics Electronic Equipment, Instruments & Components Taiwan 12,334 1.6 5,847
FPT Corp IT Services Vietnam 12,281 1.6 8,212
Trip.com Hotels, Restaurants & Leisure China 12,231 1.6 -
SK Hynix Semiconductors & Semiconductor Equipment South Korea 12,121 1.5 -
Power Grid Corp of India Electric Utilities India 11,942 1.5 8,910
Twenty largest investments 483,086 61.1
Accton Technology Communications Equipment Taiwan 11,346 1.4 -
Kweichow Moutai Co Ltd - A Beverages China 10,918 1.4 13,811
Yageo Electronic Equipment, Instruments & Components Taiwan 10,830 1.4 -
abrdn New India Investment Trust(A) Closed End Investments India 10,571 1.3 -
Mahindra & Mahindra Automobiles India 9,996 1.3 -
Advanced Info Service PCL - Foreign Wireless Telecommunication Services Thailand 9,647 1.2 -
Bharti Airtel Wireless Telecommunication Services India 9,366 1.2 -
Tata Consultancy Services IT Services India 9,112 1.2 6,193
Bank of the Philippine Islands Banks Philippines 9,056 1.1 6,628
Silergy Corp Semiconductors & Semiconductor Equipment Taiwan 9,009 1.1 3,912
Thirty largest investments 582,937 73.7
M.P. Evans Group Food Products United Kingdom 8,698 1.1 -
Sumber Alfaria Trijaya Consumer Staples Distribution & Retail Indonesia 8,616 1.1 -
PB Fintech Insurance India 8,240 1.1 5,325
Godrej Properties Real Estate Management & Development India 8,233 1.0 -
Larsen and Toubro Construction & Engineering India 8,063 1.0 5,985
Ultratech Cement Construction Materials India 7,892 1.0 7,233
Alibaba Group Holding Broadline Retail China 7,881 1.0 23,374
CSL Biotechnology Australia 7,859 1.0 -
HDFC Bank Banks India 7,838 1.0 19,754
Nari Technology - A Electrical Equipment China 7,802 1.0 4,427
Forty largest investments 664,059 84.0
HD Korea Shipbuilding & Offshore Engineering Machinery South Korea 7,506 1.0 -
Hindustan Unilever Personal Care Products India 7,313 0.9 7,845
Indian Hotels Hotels, Restaurants & Leisure India 7,291 0.9 -
NTPC Independent Power and Renewable Electricity Producers India 7,191 0.9 -
Pidilite Industries Chemicals India 6,947 0.9 -
ASMPT Ltd Semiconductors & Semiconductor Equipment Hong Kong 6,854 0.9 -
Telekom Indonesia Diversified Telecommunication Services Indonesia 6,640 0.8 -
Bank for Foreign Trade of Vietnam JSC Banks Vietnam 6,548 0.8 -
Cisarua Mountain Dairy Food Products Indonesia 6,366 0.8 -
ShenZhen Mindray Bio-Medical Electronics - A Health Care Equipment & Supplies China 6,328 0.8 6,526
Fifty largest investments 733,043 92.7
BHP Group Metals & Mining Australia 6,316 0.8 -
Yum China Holdings Hotels, Restaurants & Leisure China 5,787 0.7 -
Global Health Ltd/India Health Care Providers & Services India 5,592 0.7 -
China Resources Land Real Estate Management & Development China 4,628 0.6 6,005
Aier Eye Hospital Group - A Health Care Providers & Services China 4,448 0.6 6,854
abrdn Asia Focus(A) Closed End Investments Other Asia 3,346 0.4 -
763,160 96.5
Net current assets(B) 27,293 3.5
Total assets less current liabilities(B) 790,453 100.0
(A) Holding also managed by the abrdn Group but not subject to double charging
of management fees.
(B) Excluding bank loan of £71,822,000.
Note: Unless otherwise stated, foreign stock is held and all investments are
equity holdings. Values for 2024 and 2023 may not be directly comparable due
to purchases and sales made during the year, including investments acquired as
a result of the transaction with abrdn New Dawn Investment Trust plc.
Changes in Asset Distribution
For the year ended 31 August 2024
Value at Sales Gains/ Value at
1 September 2023 Purchases(A) proceeds (losses) 31 August 2024
Country £'000 £'000 £'000 £'000 £'000
Australia - 41,703 28,041 513 14,175
China 162,736 114,773 91,901 (36,191) 149,417
Hong Kong 53,957 46,211 40,340 (21,428) 38,400
India 93,524 98,069 58,068 43,149 176,674
Indonesia 10,953 41,211 12,667 (325) 39,172
Netherlands 5,184 27,429 6,189 7,817 34,241
Other Asia - 2,995 - 351 3,346
Philippines 13,154 1,611 6,965 1,256 9,056
Singapore 21,414 13,494 22,884 4,104 16,128
South Korea 58,001 54,323 21,870 1,496 91,950
Taiwan 76,989 62,437 37,601 51,602 153,427
Thailand - 8,051 - 1,596 9,647
United Kingdom - 7,512 - 1,186 8,698
Vietnam 13,307 8,626 8,656 5,552 18,829
Total investments 509,219 528,445 335,182 60,678 763,160
Net current assets 12,016 - - 15,277 27,293
Total assets less current liabilities 521,235 528,445 335,182 75,955 790,453
(A) Includes £135,577,000 of investments acquired as a result of the
transaction with abrdn New Dawn Investment Trust plc.
Investment Case Studies
Bharti Airtel
Bharti Airtel stands as one of India's largest integrated telecom solutions
providers, offering a wide range of services including cellular-phone
services, fixed-line phone services, broadband, and various enterprise
solutions. Additionally, it is the second-largest mobile operator in Africa,
behind South Africa's MTN Group. Recently, Airtel successfully listed its
Bharti Hexacom subsidiary, marking the group's first IPO in over a decade.
We believe Airtel is the most commercial and financially disciplined service
provider in the Indian telecom sector, which has seen significant market
repair in recent years. The industry has consolidated from nearly a dozen
companies to just three major operators: Airtel, Reliance's Jio, and Vodafone
Idea.
Among Indian telecom operators, Airtel boasts a relatively healthy balance
sheet, a strong execution track record, effective cost control, and a growing,
high-quality subscriber base, including approximately 259.4 million mobile
smartphone customers. Due to market consolidation, Airtel achieved positive
free cash flow (FCF) for the first time in 2022.
As smartphones become more affordable and subscribers transition to 5G, the
demand for data services is increasing. For Airtel, data services are
experiencing rapid growth, and the company anticipates this trend to continue.
Another key growth area is home broadband services, which are performing well
with healthy subscriber additions, supported by the roll out of its high-speed
Xstream AirFiber network across the country.
Airtel has further improved the mix of its subscriber base, leading to an
increase in average revenue per user (ARPU) and gains in revenue market share.
Following the Indian parliamentary election in June, telecom operators,
including Airtel, raised mobile tariffs for the first time in three years.
This move aims to recoup some of the significant investments made in building
India's 5G technology infrastructure over the past two years. Airtel's
management has emphasised that tariff adjustments are essential for
maintaining the industry's health.
The market dynamics are favourable for Airtel: the number of Indian smartphone
users is projected to rise from about 750 million to over a billion by 2026,
driven largely by rural demand. This indicates potential for organic growth.
Additionally, mobile spending as a percentage of GDP is relatively low in
India compared to ASEAN markets, although many smartphone users are willing to
spend 20% to 30% more on their next smartphones.
On the sustainability front, Airtel continues to make progress on its ESG
agenda. The company has committed to reduce absolute Scope 1 and 2 greenhouse
gas emissions by 50.2% by FY 2030-31 from the base year of FY 2020-21. It has
also committed to reducing absolute Scope 3 greenhouse gas (GHG) emissions by
42% over the same time frame.
Tencent
Tencent is one of China's highest quality, diversified internet companies,
with a deep understanding of the Chinese consumer and a highly competent
management team. It is the largest operator of instant messaging and social
networking services in China. Tencent's integrated social platforms, such as
WeChat/Weixin and QQ, boast over 1.3 billion and 768 million monthly active
users, respectively, dominating internet user engagement in China. This
creates a significant barrier to entry for competitors and generates high user
stickiness for the platform ecosystems, providing ample opportunities for
Tencent to monetise its services.
The largest contributor to Tencent's revenue is gaming where the company holds
approximately 50% of domestic market share in China. It has a collection of
long-running, popular titles that make revenue streams for the gaming business
more visible. This sets the company apart from other game developers who often
rely on hit-or-miss titles. Tencent has also built up its capabilities through
mergers and acquisitions (M&A) and licensing deals, enabling it to also
grow the international gaming business.
In the advertising space, Tencent has effectively monetised the massive WeChat
ecosystem. It has introduced features like Moments, where users can share
pictures and statuses, similar to Facebook. Recently, the company rolled out
short-form videos, which have increased user engagement and created more
advertising opportunities. Tencent has also been at the forefront of AI
investments, monetising some of the many use cases of AI. For example, it
helps advertisers create better content and make more effective ad
recommendations to users. This has led to higher click-through rates on ads
and better returns on advertising spending.
