REG - Asia Dragon Trust - Half-year Report
23/04/2024 07:00
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RNS Number : 5831L Asia Dragon Trust PLC 23 April 2024
22 April 2024
Legal Entity Identifier (LEI): 549300W4KB0D75D1N730
Asia Dragon Trust plc (the "Company")
Half-Yearly Report 29 February 2024
Capturing growth from world-class Asian companies
Financial highlights for Company for the six month reporting period include:
· Net asset value ("NAV") increased by 1.5% in sterling total
return terms over the period, underperforming the MSCI All-Country Asia ex
Japan Index (the "Benchmark"), which delivered a 3.7% increase. The share
price total return was 2%, with dividends reinvested, as the discount to NAV
per share tightened from 16.2% at the end of August 2023 to 16.0%.
· Following the Company's combination with abrdn New Dawn
Investment Trust plc, effective 9 November 2023, the Company acquired
c.£214.7m of net assets from New Dawn in consideration for the issue of new
Asia Dragon shares.
· Macro factors, rather than stock fundamentals, dominated market
focus and sentiment over the period and Chinese market exposure remained the
biggest detractor to performance.
· Positive contributions were seen from the Company's technology
holdings and the Company also increased the portfolio's exposure to India,
where the Company sees tailwinds that are helping to sustain attractive
earnings growth and continued solid economic growth.
Performance Highlights
Net asset value total return (A) Share price total return (A)
Six months ended 29 February 2024 Six months ended 29 February 2024
+1.5% +2.0%
Year ended 31 August 2023 -16.7% Year ended 31 August 2023 -19.5%
Benchmark total return (in sterling terms) Discount to net asset value (A)
Six months ended 29 February 2024 As at 29 February 2024
+3.7% 16.0%
Year ended 31 August 2023 -8.4% As at 31 August 2023 16.2%
(A) Considered to be an Alternative Performance Measure as defined below.
Total Return Performance (With Dividends Reinvested)
6 months ended Year ended 01/09/2021 - 3 years ended 5 years ended 10 years ended
29/02/2024 29/02/2024 29/02/2024(A) 29/02/2024 29/02/2024 29/02/2024
Net asset value per share(B) +1.5% -8.9% -22.6% -24.7% +8.4% +77.3%
Share price(B) +2.0% -12.2% -27.6% -29.3% +2.4% +69.7%
MSCI AC Asia (ex Japan) Index (sterling adjusted) +3.7% +0.8% -11.7% -14.2% +16.7% +102.4%
(A) The monitoring period for the Company's five year performance related
conditional tender commenced on 1 September 2021. See the outside back cover
of the Half Yearly Report for further details.
(B) Considered to be an Alternative Performance Measure as defined below.
Financial Calendar and Additional Financial Data
Financial Calendar
Financial year end 31 August 2023
Announcement of annual results for year ending 31 August 2024 November 2024
Annual General Meeting in London December 2024
Final Ordinary dividend payable for year ending 31 August 2024 December 2024
Additional Financial Data (Capital Returns)
29 February 2024 31 August 2023 % change
Total shareholders' funds (£'000) 678,832 479,169 +41.7
Net asset value per share (capital return basis) (p) 420.43 421.26 -0.2
Share price (capital return basis) (p) 353.00 353.00 -
Discount to net asset value (%) (A) 16.0 16.2
MSCI AC Asia (ex Japan) Index (in sterling terms; capital return basis) 946.31 918.92 +3.0
Net gearing % (A) 8.0 5.8 +37.9
Ongoing charges ratio including management fee waiver (AB) 0.76 0.91
Ongoing charges ratio excluding management fee waiver (AC) 0.87 0.91
(A) Considered to be an Alternative Performance Measure as defined below.
(B) 29 February 2024 includes the 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 13 for further details).
(C) 29 February 2024 is calculated on the assumption that the 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 13 for
further details) is excluded.
Chairman's Statement
Significant events during the six months under review
In my annual statement for the year ended 31 August 2023, I updated
shareholders on the progress made in respect of the proposed combination of
the assets of the Company with those of abrdn New Dawn Investment Trust plc
("New Dawn").
At that time the Company's shareholders had approved the proposals at the
General Meeting held on 25 October 2023 with over 99.9% of votes in favour of
all resolutions. This paved the way for the combination to progress, subject
to the approval of New Dawn's shareholders at its general meeting held on 8
November 2023. With the Scheme duly approved by New Dawn's shareholders 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.
Furthermore, as anticipated by the proposals, we were pleased to welcome
Nicole Yuen, Donald Workman and Stephen Souchon, previously directors of New
Dawn, to the Board with effect from 9 November 2023.
The Board and I would like to express our thanks to the shareholders of both
Asia Dragon and New Dawn for approving the combination by an overwhelming
majority and we believe that the enlarged vehicle will provide further
benefits to shareholders, some of which I highlight below:
· Enhanced profile and marketability of the enlarged Company;
· Lower management fee;
· Lower ongoing charges; and
· Enhanced liquidity of the Company's shares.
The amendments to the Investment Policy and to the Articles of Association
described in the circular that the Company asked shareholders to vote upon
were also all approved. In addition, as part of the agreed proposals, the
level of any performance-related conditional tender offer of the Company
(covering the period from 1 September 2021 to 31 August 2026) that may be
triggered, has been reduced in size from up to 25% to up to 15% of the issued
share capital of the enlarged Company. Thereafter, any future five-yearly
conditional tender offers triggered by underperformance would revert back to
up to 25% of the prevailing issued share capital as was set in 2021.
Results
The Company's net asset value ("NAV") rose by 1.5% in sterling total return
terms over the period, lagging the MSCI All-Country Asia ex Japan Index (the
"Benchmark"), which delivered a 3.7% increase. The share price ended the
period at 353.0 pence, unchanged from the 31 August 2023 year end, reflecting
a total return of 2.0% with dividends reinvested. The share price discount to
NAV per share tightened marginally to 16.0%.
Market Review
Macro factors, rather than stock fundamentals, dominated market focus and
sentiment over the six months ended 29 February 2024. Initially, the prospect
of US interest rates staying higher for longer and deep concerns over China's
property sector weighed on markets. Subsequently, encouraging news across
several fronts pushed the Asian regional benchmark index to close with modest
gains by the end of the review period. In China, positive spending and travel
data following the Lunar New Year holiday, together with incremental policy
support and intervention to shore up mainland stock markets, offset concerns
over the beleaguered property sector and a slower-than-expected consumer
recovery. Meanwhile, the US Federal Reserve's policy shift towards rate cuts
in 2024 helped allay concerns over the global growth outlook. Further support
came from solid corporate earnings results, particularly in the technology
sector, with US chipmaker Nvidia's results indicating that there is real
structural momentum behind artificial intelligence (AI) and the broader
technology sector.
Performance, Portfolio Activity and Recent Changes
Chinese market exposure remained the biggest detractor to performance over
this interim period. Investor confidence continued to be very weak with a
focus on 'hot' themes such as AI and state-owned enterprise (SOE) reform
instead of stock fundamentals. The impact on performance was compounded by a
continuation of the market rotation towards value, with a continued sell-off
in quality growth companies also affecting a number of the Company's holdings,
despite them delivering on fundamentals. The sluggish consumer recovery also
led to weakness in the Company's consumer holdings, including internet group
Tencent, insurer AIA and brewer Budweiser APAC, which in the Manager's view
remain companies with solid underlying operating models. This negative impact
was offset by the positive contributions from the Company's technology
holdings, specifically in the semiconductor and technology hardware segments
such as ASML, ASM International, Samsung Electronics and Taiwan Semiconductor
Manufacturing Co.
