TIDMDGN
RNS Number : 2657S
Asia Dragon Trust PLC
03 November 2023
ASIA DRAGON TRUST PLC
LEI: 549300W4KB0D75D1N730
Capturing growth from world-class Asian companies
ANNUAL FINANCIAL REPORT FOR THE YEARED 31 AUGUST 2023
-- The Company's net asset value (NAV) declined by 16.7% on a
total return basis, while its benchmark, the MSCI Asia ex Japan
Index, fell 8.4% on a comparable basis over the reporting period.
The share price declined on a total return basis by 19.5% as at 31
August 2023, with the discount to NAV per share increasing to
16.2%.
-- Much of the underperformance stemmed from the Company's
exposure to China, which has been an unusually challenging and
volatile market to navigate over the year. However, the Company is
optimistic about the long-term investment opportunity in China - as
well as Asia more broadly - and believes that its combination with
abrdn New Dawn, which is subject to shareholder approval on 8
November 2023, strongly positions the new enlarged Company for when
investors start to allocate back to Asia.
Performance Highlights
Net asset value total return(A) Net asset value per share
(16.7)% 421.3p
2022 (8.4)% 2022 513.3p
Share price total return(A) Share price
(19.5)% 353.0p
2022 (11.8)% 2022 446.0p
Benchmark total return (in sterling Ongoing charges(A)
terms)
(8.4)% 0.91%
2022 (7.1)% 2022 0.84%
Earnings per share (revenue) Dividend per share
7.06p 6.60p
2022 6.38p 2022 6.50p
(A) Considered to be an Alternative Performance Measure. Further details
can be found below.
Financial Calendar, Dividends and Highlights
Financial Calendar
Expected Completion Date of Combination 8 November 2023
with
abrdn New Dawn
======================================== =================
Pre-AGM Investor Presentation 27 November 2023
======================================== =================
Annual General Meeting 7 December 2023
======================================== =================
Expected payment of Final Dividend 15 December 2023
======================================== =================
Half year end 28 February 2024
======================================== =================
Expected announcement of results April 2024
for the six months ending 28 February
2024
======================================== =================
Financial year end 31 August 2024
======================================== =================
Expected announcement of results November 2024
for the year ending 31 August 2024
======================================== =================
Dividends
Rate xd date Record date Payment date
============== ===== ================ ================ ============
Proposed final 6.60p 26 October 2023 27 October 2023 15 December
2023 2023
============== ===== ================ ================ ============
Final 2022 6.50p 10 November 2022 11 November 2022 16 December
2022
-------------- ----- ---------------- ---------------- ------------
Highlights
31 August 31 August % change
2023 2022
============================================== ========== ========= ========
Performance
============================================== ========== ========= ========
Total shareholders' funds (GBP'000) 479,169 614,369 -22.0
============================================== ========== ========= ========
Net asset value per share (capital return
basis) (p) 421.26 513.32 -17.9
============================================== ========== ========= ========
Net asset value per share (total return
basis) (%) -16.7 -8.4
============================================== ========== ========= ========
Share price (capital return basis) (p) 353.00 446.00 -20.9
============================================== ========== ========= ========
Market capitalisation (GBP'000) 401,521 533,800 -24.8
============================================== ========== ========= ========
MSCI AC Asia (ex Japan) Index (in sterling
terms; capital return basis) 918.92 1,030.48 -10.8
============================================== ========== ========= ========
MSCI AC Asia (ex Japan) Index (in sterling
terms; total return basis) (%) -8.4 -7.1
============================================== ========== ========= ========
Revenue return per share (p) 7.06 6.38 +10.7
============================================== ========== ========= ========
Total return per share (p) (88.66) (49.53) +79.0
============================================== ========== ========= ========
Dividend
============================================== ========== ========= ========
Dividend per share (p) 6.60 6.50 +1.5
============================================== ========== ========= ========
Gearing
============================================== ========== ========= ========
Net gearing (%)(A) 5.8 9.0
============================================== ========== ========= ========
Discount
============================================== ========== ========= ========
Discount to net asset value (%)(A) 16.2 13.1
============================================== ========== ========= ========
Operating costs
============================================== ========== ========= ========
Ongoing charges ratio(A) 0.91 0.84
---------------------------------------------- ---------- --------- --------
(A) Considered to be an Alternative Performance Measure. Further details
can be found below.
Strategic Report
Chairman's Statement
Significant events during the year
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. Shareholders were sent documentation in
September explaining that this is to be 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 so elect.
I would like to take this opportunity to thank our shareholders
for approving the Scheme proposals at the Company's General
Meeting, held on 25 October 2023 with over 99.9% of votes in favour
on all resolutions. This has paved the way for the Scheme to
progress, subject to the approval of New Dawn shareholders at its
second general meeting scheduled for 8 November 2023. On the basis
of the current timetable, it is expected that the combination of
the Company and New Dawn will take place on or around 8 November
2023.
The expected benefits of the Scheme were set out in detail in
the recent shareholder circular but are worth repeating here. In
summary, the combination will create an enlarged vehicle with the
following expected benefits to shareholders:
-- Enhanced profile and marketability of the enlarged
Company
-- Lower management fee (further details below)
-- Lower ongoing charges
-- Enhanced liquidity of the Company's shares
The amendments to the Investment Policy and to the Articles of
Association described in the recent Circular have been approved. In
addition, should the Scheme become effective, 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 would be reduced in size 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.
Subject to the successful completion of the combination, the
Manager will be implementing changes to the portfolio to reflect
this new Investment Policy.
Results
Once again, rising inflation and recession risk have continued
to cast a long shadow over the global economy. Asian markets have
not been immune, leading to testing times for investors. In the 12
months to 31 August 2023, the MSCI AC Asia ex Japan Index fell 8.4%
in sterling total return terms. The Company's net asset value
("NAV") fared worse, finishing down 16.7% on the same total return
basis after accounting for dividends. The Company's share price was
impacted through this period of risk aversion, falling 20.9% to
353.0p per share from last year's 446.0p. This reflected a widening
of the discount to NAV to 16.2% as at the year end.
Performance
Looking at your Company's performance over the period, the
portfolio made small gains relative to its benchmark over the first
few months but underperformed from the start of 2023 onwards, the
key detractor being our exposure to China. Through the period, we
also saw a significant style shift towards value stocks both in
China and the broader Asia Pacific ex Japan region, which worked
against your Company's performance, given your Manager's long-term
focus on businesses with quality characteristics.
The Manager's Review covers the Company's performance, portfolio
activity and their views on the future in some detail. Although
performance has been disappointing during the period, the Board
notes that much of the underperformance during the year stemmed
from the Company's exposure to China, which has been an unusually
challenging and volatile market to navigate over the period. The
Manager's Review also highlights the reasons for long-term optimism
with regard to China, and that the recent market movements have
created opportunities with some high-quality businesses seen
trading on attractive valuations.