Another notable tailwind for the company is the improving regulatory
environment in China. In December 2023, Chinese regulators announced a wide
range of rules aimed at curbing spending and rewards that encourage video
games, but the government quickly backtracked on the proposal. Approval of
video game titles on average have also improved, pointing to a potentially
more stable regulatory landscape for Tencent.
We like the company's track record of strong balance sheet, its ability to
fund expansion and M&A activities, and its consistent free cash flow
generation over the years. The company's history of successful new product
monetisation further underscores its long-term growth prospects. We anticipate
that cash flow generation will remain relatively robust, given Tencent's
strong market position, revenue growth across operating segments, and
significant margin expansion.
In the first quarter of 2024, Tencent announced its commitment to return
excess capital to shareholders through share repurchases and dividends,
emphasising that these activities will be funded by its ample cash generation.
Since the post-Covid reopening, the Chinese and Hong Kong stock markets have
experienced relative weakness due to a challenging macroeconomic environment
in China. Investors have either chased short-term trends or indiscriminately
sold assets to de-risk their Chinese company exposure. Despite this backdrop,
Tencent has consistently performed well, owing to its long-term structural
growth drivers, delivering over 22% annualised returns compared to just 8% for
the MSCI China Index.
Directors' Report
Capital Structure
At 31 August 2024, the Company had 157,116,517 fully paid Ordinary shares of
20p each in issue (2023: 113,745,386) with a further 55,390,830 Ordinary
shares of 20p held in treasury (2023: 45,866,291). During the year to 31
August 2024 9,524,539 Ordinary Shares were bought back and held in treasury
(2023: 5,940,615). Subsequent to the period end a further 891,234 Ordinary
shares have been purchased in the market for treasury.
On 8 November 2023 52,895,670 new Ordinary shares were issued in consideration
for the acquisition of approximately £214.7m of net assets following the
conclusion of the combination with abrdn New Dawn. Further details on the
changes to the capital structure during the year ended 31 August 2024 are
provided in note 14.
The Ordinary shares carry a right to receive dividends which are declared from
time to time by an ordinary resolution of the Company (up to the amount
recommended by the Board) and to receive any interim dividends which the
Directors may resolve the Company should pay. On a winding-up, after meeting
the liabilities of the Company, the surplus assets will be paid to Ordinary
shareholders in proportion to their shareholdings. On a show of hands, every
Ordinary shareholder present in person, or by proxy, has one vote and, on a
poll, every Ordinary shareholder present in person has one vote for each share
held and a proxy has one vote for every share represented.
There are no restrictions concerning the holding or transfer of the Ordinary
shares and there are no special rights attached to any of the shares. The
Company is not aware of any agreements between shareholders which may result
in any restriction on the transfer of shares or the voting rights.
In the event of a winding-up of the Company, the Ordinary shares will rank
behind any creditors or prior ranking capital of the Company.
Directors
The Directors of the Company who were in office during the year and up to the
date of signing the financial statements were James Will, Matthew Dobbs, Susan
Sternglass Noble, Stephen Souchon (appointed 9 November 2023) and Nicole Yuen
(appointed 9 November 2023). In addition, Donald Workman was appointed a
Director on 9 November 2023 and retired from the Board on 9 May 2024. Gaynor
Coley and Charlie Ricketts also retired from the Board on 9 May 2024.
Biographies of the current Directors of the Company are shown on pages 46 to
48 of the published Annual Report and Financial Statements for the year ended
31 August 2024.
Directors' and Officers' Liability Insurance
The Company's articles of association indemnify each of the Directors out of
the assets of the Company against any liabilities incurred by them as a
Director of the Company in defending proceedings, or in connection with any
application to the Court in which relief is granted. In addition, the
Directors have been granted qualifying indemnity provisions by the Company
which are currently in force. Directors' and Officers' liability insurance
cover has been maintained throughout the year at the expense of the Company.
Dividends
The Directors have declared an interim dividend in lieu of the final dividend
of 6.6p per Ordinary share (2023: 6.6p) in respect of the year ended 31 August
2024 which will be paid on 31 December 2024 to shareholders on the register on
6 December 2024. The ex-dividend date is 5 December 2024.
Management Agreement
The Company has appointed abrdn Fund Managers Limited ("aFML"), a wholly owned
subsidiary of abrdn plc, as its alternative investment fund manager. By way of
group delegation agreements within the abrdn Group the management of the
Company's investment portfolio is delegated to abrdn (Asia) Limited and
company secretarial services and administrative services are provided by abrdn
Holdings Limited.
Details of the management agreement, including the notice period and fees paid
to the abrdn Group companies during the year ended 31 August 2024, are shown
in note 20 to the financial statements.
Reduction in Management Fee
As detailed in the Company's circular to shareholders dated 22 September 2023,
with effect from 8 November 2023, the date of the completion of the
combination with abrdn New Dawn, the management fee payable by the Company to
AFML was reduced to 0.75 per cent. per annum (from 0.85 per cent. per annum)
on the initial £350 million of the Company's NAV and 0.50 per cent. per annum
on the Company's NAV in excess of £350 million. In addition, the Manager
agreed to make a contribution to the costs of the combination proposals by
means of a reduction in the management fee payable by the enlarged Company to
aFML. The fee reduction constituted a waiver of the management fee that would
otherwise be payable by the enlarged company to AFML in respect of the assets
transferred by abrdn New Dawn for the first six months following the effective
date of the combination.
On 26 July 2024 the Company entered into a deemed notice agreement
("Agreement") with aFML. Under the Agreement it was agreed that, inter alia,
in the event of a termination notice being served by the Company under the
management agreement within twelve months of the date of the Agreement, aFML
would deem such notice to have been served on 26 July 2024, without prejudice
to the repayment provisions linked to the cost contribution by aFML in
connection with the combination with abrdn New Dawn set out in the management
agreement as amended. Refer to Note 23 for further details.
Borrowings
The Company has a £75 million multicurrency revolving facility with The Royal
Bank of Scotland International Limited, London Branch with a maturity date of
29 March 2025.
Corporate Governance
The Statement of Corporate Governance, which forms part of the Directors'
Report, is contained on pages 52 to 57 of the published Annual Report and
Financial Statements for the year ended 31 August 2024.
Going Concern
As set out in more detail in the Chairman's Statement, it is proposed that the
Company combines with Invesco Asia Trust plc ("Invesco Asia"). The
combination, if approved by each company's shareholders, will be effected by
way of a scheme of reconstruction and winding up of the Company under section
110 of the Insolvency Act 1986 and the associated transfer of part of the
assets and undertaking of the Company to Invesco Asia in exchange for the
issue of new ordinary shares in Invesco Asia (the "Proposal"). The outcome of
the general meetings to make the Proposal effective represents a material
uncertainty which may cast significant doubt on the Company's ability to
continue as a going concern. Notwithstanding this material uncertainty, the
Board has concluded that it remains appropriate to continue to prepare the
financial statements on a going concern basis. In reaching this conclusion,
the Board has come to the view that, as the Proposal is contingent on
shareholder approval and the Company is considered solvent in all other
regards, there is no irrevocable path to liquidation and thus going concern
remains the most appropriate basis for preparation. In reaching this
conclusion, the Board has also given due consideration to the risks associated
with the Proposal.
The Board has also given consideration to the liquidity of the investment
portfolio. The Company's assets consist substantially of equity shares in
companies listed on recognised stock exchanges and in most circumstances are
realisable within a short timescale. The Board regularly reviews income and
expenditure projections and has set limits for borrowing and reviews
compliance with banking covenants, including the headroom available. At the
year end, the Company's borrowings were £71.8 million in aggregate drawn down
from its £75 million multi-currency revolving loan facility maturing on 29
March 2025. In the event of the Company being unable to renew the facility on
maturity, it is anticipated that it would be repaid from the proceeds of
investment sales. In considering the going concern basis of accounting, the
Directors have also taken into account the potential requirement of the Board
to propose a resolution to approve the continuation of the Company at future
Annual General Meetings (earliest being 2026).
Substantial Share Interests
At 31 August 2024 the Company had been notified or was aware of the following
substantial interests in the Ordinary shares:
Shareholder Number of Ordinary shares held % held
City of London Investment Management 47,409,009 30.2
Allspring Global Investments 19,905,512 12.7
Lazard Asset Management 12,828,472 8.2
interactive investor 10,507,724 6.7
1607 Capital Partners 6,633,529 4.2
Rathbones 5,234,682 3.3
On 11 November 2024 the Company was notified by 1607 Capital Partners that
they held 8,123,094 Ordinary shares (5.2% of the issued capital). As at the
date of this Report, no other changes to the above interests had been notified
to the Company.