In order to insulate the portfolio from the near-term headwinds seen in China,
the Manager reviewed each of the Company's Chinese holdings, and sought to
resize exposures where appropriate. As a result, the Manager has scaled back
the portfolio's exposure to the Chinese market materially over the period,
placing an emphasis on earnings visibility and cash flow generation. While the
exposure to China has been scaled back, the Manager retains high conviction in
the holdings that remain and continues to believe that China remains an
attractive investment proposition for the longer term.
Elsewhere, the Manager also evaluated the portfolio's exposure to India, where
we are seeing several tailwinds that are helping to sustain attractive
earnings growth and continued solid economic growth. As a result, the Manager
has increased the exposure to India over the period, adding several new stocks
to the portfolio. One such example is Pidilite, a high-quality consumer and
specialty chemicals business, with exposure to the increasing home improvement
theme in India. The Manager has also introduced some good quality companies
in Australia following the change in Investment Policy.
The Board monitors performance continuously and closely with the Manager in
order to understand the drivers behind relative performance and actions being
taken in the light of that. Post the Company's combination with New Dawn, the
Board discussed with the Manager at length its concerns regarding the
Company's continuing underperformance against the benchmark. We welcomed the
opportunity to discuss comprehensively the Manager's commitment to the Company
and the changes in investment process being made to seek to address
underperformance.
While adhering to the quality-based investment approach, the Manager is
committed to enhancing aspects of its investment approach, with a focus on
improved portfolio construction and decision making, including concentrating
the portfolio towards companies where the Manager has greater conviction. The
Manager believes that this, together with enhanced risk management, should
result in better downside resilience while retaining participation in the
upside when growth resumes. The Manager continues to believe in a number of
key structural themes that will underpin Asia's longer-term growth potential
and has highlighted two of these themes in the Manager's Report - technology
revolution and India. The Manager believes that a combination of these changes
should benefit portfolio performance over the medium to long-term.
The Manager's Report refers to changes made at the time of the combination.
These include the change in Investment Policy to give greater geographic
flexibility to invest in Australasia and to invest up to 30% in non-benchmark
holdings which generate more than 50 per cent of their annual turnover or
revenue from the Asia Pacific region excluding Japan. The Manager intends to
take advantage of these flexibilities and has already done so.
Gearing
The Board continues to believe that the sensible use of modest gearing should
enhance returns to shareholders over the longer term, making use of one of the
benefits of the closed ended structure. Alongside the increasing opportunities
seen in the market at attractive valuations, the Manager has increased
gearing. The Company has two loan facilities which have been provided by The
Royal Bank of Scotland International Limited; the first is a £25 million
fixed rate loan which has been drawn in full and fixed for two years to July
2024 at an all-in rate of 3.5575% and the second a £35 million multi-currency
revolving credit facility, fully drawn at the period end, under which the
Company had the option to draw a further £15 million, subject to the lender's
credit approval. Subsequent to the period end, with further investment
opportunities identified by the Manager, the Company obtained bank credit
approval and drew down in Hong Kong dollars £15 million sterling equivalent
on this latter facility, with total borrowings at the time of writing
amounting to £74.9 million representing net gearing of 10.0%, compared to
5.8% at the end of August 2023.
Discount and Share Buybacks
The discount level of the Company's shares is closely monitored by the Board
and the Manager and the Company may buy back shares to improve trading
liquidity, reduce discount volatility and enhance net asset value returns.
During the six months to 29 February 2024, 5.18 million shares were bought
back at a discount for treasury, delivering a 2p accretion to NAV per share.
Since that date, a further 2.2 million shares have been bought back into
treasury. Shares held in treasury can be reissued at a future date, at a
premium to NAV per share, should a suitable opportunity arise.
Outlook
Asia remains on a resilient footing for the year ahead. China deserves mention
given the challenging period it has been through. Headwinds remain, but the
Manager maintains the view that there is the potential for further Chinese
government policy support over the short term and continues to be confident of
the country's prospects over the longer run. The other big market, India,
optically looks expensive on near-term valuation multiples, but, in the
context of the longer term structural growth potential, the Manager continues
to see attractive investment opportunities across a range of sectors including
materials, financials and consumer, supported by significant tailwinds from
robust economic growth.
There are multiple themes that reinforce the attractiveness of Asia, with
growing momentum in the technology cycle with AI adoption rising rapidly and
Asia at the heart of the global technology supply chain. An increasingly
complex geopolitical landscape is boosting global supply chain
diversification, which is benefiting countries in Southeast Asia. The
Manager's committed focus on quality companies with solid balance sheets and
sustainable earnings prospects should position the Company to deliver
attractive returns for shareholders over the longer term.
James Will
Chairman
22 April 2024
Investment Manager's Review
Performance
The MSCI AC Asia ex Japan benchmark index rose by 3.7% over the six months
under review, while the Company's net asset value (NAV) increased by 1.5% in
total return terms. China was the biggest challenge for performance as shown
in the attribution chart on page 7 of the Half Yearly Report for the six
months ended 29 February 2024:
Asia Dragon: Underperformance due largely to China
Chinese consumer, internet holdings the key detractors; IT holdings elsewhere
mitigate impact.
Concerns around the Chinese real estate sector, lacklustre consumer spending
and a sluggish macroeconomic environment dragged down investor confidence
towards Chinese equities (defined here as China, Hong Kong and Macau equity
markets). The retail-dominated mainland market succumbed to risk aversion,
with even quality stocks caught in an indiscriminate, and in our view
excessive, sell-off. Many international investors also reduced their China
risk across the board.
We saw some of our holdings get sold down aggressively in the market, despite
delivering on fundamentals. For example, AIA Group, the pan-Asia life insurer
that is viewed as a China proxy, reported 33% growth in value of new business
in 2023, but the stock was nevertheless punished due to the weak macro
environment and poor investor sentiment, highlighting the stark disconnect
between stock fundamentals and share prices.
From a portfolio perspective, we have reduced our exposure to China over the
last six months weeding out stocks with uncertain near-term earnings
visibility. Examples include JD.com, Tongcheng Travel and WuXi Biologics. On
the flip side, where we view prospects as still solid and valuations
attractive, we have both added to existing holdings and introduced new names.
We have also sought to add to our indirect Chinese exposure, for example
through Australian investment, which is discussed in greater detail below
under the Portfolio Positioning section. Whilst we have reduced our overall
China exposure, China nonetheless remains a significant driver of returns and
risk for the portfolio overall. This reflects our view that many of our
Chinese stocks remain fundamentally sound, despite the macro headwinds, and
are now trading at substantially discounted valuations. On an encouraging
note, Chinese equities appear to have found slightly firmer footing going into
2024. This development is underpinned by robust government support as well as
a rebound in consumer activity and spending around the Lunar New Year period.