The Board continues to have confidence in Asia's longer-term
growth story. Moreover, the combination with New Dawn is, we
believe, strongly positioning the new combined Company at a
critical time, for when investors start to allocate back to
Asia.
Market Review
Investor sentiment fluctuated greatly in the year under review.
On the one hand, there were concerns over the impact of policy
tightening in the US, with fears that increasing interest rates to
control inflation could trigger a global recession. On the other
hand, there was hope that the tightening cycle would start to
ease.
At the end of the Company's half year, in February, investors
were optimistic that the Fed, having raised interest rates by 425
basis points in 2022, would start to ease up. These expectations
proved to be premature, although the severity of rate increases in
2023 has been much reduced.
Moving into 2023, market expectations brightened over Asia's
near-term outlook. In China, the easing of Covid curbs and
increasing government support boosted mainland equity markets and
buoyed export-oriented markets such as Taiwan and South Korea.
Investors hoped that the faster than expected re-opening would
translate to a big recovery in consumer spending. However, this did
not transpire as expected. The economic recovery stalled and
China's increased savings rate and looser fiscal policy environment
did not convert into increased spending. Another key concern was
the weak property sector. We have also seen the government step up
its policy support through monetary policy easing, a liquidity
boost for capital markets and targeted measures for real
estate.
In other parts of Asia, the growth picture was rosier. In India,
for instance, a recovery in urban consumer demand and a buoyant
housing market underpinned continued economic growth, placing the
country among the world's fastest-growing economies. Elsewhere,
Indonesia displayed signs of resilient domestic spending, while
investors turned more positive on Taiwan and South Korea, in the
expectation that artificial intelligence (AI) will be a fillip for
semiconductor manufacturing.
Gearing
The Board believes 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. The
Company has loan facilities totalling a commitment of GBP60 million
with The Royal Bank of Scotland International Limited, London
Branch. The facilities, which are unsecured, consist of a two-year
fixed rate facility of GBP25m, which is fully drawn, and a two year
GBP35m multi-currency revolving credit facility of which GBP15
million was drawn down at the year-end.
At 31 August 2023, the Company's net gearing position was 5.8%,
compared to 9.0% at the end of August 2022.
The Manager continues to monitor closely gearing levels and bank
covenants. As at 1 November 2023, the Company's net assets stood at
GBP449.6 million and net gearing was 7.7%. These levels remain
comfortably within the covenant limits.
It is the Manager's intention, subject to implementation of the
Scheme, to draw down an additional amount under its revolving
credit facility, post the combination of assets, for identified
investment opportunities and to maintain approximately the
Company's current gearing level.
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 2023, 5.9 million shares were
bought back into treasury at a cost of GBP23.7 million (2022: 5.1
million shares were bought back into treasury at a cost of GBP24.0
million). Since 31 August 2023, a further 973,136 shares have been
bought back into treasury at a cost of GBP3.45 million. The
discount at the financial year end was 16.2% (2022: 13.1%). As at 1
November 2023, the discount was 16.9%.
Revenue Account
The Company's revenue return per share was 7.06p for the year to
31 August 2023 (2022 - 6.38p). The Board has declared a final
dividend of 6.6p per Ordinary share (2022 - 6.5p) which, if
approved by shareholders at the Annual General Meeting ("AGM"),
will be paid on 15 December 2023 to shareholders on the register on
27 October 2023. As this date precedes the proposed implementation
of the Scheme, New Dawn shareholders who elect to receive the
Company's shares as part of the Scheme, will not receive this
dividend.
Composition of the Board
As previously outlined, it is intended that, subject to New Dawn
shareholders' approval of the Scheme, Donald Workman, Stephen
Souchon and Nicole Yuen will be appointed as non-executive
Directors of the Company. As such, the Board will then, initially,
consist of eight Directors, comprising the five current Directors
of the Company and three New Dawn Directors. However, after a
transition period that will end on 8 May 2024, the expected
six-month anniversary of completion of the Scheme, it is intended
that the number of Directors on the Board will be reduced to five,
with Donald Workman, Charlie Ricketts and Gaynor Coley expected to
retire from the Board at that time. Resolutions proposing the
election of Donald, Stephen and Nicole are included in the Notice
of AGM and will be proposed, subject to successful completion of
the proposed combination with abrdn New Dawn.
Investment Objective and Policy and Management Arrangements
At the Company's General Meeting held on 25 October 2023,
shareholders approved certain amendments to the Company's
investment objective and policy, including permitting investment in
Australasia. This change was made to provide the Company's
management team with greater geographic flexibility and to clarify
and modernise the policy. The full policy is set out on page 19 of
the Annual Report and financial statements for the year ended 31
August 2023.
As part of the Scheme proposals, abrdn has also agreed to reduce
its management fee from the effective date of the Scheme. The
management fee payable by the Company to AFML will be reduced to
0.75% per annum (currently 0.85% per annum) on the first GBP350
million of the Company's NAV and 0.50% per annum on the Company's
NAV in excess of GBP350 million.
Finally, Adrian Lim our portfolio co-manager has decided to
retire from abrdn and, on behalf of the Board, I would like to take
this opportunity to thank Adrian for his many years of service and
dedication to the Company and we wish him all the very best in the
future. Pruksa Iamthongthong will continue as joint lead portfolio
manager and has been joined as co-manager by James Thom, who is
currently co-manager of New Dawn.
Annual General Meeting
The AGM returns to Scotland this year and will take place on 7
December 2023 at 9:00 a.m. in the Esk Suite, The Balmoral Hotel, 1
Princes Street Edinburgh EH2 2EQ.
The AGM provides shareholders with an opportunity to meet
representatives from the Manager and ask any questions that they
may have of either the Board or the Manager. I look forward to
meeting as many of you as possible over light refreshments which
will follow the AGM. Shareholders, whether attending the AGM or
not, are encouraged to submit questions for the Board and/or the
Manager, in advance, by email to asia.dragon@abrdn.com .
Online Shareholder Presentation
In order to encourage as much interaction as possible with our
enlarged shareholder base, we will be hosting another Online
Shareholder Presentation, which will be held at 11 a.m. on 27
November 2023. At this event there will be a presentation from the
Investment Manager followed by an opportunity to ask live questions
of the Chairman, Senior Independent Director and the Investment
Manager. The online presentation is being held ahead of the AGM to
allow shareholders time to submit their proxy votes after the
presentation but prior to the deadline for submitting proxies for
the AGM should they so wish. Full details on how to register for
the online event can be found at
https://www.workcast.com/register?cpak=6427494394082991 . We hope
that many of our existing and new shareholders are able to
attend.