Accountability and Audit
The respective responsibilities of the Directors and the independent auditors
in connection with the financial statements appear on pages 52 and 74 of the
published Annual Report and Financial Statements for the year ended 31 August
2024.
The Directors who held office at the date of approval of this Directors'
Report confirm that, so far as they are each aware, there is no relevant audit
information of which the Company's auditors are unaware and each Director has
taken all the steps that he or she ought to have taken as a Director to make
himself or herself aware of any relevant audit information and to establish
that the Company's auditors are aware of that information. The Directors
confirm that no non audit services were provided by the auditor during the
year and the Directors remain satisfied that the auditor's objectivity and
independence is being safeguarded.
Global Greenhouse Gas Emissions and Streamlined Energy and Carbon Reporting ("SECR")
All of the Company's activities are outsourced to third parties. The Company
therefore has no greenhouse gas emissions to report from the operations of its
business, nor does it have responsibility for any other emissions producing
sources under the Companies Act 2006 (Strategic Report and Directors' Reports)
Regulations 2013. For the same reason as set out above, the Company considers
itself to be a low energy user under the SECR regulations and therefore is not
required to disclose energy and carbon information. Further information on the
Manager's obligatory disclosures under the Taskforce on Climate-related
Financial Disclosures ("TCFD") may be found on the Company's website.
Other Information
The rules concerning the appointment and replacement of Directors, amendments
to the articles of association and powers to issue or buy back the Company's
shares are contained in the articles of association of the Company and the
Companies Act 2006. There are no agreements which the Company is party to that
might affect its control following a takeover bid; and there are no agreements
between the Company and its Directors concerning compensation for loss of
office. Other than the management agreement with the Manager, further details
of which are set out on pages 49 and 50 of the published Annual Report and
Financial Statements for the year ended 31 August 2024 the Company is not
aware of any contractual or other agreements which are essential to its
business which ought to be disclosed in the Directors' Report.
The financial risk management objectives and policies arising from its
financial instruments and the exposure of the Company to risk are disclosed in
note 18 to the Financial Statements.
By order of the Board,
abrdn Holdings Limited
Secretary
Edinburgh
22 November 2024
Registered office:
1 George Street
Edinburgh EH2 2LL
Company Registration Number: SC106049
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report and financial
statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law they are required to prepare the financial
statements in accordance with UK accounting standards, including FRS 102, the
Financial Reporting Standard applicable in the UK and Republic of Ireland.
Under company law the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Company and of its profit or loss for that period. In
preparing these financial statements, the Directors are required to:
· select suitable accounting policies and then apply them consistently;
· make judgements and estimates that are reasonable and prudent;
· state whether applicable UK accounting standards have been followed,
subject to any material departures disclosed and explained in the financial
statements;
· assess the Company's ability to continue as a going concern, disclosing,
as applicable, matters related to going concern; and
· use the going concern basis of accounting unless they either intend to
liquidate the Company or to cease operations, or have no realistic alternative
but to do so.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that its financial statements comply with the Companies
Act 2006. They are responsible for such internal control as they determine
is necessary to enable the preparation of financial statements that are free
from material misstatement, whether due to fraud or error, and have general
responsibility for taking such steps as are reasonably open to them to
safeguard the assets of the Company and to prevent and detect fraud and other
irregularities.
Under applicable law and regulations, the Directors are also responsible for
preparing a Strategic Report, Directors' Report, Directors' Remuneration
Report and Corporate Governance Statement that complies with that law and
those regulations.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website.
Legislation in the
UK governing the preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
Responsibility statement of the Directors in respect of the annual financial
report.
We confirm that to the best of our knowledge:
· the financial statements, prepared in accordance with the applicable set
of accounting standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company; and
· the Strategic report /Director's report include a fair review of the
development and performance of the business and the position of the issuer,
together with a description of the principal risks and uncertainties that they
face.
We consider the annual report and financial statements, taken as a whole, is
fair, balanced and understandable and provides the information necessary for
shareholders to assess the Company's position and performance, business model
and strategy.
For Asia Dragon Trust plc
James Will,
Chairman
22 November 2024
Statement of Comprehensive Income
Year ended 31 August 2024 Year ended 31 August 2023
Revenue Capital Total Revenue Capital Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
Gains/(losses) on investments held at fair value through profit or loss 10 - 59,862 59,862 - (106,052) (106,052)
Currency gains/(losses) - 1,398 1,398 - (1,140) (1,140)
Income 3 14,289 - 14,289 11,829 - 11,829
Investment management fee 4 (876) (2,629) (3,505) (960) (2,879) (3,839)
Administrative expenses 5 (1,184) - (1,184) (1,054) (2) (1,056)
Net return/(loss) before finance costs and taxation 12,229 58,631 70,860 9,815 (110,073) (100,258)
Interest payable and similar charges 6 (781) (2,343) (3,124) (534) (1,602) (2,136)
Return/(loss) before taxation 11,448 56,288 67,736 9,281 (111,675) (102,394)
Taxation 7 (1,233) (6,673) (7,906) (1,015) (334) (1,349)
Return/(loss) after taxation 10,215 49,615 59,830 8,266 (112,009) (103,743)
Return per share (pence) 9 6.73 32.71 39.44 7.06 (95.72) (88.66)
The total column of this statement represents the profit and loss account of
the Company.
All revenue and capital items in the above statement derive from continuing
operations.
The accompanying notes are an integral part of the financial statements.
Statement of Financial Position
As at As at
31 August 2024 31 August 2023
Notes £'000 £'000
Non-current assets
Investments at fair value through profit or loss 10 763,160 509,219
Current assets
Debtors and prepayments 11 1,715 3,114
Cash and cash equivalents 12 27,443 10,942
29,158 14,056
Creditors: amounts falling due within one year
Bank loan 13(a) (71,822) (39,992)
Other creditors 13(b) (1,865) (2,040)
(73,687) (42,032)
Net current liabilities (44,529) (27,976)
Non-current liabilities
Creditors: amounts falling due after more than one year
Deferred tax liability on Indian capital gains 13(c) (7,005) (2,074)
Net assets 711,626 479,169
Share capital and reserves
Called-up share capital 14 42,501 31,922
Share premium account 264,372 60,416
Capital redemption reserve 28,154 28,154
Capital reserve 15 332,685 317,532
Revenue reserve 43,914 41,145
Total shareholders' funds 711,626 479,169
Net asset value per Ordinary share (pence) 16 452.93 421.26
The financial statements were approved by the Board of Directors and
authorised for issue on 22 November 2024 and were signed on its behalf by:
James Will
Chairman
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Equity
For the year ended 31 August 2024
Share Capital
Share premium redemption Capital Revenue
capital account reserve reserve reserve Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 September 2023 31,922 60,416 28,154 317,532 41,145 479,169
Return after taxation - - - 49,615 10,215 59,830
Buyback of Ordinary shares for treasury 14 - - - (34,462) - (34,462)
Issue of shares in respect of transaction with New Dawn 22 10,579 204,150 - - - 214,729
Cost of shares issued in respect of transaction with New Dawn - (194) - - - (194)
Dividend paid 8 - - - - (7,446) (7,446)
Balance at 31 August 2024 42,501 264,372 28,154 332,685 43,914 711,626
For the year ended 31 August 2023
Share Capital
Share premium redemption Capital Revenue
capital account reserve reserve reserve Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 September 2022 31,922 60,416 28,154 453,273 40,604 614,369
Return after taxation - - - (112,009) 8,266 (103,743)
Buyback of Ordinary shares for treasury 14 - - - (23,732) - (23,732)
Dividend paid 8 - - - - (7,725) (7,725)
Balance at 31 August 2023 31,922 60,416 28,154 317,532 41,145 479,169
The capital reserve includes investment holding gains amounting to
£147,445,000 (2023 - £32,413,000), as disclosed in note 10.
The Revenue reserve and the part of the Capital reserve represented by
realised capital gains represent the amount of the Company's reserves
distributable by way of dividend.
The accompanying notes are an integral part of the financial statements.
Statement of Cash Flows
Year ended Year ended
31 August 2024 31 August 2023
Notes £'000 £'000
Operating activities
Net return before taxation 67,736 (102,394)
Adjustment for:
(Gains)/losses on investments (59,862) 106,052
Currency (gains)/losses (1,398) 1,140
Increase in accrued dividend income (63) (125)
Decrease in other debtors 46 801
Increase/(decrease) in other creditors 56 (1,262)
Interest payable and similar charges 6 3,124 2,136
Overseas withholding tax (1,111) (689)
Cash from operations 8,528 5,659
Interest paid (3,178) (2,128)
Net cash inflow from operating activities 5,350 3,531
Investing activities
Purchases of investments (392,915) (107,627)
Sales of investments 336,496 163,293
Capital gains tax on sales (1,742) (660)
Costs associated with the transaction with New Dawn (800) -
Net cash (outflow)/inflow from investing activities (58,961) 55,006
Financing activities
Equity dividends paid 8 (7,446) (7,725)
Buyback of Ordinary shares (34,640) (23,824)
Cost of shares issued in respect of the transaction with New Dawn (194) -
Net cash acquired and received following the transaction with New Dawn 22 79,172 -
Repayment of bank loans (15,000) (20,000)
Drawdown of bank loans 46,822 -
Net cash raised from/(used in) financing activities 68,714 (51,549)
Increase in cash and cash equivalents 15,103 6,988
Analysis of changes in cash and cash equivalents during the year
Opening balance 10,942 5,094
Effect of exchange rate fluctuations on cash held 1,398 (1,140)
Increase in cash and cash equivalents as above 15,103 6,988
Closing cash and cash equivalents 27,443 10,942
Represented by:
Money market funds 12,001 5,001
Cash and short term deposits 15,442 5,941
27,443 10,942
The accompanying notes are an integral part of the financial statements.