Outside of China, the macroeconomic picture has been far healthier. We
continue to uncover attractive opportunities and are encouraged by the updates
from the companies we meet. Quality companies also appear to be doing better,
particularly in segments such as semiconductor and technology hardware. Our
core holdings here include: ASML, ASM International, Taiwan Semiconductor
Manufacturing Co and Samsung Electronics, all of which continue to deliver on
performance and earnings. Returns from some of our holdings in India and
Southeast Asia also did well over the review period. They include Power Grid
Corporation Of India, online insurer PB Fintech and SBI Life Insurance in
India, where the economy is firing on all cylinders. In Southeast Asia,
Philippine property developer Ayala Land was a standout performer, given the
continued strength in its residential and leasing businesses.
Portfolio Positioning
A "reset" after the merger but structural growth themes remain unchanged
Following the combination of the Company's assets with those of abrdn New Dawn
Investment Trust plc in November 2023, we are delighted to be now managing a
larger Company with more liquid shares that has greater flexibility to invest
in Australasia and up to 30% in non-benchmark holdings and with the benefits
that come with greater scale. Overall, the profile will be enhanced, which
should help to generate greater investor interest in the Company. We are
taking advantage of the increased flexibility to provide differentiated
exposures to the Asia growth story and enhance the Company's future returns.
From a risk standpoint, we are approaching that in a calibrated and cautious
way. For example, there is an opportunity for us to benefit from China's
growth prospects by diversifying into indirect China exposures, such as
Australian mining group BHP which is described in more detail below.
More broadly, over the longer term, we see the most attractive opportunities
around some key structural themes in Asia. Rising affluence is spurring growth
in premium consumption in areas including financial services, while
urbanisation and an infrastructure boom is set to benefit property developers
and mortgage providers. Growing technology adoption and integration means a
bright future for plays on gaming, internet, fintech and tech services like
the cloud, with Asia's tech supply chains well positioned for the rollout of
5G, big data and digital interconnectivity. In healthcare, Asia is home to
some world class companies in the biotech and medical device technology
fields. The region is also playing a central role in the green transition with
plays on renewable energy, batteries, electric vehicles, related
infrastructure, and environmental management all having a bright future. We
have highlighted two themes in the next section that we feel have grown in
their significance this year from an investment opportunity perspective.
Portfolio Themes: Two in the spotlight
1 Technology revolution: Asia well placed to capitalise on AI boom
Asian tech sector expected to be a key driver for the region in 2024
Semiconductor cycle turning and rapid adoption of AI a further catalyst for
demand.
You might recall that we restarted our efforts to build our technology
exposure, particularly in technology hardware and semiconductor, at the
beginning of 2023 after de-risking this substantially in 2022 on rising
concerns of a cyclical downturn for the sector. The decision to add
incrementally to our exposure back then was driven by our view that we had
reached the cyclical bottom. Valuations were looking very attractive,
especially when we look forward to the long term structural growth
opportunities which we thought were not priced in by the market. What took us,
and the broader industry, by surprise was how rapidly generative artificial
intelligence (AI) grew with its significance increasing as we progressed
through the year. This underpinned our confidence in the pace of the cyclical
recovery of the sector and the overall opportunity size and long term
structural growth prospects this presents from an investment perspective given
Asia is home to the enablers of advanced technologies.
When it comes to generative AI applications, ChatGPT is just the tip of the
iceberg, and we see Asia as being in the sweet spot to capitalise on the AI
boom. Demand for AI has accelerated much faster than expected, with Nvidia and
the server and networking supply chain among the winners in this fast-growing
market. Over the longer run, Nvidia has highlighted a big US$1 trillion
opportunity in the redesign of the global data centre architecture. AI,
however, is not the only tech story that is creating waves: technology
hardware shipments, including smartphones, are on the rise, alongside demand
for high performance computing. The Asian semiconductor ecosystem is set to
benefit from these trends, and significant beneficiaries include TSMC, the
world's largest foundry, which is among our core IT positions.
2 India: Fundamentally compelling with multi-decade structural growth story
India Macro in the driver's seat
World's fastest-growing large economy.
The Indian economy is in the early stages of a cyclical upswing after a
prolonged period of relatively subdued economic growth. The government is also
leading a public capex push to further support growth, create more jobs, and
eventually spur private capex. India is also one of the most promising
consumer stories globally. It has a large and young population with a rapidly
growing middle class, which makes up about 31% of all households. This ratio
is set to exceed more than 50% in the next decade.
We believe this is a multi-decade structural story, which will provide a
baseline of support for India for many years to come. More importantly, India
is home to a diverse set of companies that are well run and well positioned to
capture the growth opportunities highlighted above. It is these high quality
stocks with solid earnings visibility over the medium to long term that we are
invested in. The caveat is that near-term valuation multiples look quite full,
but as a long term investor valuations are less demanding on a medium term
view where we have confidence in the growth trajectory of our companies.
Australia and Non-Benchmark Holdings
Taking advantage of the new geographic flexibility post-merger, 5.5% of the
portfolio is now invested in Australia as at 29 February 2024. The four stocks
we hold - BHP, Cochlear, CSL and Woodside Energy Group - provide us with
exposure to Australia's commodities and healthcare sectors. As the benchmark
for the Company remains the MSCI AC Asia ex Japan Index, these are all
non-benchmark exposures. Whilst Australia and New Zealand are unlikely to
offer the type of growth potential one may find in Emerging Asia, they are
still home to some world-class companies. These names provide differentiated
exposure and factors that are sometimes hard to access elsewhere in Asia when
applying a quality lens.
Looking at the four stocks more closely, BHP is a natural resources group that
has a strong suite of assets and diverse earnings streams, with organic growth
opportunities, healthy cash flow and a solid balance sheet supporting the
potential for additional returns to shareholders. Its core business is in iron
ore, making it a proxy for China and the emerging markets' secular growth
story. Woodside is a high-quality Australian liquid natural gas operator with
its latest results suggesting a material improvement in the company's balance
sheet and cashflow outlook. Cochlear is the global leader in hearing implants,
such as cochlear, bone conduction and acoustic implants, to treat hearing
loss. CSL is a leader in the global plasma products market, enjoying superior
growth and returns because of its highly efficient collection and processing
system, coupled with its commitment to research and development.
In addition to these Australian holdings, the Company is also invested in
other non-benchmark holdings in markets as diverse as Vietnam, the Netherlands
and the UK. In essence we are maximising the opportunity set and seeking out
the best quality proxies for the Asian growth story, wherever they may be
listed.
Other New Holdings
Aside from the addition of the Australian names mentioned above, we have also
been focused on initiating positions in other quality companies with healthy
earnings visibility and cashflow generation, including the three stocks
highlighted below. These purchases have, in part, been funded by drawing down
on additional debt, although the overall level of gearing on the Company
remains in line with the level seen prior to the combination with the abrdn
New Dawn Investment Trust.
ICICI Bank is India's second-largest private bank offering banking and
financial services to both corporate and retail customers. It is also among
the leading private players in both life and non-life businesses. The bank has
been delivering superior growth and returns improvement without compromising
on asset quality. It has leveraged on its scale together with its retail and
digital franchise to expand in mortgages and grow off a low base in business
banking and smaller companies, while its management gives confidence in
articulating its growth approach.
Pidilite is a high-quality Indian consumer and speciality chemicals business
with a key niche in adhesives. We like the company for its strong brands,
dominant market position, capable management and robust balance sheet. All
this has enhanced its ability to generate attractive returns. The Indian
adhesives and sealants market is expected to grow high single-digits over the
medium term being ultimately a play on the home improvement theme and with
India in the early stages of an upcycle in its residential real estate sector.