Migration of abrdn Savings Plans to interactive investor
("ii")
The Company's Manager, abrdn, has reviewed its current service
provider for its investment trust share plans (abrdn Savings Plan,
Children's Plan and ISA). In May 2022, abrdn completed the
acquisition of ii and the UK's second largest, award-winning
investment platform for self-directing private investors. Having
considered the various options, abrdn has concluded its review and
has decided to migrate its share plan customers to ii in December
2023, given the strength of the ii offering, its understanding of
and enthusiasm for investment trusts and the strong representation
of investment trusts in its customer portfolios. Plan participants
who have queries in respect of the migration should raise them
directly with abrdn's investor services team by email at
inv.trusts@abrdn.com or by telephone on 0808 500 4000 or 00 44 1268
448 222 (Monday to Friday 9am to 5pm - call charges will vary).
Outlook
Given prevailing concerns over global growth, US monetary policy
and China, it seems unlikely that investor sentiment will change
significantly in the immediate future. The global growth outlook
remains clouded by the impact of tightened monetary policy in the
developed world, which could add to financial system
vulnerabilities, dampen credit growth and weigh on confidence.
Commodity prices also add another layer of uncertainty to the
inflation backdrop.
There are reasons to be more optimistic, however. In China, the
government is clearly aware of the need to stimulate growth and
there is evidence of this taking place in several sectors. This is
expected to continue.
Elsewhere in Asia, as companies diversify their supply chains,
this is benefiting economies and stock markets including Indonesia
and Vietnam. Meanwhile, India is in the initial stages of a
cyclical upswing and enjoying a demographic dividend that places
the country well for sustainable long-term growth. Restructuring
and reform are starting to take root as well.
Adding to this, most Asian countries only have low levels of
borrowings, corporate earnings are forecast to grow in 2024 after a
subdued 2023 and market corrections have created opportunities to
invest in high quality companies at relatively attractive
valuations.
The investment focus on quality companies remains undiminished.
The Manager believes that good stock selection will be the major
source of added value over the long term and it is committed to its
quality, bottom-up investment process based on a disciplined
evaluation of companies.
James Will
Chairman
2 November 2023
Investment Manager's Review
Performance
The MSCI AC Asia ex Japan benchmark index decreased by 8.4% in
sterling terms over the year while the Company's net asset value
(NAV) fell by 16.7%, in total return terms.
Contrary to some predictions of a recession at the end of 2022,
the US economy remained strong in 2023 with continued economic and
employment growth. Concerns over rising price pressures led to the
Federal Reserve ("Fed") increasing interest rates to their highest
levels in more than 22 years. In Asia, on the other hand, China's
macroeconomic recovery was slower than expected, as the weakness of
the property market weighed on the broader economy and consumer
confidence. The weak macroeconomic data raised expectations of a
major policy stimulus - the lack of which has meant that investors
were disappointed and raised questions on China's commitment to
economic growth. As shown in Chart 1 in the Annual Report and
financial statements for the year ended 31 August 2023, this led to
underperformance of the Chinese and Hong Kong markets over the past
year.
Elsewhere in Asia, markets in India, Taiwan and South Korea
outperformed the region. India's earnings growth underpinned some
rich equity valuations and it benefited from substantial foreign
capital inflows, given that it is one of the few countries around
the world still seeing solid growth in its economy and corporate
sector. The technology-heavy markets of Taiwan and South Korea made
strong gains as investors judged that the semiconductor cycle was
nearing its trough and responded to rapid developments made in
artificial intelligence (AI).
As shown in Chart 2 in the Annual Report and financial
statements for the year ended 31 August 2023, most of the Company's
underperformance arose at the start of 2023 and has continued since
then:
China and Hong Kong were the main detractors from the Company's
performance, as shown in Chart 3 in the Annual Report and financial
statements for the year ended 31 August 2023. Mainland markets rose
in the final quarter of 2022 on hopes that consumption would
recover after the country's post-Covid reopening. However, the
beginning of 2023 saw an inflection point with a reversal in
sentiment as the consumption recovery, which our portfolio was
positioned for, proved much weaker than anticipated. Accordingly,
we suffered in terms of stock selection, where our positioning in
what we deemed to be long term structural growth areas such as the
consumer discretionary (China Tourism Group Duty Free), technology
(GDS, JD.com) and healthcare (Aier Eye Hospital Group) sectors
failed to perform. These were a function of a slower than expected
pace of consumer spending recovery, the high savings rate as well
as weak sentiment resulting from the anti-corruption drive.
Investor flows have followed the theme of reforms to State Owned
Enterprises ("SOE") - this in turn has benefited the more
value-based sectors, such as telecommunications, energy and
financials (where SOEs are a significant influence). We remain
sceptical about whether such reform is bringing about real and
lasting impact. It is also worth highlighting that many companies
in these sectors are on the entity/sanction lists of the US
Government, hindering the ability of most Western based
institutions to invest in them.
But Asia is more than China (see chart 4 in the Annual Report
and financial statements for the year ended 31 August 2023) and
outside of China, the rest of the region is benefiting from
supply-chain diversification, as more and more companies look to
diversify their supply chains. India and Vietnam are well
positioned to benefit from these trends. The Made in India
initiative has started to gain traction after 10 years, post a
series of reforms that help to improve the ease of doing business
in India. For those that have visited India, it is hardly
surprising that India needs more power and infrastructure to cater
to rising supply chain needs. The higher demand for power, and a
rising mix of renewable power, is driving demand for grid upgrades.
This, in turn, provides multi year earnings growth visibility for
our utility holding in Power Grid. Similarly, improving prospects
from the long-awaited property sector recovery have translated into
higher demand for cement, which benefited our holding in leading
industry cement manufacturer, UltraTech Cement.
Indonesia has not received as much attention as India but it is
also an exciting market from our perspective. The country benefits
from a demographic advantage, being the world's fourth-largest
population, with most of its population aged between 15 and 64. It
is also undergoing a structural transformation up the commodity
value chain, from selling raw ore to producing value-added
commodities. Global battery makers and electric vehicle producers
are investing in Indonesia to secure a part of the nickel supply
chain; this is especially beneficial when the world is moving
towards renewables and electrification. All of these trends should
prove supportive of economic growth and we believe our holding in
Bank Central Asia, Indonesia's largest private sector bank, should
continue to be a key beneficiary of this.
Turning to South Korea and Taiwan, we see them as key nodes in
Asia's technology supply chains, which are well positioned for
structural growth related to the rollout of 5G, big data and
digital interconnectivity. Although our holdings here contributed
to our underperformance against the index, the rapid advances in
artificial intelligence are expected to be a major driver of demand
for semiconductors over the coming years and many of Asia's
companies, including several of our holdings, should be key
beneficiaries of this over the medium term. We view generative AI
as a game changer. When it comes to generative AI applications,
ChatGPT is just the tip of the iceberg and demand for AI has
accelerated much faster than expected, with the server and
networking supply chain among the winners in this rapidly growing
market. We see the content upgrade and architecture redesign as a
multi-year process, going hand in hand with the growth of
generative AI applications, with ChatGPT among the first of many
more to come. Our core holdings in both Samsung Electronics and
Taiwan Semiconductor Manufacturing Corp (TSMC), are well positioned
to benefit from this trend. In the case of the former we see
particular value in the preference shares, where their discount to
the ordinary shares has widened sharply.