Notes to the Financial Statements
For the year ended 31 August 2024
1. Principal activities
The Company is a closed-end investment company, registered in Scotland No
SC106049, with its Ordinary shares being listed on the London Stock Exchange.
2. Accounting policies
(a) Basis of preparation. The financial statements have been prepared in
accordance with Financial Reporting Standard 102, the Companies Act 2006 and
with the Statement of Recommended Practice 'Financial Statements of Investment
Trust Companies and Venture Capital Trusts' issued in July 2022. The financial
statements are prepared in Sterling which is the functional currency of the
Company and rounded to the nearest £'000. They have also been prepared on the
assumption that approval as an investment trust will continue to be granted.
The accounting policies applied are unchanged from the prior year and have
been applied consistently.
The Company's investments and borrowings are made in a number of currencies,
however the Board considers the Company's functional currency to be Sterling.
In arriving at this conclusion, the Board considered that the shares of the
Company are listed on the London Stock Exchange, it is regulated in the United
Kingdom, principally having its shareholder base in the United Kingdom, pays
dividends and expenses in Sterling. Consequently, the Board also considers the
Company's presentational currency to be Sterling.
Going concern. As set out in more detail in the Chairman's Statement it is
proposed that the Company combines with Invesco Asia Trust plc ("Invesco
Asia"). The combination, if approved by each company's shareholders, will be
effected by way of a scheme of reconstruction and winding up of the Company
under section 110 of the Insolvency Act 1986 and the associated transfer of
part of the assets and undertaking of the Company to Invesco Asia in exchange
for the issue of new ordinary shares in Invesco Asia (the "Scheme"). The
outcome of the general meetings to make the Scheme effective represents a
material uncertainty which may cast significant doubt on the Company's ability
to continue as a going concern. Notwithstanding this material uncertainty, the
Board has concluded that it remains appropriate to continue to prepare the
financial statements on a going concern basis. In reaching this conclusion,
the Board has come to the view that, as the Scheme is contingent on
shareholder approval and the Company is considered solvent in all other
regards, there is no irrevocable path to liquidation and thus going concern
remains the most appropriate basis for preparation. In reaching this
conclusion, the Board has also given due consideration to the risks associated
with the Proposal.
The Board has also given consideration to the liquidity of the investment
portfolio. The Company's assets consist substantially of equity shares in
companies listed on recognised stock exchanges and in most circumstances are
realisable within a short timescale. The Board regularly reviews income and
expenditure projections and has set limits for borrowing and reviews
compliance with banking covenants, including the headroom available. At the
year end, the Company's borrowings were £71.8 million in aggregate drawn down
from its £75 million multi-currency revolving loan facility maturing on 29
March 2025. In the event of the Company being unable to renew the facility on
maturity, it is anticipated that it would be repaid from the proceeds of
investment sales. In considering the going concern basis of accounting, the
Directors have also taken into account the potential requirement of the Board
to propose a resolution to approve the continuation of the Company at future
Annual General Meetings (earliest being 2026). The financial statements do not
include the adjustments that would result if the company were unable to
continue as a going concern.
Significant accounting judgements, estimates and assumptions. The preparation
of financial statements requires the consideration of certain significant
accounting judgements, estimates and assumptions when management may need to
exercise its judgement in the process of applying the accounting policies and
these are continually evaluated. The Directors do not consider there to be any
significant estimates within the financial statements.
(b) Investments. Listed investments have been designated upon initial recognition
as held at fair value through profit or loss. Investments are recognised and
de-recognised on the trade date at fair value, which is generally deemed to be
the cost of the investment at that point. Subsequent to initial recognition,
investments are valued at fair value, which for listed investments is deemed
to be bid market prices or closing prices for SETS (London Stock Exchange's
electronic trading service) stocks sourced from the London Stock Exchange.
Gains and losses arising from changes in fair value are included as a capital
item in the Income Statement and are ultimately recognised in the capital
reserve.
(c) Income. Dividends (other than special dividends), including taxes deducted at
source, are included in revenue by reference to the date on which the
investment is quoted ex-dividend. Special dividends are reviewed on a
case-by-case basis and may be credited to capital, if circumstances dictate.
Dividends receivable on equity shares where no ex-dividend date is quoted are
brought into account when the Company's right to receive payment is
established. Where the Company has elected to receive its dividends in the
form of additional shares rather than cash, the amount of the foregone cash
dividend is recognised as income. Any excess in the value of the shares
received over the amount of cash dividend foregone is recognised in capital
reserves. Interest receivable on bank balances is dealt with on an accruals
basis.
(d) Expenses. All expenses are accounted for on an accruals basis. Expenses are
charged through the revenue column of the Statement of Comprehensive Income
except as follows:
- expenses directly relating to the acquisition or disposal of an investment,
which are charged to the capital column of the Statement of Comprehensive
Income and are separately identified and disclosed in note 10; and
- the Company charges 75% of investment management fees and finance costs to
the capital column and 25% to the revenue column of the Statement of
Comprehensive Income, in accordance with the Board's expected long term return
in the form of capital gains and income respectively from the investment
portfolio of the Company.
(e) Taxation. The tax expense represents the sum of the tax currently payable and
deferred tax. Tax payable is based on the taxable profit for the year. Taxable
profit differs from profit before tax as reported in the Statement of
Comprehensive Income because it excludes items of income or expense that are
taxable or deductible in other years and it further excludes items that are
never taxable or deductible. The Company's liability for current tax is
calculated using tax rates that have been enacted or substantively enacted by
the Statement of Financial Position date.
Deferred tax is recognised in respect of all temporary differences at the
Statement of Financial Position date, where transactions or events that result
in an obligation to pay more tax in the future or right to pay less tax in the
future have occurred at the Statement of Financial Position date. This is
subject to deferred tax assets only being recognised if it is considered more
likely than not that there will be suitable profits from which the future
reversal of the temporary differences can be deducted. Deferred tax assets and
liabilities are measured at the rates applicable to the legal jurisdictions in
which they arise, using enacted tax rates that are expected to apply at the
date the deferred tax position is unwound.
(f) Nature and purpose of reserves
Called-up share capital. The Ordinary share capital on the Statement of
Financial Position relates to the number of shares in issue and in treasury.
Only when the shares are cancelled, either from treasury or directly, is a
transfer made to the capital redemption reserve. This reserve is not
distributable.
Share premium account. The balance classified as share premium includes the
premium above nominal value from the proceeds on issue of any equity share
capital comprising Ordinary shares of 20p. This reserve is not distributable.
Capital redemption reserve. The capital redemption reserve arose when Ordinary
shares were redeemed, and subsequently cancelled by the Company, at which
point an amount equal to the par value of the Ordinary share capital was
transferred from the Ordinary share capital to the capital redemption reserve.
This reserve is not distributable.
Capital reserve. This reserve reflects any gains or losses on investments
realised in the period along with any increases and decreases in the fair
value of investments held that have been recognised in the Statement of
Comprehensive Income. The realised gains part of reserve is distributable for
the purpose of funding share buybacks and dividends.
Revenue reserve. This reserve reflects all income and costs which are
recognised in the revenue column of the Statement of Comprehensive Income. The
revenue reserve represents the amount of the Company's reserves distributable
by way of dividend. The amount of the revenue reserve as at 31 August 2024 may
not be available at the time of any future distribution due to movements
between 31 August 2024 and the date of distribution.
When making a distribution to shareholders, the Directors determine profits
available for distribution by reference to Guidance on realised and
distributable profits under the Companies Act 2006 issued by the Institute of
Chartered Accountants in England and Wales and the Institute of Chartered
Accountants of Scotland in April 2017. The availability of distributable
reserves in the Company is dependent on those dividends meeting the definition
of qualifying consideration within the guidance and on available cash
resources of the Company and other accessible sources of funds. The
distributable reserves are therefore subject to any future restrictions or
limitations at the time such distribution is made.