Yageo Corp is Taiwan's leading supplier of passive components and the world's
third largest provider. Passive components comprise of resistors, capacitors
and inductors and are used by virtually all electronic products across various
industries spanning consumer electronics, automotive, industrial, medical,
aerospace and telecommunications. Yageo's management team have been executing
successfully on its strategy to improve the quality of the business through
astute and bold acquisitions in recent years. This has enabled Yageo to move
away from commoditised products towards higher-end applications, such as
automotive, and to improve the product mix structure. We view the clarity of
strategy and strength of execution as key competitive strengths. We see its
growth prospects as driven by more cross-selling and the structural growth of
the industry, with demand for passive components rising in tandem with the
need for higher computing power.
Outlook
After a challenging 2023, we are turning incrementally more positive in our
outlook for Asian equities this year.
In China, sentiment has been far weaker than we would like, given that the
fundamentals of our holdings are intact. There are still headwinds, especially
in the property sector, while geopolitical risks linger. It is a positive that
Beijing signalled its intent to support the economy at the recent key
policymaking session in March, announcing a reasonably ambitious growth target
of around 5% for 2024. We view China as oversold and we are seeing value in
some quality stocks that have been indiscriminately sold off despite
delivering on growth and earnings.
Meanwhile, we expect a lot more from India. Earnings growth is running at
solid double digits. The direction of policy and reform looks set to continue
with Prime Minister Narendra Modi likely to be re-elected for a third term in
the upcoming national polls. India, too, is a market of 1.4 billion people,
most of whom are below 35 years old. Such a rich demographic dividend will see
an emerging middle class with rising affluence, alongside economic growth.
Whilst near-term valuation multiples appear full, the key to taking advantage
of India's promise is careful stock picking and a long term mindset, which
aligns well with how we invest.
Elsewhere, Southeast Asia is often overlooked as a rich source of quality
companies. We continue to regard these countries as beneficiaries of shifting
global supply chains with supportive government policies and favourable cost
structures, and they also represent a large consumer market of about 700
million people.
In the Asian technology sector, our stock picks have been strong. As
AI-related apps and chips start to proliferate, rising demand in terms of
usage and complexity will boost the semiconductor and consumer electronics
segments.
At the portfolio level, the combination with abrdn New Dawn has broadened the
investment universe, which means that we are now able to invest in quality
stocks that we had not been able to in the past. This potentially offers us
further opportunities to generate alpha.
Taking all the above in aggregate, coupled with undemanding valuations of
Asian equities compared to markets like the US, we see solid fundamental
grounds for corporate earnings growth and stability to come through. This in
turn should translate into resilient share price performance and returns over
the medium term.
On a personal note, we are both delighted to be co-Managers of the Company.
Having worked together on abrdn's Asian Equities team for over a decade, we
know each other's working style extremely well and are aligned on how we view
quality as the pillar of our investment philosophy. The occasional differences
in our lines of thinking usually result in rigorous and insightful discussions
that ultimately help us drive better outcomes. We are also fortunate to be
well supported by a 40-strong team across the Asia Pacific, which allows us to
harness first-hand research and insights generated by our colleagues.
Pruksa Iamthongthong and James Thom
abrdn (Asia) Limited
22 April 2024
Interim Management Report and Directors' Responsibility Statement
Principal Risks and Uncertainties
There are a number of risks which, if realised, could have a material adverse
effect on the Company and its financial position, performance and prospects.
The Board has in place a robust process to identify, assess and monitor the
principal risks and uncertainties facing the Company and to identify and
evaluate newly emerging risks. A summary of the principal risks and
uncertainties facing the Company is summarised below under the following
headings:
· Investment Risk
· Operational Risk
· Governance and Regulatory Risk
· Major Events and Geo-Political Risk
· Shareholder and Stakeholder Risk
Details of these risks and a description of the mitigating actions which the
Company has taken are provided in detail on pages 19 to 22 of the Annual
Report.
In addition to these risks, there are also a number of international political
and economic uncertainties which could have an impact on the performance of
Asian markets and the Board is monitoring closely the current geo-political
risks, market volatility and uncertainty associated with Russia's invasion of
Ukraine as well as the impact of conflict in the Middle East.
The Board is also mindful of the risks arising from emerging environmental,
social and governance ("ESG") challenges and climate change. The Board
continues to monitor, through the Investment Manager, the potential risk that
investee companies may fail to keep pace with ESG and climate change
developments.
In the view of the Board, in all other respects, the principal risks and
uncertainties have not changed materially during the six months to 29 February
2024. The Board continues to monitor the risk environment and does not
expect the risks facing the Company to change materially in the second half of
the financial year ending 31 August 2024.
Going Concern
The Directors have undertaken a rigorous review of the Company's ability to
continue as a going concern. 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 Company has a two-year fixed rate loan and a two year revolving credit
facility which both expire in July 2024. The Board has set limits for
borrowing and regularly monitors the Company's covenant compliance and gearing
levels and is satisfied that there is sufficient headroom in place and
flexibility if required. The Board is exploring replacement options in advance
of the expiry of the facilities and, should the Board decide not to renew the
facilities, any outstanding borrowing would be repaid through the proceeds of
equity sales as required.
The Directors are mindful of the principal risks and uncertainties disclosed
above and, having reviewed forecasts detailing revenue and liabilities, they
believe that the Company has adequate financial resources to continue its
operational existence for the foreseeable future and for at least twelve
months from the date of this Report. Accordingly, they continue to adopt the
going concern basis of accounting in preparing the financial statements.
Related Party Disclosures and Transactions with the Alternative Investment
Fund Manager and Investment Manager
abrdn Fund Managers Limited ("aFML") has been appointed as the Company's
Alternative Investment Fund Manager ("AIFM").
aFML has (with the Company's consent) delegated certain portfolio and risk
management services, and other ancillary services, to abrdn Investments
Limited and abrdn Asia Limited which are regarded as related parties under the
FCA's Listing Rules. Details of the fees payable to aFML are set out in note
13 to the condensed financial statements.
Responsibility Statement of the Directors in respect of the Half-Yearly
Financial Report
The FCA's Disclosure Guidance and Transparency Rules require the Directors to
confirm their responsibilities in relation to the preparation and publication
of the Interim Management Report and Financial Statements.
The Directors confirm to the best of their knowledge that:
· the condensed set of financial statements contained within the
Half-Yearly financial report has been prepared in accordance with FRS 104
Interim Financial Reporting and give a true and fair view of the assets,
liabilities, financial position and return of the Company for the period ended
29 February 2024; and
· the Interim Management Report, together with the Chairman's Statement
includes a fair review of the information required by:
a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being
an indication of important events that have occurred during the first six
months of the financial year and their impact on the condensed set of
financial statements; and a description of the principal risks and
uncertainties for the remaining six months of the year; and
b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being
related party transactions that have taken place in the first six months of
the current financial year and that have materially affected the financial
position or performance of the Company during that period; and any changes in
the related party transactions described in the last Annual Report that could
do so.
The Half-Yearly Financial Report was approved by the Board and the above
Directors' Responsibility Statement was signed on its behalf by the Chairman.