Portfolio
When reviewing the portfolio, and given the uncertain outlook,
we focused, firstly, on adding to companies with higher near-term
earnings visibility. We added to Larsen & Toubro , the leading
infrastructure conglomerate in India whose order book has benefited
from capital expenditure spending in India. As mentioned, we
continue to back Power Grid as well as TSMC, where we have strong
visibility over future earnings.
Secondly, we focussed on our highest "quality" positions. We
have increased our semiconductor and technology hardware exposure
as the inventory cycle reached a bottom. For example, we initiated
a position in ASM International , the global leader in advanced
deposition semiconductor equipment (more details in the case
study). The aforementioned TSMC would also fall into this category,
as would Samsung Electronics, both trading on attractive
valuations.
Thirdly, while consumer confidence remains low in China overall,
the end of Covid-related restrictions is nonetheless boosting
businesses with inelastic demand and valuations have substantially
de-rated in some cases. For example, we have initiated a position
in Aier Eye Hospital Group , China's leading eyecare specialist
chain, where we expect patient traffic to normalise after the
disruptions caused by the pandemic. We have added to our highest
conviction holdings in the China internet space. In this sector
Tencent stands out on recovering advertising spending despite the
weak macroeconomic backdrop. Its gaming business also showed signs
of recovery as games approvals resumed. Similarly we have built up
the position in the online food delivery and platform business,
Meituan .
There were some holdings that we exited on fundamental concerns,
such as Longi Green Energy . Despite retaining their cost
advantage, Longi's technological edge has been eroded due to
technological transition and we see evidence of oversupply in the
solar value chain that we expect to persist in the medium term.
Another was Foshan Haitian , where, although the soy sauce maker
retains a strong brand and good long-term potential, we see better
prospects elsewhere. As a result of this, our holdings in China
have become fewer and more focused on those companies where we see
the highest quality and best earnings visibility.
Outlook
We have seen a material sell-off in China equity markets this
year, sentiment towards China remains weak, and there are certainly
reasons for caution. Some important areas of the Chinese economy
are still seeing persistent weakness, particularly the real estate
sector, and consumer sentiment remains soft. That said, we are
seeing some improvement in the services sector with encouraging
demand trends, for example, in restaurant services, automotive
sales and online goods sales. As another indicator, domestic travel
spending during the Golden Week holiday in October was only
marginally lower than pre-Covid levels. Domestic savings rates also
remain unusually high pointing to significant pent-up demand across
Chinese households, see Chart 5 in the Annual Report and financial
statements for the year ended 31 August 2023.
Whilst major 2008-style stimulus measures have been absent,
since July we have seen the Chinese authorities selectively
intervene in the economy with supportive policy measures and
financial conditions have also been accommodative. This points to a
willingness and desire by the government to bring stability to the
property market and to ensure moderate growth is maintained. If
successful, this should help bolster consumer sentiment and
ultimately convert some of that pent-up demand into spending. The
timing of all this is unclear and rising geopolitical tensions add
further complexity, but what is clear is that there has been a
material de-rating in the Chinese market and possible
over-shooting, and for long term investors this is creating
opportunities to invest in some very high quality businesses with
still healthy medium term growth prospects at very attractive
valuations.
While accepting cloudy macro-economic conditions, rising
geopolitical tensions and conflicts in many parts of the world, in
Asia we have more cause to be optimistic:
-- earnings growth is expected to improve into 2024 with
consensus forecasts of 18% earnings growth for the region,
following a flattish year in 2023;
-- as mentioned, valuations are attractive; and
-- most Asian countries have relatively low levels of borrowing
and more benign inflationary conditions.
Over the long term, we particularly favour attractive
opportunities around these structural themes:
-- Aspiration : Rising affluence in Asia is leading to fast
growth in premium consumption in areas including personal care
products, financial services and food and beverage;
-- Building Asia : Urbanisation and an infrastructure boom is
set to benefit property developers and mortgage providers among
others;
-- Digital Future : Growing integration amid the widespread
adoption of technology means a bright future for plays on gaming,
internet, fintech and tech services like the cloud;
-- Going Green : Policy makers globally are committing to a
greener and lower carbon future and Asia is in the driver's seat.
Plays on renewable energy, batteries, electric vehicles, related
infrastructure, and environmental management all have a bright
future. Grid parity will be game-changing;
-- Health & Wellness : Asia is home to a diverse range of
companies leading advancements in biotech and medical device
technology. Our holdings include plays on contract research,
vaccinations, pharmaceuticals and diagnostic products; and
-- Tech Enablers : Asia tech supply chains are well positioned
for structural growth related to the rollout of 5G, big data and
digital interconnectivity.
Pruksa Iamthongthong and James Thom
abrdn (Asia) Limited
2 November 2023
Overview of Strategy
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 2023 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.
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 is 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 45 to 47 of the Annual Report
and financial statements for the year ended 31 August 2023,
including a description of the ten largest investments, the full
investment portfolio by value and sector/geographical analysis. At
31 August 2023, the Company's portfolio consisted of 53
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 2023, the Company's net gearing was 5.8%.
Principal and Emerging Risks and Uncertainties
The Board carries out a regular review of the risk environment
in which the Company operates, changes to the environment and
individual risks. 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 Board has
considered 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 are 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.
The principal risks and uncertainties facing the Company, which
have been identified by the Board, are described in the table
below, together with the 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 Russian invasion of Ukraine, all of which created
geo-political uncertainty which further increased market risk and
volatility. The Board is also very conscious of the risks resulting
from the increased ESG challenges. The recent 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.
In all other respects, the Company's principal risks and
uncertainties have not changed materially since the date of this
Annual Report and are not expected to change materially for the
current financial year.
Risk Mitigating Action
============================================================== ======================================================
Investment Risk The Board continually monitors the investment
* The Company's investment performance is the most performance of the Company, taking account
critical factor to the Company's long-term success. of stock-market factors, and reviews the
Company's performance compared to its benchmark
index and peer group at every
* The Company is exposed to the risk of Sustained Board Meeting.
Underperformance as a result of implementing an A formal annual review is undertaken by
unattractive investment strategy the Management Engagement Committee. The
Board has regard to the skills, depth of
resources and wider capability of the abrdn
* The Company is exposed to the risk of Portfolio Stock group in arriving at its conclusions.
Concentration as a result of the combined market The Board and Manager communicate with major
share of the Manager's investments shareholders regularly to gauge their views
on the Company, including performance.