(g) Foreign currency. Monetary assets and liabilities in foreign currencies are
translated at the rates of exchange ruling on the reporting date. Transactions
involving foreign currencies are converted at the rate ruling on the date of
the transaction. Gains and losses on the realisation of foreign currencies are
recognised in the Statement of Comprehensive Income and are then transferred
to the capital reserve. Unrealised and realised gains and losses on foreign
currency movements on investments held through profit or loss are recognised
in the capital column of the Statement of Comprehensive Income.
(h) Dividends payable. Final dividends are recognised in the financial statements
in the period in which Shareholders approve them.
(i) Treasury shares. When the Company purchases its Ordinary shares to be held in
treasury, the amount of the consideration paid, which includes directly
attributable costs, is net of any tax effect, and is recognised as a deduction
from the capital reserve. When these shares are sold subsequently, the amount
received is recognised as an increase in equity, and any resulting surplus on
the transaction is transferred to the share premium account and any resulting
deficit is transferred from the capital reserve.
(j) Cash and cash equivalents. Cash comprises cash at bank and in hand. Cash
equivalents are short-term, comprising money market funds and highly-liquid
investments that are readily convertible to known amounts of cash, which are
subject to an insignificant risk of changes in value.
(k) Borrowings. Bank loans are initially recognised at cost, being the fair value
of the consideration received, net of any issue expenses. Subsequently, they
are measured at amortised cost using the effective interest method. Finance
charges are accounted for on an accruals basis using the effective interest
rate method and are charged 25% to revenue and 75% to capital.
3. Income
2024 2023
£'000 £'000
Income from investments
Overseas dividend income 13,508 11,618
UK dividend Income 434 -
Stock dividends 27 -
13,969 11,618
Other income
Deposit interest 281 140
Interest from money market funds 39 71
320 211
Total income 14,289 11,829
4. Investment management fee
2024 2023
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment management fee 876 2,629 3,505 960 2,879 3,839
Management fees paid to abrdn Fund Managers Limited ("aFML" or "the Manager")
are calculated at 0.75% per annum on net assets up to £350 million and 0.50%
per annum thereafter. For the period 8 November 2023 to 7 May 2024, there was
a management fee waiver in place as a result of the transaction with abrdn New
Dawn Investment Trust plc ("New Dawn"). For this period the fee was calculated
at 0.51% on net assets up to the value of £350 million and 0.34% on the
remaining assets above this threshold. Prior to this date, the management fees
were calculated at 0.85% per annum on net assets up to £350 million and 0.50%
per annum thereafter. Management fees are calculated and payable on a
quarterly basis. Should the Company terminate the management agreement within
three years of the date of the transaction with New Dawn, then the Company
undertakes to repay all or a proportion of the management fees waived by the
Manager based on the time elapsed since completion of the transaction.
Net assets, per the management agreement, and for the purposes of the
management fee calculation exclude (i) the value of any investment funds
managed by the Manager and (ii) 50% of the value of any investment funds
managed or advised by investment managers other than the Manager. During the
year and at the year end, the Company held £12,001,000 (2023 - £5,001,000)
in Aberdeen Standard Liquidity Fund (Lux) - Sterling Fund, which is managed
and administered by abrdn. The Company pays a management fee on the value of
these holdings but no fee is chargeable at the underlying fund level. The
Company also held investments in abrdn New India Investment Trust of
£10,571,000 (2023 - £nil) and abrdn Asia Focus of £3,346,000 (2023 - £nil)
which are managed and administered by abrdn plc. The value of these holdings
is excluded from the management fee calculation.
The balance due to the Manager at the year end was £1,097,000 (2023 -
£905,000).
The management agreement is terminable by the Company on three months' notice
or in the event of a change of control in the ownership of the Manager. The
notice period required to be given by the Manager is six months.
5. Administrative expenses
2024 2023
£'000 £'000
Promotional activities 252 240
Directors' fees 228 180
Custody fees 317 219
Depositary fees 63 53
Auditors remuneration: Fees payable to the Company's auditors for
- audit of the Company's annual report 54 45
Legal and professional fees 4 49
Other expenses(A) 266 270
1,184 1,056
(A) Includes £nil (2023 - £2,000) paid in relation to costs associated with
the combination with abrdn New Dawn Investment Trust PLC and charged to
capital.
The Company has an agreement with abrdn Fund Managers Limited for the
provision of promotional activities. The total fees paid and payable under the
agreement were £248,000 (2023 - £240,000) and the sum due to the Manager at
the year end was £42,000 (2023 - £160,000).
No pension contributions were made in respect of any of the Directors.
The Company does not have any employees.
6. Interest payable and similar charges
2024 2023
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Interest on bank loans 780 2,340 3,120 533 1,600 2,133
Bank interest paid 1 3 4 1 2 3
781 2,343 3,124 534 1,602 2,136
7. Taxation
2024 2023
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
(a) Analysis of charge for the year
Indian capital gains tax charge on sales - 1,742 1,742 - 660 660
Overseas tax suffered 1,233 - 1,233 1,015 - 1,015
Total current tax charge for the year 1,233 1,742 2,975 1,015 660 1,675
Movement of deferred tax liability on Indian capital gains - 4,931 4,931 - (326) (326)
Total tax charge for the year 1,233 6,673 7,906 1,015 334 1,349
On 1 April 2018, the Indian Government withdrew an exemption from capital
gains tax on investments held for twelve months or longer. Accordingly, the
Company has recognised a deferred tax liability of £7,005,000 (2023 -
£2,074,000) on capital gains which may arise if Indian investments are sold.
The Company has not recognised a deferred tax asset of £29,031,000 (2023 -
£27,361,000) arising as a result of excess management expenses and
non-trading loan relationship deficits. These expenses will only be utilised
if the Company has profits chargeable to UK corporation tax in the future. The
Finance Act 2021 received Royal Assent on 10 June 2021 and the rate of
Corporation Tax of 25% effective from 1 April 2023 has been used to calculate
the potential deferred tax asset.
(b) Factors affecting the tax charge for the year. The tax assessed for the year
is lower (2023 - lower) than the effective rate of corporation tax in the UK.
2024 2023
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Return before taxation 11,448 56,288 67,736 9,281 (111,675) (102,394)
Effective rate of corporation tax at 25% (2023 - 21.5%) 2,862 14,072 16,934 1,996 (24,010) (22,014)
Effects of:
(Gains)/losses on investments not taxable - (15,170) (15,170) - 22,801 22,801
Currency (gains)/losses not taxable - (349) (349) - 245 245
Other non-taxable income (3,492) - (3,492) (2,498) - (2,498)
Expenses not deductible for tax purposes 1 204 205 14 - 14
Increase in excess expenses and loan relationship deficit 579 1,092 1,671 488 964 1,452
Corporate interest restriction 50 151 201 - - -
Indian capital gains tax charge on sales - 1,742 1,742 - 660 660
Movement in deferred tax liability on Indian capital gains - 4,931 4,931 - (326) (326)
Net overseas tax suffered 1,233 - 1,233 1,015 - 1,015
Total tax charge for year 1,233 6,673 7,906 1,015 334 1,349
8. Dividends
The table below sets out the total dividends paid and proposed in respect of
the financial year, which is the basis on which the requirements of Sections
1158 - 1159 are considered. The revenue available for distribution by way of
dividend for the year is £10,215,000 (2023 - £8,266,000).
2024 2023
£'000 £'000
Interim dividend for 2024 - 6.60p per Ordinary share (2023 - final - 6.60p) 10,311 7,443
The interim dividend will be paid on 31 December 2024 to shareholders who were
on the register at the close of business on 6 December 2024.
9. Return per share
2024 2023
£'000 pence £'000 pence
Revenue return 10,215 6.73 8,266 7.06
Capital return 49,615 32.71 (112,009) (95.72)
Total return 59,830 39.44 (103,743) (88.66)
Weighted average Ordinary shares in issue 151,699,426 117,009,550
10. Investments at fair value through profit or loss
2024 2023
£'000 £'000
Opening book cost 476,806 527,477
Opening investment holding gains 32,413 144,902
Opening fair value 509,219 672,379
Analysis of transactions made during the year
Assets acquired in respect of the New Dawn transaction 135,557 -
Costs associated with the New Dawn transaction (A) 816 -
Purchases at cost 392,888 107,610
Sales - proceeds (335,182) (164,718)
Gains/(losses) on investments 59,862 (106,052)
Closing fair value 763,160 509,219
Closing book cost 615,715 476,806
Closing investment gains 147,445 32,413
Closing fair value 763,160 509,219
(A) Costs associated with the acquisition of assets from abrdn New Dawn
Investment Trust plc, comprising £138,000 relating to stamp duty and
financial transaction taxes and £678,000 relating to professional fees. These
costs have been included, together with the gains/(losses) on investments of
£60,678,000 above, in the gains/(losses) on investments of £59,862,000 in
the Statement of Comprehensive Income.