For Asia Dragon Trust plc,
James Will
Chairman
22 April 2024
Ten Largest Investments
As at 29 February 2024
Taiwan Semiconductor Manufacturing Company Samsung Electronics (Pref)
As the world's largest pure-play semiconductor manufacturer, TSMC provides a One of the global leaders in the memory chips segment, and a major player in
full range of integrated foundry services, along with a robust balance sheet smartphones and display panels. It has a vertically integrated business model
and good cash generation that enables it to keep investing in cutting-edge and robust balance sheet, alongside good free cash flow generation.
technology and innovation.
Tencent Holdings AIA Group
The internet giant continues to strengthen its ecosystem and we see great A leading pan-Asian life insurance company, it is poised to take advantage of
potential in its ability to balance its multiple revenue streams and monetise Asia's growing affluence, backed by an effective agency force and a strong
its social media and payment platforms whilst navigating the regulatory balance sheet.
landscape.
SBI Life Insurance HDFC Bank
Among the leading Indian life insurers, SBI Life's competitive edge comes from HDFC Bank is known to have the best retail banking franchise in India, with a
a wide reach of SBI branches, highly productive agents, a low cost ratio and a high quality wholesale portfolio, solid underwriting standards and a
reputable SBI brand. progressive digital stance further strengthening its competitive edge.
ASML ICICI Bank
The Dutch company supplies lithography equipment that enables semiconductor India's ICICI Bank has been delivering superior growth and returns improvement
chip makers to mass produce patterns on silicon, helping to make computer without compromising on asset quality. It has leveraged on its scale as well
chips smaller, faster and greener. It earns most of its revenue from Asia. as retail and digital franchise to grow in mortgages and also growing off a
low base in business banking and SMEs.
Oversea-Chinese Banking Corporation Hong Kong Exchanges & Clearing
A well-managed Singapore bank with a solid capital base and good The exchange is a good conduit for investment into and out of China. Its
cost-to-income ratio. It is diversified by both geography and service long-term strategic plan to broaden the product offering and increase revenue
offerings, with interests spanning Southeast Asia, North Asia, wealth opportunities makes sense and there should be continued improvements to come
management and from technology in terms of driving innovation and greater efficiencies.
life assurance as well as its core
banking activities.
Investment Portfolio
At 29 February 2024
Total
Valuation assets
Company Industry Country £'000 %
Taiwan Semiconductor Manufacturing Company Semiconductors & Semiconductor Equipment Taiwan 80,116 10.8
Samsung Electronics (Pref) Technology Hardware, Storage & Peripherals South Korea 62,819 8.5
Tencent Interactive Media & Services China 43,249 5.8
AIA Insurance Hong Kong 32,655 4.4
SBI Life Insurance Insurance India 16,859 2.3
HDFC Bank Banks India 16,609 2.2
ASML Semiconductors & Semiconductor Equipment Netherlands 15,388 2.1
ICICI Bank Banks India 15,200 2.0
Oversea-Chinese Banking Corporation Banks Singapore 14,748 2.0
Hong Kong Exchanges & Clearing Capital Markets Hong Kong 14,111 1.9
Top ten investments 311,754 42.0
Kweichow Moutai 'A' Beverages China 13,904 1.9
DBS Banks Singapore 13,540 1.8
Bank Central Asia Banks Indonesia 12,643 1.7
Woodside Energy Oil, Gas & Consumable Fuels Australia 12,400 1.7
Budweiser Brewing Co APAC Beverages Hong Kong 12,275 1.7
Power Grid Corp of India Electric Utilities India 12,208 1.6
Larsen and Toubro Construction & Engineering India 11,778 1.6
Samsung Biologics Life Sciences Tools & Services South Korea 11,522 1.6
Chroma ATE Electronic Equipment, Instruments & Components Taiwan 11,375 1.5
ASM International Semiconductors & Semiconductor Equipment Netherlands 11,340 1.5
Twenty largest investments 434,739 58.6
BHP Group Metals & Mining Australia 11,293 1.5
CSL Biotechnology Australia 11,153 1.5
Ultratech Cement Construction Materials India 11,140 1.5
Sands China Hotels, Restaurants & Leisure Hong Kong 10,849 1.5
Hindustan Unilever Personal Care Products India 9,782 1.3
ShenZhen Mindray Bio-Medical Electronics - A Health Care Equipment & Supplies China 9,674 1.3
Info Edge (India) Interactive Media & Services India 9,292 1.2
FPT Corp IT Services Vietnam 9,052 1.2
abrdn New India Investment Trust(A) Closed End Investments India 8,924 1.2
Delta Electronics Electronic Equipment, Instruments & Components Taiwan 8,706 1.2
Thirty largest investments 534,604 72.0
PB Fintech Insurance India 7,919 1.1
Accton Technology Semiconductors & Semiconductor Equipment Taiwan 7,911 1.1
Bank of the Philippine Islands Banks Philippines 7,713 1.0
Yageo Electronic Equipment, Instruments & Components Taiwan 7,606 1.0
Bank Negara Indonesia Banks Indonesia 7,602 1.0
Nari Technology - A Electrical Equipment China 7,510 1.0
Tata Consultancy Services IT Services India 7,456 1.0
Alibaba Group Holding Broadline Retail China 7,301 1.0
Telekom Indonesia Telecommunication Service Provider Indonesia 7,197 1.0
HD Korea Shipbuilding & Offshore Engineering Machinery South Korea 7,112 1.0
Forty largest investments 609,931 82.2
Godrej Properties Real Estate Management & Development India 7,109 1.0
Bharti Airtel Telecommunication Service Provider India 6,980 0.9
Mobile World Investment Corporation Specialty Retail Vietnam 6,611 0.9
LG Chem Chemicals South Korea 6,539 0.9
China Resources Land Real Estate Management & Development China 6,357 0.9
Maruti Suzuki India Automobiles India 6,326 0.9
Contemporary Amperex Technology - A Electrical Equipment China 6,287 0.8
M.P. Evans Group Food Products United Kingdom 6,236 0.8
Yum China Holdings Hotels, Restaurants & Leisure China 6,199 0.8
China Tourism Group Duty Free Corp(B) Speciality Retail China 6,174 0.8
Fifty largest investments 674,749 90.9
Cochlear Health Care Equipment & Supplies Australia 6,012 0.8
Silergy Corp Semiconductors & Semiconductor Equipment Taiwan 5,722 0.8
Aier Eye Hospital Group - A Health Care Providers & Services China 5,635 0.8
Pidilite Industries Chemicals India 4,691 0.6
Andes Technology Semiconductors & Semiconductor Equipment Taiwan 4,615 0.6
Ayala Land Real Estate Management & Development Philippines 4,438 0.6
Fortis Healthcare Health Care Providers & Services India 4,389 0.6
Chacha Food - A Food Products China 4,190 0.6
Sungrow Power Supply Co - A Electrical Equipment China 4,113 0.6
Meituan-Dianping Class B Hotels, Restaurants & Leisure China 3,979 0.5
Sixty largest investments 722,533 97.4
Maxscend Microelectronics Company - A Electronic Equipment, Instruments & Components China 3,900 0.5
Cisarua Mountain Dairy Food Products Indonesia 3,760 0.5
Shenzhen Inovance Technology - A Machinery China 3,585 0.5
abrdn Asia Focus(A) Closed End Investments Other Asia 3,140 0.4
736,918 99.3
Net current assets(C) 5,361 0.7
Total assets less current liabilities(C) 742,279 100.0
(A) Holding also managed by the abrdn Group but not subject to double charging
of management fees.