At the AGM in 2021, shareholders voted in
* The Company is exposed to ESG Risk in the event that favour of the introduction of a performance-related
its investee companies act unethically, undertake conditional tender offer, which will take
environmentally detrimental practices or fail to place every five years. The first performance-related
integrate ESG factors adequately period runs from 1 September 2021 to
31 August 2026.
At each Board meeting the Board reviews
Risk Unchanged during the the concentration and liquidity risk of
year the portfolio including the number days
required to liquidate the 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
* The Company is dependent on a number of third-party Manager on a regular basis and its compliance
providers, in particular those of the Manager, with the management contract formally on
depositary and registrar. Failure by any service an annual basis. As part of that review,
provider to carry out its contractual obligations the Board assesses the Manager's succession
could have a detrimental impact or disruption on the plans, risk management framework and marketing
Company operations, including that caused by activities
information technology breakdown or other The Audit & Risk Committee reviews reports
cyber-related issues. from the Manager on its internal controls
and risk management (including an annual
ISAE Report) and considers assurances from
Risk Unchanged during the all its other significant service providers
year on at 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 The Board receives updates on relevant changes
Risk in regulation from the Manager, industry
* The Company operates in a complex regulatory bodies and external advisers and the Board
environment and faces a number of regulatory risks. and Audit & Risk Committee monitor compliance
Serious breaches of regulations, such as the tax with regulations by review of internal control
rules for investment companies, the FCA's Listing reports from the Manager. Directors are
Rules and the Companies Act. encouraged to attend relevant
external training courses.
Risk Unchanged during the
year
============================================================ ========================================================
Major Events and Geopolitical Exogenous risks over which the Company has
Risk no control are always a risk. The Company
* The Company is exposed to supply chain risk, does what it can to address these risks
stock-market volatility or illiquidity as a result of where possible, not least operationally
a major market shock due to a national or global and to try and meet the Company's investment
crisis. The impact of such risks, associated with the objectives.
portfolio or the Company itself, could result in As part of its investment processes, the
disruption of the operations of the Company and Manager regularly assesses the Company's
losses. portfolio as a whole, and each constituent
part, and, during the financial year, remained
in close communication with the underlying
* The Company is exposed to the impact of Live Conflict investee companies in order to navigate
, and guide the Company through macroeconomic
sanctions and instability in the region as well as and geopolitical challenges.
the indirect impact of global conflicts The Manager's focus on quality companies
with sustainable business models and robust
finances, the diversified nature of the
* The Company is exposed to Pandemic Risk which could portfolio and a managed level of gearing
result in disruption to supply chains all serve to provide a degree of protection
in times of market volatility.
The Board discusses issues affecting the
* The Company is exposed to the risk of a major region at each Board meeting and the Manager
environmental event as a result of the consequences has an effective business continuity in
of climate change place to ensure that material processes
will continue to operate. The Audit & Risk
Committee reviews controls reports from
Risk Unchanged during the third party service providers.
year The Manager undertakes due diligence on
investee companies prior to and post purchase
and provides updates at each Board meeting.
============================================================ ========================================================
Shareholder and Stakeholder The Board regularly monitors the marketplace
Risk for changes in sentiment.
* The Company is exposed to the risk of Shareholder The Board regularly reviews the performance
Dissatisfaction, Activism and Influence stemming from of the Company against the benchmark and
a failure to adapt to changes in the market and peer group.
investor demand The Board monitors the discount level of
the Company's shares against the peer group
and has in place an active buyback mechanism
* Liquidity Risk to shareholders due to share price whereby the Manager is authorised to buy
trading at a discount to its underlying NAV and back shares within certain limits.
reduced investor sentiment The Board and Manager engage regularly with
shareholders to understand their views on
key topics including discount volatility
Risk Unchanged during the and shareholder views are discussed at each
year 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.
============================================================ ========================================================
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 The Board monitors the NAV and share price
price (total return) performance of the Company over different
time periods. Performance figures for one,
three and five years are provided in the
Results section on page 35 of the Annual
Report and financial statements for the year
ended 31 August 2023.
============================== ====================================================
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 benchmark by quarter
during the financial year, and over one,
three and five years, and are shown on page
36 of the Annual Report and financial statements
for the year ended 31 August 2023.
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 The discount/premium relative to the NAV
asset value 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 37 of the Annual
Report and financial statements for the year
ended 31 August 2023.
============================== ====================================================
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 2023 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
Pre-AGM Investor Event 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 Manager's customer services team or 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
secretarial, 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, whilst taking ESG factors into account. 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.
In addition a significant amount of time was absorbed in the
process of agreeing Heads of Terms with the board of abrdn New Dawn
which are expected to lead to the successful Combination of the
Company with abrdn New Dawn effective on 8 November 2023 (subject
to abrdn New Dawn shareholder approval). As part of the proposals
the Board focused on the benefits that would accrue to the
Company's shareholders including:
1. the enhancement to the Company's profile resulting from the
expected increase in market capitalisation and liquidity in the
Company's shares;
2. the agreement of a new lower management fee and expected lower ongoing charges; and
3. the consolidation of a number of shareholders' holdings
across the Company and New Dawn while also creating a more
diversified shareholder base.
In addition to agreement of the Combination proposals a number
of key decisions have been taken by the Board during the year,
including:
-- The Board has declared a final dividend of 6.6p per Ordinary
share (2022 - 6.5p) which, if approved by shareholders at the
Annual General Meeting, will be paid on 15 December 2023.
-- The Board has continued to consider Board succession
planning, as it recognises the benefits of regular Board
refreshment, and looks forward to welcoming Donald Workman, Stephen
Souchon and Nicole Yuen to the Board on 8 November 2023 subject to
approval of the Combination proposals by the abrdn New Dawn
shareholders.
-- To continue the Board'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. The Company has in place loan facilities
totalling a commitment of GBP60 million with The Royal Bank of
Scotland International Limited, London Branch. The facilities,
which are unsecured, consist of a two-year fixed facility of
GBP25m, which is fully drawn, and a two year GBP35m multi-currency
revolving credit facility which has also been fully drawn.
-- The Board continues to alternate the location of its AGM
between Edinburgh and London to allow the Board to physically meet
with shareholders in different locations. In order to encourage as
much interaction as possible with shareholders, the Board has
agreed to host an Online Shareholder Presentation, in advance of
the AGM, to allow as many shareholders as possible to engage with,
and ask questions of, the Board.
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 sustainable success of the
Company is linked directly to its key stakeholders.
Duration
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 is 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 2023 there were three male
Directors and two female Directors. The Company does not currently
meet the target that at least one Director is from a minority
ethnic background as set out in LR 9.8.6R (9)(a)(iii). However,
subject to the successful completion of the abrdn New Dawn
Combination proposals, the Board expects to be compliant for the
year ending 31 August 2024.