2024 2023
£'000 £'000
Investments listed on an overseas investment exchange 740,545 509,219
Investments listed on the UK investment exchange 22,615 -
Total investments 763,160 509,219
The Company received £335,182,000 (2023 - £164,718,000) from investments
sold in the period. The book cost of these investments when they were
purchased was £390,351,000 (2023 - £158,281,000). These investments have
been revalued over time and until they were sold any unrealised gain/(losses)
were included in the fair value of investments.
Transaction costs. During the year expenses were incurred in acquiring or
disposing of investments classified as fair value through profit or loss.
These have been expensed through capital and are included within gains on
investments in the Statement of Comprehensive Income. The total costs were as
follows:
2024 2023
£'000 £'000
Purchases 402 165
Sales 572 301
974 466
The above transaction costs are calculated in line with the AIC SORP. The
transaction costs in the Company's Key Information Document are calculated on
a different basis and in line with the PRIIPs regulations.
11. Debtors and prepayments
2024 2023
£'000 £'000
Accrued income 472 443
Overseas withholding tax recoverable 1,062 1,148
Amounts due from brokers 111 1,425
Other debtors and prepayments 70 98
1,715 3,114
12. Cash and cash equivalents
2024 2023
£'000 £'000
Cash at bank and in hand 15,442 5,941
Money market funds 12,001 5,001
27,443 10,942
13. Creditors
2024 2023
(a) Bank loans £'000 £'000
Falling due within one year 71,822 40,000
Unamortised expenses - (8)
71,822 39,992
The Company has a £75,000,000 multi-currency revolving facility with The
Royal Bank of Scotland International Limited, London Branch. The agreement was
entered into on 29 July 2022 with a termination date of 29 July 2024,
subsequently extended to 29 March 2025. Under this facility, £15,000,000 was
repaid on the 24 November 2023 and subsequently a balance was drawn down in
HKD. At the year end HKD 480,000,000 of this facility had been drawn down at a
rate of 5.123% which matured on 30 September 2024 and £25,000,000 at a rate
of 6.15% which matured on 30 September 2024. At the date of this Report the
Company had drawn down HKD 480,000,000 at a rate of 5.28% and £25,000,000 at
a rate of 6.15%.
On 29 July 2022, the Company entered into a fixed loan facility agreement of
£25,000,000 at an interest rate of 3.5575% with The Royal Bank of Scotland
International Limited, London Branch, with a termination date of 29 July 2024,
at which point the loan was repaid. The agreement of this facility incurred an
arrangement fee of £18,140, which was amortised over the life of the loan.
The agreements contains the following covenants:
- the net asset value of the Company shall not at any time be less than £375
million.
- consolidated gross borrowings expressed as a percentage of adjusted
portfolio value shall not exceed 25% at any time.
- the number of eligible investments shall not be less than 30 at any time.
All covenants have been complied with throughout the year.
2024 2023
(b) Other creditors - falling due within one year £'000 £'000
Amounts due for the purchase of own shares to treasury - 178
Other amounts due 1,865 1,862
1,865 2,040
2024 2023
£'000 £'000
(c) Deferred tax liability on Indian capital gains 7,005 2,074
14. Called-up share capital
2024 2023
£'000 £'000
Allotted, called-up and fully paid:
Ordinary shares of 20p (2023: 20p) 31,423 22,749
Treasury shares 11,078 9,173
42,501 31,922
Ordinary Treasury Total
shares shares shares
Number Number Number
At 1 September 2023 113,745,386 45,866,291 159,611,677
Issue of ordinary shares 52,895,670 - 52,895,670
Buyback of own shares (9,524,539) 9,524,539 -
At 31 August 2024 157,116,517 55,390,830 212,507,347
During the year 52,895,670 Ordinary shares were issued in exchange for
£214,729,000 of net assets following on from the transaction with abrdn New
Dawn Investment Trust plc (note 22).
During the year 9,524,539 Ordinary shares of 20p each were purchased to be
held in treasury by the Company (2023 - 5,940,615) at a total cost of
£34,462,000 (2023 - £23,732,000). At the year end 55,390,830 (2023 -
45,866,291) Ordinary shares of 20p each were held in treasury, which
represents 26% (2023 - 29%) of the Company's total issued share capital at 31
August 2024.
Since the year end a further 891,234 Ordinary shares of 20p each have been
purchased by the Company at a total cost of £3,679,000 all of which were held
in treasury.
15. Capital reserve
2024 2023
£'000 £'000
At 1 September 2023 317,532 453,273
Movement in fair value gains/(losses) 59,862 (106,052)
Foreign exchange movement 1,398 (1,140)
Buyback of Ordinary shares for treasury (34,462) (23,732)
Expenses allocated to capital (4,972) (4,483)
Movement in capital gains tax charge (6,673) (334)
As at 31 August 2024 332,685 317,532
The capital reserve includes investment holding gains amounting to
£147,445,000 (2023 - £32,413,000), as disclosed in note 10.
16. Net asset value Ordinary per share
The net asset value per share and the net asset values attributable to the
Ordinary shareholders at the year end calculated in accordance with the
Articles of Association were as follows:
2024 2023
Net assets attributable to the Ordinary shareholders (£'000) 711,626 479,169
Number of Ordinary shares in issue(A) 157,116,517 113,745,386
Net asset value per share (p) 452.93 421.26
(A) Excluding shares held in treasury.
17. Analysis of changes in net debt
At Currency Non-cash At
1 September 2023 differences Cash flows movements 31 August 2024
£'000 £'000 £'000 £'000 £'000
Cash and short term deposits 10,942 1,398 15,103 - 27,443
Debt due within one year (39,992) - (46,822) (8) (86,822)
(29,050) 1,398 (31,719) (8) (59,379)
At Currency Non-cash At
1 September 2022 differences Cash flows movements 31 August 2023
£'000 £'000 £'000 £'000 £'000
Cash and short term deposits 5,094 (1,140) 6,988 - 10,942
Debt due within one year (35,000) - 20,000 (24,992) (39,992)
Debt due after one year (24,983) - - 24,983 -
(54,889) (1,140) 26,988 (9) (29,050)
A statement reconciling the movement in net funds to the net cash flow has not
been presented as there are no differences from the above analysis.
18. Financial instruments
Risk management. The Company's investment activities expose it to various
types of financial risk associated with the financial instruments and markets
in which it invests. The Company's financial instruments comprise securities
and other investments, cash balances, bank loans and debtors and creditors
that arise directly from its operations; for example, in respect of sales and
purchases awaiting settlement, and debtors for accrued income.
The Board has delegated the risk management function to aFML under the terms
of its management agreement with aFML (further details of which are included
under note 4). The Board regularly reviews and agrees policies for managing
each of the key financial risks identified with the Manager. The types of risk
and the Manager's approach to the management of each type of risk, are
summarised below. Such approach has been applied throughout the year and has
not changed since the previous accounting period. The numerical disclosures
exclude short-term debtors and creditors with the exception of short-term
borrowings.
Risk management framework. The directors of aFML collectively assume
responsibility for aFML's obligations under the AIFMD including reviewing
investment performance and monitoring the Company's risk profile during the
year.
aFML is a fully integrated member of the abrdn Group (the "Group"), which
provides a variety of services and support to aFML in the conduct of its
business activities, including in the oversight of the risk management
framework for the Company. The "AIFM" has delegated the day to day
administration of the investment policy to abrdn (Asia) Limited, which is
responsible for ensuring that the Company is managed within the terms of its
investment guidelines and the limits set out in its pre-investment disclosures
to investors (details of which can be found on the Company's website). The
AIFM has retained responsibility for monitoring and oversight of investment
performance, product risk and regulatory and operational risk for the Company.
The Manager conducts its risk oversight function through the operation of the
Group's risk management processes and systems which are embedded within the
Group's operations. The Group's Risk Division supports management in the
identification and mitigation of risks and provides independent monitoring of
the business. The Division includes Compliance, Business Risk, Market Risk,
Risk Management and Legal. The team is headed up by the Group's Chief Risk
Officer, who reports to the Group's Chief Executive Officer. The Risk Division
achieves its objective through embedding the Risk Management Framework
throughout the organisation using the Group's operational risk management
system ("SHIELD").
The Group's Internal Audit Department is independent of the Risk Division and
reports directly to the Group's Chief Executive Officer and to the Audit and
Risk Committee of the Group's Board of Directors. The Internal Audit
Department is responsible for providing an independent assessment of the
Group's control environment.
The Group's corporate governance structure is supported by several committees
to assist the board of directors of abrdn Group, its subsidiaries and the
Company to fulfil their roles and responsibilities. The Group's Risk Division
is represented on all committees, with the exception of those committees that
deal with investment recommendations. The specific goals and guidelines on the
functioning of those committees are described on the committees' terms of
reference.
Risk management. The main risks the Company faces from its financial
instruments are (i) market risk (comprising interest rate risk, currency risk
and price risk), (ii) liquidity risk and (iii) credit risk.