(B) Holding includes investment in both 'A' and 'H' shares.
(C) Excluding bank loan of £59,521,000
Note: Unless otherwise stated, foreign stock is held and all investments are
equity holdings.
Our Investment Manager's Case Studies
SBI Life Insurance
What does the company do?
Established in 2000 as a joint venture between Indian public lender, the State
Bank of India, and French bank BNP Paribas' insurance arm, SBI Life is one of
the largest private life insurers in India. The company has an extensive
presence across the country, including in rural and semi-rural areas,
comprising over 1,000 offices and a large network of more than 243,000 agents,
74 corporate agents, and 14 bancassurance partners.
Why do we like the investment?
We see SBI Life as a strong insurance play in Asia. With a lower average
ticket size than peers and backed by a reputable Indian brand, its affordable
premiums help to increase insurance access to those who would otherwise go
without life protection. Supported by a strong balance sheet, a low cost base,
a productive agency force and an extensive bancassurance distribution network,
SBI Life is able to push into massive unpenetrated areas of the Indian
insurance market. The company has a 27.3% private market share in individual
new policies and a 21.3% share in new business premiums.
SBI Life's product mix is diverse and improving, with a focus to increase the
share of higher-margin protection and annuity products. Productivity among
agents is also getting better, with incentives given for the branches that are
able to achieve the fixed number of policies and premiums to be sold for each
segment. In addition, the attrition rate is below that of the average industry
standard due to initiatives undertaken by the company, including handholding
the agents and giving them the necessary training to succeed.
Overall, the sector is enjoying growth tailwinds from a low base due to Covid,
which has increased awareness on the need for protection and insurance
planning in India and improved digitisation in both agency and banca channels.
What is our key area of engagement?
We engaged SBI Life on the implementation and disclosure of a responsible
investment framework and have spoken to the company about agent retention
rates. In 2022, MSCI downgraded SBI Life's ESG rating from BB to B, with
governance weighing on the headline rating the most. While there are certain
issues that are out of the company's control, some of which are mandated by
regulatory requirements, we impressed upon SBI Life the steps it can take in
other areas to improve its score.
What is the result?
We are pleased to see that the company is adopting stewardship principles and
has a process in place to analyse, engage, and exercise voting rights for the
portfolio companies. SBI Life understands the importance of better
disclosures. It is in the midst of working with various regulators to get a
better sense of the requirements for the insurance industry and mapping Global
Reporting Initiative (GRI) G4 framework to its business, which places the
concept of materiality at the heart of sustainability reporting. In FY23, the
company issued its first ESG report that was approved by the board, and in
subsequent discussions, they have expressed intention to do more.
At the same time, we were pleased to hear that SBI Life is running a 50% lower
turnover rate compared to the industry average due to the various initiatives
they have undertaken, including training and proper incentivisation.
Yum China
Food for thought: Yum China is one of the largest restaurant operators in
China, running the KFC, Pizza Hut, East Dawning and Little Sheep chains.
What does the company do?
Yum China is a pure-play Chinese consumer discretionary company. It is one of
the largest restaurant operators in China, running the KFC, Pizza Hut, East
Dawning and Little Sheep chains. From a single restaurant in 1987, Yum now
operates over 14,000 restaurants in over 2,000 cities and towns spanning every
province and autonomous region across mainland China.
Why do we like the investment?
We view Yum China as a solid consumer play. Its edge comes from branding,
scale, consumer know-how and mastery of the digital channel. The restaurant
industry is one with relatively low barriers to entry, but Yum have built a
defensible moat that has yet to weaken with time.
Yum's efforts to accelerate store openings and improve returns through better
capital efficiency suggest that this key competitive strength could be
improving with scale. Its management is well seasoned and impressive and has
executed well since the spin-out from Yum Brands in 2016.
The company's strong fundamentals stand out even more in the current times.
Yum is still seeing decent underlying growth and generating strong cashflows
and capital returns to shareholders despite the overarching weak consumer
sentiment in China. Its free cash flow yield exceeds 4% and its share price is
currently trading cheaply, at more than one standard deviation below its
long-term average price-earnings multiple.
Yum has already announced shareholder returns of US$1.5 billion in 2024
(US$1.25 billion in share buybacks and US$250 million in dividends), which
represents 8.7% of its current market cap, as the company sees good value in
its own shares after the previous correction.
What is our key area of engagement?
We have engaged with Yum consistently through the years on areas of key
material risks, including labour management, product safety and carbon
footprint. Another area would be executive compensation, specifically with
concerns over the magnitude of variable compensation relative to the fixed
component, although we think management execution has been solid since the
spin-out from Yum Brands.
Condensed Statement of Comprehensive Income (unaudited)
Six months ended Six months ended
29 February 2024 28 February 2023
Revenue Capital Total Revenue Capital Total
Note £'000 £'000 £'000 £'000 £'000 £'000
Gains/(losses) on investments - 12,907 12,907 - (44,882) (44,882)
Net currency gains/(losses) - 375 375 - (855) (855)
Income 2 3,312 - 3,312 3,218 - 3,218
Investment management fee 13 (392) (1,175) (1,567) (500) (1,501) (2,001)
Administrative expenses (624) - (624) (562) - (562)
Net return/(loss) before finance costs and taxation 2,296 12,107 14,403 2,156 (47,238) (45,082)
Interest payable and similar charges (307) (920) (1,227) (263) (791) (1,054)
Return/(loss) before taxation 1,989 11,187 13,176 1,893 (48,029) (46,136)
Taxation 3 (427) (2,060) (2,487) (369) 306 (63)
Return/(loss) after taxation 1,562 9,127 10,689 1,524 (47,723) (46,199)
Return per Ordinary share (pence) 4 1.08 6.30 7.38 1.29 (40.27) (38.98)
The total columns of this statement represent 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 condensed financial
statements.
Condensed Statement of Financial Position (unaudited)
As at As at
29 February 2024 31 August 2023
Notes £'000 £'000
Non-current assets
Investments at fair value through profit or loss 736,918 509,219
Current assets
Debtors and prepayments 4,740 3,114
Cash and cash equivalents 7,757 10,942
12,497 14,056
Creditors: amounts falling due within one year
Bank loan 10 (59,521) (39,992)
Other creditors (7,136) (2,040)
(66,657) (42,032)
Net current liabilities (54,160) (27,976)
Creditors: amounts falling due after more than one year
Deferred tax liability on Indian capital gains 3 (3,926) (2,074)
(3,926) (2,074)
Net assets 678,832 479,169
Share capital and reserves
Called-up share capital 42,501 31,922
Share premium account 264,372 60,416
Capital redemption reserve 28,154 28,154
Capital reserve 6 308,544 317,532
Revenue reserve 35,261 41,145
Total shareholders' funds 678,832 479,169
Net asset value per Ordinary share (pence) 7 420.43 421.26
The accompanying notes are an integral part of the condensed financial
statements.