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 26 to 34 of the Annual Report and financial statements for
the year ended 31 August 2023.
Viability Statement
In accordance with the provisions of the Listing Rules and UK
Corporate Governance Code the Board has assessed the viability of
the Company. The Company is a long-term investor, and the Board
believes it is appropriate to assess the Company's viability over a
five year horizon which reflects the Investment Manager's long-term
approach. The Directors believe this period reflects a proper
balance between the long-term horizon and the inherent
uncertainties of looking to the future. This conclusion is
consistent with the Going Concern Assessment on page 56 of the
Annual Report and financial statements for the year ended 31 August
2023.
In assessing the viability of the Company, the Directors have
carried out a robust assessment of the following factors:
-- the principal risks set out in the Strategic Report on pages
19 to 22 of the Annual Report and financial statements for the year
ended 31 August 2023 and the steps available to mitigate these
risks;
-- the liquidity and diversity (in both sector and geography) of
the Company's investment portfolio. The Company is invested in
readily realisable listed securities in normal market conditions
and there is a spread of investments held. Stress testing has
confirmed that shares can be easily liquidated, despite the more
uncertain and volatile economic environment;
-- the level of revenue surplus generated by the Company;
-- the level of gearing is closely monitored by the Board.
Covenants are actively monitored and there is adequate headroom in
place. The Company has a fixed term loan facility of GBP25 million
and has drawn down GBP15 million under the multi-currency revolving
loan facility of up to GBP35 million. Both facilities are due to
mature in July 2024 and closer to the time the Board will review
options for renewing the facilities. If market conditions are not
favourable and acceptable terms are not available the Company has
the ability to repay its gearing through proceeds from equity sales
from the portfolio. Subject to the successful Combination with
abrdn New Dawn, the Manager currently expects to maintain gearing
broadly at the current level, subject to market conditions at the
time.
-- the successful passing of the continuation vote at the
Company's AGM in 2021, the change of frequency of continuation vote
from every three years to every five years (with the next
continuation vote due to take place at the AGM in 2026), and the
introduction of the five-yearly performance-related conditional
tender; and
-- the overwhelming support received from the Company's
shareholders at the General Meeting held on 25 October 2025 (over
99.9% of votes received in favour, representing over 75% of the
shares in issue).
Taking into account all of these factors, the Company's current
position and the potential impact of the principal risks and
uncertainties faced by the Company, the Board has concluded that it
has a reasonable expectation that the Company will be able to
continue in operation and meet its liabilities as they fall due
over the five year period of this assessment to 31 August 2028.
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 rising
inflation, recession risk, a further increase in geo-political
tension in the Asian region, war in Ukraine, economic shocks or
significant stock market volatility caused by other factors, 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
2 November 2023
Our Manager's Approach to ESG
The Company aims to outperform whilst maintaining a better ESG
profile and a lower carbon footprint than the benchmark. This
section of the Annual Report aims to present more information on
the Investment Manager's approach to integrating ESG into its
investment decision-making and the implications for the
Company.
ESG Highlights for Asia Dragon
-- abrdn believes that ESG factors are financially material and
can meaningfully affect a company's performance.
-- abrdn has been actively integrating ESG 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 BBB rated by MSCI, as is the
Benchmark
-- The Company's carbon footprint as measured by Economic
Emission Intensity is 61.4% lower than that of its benchmark
BBB 61.4% 99% 30.8% 100%
-------------- ---------------- ---------------- -------------------- --------------------
BBB-rated by Lower carbon of eligible of AGMs / EGMs of abrdn researched
MSCI ESG intensity than AGMs / EGMs with at least companies include
the benchmark voted one vote cast ESG analysis
in last twelve against management
months
-------------- ---------------- ---------------- -------------------- --------------------
What is ESG?
-- Environmental factors relate to how a company conducts itself
with regard to environmental impact and sustainability. Types of
environmental risks and opportunities may include a company's
energy and water consumption, waste disposal, land use and
development and its carbon footprint.
-- Social factors pertain to a company's relationship with its
employees, vendors, and a broad set of societal stakeholders. Risks
and opportunities include conditions and rates of pay, the
company's initiatives on employee attraction and retention, gender
discrimination and how a company is managing its supply chain,
including for example the risk of forced and child labour.
-- 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 as a way of enhancing returns and better managing
risk.
PRI provides an intellectual framework to steer the massive
transition of financial capital towards low-carbon opportunities.
It also encourages fund managers to demonstrate climate action
across four areas: investments; corporate engagement; investor
disclosure; and policy advocacy.
ESG at abrdn in Asia
abrdn is a pioneer in Asia Pacific markets and has a large,
dedicated and highly experienced investment team consisting of over
40 equity investment professionals with a strong team culture. The
team has been investing across the region since 1985, and is based
in Singapore, Bangkok, Kuala Lumpur, Tokyo, Hong Kong and Shanghai,
allowing the team to be close to the companies the Trust owns and
markets it invests in.
On-desk 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
Furthermore, the abrdn Sustainability Institute was launched in
September 2021. Bringing together sustainability experts from
across the firm, the Institute's objectives are to deliver Asia
Pacific-centric sustainability solutions and insights, build an
Asia Pacific sustainable investing knowledge community and
contribute to progress in regional sustainable investing.
abrdn's Investment Process
Environmental, social and corporate governance factors (ESG) are
central to the 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
believes that companies that are well managed, and consider
long-term risks and opportunities around ESG issues, should
outperform over the long term. It follows, then, that abrdn
believes that ESG integration leads to better risk-adjusted returns
for clients, and that having a better understanding of financially
material issues allows abrdn to make better investments, and hence
provide better outcomes, for clients. abrdn also uses its
ESG approach to encourage higher standards and support companies
that work towards a more sustainable and equitable world.
Understanding ESG risks and opportunities, alongside other
financial metrics, is therefore an intrinsic part of abrdn's
investment process.
abrdn's investment process considers both macro and micro ESG
issues.
-- Macro ESG factors are broad thematic issues that impact
companies and the products and services they provide. These include
issues like climate change, access to finance or access to
healthcare. These are secular, industry-impacting trends that may
present a clear risk or opportunity for a company.
-- Micro ESG factors are company/industry specific issues that
relate to how a company's products or services are made or
delivered.
abrdn's five stages of ESG integration:
-- Idea generation: Understanding themes and dynamics inherent
in sectors, countries, and companies, we are able to use ESG as a
lens to generate new investment ideas for the portfolio. This could
include companies that are well placed to help in climate
transition or companies that are managing their supply chain in a
way that makes them more attractive to global clients.
-- Research: ESG disclosure by companies in Asia tends to be
lower quality than might be observed in Europe or North America but
while such disclosure means it may be challenging to collect
information, it also means that extensive company due diligence by
us can create investment opportunities.
-- Buy / sell: At this stage we must weigh the decision to buy
(or sell) a company. We have a quality threshold for investment and
ESG is a fundamental and non-negotiable part of this.