Market risk. The fair value of, or future cash flows from a financial
instrument held by the Company may fluctuate because of changes in market
prices. This market risk comprises three elements - interest rate risk,
currency risk and other price risk. The Company is exposed to gearing risk
which has the effect of exacerbating market falls and gains. The level of net
gearing is shown on page 4 of the published Annual Report and Financial
Statements for the year ended 31 August 2024. Details of the loan facilities
the Company has in place can be found in note 13.
Interest rate risk. Interest rate movements may affect the level of income
receivable on cash deposits.
Management of the risk. The possible effects on fair value and cash flows that
could arise as a result of changes in interest rates are taken into account
when making investment and borrowing decisions.
Interest risk profile. The interest rate risk profile of the portfolio of the
Company's financial assets and liabilities, excluding equity holdings which
are all non-interest bearing, at the reporting date was as follows:
Weighted average Weighted
period for which average Fixed Floating
rate is fixed interest rate rate rate
At 31 August 2024 Years % £'000 £'000
Assets
Sterling - 2.00 - 23,381
Chinese Yuan - - - 3
Hong Kong Dollar - - - 50
Indian Rupee - - - 3,825
Taiwanese Dollar - - - 178
US Dollar - - - 4
Vietnamese Dong - - - 2
Total assets n/a n/a - 27,443
Liabilities
Short-term loan - HKD 480,000,000 0.91 5.12 46,822 -
Short-term loan - £25,000,000 0.07 6.15 25,000 -
- - 71,822 -
Weighted average Weighted
period for which average Fixed Floating
rate is fixed interest rate rate rate
At 31 August 2023 Years % £'000 £'000
Assets
Sterling - 2.27 - 10,809
US Dollar - - - 8
Vietnamese Dong - - - 125
Total assets n/a n/a - 10,942
Liabilities
Short-term loan - £15,000,000 0.07 6.18 15,000 -
Long-term loan - £25,000,000 0.91 3.56 24,992 -
- - 39,992 -
The weighted average interest rate is based on the current yield of each
asset, weighted by its market value.
The floating rate assets consist of cash deposits on call earning interest at
prevailing market rates.
The Company's equity portfolio and short-term debtors and creditors, with the
exception of short-term borrowings, have been excluded from the above tables.
Interest rate sensitivity. Movements in interest rates would not significantly
affect net assets attributable to the Company's shareholders and total profit.
Foreign currency risk. The majority of the Company's investment portfolio is
invested in overseas securities and the Statement of Financial Position,
therefore, can be significantly affected by movements in foreign exchange
rates.
Management of the risk. It is not the Company's policy to hedge this risk on a
continuing basis but the Company may, from time to time, match specific
overseas investments with foreign currency borrowings.
The Statement of Comprehensive Income is subject to currency fluctuation
arising on dividends paid in foreign currencies. The Company does not hedge
this currency risk.
Foreign currency risk exposure by currency of listing of incorporation is as
follows:
31 August 2024 31 August 2023
Net Total Net Total
Overseas monetary currency Overseas monetary currency
investments assets exposure investments assets exposure
£'000 £'000 £'000 £'000 £'000 £'000
Australian Dollar 14,175 - 14,175 - - -
Chinese Yuan(A) 149,417 3 149,420 162,736 - 162,736
Hong Kong Dollar(A) 38,400 50 38,450 53,957 - 53,957
Indian Rupee 166,103 3,825 169,928 93,524 1,253 94,777
Indonesian Rupiah 39,172 - 39,172 10,953 - 10,953
Korean Won 91,950 - 91,950 58,001 - 58,001
Netherlands Euro 34,241 - 34,241 5,184 - 5,184
Philippine Peso 9,056 - 9,056 13,154 172 13,326
Singapore Dollar 16,128 - 16,128 21,414 - 21,414
Taiwanese Dollar 153,427 289 153,716 76,989 - 76,989
Thailand Baht 9,647 - 9,647 - - -
US Dollar(A) - 4 4 - 8 8
Vietnamese Dong 18,829 2 18,831 13,307 125 13,432
740,545 4,173 744,718 509,219 1,558 510,777
Sterling 22,615 23,381 45,996 - 10,631 10,631
Total 763,160 27,554 790,714 509,219 12,189 521,408
(A) If currency denomination of overseas investments is used then exposure for
Chinese Yuan is £42,244,000 (2023 - £61,709,000), for Hong Kong Dollar
£145,572,000 (2023 - £151,283,000) and for US Dollar £nil (2023 -
£3,701,000).
Foreign currency sensitivity. The following table details the Company's
sensitivity to a 10% increase and decrease in sterling against the foreign
currencies in which the Company has exposure as set out in the foreign
currency risk table above.
2024 2023
£'000 £'000
Australian Dollar 1,418 -
Chinese Yuan 14,942 16,274
Hong Kong Dollar 3,845 5,396
Indian Rupee 16,993 9,478
Indonesian Rupiah 3,917 1,095
Korean Won 9,195 5,800
Netherlands Euro 3,424 518
Philippine Peso 906 1,333
Singapore Dollar 1,613 2,141
Taiwanese Dollar 15,372 7,699
Thailand Baht 965 -
US Dollar - 1
Vietnamese Dong 1,883 1,343
74,473 51,078
Other price risk. Other price risks (i.e. changes in market prices other than
those arising from interest rate or currency risk) may affect the value of the
quoted investments.
Management of the risk. It is the Board's policy to hold an appropriate spread
of investments in the portfolio in order to reduce the risk arising from
factors specific to a particular country or sector. Both the allocation of
assets and the stock selection process, as detailed on pages 17 and 18 of the
published Annual Report and Financial Statements for the year ended 31 August
2024, act to reduce market risk. The Manager actively monitors market prices
throughout the year and reports to the Board, which meets regularly in order
to review investment strategy. The investments held by the Company are listed
on various stock exchanges worldwide.
Other price risk sensitivity. If market prices at the reporting date had been
10% higher or lower while all other variables remained constant, the return
attributable to Ordinary shareholders for the year ended 31 August 2024 would
have increased/decreased by £76,316,000 (2023 - increased/decreased by
£50,922,000) and equity reserves would have increased/decreased by the same
amount.
Liquidity risk. This is the risk that the Company will encounter difficulty in
meeting obligations associated with financial liabilities.
Management of the risk. The Company's assets mainly comprise readily
realisable securities which can be sold to meet funding requirements if
necessary. In order to monitor the concentration of Dragon's investee
companies with abrdn, the total percentage holdings of those securities owned
by abrdn-managed funds is reviewed by the Board.
The Board imposes borrowing limits to ensure gearing levels are appropriate to
market conditions, and reviews these on a regular basis. The Board has imposed
a maximum gearing level, measured on the most stringent basis of calculation
after netting off cash equivalents, of 20%. Short-term flexibility can be
achieved through the use of loan and overdraft facilities.
Liquidity risk exposure. At 31 August 2024, the Company had drawn down HKD
480,000,000 from a £75,000,000 Revolving Facility Agreement with The Royal
Bank of Scotland International Limited, London Branch, which matured on 30
September 2024. At the date of this Report the Company had drawn down HKD
480,000,000 at a rate of 5.28% and £25,000,000, which matured on 30 September
2024. At the date of this Report the Company had drawn down £25,000,000 at a
rate of 6.15%. details of which are disclosed in note 13.
Management of the risk
- investment transactions are carried out with a large number of brokers,
whose credit-standing is reviewed periodically by the Manager, and limits are
set on the amount that may be due from any one broker;
- the risk of counterparty, including the Depositary, exposure due to failed
trades causing a loss to the Company is mitigated by the review of failed
trade reports on a daily basis. In addition, the third party administrators'
carry out a stock reconciliation to the Depositary's records on a daily basis
to ensure discrepancies are picked up on a timely basis. The Manager's
Compliance department carries out periodic reviews of the Depositary's
operations and reports its finding to the Manager's Risk Management Committee.
This review will also include checks on the maintenance and security of
investments held;
- cash is held only with reputable banks with high quality external credit
enhancements.
None of the Company's financial assets are secured by collateral or other
credit enhancements.
Credit risk exposure. In summary, compared to the amounts in the Statement of
Financial Position, the maximum exposure to credit risk at 31 August was as
follows:
2024 2023
Balance Maximum Balance Maximum
Sheet exposure Sheet exposure
Current assets £'000 £'000 £'000 £'000
Loans and receivables 1,715 1,715 3,092 3,092
Cash and cash equivalents 27,443 27,443 10,942 10,942
29,158 29,158 14,034 14,034
None of the Company's financial assets is past due or impaired.
Maturity of financial liabilities. The maturity profile of the Company's
financial liabilities at 31 August was as follows:
2024 2023
£'000 £'000
In less than one year 73,687 42,032
73,687 42,032
Fair value of financial assets and liabilities. The £25,000,000 term loan was
repaid on 29 July 2024 (2023 - fair value £25,000,000 compared to an accounts
value £24,992,000) (note 13). The fair value of each loan is determined by
aggregating the expected future cash flows for that loan discounted at a rate
comprising the borrower's margin plus an average of market rates applicable to
loans of a similar period of time and currency. The carrying values of fixed
asset investments are stated at their fair values, which have been determined
with reference to quoted market prices.