Condensed Statement of Changes in Equity (unaudited)
Six months ended 29 February 2024
Share Capital
Share premium redemption Capital Revenue
capital account reserve reserve reserve Total
Note £'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 - - - 9,127 1,562 10,689
Dividend paid 8 - - - - (7,446) (7,446)
Buyback of ordinary shares for treasury - - - (18,115) - (18,115)
Issue of shares on combination 14 10,579 204,150 - - - 214,729
Cost of shares issued in respect of the combination - (194) - - - (194)
Balance at 29 February 2024 42,501 264,372 28,154 308,544 35,261 678,832
Six months ended 28 February 2023
Share Capital
Share premium redemption Capital Revenue
capital account reserve reserve reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 September 2022 31,922 60,416 28,154 453,273 40,604 614,369
(Loss)/return after taxation - - - (47,723) 1,524 (46,199)
Dividend paid 8 - - - - (7,726) (7,726)
Buyback of Ordinary shares for treasury - - - (10,490) - (10,490)
Balance at 28 February 2023 31,922 60,416 28,154 395,060 34,402 549,954
The accompanying notes are an integral part of the condensed financial
statements.
Condensed Statement of Cash Flows (unaudited)
Six months ended Six months ended
29 February 2024 28 February 2023
£'000 £'000
Operating activities
Net return before taxation 13,176 (46,136)
Adjustments for:
(Gains)/losses on investments (12,907) 44,882
Currency (gains)/losses (375) 855
Increase in accrued dividend income (146) (4)
(Increase)/decrease in other debtors (8) 857
Decrease in other creditors (220) (23)
Interest payable and similar charges 1,227 1,054
Overseas withholding tax (127) 271
Cash from operations 620 1,756
Interest paid (1,153) (1,050)
Net cash (outflow)/inflow from operating activities (533) 706
Investing activities
Purchases of investments (187,428) (58,759)
Sales of investments 112,443 80,669
Capital gains tax on sales (208) (622)
Costs associated with the combination (800) -
Net cash (outflow)/inflow investing activities (75,993) 21,288
Financing activities
Equity dividends paid (7,446) (7,726)
Buyback of Ordinary shares (18,091) (10,550)
Net cash acquired and received following the combination 79,172 -
Cost of shares issued in respect of the combination (194) -
Drawdown/(repayment) of bank loans 19,525 (5,000)
Net cash from/(used in) financing activities 72,966 (23,276)
Decrease in cash and cash equivalents (3,560) (1,282)
Analysis of changes in cash and cash equivalents during the period
Opening balance 10,942 5,094
Effect of exchange rate fluctuations on cash held 375 (855)
Decrease in cash and cash equivalents as above (3,560) (1,282)
Closing balance 7,757 2,957
Represented by:
Money market funds 1 5
Cash and short term deposits 7,756 2,952
7,757 2,957
Notes to the Financial Statements
As at 29 February 2024
1. Accounting policies
Basis of preparation. The condensed financial statements have been prepared in
accordance with Financial Reporting Standard 104 (Interim Financial Reporting)
and with the principles of the Statement of Recommended Practice for
'Financial Statements of Investment Trust Companies and Venture Capital
Trusts'. Given that the Company's portfolio comprises primarily "Level 1"
assets (listed on a recognisable exchange and realisable within a short
timescale), and the Company's relatively low level of gearing, the Directors
believe that adopting a going concern basis of accounting remains appropriate.
The condensed financial statements have also been prepared on the assumption
that approval as an investment trust will continue to be granted by HMRC.
The interim financial statements have been prepared using the same accounting
policies as the preceding annual financial statements.
Significant estimates and judgements. The Directors do not believe that any
accounting estimates or judgements have been applied to these financial
statements that have a significant risk of causing material adjustment to the
carrying amount of assets and liabilities. However the Directors have made a
judgement that the acquisition of assets and liabilities from abrdn New Dawn
Investment Trust plc outlined in Note 14 does not meet the definition of a
business combination under FRS 102 and accordingly have not accounted for it
as such in these financial statements.
2. Income
Six months ended Six months ended
29 February 2024 28 February 2023
£'000 £'000
Income from investments
Overseas dividend income 3,052 3,148
UK dividend income 66 -
3,118 3,148
Other income
Deposit interest 159 58
Interest from money market funds 35 12
194 70
Total income 3,312 3,218
3. Taxation
The taxation for the period represents withholding tax suffered on overseas
dividend income and a movement in provision for Indian Capital Gains Tax.
An amount of £427,000 of withholding tax was suffered in the six months to 29
February 2024 (28 February 2023 - £369,000). The Indian Capital Gains Tax
accrual has increased by £1,852,000 (28 February 2023 - £928,000) since the
year end with a balance outstanding at 29 February 2024 of £3,926,000 (28
February 2023 - £1,473,000).
4. Return per Ordinary share
Six months ended Six months ended
29 February 2024 28 February 2023
p p
Basic
Revenue return 1.08 1.29
Capital return 6.30 (40.27)
Total return 7.38 (38.98)
The figures above are based on the following:
£'000 £'000
Revenue return 1,562 1,524
Capital return 9,127 (47,723)
Total return 10,689 (46,199)
Weighted average number of Ordinary shares in issue 144,763,506 118,509,837
5. Transaction costs
During the period expenses were incurred in acquiring or disposing of
investments classified as fair value through profit or loss. These have been
expensed through capital and are included within gains/(losses) on investments
in the Condensed Statement of Comprehensive Income. The total costs were as
follows:
Six months ended Six months ended
29 February 2024 28 February 2023
£'000 £'000
Purchases(A) 211 78
Costs associated with the combination(B) 816 -
Sales(A) 208 162
1,235 240
(A) Costs associated with the purchases and sale of portfolio investments in
the normal course of the Company's business comprising stamp duty, financial
transaction taxes and brokerage.
(B) Costs associated with the acquisition of assets from New Dawn, comprising
£138,000 relating to stamp duty and financial transaction taxes and £678,000
relating to professional fees.
6. Capital reserves
The capital reserve reflected in the Condensed Statement of Financial Position
at 29 February 2024 includes gains of £101,769,000 (31 August 2023 -
£32,413,000) which relate to the revaluation of investments held at the
reporting date.
7. Net asset value per share
The net asset value per share and the net assets attributable to the Ordinary
shareholders at the period end were as follows:
As at As at
29 February 2024 31 August 2023
Net assets attributable (£'000) 678,832 479,169
Number of Ordinary shares in issue(A) 161,460,656 113,745,386
Net asset value per share (pence) 420.43 421.26
(A) Excluding shares held in treasury.
8. Dividends
Six months ended Six months ended
29 February 2024 28 February 2023
£'000 £'000
2022 final dividend - 6.5p - 7,726
2023 final dividend - 6.6p 7,446 -
7,446 7,726
There will be no interim dividend for the year to 31 August 2024 (2023 - nil)
as the objective of the Company is long-term capital appreciation.
9. 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 has the following classifications:
Level 1: unadjusted quoted prices in an active market for identical assets or
liabilities that the entity can access at the measurement date.
Level 2: inputs other than quoted prices included within Level 1 that are
observable (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 (31 August 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 29 February 2024 of
£736,918,000 (31 August 2023 - £509,219,000) has therefore been deemed as
Level 1.
10. Bank loans
At 29 February 2024, the Company had a £35 million multicurrency facility
with The Royal Bank of Scotland. This agreement was entered into on 29 July
2022 with a termination date of 29 July 2024. At the period end, HKD
341,900,000, equivalent to £34,525,000, of this facility had been drawn down
at a rate of 5.5381% which matured on 14 March 2024. An option to draw down a
further £15 million under an accordion facility was exercised after the
period end. At the date of this Report the Company had drawn down HKD
485,900,000, equivalent to £49,888,000 at a rate of 5.30964%.