-- Portfolio Construction: Whilst a simplification, the better
quality a company, and the more conviction we have in the company,
the more of that company we might elect to buy (whilst being
sensitive to valuations). ESG is a key part of the discussion
around 'position sizing', or just how much of a company to buy.
-- Engagement: We continue discussing ESG issues with senior
management over the course of the investment, both to protect and
to enhance the value of investments through constructive challenge
and debate around strategy and execution, with the mutual aim of
fostering sustainable shareholder returns.
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, enhancing the value of
our 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 are material to
sustainable long-term returns, either positively or negatively,
including both risks and opportunities. 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, abrdn 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, we
are able to develop an informed view of every company and to
exploit any pricing inefficiency that we judge may 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.
In every engagement, abrdn has a wide pool of resources on which
to draw. There is ESG expertise embedded within the active equity
investment teams, and this is complemented through collaboration
across asset classes, sharing research, experiences and
understanding. abrdn's on-desk equity investment analysts are
supported by on-desk ESG analysts, who bring specialist knowledge
and capabilities to the process. In addition, abrdn also draws on
the insights of abrdn's Research Institute.
In all cases the approach is to draw on experience as owners of
companies, globally. As a large investor, and with
a long history of investing in public market across multiple
geographies and asset classes, abrdn is able to draw on
the experience of its investment teams and constructively
challenge management teams accordingly. This is an
area of expertise that many of the portfolio companies are
appreciative of; the ability to draw on insights garnered across
industries and regions, and across company growth stages, is
enabled by abrdn's global footprint of
investment professionals.
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. During the period under review the
breadth of issues covered in ESG specific company engagements for
the Company covered Climate Change (including air quality and
energy management), Environment (including waste and waste
management, and supply chain management), Labour Management
(including health and safety), Human Risk & Stakeholders,
Corporate Behaviour (including Practices and Processes) and
Corporate Governance.
A good example of this engagement in action is that of Shenzhen
Mindray Bio-Medical Electronics Co. Ltd , China's largest medical
equipment maker, listed on China's 'A Share' market, and a holding
in the Company's portfolio. abrdn has been regularly engaging with
Mindray since 2021 and was pleased to see that the company recently
received a triple rating upgrade from MSCI from 'BB' to 'AA'. This
upgrade was driven by improved disclosure by the company, a focus
for our ongoing engagement with the company. More information on
Mindray can be found in the case study on page 49 of the Annual
Report and financial statements for the year ended 31 August
2023.
ESG Engagements
abrdn regularly engages with companies it is invested in. The
table below shows the engagements that have included ESG
topics.
-- In 2H22 abrdn met with 31 portfolio companies on ESG topics
and had 72 engagements with them.
-- In 1H23 abrdn met with 35 portfolio companies on ESG topics
and had 72 engagements with them.
This does not include positions abrdn has moved out of or are
considering. Below are the themes engaged on:
Voting Activity
The Investment Manager draws on expertise across desks and
throughout the firm to vote consistently in line with the abrdn
voting policy. Time period referenced is preceding 12 months (i.e.
2H22 and 1H23):
Voting Summary Total
======================================================= ======
How many meetings were you eligible to vote at? 105
======================================================= ======
How many meetings did you vote at? 104
======================================================= ======
How many resolutions were you eligible to vote on? 909
======================================================= ======
What % of resolutions did you vote on for which you
were eligible? 98.7%
======================================================= ======
Of the resolutions on which you voted, what % did you
vote with management? 93.1%
======================================================= ======
Of the resolutions on which you voted, what % did you
vote against management? 6.5%
======================================================= ======
Of the resolutions on which you voted, what % did you
abstain from voting? 0.5%
======================================================= ======
In what % of meetings, for which you did vote, did
you vote at least once against management? 30.8%
======================================================= ======
abrdn is a strong believer in investing in, supporting, and
incentivising entrepreneurial management teams. Alignment of
interests is an important driver of sustainable shareholder
returns. To that end, the Investment Manager ordinarily encourages
the adoption of thoughtfully constructed share-based reward plans,
given that these can serve to align and incentivise management
teams. However, the Investment Manager scrutinises such proposals
carefully; performance conditions that would lead to the release of
shares must be sufficiently but appropriately stretching (the
Investment Manager is wary of encouraging excessive risk taking),
performance periods must be similarly appropriate, and the pool of
eligible recipients must be designed so as to achieve alignment
without undie dilution of the Company's interests.
It was in this context that the Investment Manager considered a
proposal in November 2022 to approve a series of share reward
plan-related resolutions at FSN E-Commerce Ventures Ltd (more
commonly known as Nykaa). The company sought to introduce a stock
option plan, but included a number of provisions that troubled the
Investment Manager's analysts. First, the scheme permitted options
to be issued at a discount to market price. Second, performance
conditions were not disclosed. Third, options could be granted not
only to the company's employees but also to employees of its
associate companies. And fourth, the respective board committee
could permit options to vest even if performance conditions had not
been met.
Given the design of the scheme, the lack of information
available, and the broad potential pool of recipients, the
Investment Manager did not support the proposals, voting against
the resolutions. Moreover given there had been a number of
corporate governance developments that had provided cause for
concern, the Investment Manager subsequently sold the Company's
shares in the company, and exited the position.
Measurement of ESG, including our 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 ESG considerations ESG risks are Evidence of Many financially
are material not market considered as some financially material controversies
part of the leading a part of principal material controversies Severe governance
company's core Disclosure is business Poor governance concerns
business strategy good, but not Disclosure in or limited oversight Poor treatment
Excellent disclosure best in class line with regulatory of key ESG issues of minority
Makes opportunities Governance is requirements Some issues shareholders
from strong generally very Governance is in treating
ESG risk management good generally good minority shareholders
but some minor poorly
concerns
====================== =================== ====================== ======================= ========================
We also make 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. We buy 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 make
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 to create ESG ratings
and in doing so form the market view of a company's ESG
credentials. Through fundamental research abrdn forms a
forward-looking view of company's ESG credentials and anticipates
changes, attempting to take advantage of this inefficiency.
Results
Year's Highs/Lows
High Low
====================================== ========== =========
Share price (p) 453.5 338.3
====================================== ========== =========
Net asset value (p) 514.8 410.1
====================================== ========== =========
Discount (%)(A) -17.5 -9.3
-------------------------------------- ---------- ---------
(A) Considered to be an Alternative Performance Measure.
Performance (total return)
1 year return 3 year return 5 year return Since 1/9/21(C)
% % % %
============================== ============= ============= ============= ===============
Share price(A) -19.5 -11.8 +1.6 -24.0
============================== ============= ============= ============= ===============
Net asset value(AB) -16.7 -8.0 +5.7 -23.7
============================== ============= ============= ============= ===============
MSCI AC Asia (ex Japan) Index
(in sterling terms) -8.4 -2.4 +8.6 -14.9
============================== ============= ============= ============= ===============
(A) Considered to be an Alternative Performance Measure. Further details
can be found below.