19. Fair value hierarchy
FRS 102 requires an entity to classify fair value measurements using a fair
value hierarchy that reflects the significance of the inputs used in making
the measurements. The fair value hierarchy shall have the following
classifications:
Level 1: unadjusted quoted prices in an active market for identical assets or
liabilities that the entity can access at the measurement date.
Level 2: inputs other than quoted prices included within Level 1 that are
observable (i.e. developed using market data) for the asset or liability,
either directly or indirectly.
Level 3: inputs are unobservable (i.e. for which market data is unavailable)
for the asset or liability.
All of the Company's investments are in quoted equities (2023 - same) which
are actively traded on recognised stock exchanges, with their fair value being
determined by reference to their quoted bid prices at the reporting date. The
total value of the investments as at 31 August 2024 of £763,160,000 (31
August 2023 - £509,219,000) has therefore been deemed as Level 1.
20. Related party transactions and transactions with the Manager
Fees payable during the year to the Directors and their interests in shares of
the Company are disclosed within the Directors' Remuneration Report on page 63
of the published Annual Report and Financial Statements for the year ended 31
August 2024.
The Company had an agreement in place with aFML for the provision of
management and administration services, promotional activities and secretarial
services during the year. Potential changes to the provision of these services
subsequent to the year end are noted in the Chairman's Statement and in note
23. Details of transactions during the year and balances outstanding at the
year end are disclosed in notes 4 and 5.
At the year end the Company had £12,001,000 (2023 - £5,001,000) invested in
Aberdeen Standard Liquidity Fund (Lux) - Sterling Fund which is managed and
administered by abrdn plc. The Company pays a management fee on the value of
these holdings but no fee is chargeable at the underlying fund level. The
Company also held investments in abrdn New India Investment Trust of
£10,571,000 (2023 - £nil) and abrdn Asia Focus of £3,346,000 (2023 - £nil)
which are managed and administered by abrdn plc. The value of these holdings
is excluded from the management fee calculation.
21. Capital management policies and procedures
The Company's capital management objectives are:
- to ensure that the Company will be able to continue as a going concern; and
- to maximise the capital return to its equity shareholders through an
appropriate balance of equity capital and debt. The Board has imposed a
maximum gearing level of 20% of net assets.
The Board monitors and reviews the broad structure of the Company's capital on
an ongoing basis. This review includes the nature and planned level of
gearing, which takes account of the Manager's views on the market, and the
extent to which revenue in excess of that which is required to be distributed
should be retained.
The Company has no externally imposed capital requirements.
22. Transaction with abrdn New Dawn Investment Trust plc ("New Dawn").
On 8 November 2023, the Company announced that it had acquired £214,729,000
of net assets from New Dawn in consideration for the issue of 52,895,670 new
Ordinary shares based on the respective formula asset values of the two
entities on 2 November 2023.
Net assets acquired £'000
Investments 135,557
Cash 79,172
Net assets 214,729
Satisfied by the value of new Ordinary shares issued 214,729
There were no fair value adjustments on completion of the combination made to
the above figures.
23. Subsequent events
On 28 October 2024, the Company announced that it had concluded its strategic
review and had agreed heads of terms with Invesco Asia Trust plc ("Invesco
Asia") in respect of a proposed combination.
The combination, if approved by each company's shareholders, will be effected
by way of a scheme of reconstruction and winding up of the Company under
section 110 of the Insolvency Act 1986 and the associated transfer of part of
the assets and undertaking of the Company to Invesco Asia in exchange for the
issue of new ordinary shares in Invesco Asia.
A circular providing further details of the scheme and convening general
meetings to approve the proposals, and a prospectus in respect of the issue of
new Invesco Asia shares in connection with the scheme, are expected to be
published in due course. The proposals are anticipated to become effective by
early 2025.
Contingent liability. On 26 July 2024 the Company entered into a deemed notice
agreement ("Agreement") with abrdn Fund Managers Limited ("aFML"). Under the
Agreement, it was agreed that, inter alia, in the event of a termination
notice being served by the Company under the management agreement within
twelve months of the date of the Agreement, aFML would deem such notice to
have been served on 26 July 2024, without prejudice to the repayment
provisions linked to the contribution by aFML in connection with the
combination with abrdn New Dawn Investment Trust set out in the management
agreement as amended. Accordingly, in the event that the Company serves a
termination notice on aFML in connection with the Invesco Asia combination
prior to 8 November 2025 (being the second anniversary of the effective date
of the combination with abrdn New Dawn Investment Trust), a sum of £468,000
will be repayable to aFML, representing two thirds of the management fee
waived by aFML in connection with the Company's combination with abrdn New
Dawn Investment Trust in November 2023.
Alternative Performance Measures (Unaudited)
Alternative Performance Measures ("APMs") are numerical measures of the
Company's current, historical or future performance, financial position or
cash flows, other than financial measures defined or specified in the
applicable financial framework. The Company's applicable financial framework
includes FRS 102 and the AIC SORP. The Directors assess the Company's
performance against a range of criteria which are viewed as particularly
relevant for closed-end investment companies.
Discount to net asset value per Ordinary share
The difference between the share price and the net asset value per Ordinary
share expressed as a percentage of the net asset value per Ordinary share. The
highest and lowest discount during the year is shown on page 29 of the
published Annual Report and Financial Statements for the year ended 31 August
2024.
31 August 2024 31 August 2023
NAV per Ordinary share (p) a 452.93 421.26
Share price (p) b 404.00 353.00
Discount (a-b)/a 10.8% 16.2%
Net gearing
Net gearing measures the total borrowings less cash and cash equivalents
divided by shareholders' funds, expressed as a percentage. Under AIC reporting
guidance cash and cash equivalents includes net amounts due to and from
brokers at the year end as well as cash and short term deposits.
31 August 2024 31 August 2023
Borrowings (£'000) a 71,822 39,992
Cash (£'000) b 27,443 10,942
Amounts due from brokers (£'000) d 111 1,425
Shareholders' funds (£'000) e 711,626 479,169
Net gearing (a-b+c-d)/e 6.2% 5.8%
Ongoing charges
The ongoing charges ratio has been calculated in accordance with guidance
issued by the AIC as the total of investment management fees and
administrative expenses and expressed as a percentage of the average published
daily net asset values with debt at fair value published throughout the year.
2024(A) 2024(B) 2023
Investment management fees (£'000) 3,505 4,206 3,839
Administrative expenses (£'000) 1,184 1,184 1,056
Less: non-recurring charges(C) (£'000) - - (7)
Ongoing charges (£'000) 4,689 5,390 4,888
Average net assets (£'000) 650,028 650,028 538,331
Ongoing charges ratio (excluding look-through costs) 0.72% 0.83% 0.91%
Look-through costs(D) 0.03% 0.03% -
Ongoing charges ratio (including look-through costs) 0.75% 0.86% 0.91%
(A) Calculated including the investment management fee waiver agreed between
the Company and the Manager following the combination with abrdn New Dawn
Investment Trust PLC during the period (see note 4 for further details).
(B) Calculated on the assumption that the investment management fee waiver
agreement between the Company and the Manager following the combination with
abrdn New Dawn Investment Trust PLC during the period (see note 4 for further
details) is excluded.
(C) Comprises legal and professional fees which are not expected to recur.
(D) Calculated in accordance with AIC guidance issued in October 2020 to
include the Company's share of costs of holdings in investment companies on a
look-through basis.
The ongoing charges ratio provided in the Company's Key Information Document
is calculated in line with the PRIIPs regulations which among other things,
includes the cost of borrowings and transaction costs.
Total return
NAV and share price total returns show how the NAV and share price has
performed over a period of time in percentage terms, taking into account both
capital returns and dividends paid to shareholders. Share price and NAV total
returns are monitored against open-ended and closed-ended competitors, and the
Benchmark Index, respectively.
Share
Year ended 31 August 2024 NAV Price
Opening at 1 September 2023 a 421.26p 353.00p
Closing at 31 August 2024 b 452.93p 404.00p
Price movements c=(b/a)-1 7.5% 14.4%
Dividend reinvestment(A) d 1.8% 2.3%
Total return c+d +9.3% +16.7%
Share
Year ended 31 August 2023 NAV Price
Opening at 1 September 2022 a 513.32p 446.00p
Closing at 31 August 2023 b 421.26p 353.00p
Price movements c=(b/a)-1 -17.9% -20.9%
Dividend reinvestment(A) d 1.2% 1.4%
Total return c+d -16.7% -19.5%
(A) NAV total return involves investing the net dividend in the NAV of the
Company with debt at fair value on the date on which that dividend goes
ex-dividend. Share price total return involves reinvesting the net dividend in
the share price of the Company on the date on which that dividend goes
ex-dividend.
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. END FR UUVNRSRUAUAARecent news on Asia Dragon Trust
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