On 29 July 2022, the Company entered into a new 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. The facility has been drawn down in full. The agreement of this
facility incurred an arrangement fee of £18,140 which is being amortised over
the life of the loan.
The agreements contain 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 period.
11. Called-up share capital
In the six months to 29 February 2024, the Company bought back 5,180,400 (28
February 2023 - 2,485,204) Ordinary shares to be held in treasury, at a total
cost of £18,115,000 (28 February 2023 - £10,490,000).
During the period 52,895,670 Ordinary shares were also issued in exchange for
£214,729,000 of net assets from abrdn New Dawn Investment Trust plc (note
14).
At the end of the period there were 212,507,347 (28 February 2023 -
159,611,677) Ordinary shares in issue, of which 51,046,691 (28 February 2023 -
42,410,880) were held in treasury.
Since the period end a further 2,192,736 Ordinary shares of 20p each have been
purchased by the Company at a total cost of £9,355,000 all of which were held
in treasury.
12. Analysis of changes in net debt
At Currency Cash Non-cash At
31 August 2023 differences flows movements 29 February 2024
£'000 £'000 £'000 £'000 £'000
Cash and short term deposits 10,942 375 (3,560) - 7,757
Debt due within one year (39,992) - (19,525) (4) (59,521)
(29,050) 375 (23,085) (4) (51,764)
At Currency Cash Non-cash At
31 August 2022 differences flows movements 28 February 2023
£'000 £'000 £'000 £'000 £'000
Cash and short term deposits 5,094 (855) (1,282) - 2,957
Debt due within one year (35,000) - 5,000 - (30,000)
Debt due after one year (24,983) - - (4) (24,987)
(54,889) (855) 3,718 (4) (52,030)
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.
13. Related party transactions and transactions with the Manager
The Company has an agreement in place with abrdn Fund Managers Limited ("aFML"
or "Manager") for the provision of management and administration services,
promotional activities and secretarial services.
For the period 1 September 2023 to 7 November 2023 the management fee has been
calculated at 0.85% per annum of net assets up to £350 million and 0.50% per
annum of net assets over this threshold. For the period 8 November 2023 to 7
May 2024, there is a management fee waiver in place as a result of the
combination with New Dawn. For this period the fee will be calculated at
0.509449% of net assets up to £350 million and 0.339633% of net assets over
this threshold. After this waiver period has ended the fee will be calculated
at 0.75% per annum of net assets up to the value of £350 million and 0.50%
per annuum of net assets over this threshold. For the period to 29 February
2024 the value of the management fee waiver was calculated to be £425,000.
Management fees are calculated and payable on a quarterly basis, and are
charged 75% to capital and 25% to revenue. During the period £1,567,000 (28
February 2023 - £2,001,000) of management fees were payable to the Manager,
with a balance of £721,000 (28 February 2023 - £2,001,000) due to aFML at
the period end. Should the Company terminate the management agreement within
three years of the date of the combination 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 combination.
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.
At the end of the period the Company had £1,000 (28 February 2023 - £5,000)
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
PLC of £8,924,000 (28 February 2023 - £nil) and abrdn Asia Focus of
£3,140,000 (28 February 2023 - £nil) which are managed and administered by
abrdn plc. The value of these holdings is excluded from the management fee
calculation.
Promotional activities costs are based on current annual amount of £248,000
(28 February 2023 - £240,000), payable quarterly in arrears. During the
period £123,000 (28 February 2023 - £116,000) of fees were payable, with a
balance of £103,000 (28 February 2023 - £99,000) being due at the period
end.
14. 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.
15. Segmental information
The Company is engaged in a single segment of business, which is to invest in
equity securities. All of the Company's activities are interrelated, and each
activity is dependent on the others. Accordingly, all significant operating
decisions are based on the Company as one segment.
16. Half-Yearly Financial Report
The financial information contained in this Half-Yearly Financial Report does
not constitute statutory accounts as defined in Sections 434 - 436 of the
Companies Act 2006. The financial information for the six months ended 29
February 2024 and 28 February 2023 has not been audited. The Company's
external auditor, PricewaterhouseCoopers LLP has not reviewed the financial
information for the six months ended 29 February 2024.
The information for the year ended 31 August 2023 has been extracted from the
latest published audited financial statements which have been filed with the
Registrar of Companies. The report of the auditor on those accounts contained
no qualification or statement under Section 498(2) or (3) of the Companies Act
2006.
17. This Half-Yearly Financial Report was approved by the Board on 22 April 2024.
Alternative Performance Measures
Alternative Performance Measures ("APMs") are numerical measures of the
Company's current, historical or future performance, financial position or
cash flows, other than financial measures defined or specified in the
applicable financial framework. The Company's applicable financial framework
includes FRS 102 and the AIC SORP. The Directors assess the Company's
performance against a range of criteria which are viewed as particularly
relevant for closed-end investment companies.
Discount to net asset value per Ordinary share
The difference between the share price and the net asset value per Ordinary
share expressed as a percentage of the net asset value per Ordinary share.
29 February 2024 31 August 2023
NAV per Ordinary share (p) a 420.43 421.26
Share price (p) b 353.00 353.00
Discount (a-b)/a 16.0% 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.
29 February 2024 31 August 2023
Borrowings (£'000) a 59,521 39,992
Cash (£'000) b 7,757 10,942
Amounts due to brokers (£'000) c 5,415 -
Amounts due from brokers (£'000) d 3,205 1,425
Shareholders' funds (£'000) e 678,832 479,169
Net gearing (a-b+c-d)/e 8.0% 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.
The ratio for 29 February 2024 is based on forecast ongoing charges for the
year ending 31 August 2024.
29 February 2024(A) 29 February 2024(B) 31 August 2023
Investment management fees (£'000) 3,440 4,119 3,839
Administrative expenses (£'000) 1,231 1,231 1,056
Less: non-recurring charges(C) (£'000) - - (7)
Ongoing charges (£'000) 4,671 5,350 4,888
Average net assets (£'000) 636,827 636,827 538,331
Ongoing charges ratio (excluding look-through costs) 0.73% 0.84% 0.91%
Look-through costs(D) 0.03% 0.03% -
Ongoing charges ratio (including look-through costs) 0.76% 0.87% 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 13 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 13 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
Six months ended 29 February 2024 NAV Price
Opening at 1 September 2023 a 421.26p 353.00p
Closing at 29 February 2024 b 420.43p 353.00p
Price movements c=(b/a)-1 -0.2% 0.0%
Dividend reinvestment(A) d 1.7% 2.0%
Total return c+d +1.5% +2.0%
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.
Copies of the Company's Half Yearly Report for the six months ended 29
February 2024 will be posted to shareholders in May 2024 and will be available
thereafter on the Company's website: asiadragontrust.co.uk*.
Please note that past performance is not necessarily a guide to the future and
that the value of investments and the income from them may fall as well as
rise and may be affected by exchange rate movements. Investors may not get
back the amount they originally invested.
* Neither the content of the Company's website nor the content of any website
accessible from hyperlinks on the Company's website (or any other website) is
(or is deemed to be) incorporated into, or forms (or is deemed to form) part
of this announcement.
abrdn Holdings Limited
Company Secretary
22 April 2024
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