(B) 1 year, 3 year and returns since 1 September 2021 are presented
on an undiluted basis; 5 year return presented on a diluted basis as
CULS in issue during those periods were "in the money"
(C) Introduction of performance-related conditional tender offer,
which provides 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 will put forward proposals to shareholders to undertake
a tender offer.
Ten Year Financial Record
Net asset Revenue Dividend Expenses
Equity value return Ordinary Share per as a
per per
shareholders' Ordinary Ordinary share price Ordinary % of average
interest share share price discount share shareholders'
Year ended 31 August GBP'000 p p p % p funds
===================== ============= ========= ======== ======== ======== ======== =============
2014 603,077 307.10 3.43 272.50 11.3 2.20 1.23
===================== ============= ========= ======== ======== ======== ======== =============
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 13.1 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
--------------------- ------------- --------- -------- -------- -------- -------- -------------
Ten Largest Investments
As at 31 August 2023
Taiwan Semiconductor Manufacturing
Company Samsung Electronics (Pref)
As the world's largest pure-play One of the global leaders in the
semiconductor manufacturer, TSMC memory chips segment, and a major
provides a full range of integrated player in smartphones and display
foundry services, along with a panels as well. It has a vertically
robust balance sheet and good integrated business model and robust
cash generation that enables it balance sheet, alongside good free
to keep investing in cutting-edge cash flow generation.
technology and innovation.
Tencent Holdings AIA Group
The internet giant continues to A leading pan-Asian life insurance
strengthen its ecosystem and we company, it is poised to take advantage
see great potential in its ability of Asia's growing affluence, backed
to balance its multiple revenue by an effective agency force and
streams and monetise its social a strong balance sheet.
media and payment platforms whilst
navigating the regulatory landscape.
Alibaba Group HDFC Bank
The Chinese internet group is HDFC Bank is known to have the best
a leading global e-commerce company retail banking franchise in India,
with many impressive businesses, with a high quality wholesale portfolio,
including the Taobao and Tmall solid underwriting standards and
online platforms in China. It a progressive digital stance further
also has interests in logistics, strengthening its competitive edge.
media as well as cloud computing
platforms and payments.
Kweichow Moutai 'A' SBI Life Insurance
Kweichow Moutai is a leading hard Among the leading Indian life insurers,
liquor (baijiu) producer that SBI Life's competitive edge comes
boasts a dominant brand and a from a wide reach of SBI branches,
cash generative business. Its highly productive agents, a low
brand value stems from a long cost ratio and a reputable SBI brand.
history and its rich heritage,
which account for its wide Chinese
business moat.
Oversea-Chinese Banking Corporation Bank Central Asia
A well-managed Singapore bank Among the largest non state owned
with a solid capital base and banks in Indonesia, it is well capitalised
good cost-to-income ratio. It and has a big and stable base of
is diversified by both geography low-cost deposits that funds its
and service offerings, with interests lending, while asset quality has
spanning Southeast Asia, North remained solid.
Asia, wealth management and life
assurance as well as its core
banking activities.
Investment Portfolio
At 31 August 2023
============================================================================================================
Valuation Total Valuation
2023 assets 2022
Company Industry Country GBP'000 % GBP'000
=================================== =========================== ============ ========= ====== =========
Taiwan Semiconductor Manufacturing Semiconductors &
Company Semiconductor Equipment Taiwan 54,535 10.5 59,819
=================================== =========================== ============ ========= ====== =========
Technology Hardware
Samsung Electronics (Pref) Storage & Peripherals South Korea 38,960 7.5 40,687
=================================== =========================== ============ ========= ====== =========
Interactive Media
Tencent & Services China 36,024 6.9 32,211
=================================== =========================== ============ ========= ====== =========
AIA Insurance Hong Kong 29,370 5.6 31,254
=================================== =========================== ============ ========= ====== =========
Alibaba Group Holding Broadline Retail China 23,374 4.5 19,547
=================================== =========================== ============ ========= ====== =========
HDFC Bank Banks India 19,754 3.8 -
=================================== =========================== ============ ========= ====== =========
Kweichow Moutai 'A' Beverages China 13,811 2.6 16,405
=================================== =========================== ============ ========= ====== =========
SBI Life Insurance Insurance India 12,761 2.5 12,894
=================================== =========================== ============ ========= ====== =========
Oversea-Chinese Banking
Corporation Banks Singapore 11,717 2.2 15,832
=================================== =========================== ============ ========= ====== =========
Bank Central Asia Banks Indonesia 10,953 2.1 23,282
----------------------------------- --------------------------- ------------ --------- ------ ---------
Top ten investments 251,259 48.2
------------------------------------------------------------------------------ --------- ------ ---------
DBS Banks Singapore 9,697 1.9 18,721
=================================== =========================== ============ ========= ====== =========
LG Chem Chemicals South Korea 9,384 1.8 8,293
=================================== =========================== ============ ========= ====== =========
Maruti Suzuki India Automobiles India 8,916 1.7 8,119
=================================== =========================== ============ ========= ====== =========
Power Grid Corp of India Electric Utilities India 8,910 1.7 11,274
=================================== =========================== ============ ========= ====== =========
Meituan-Dianping Class Hotels, Restaurants
B & Leisure China 8,869 1.7 6,180
=================================== =========================== ============ ========= ====== =========
Electronic Equipment,
Hon Hai Precision Industry Instruments & Components Taiwan 8,823 1.7 11,387
=================================== =========================== ============ ========= ====== =========
Budweiser Brewing Co APAC Beverages Hong Kong 8,743 1.7 9,188
=================================== =========================== ============ ========= ====== =========
Hong Kong Exchanges & Clearing Capital Markets Hong Kong 8,478 1.6 11,605
=================================== =========================== ============ ========= ====== =========
FPT Corp IT Services Vietnam 8,212 1.6 -
=================================== =========================== ============ ========= ====== =========
Hindustan Unilever Personal Care Products India 7,845 1.5 9,429
----------------------------------- --------------------------- ------------ --------- ------ ---------
Twenty largest investments 339,136 65.1
------------------------------------------------------------------------------ --------- ------ ---------
Hotels, Restaurants
Sands China & Leisure Hong Kong 7,366 1.4 -
=================================== =========================== ============ ========= ====== =========
Ultratech Cement Construction Materials India 7,233 1.4 6,591
=================================== =========================== ============ ========= ====== =========
China Tourism Group Duty
Free Corp(A) Speciality Retail China 6,898 1.3 12,816
=================================== =========================== ============ ========= ====== =========
Contemporary Amperex Technology
- A Electrical Equipment China 6,868 1.3 7,623
=================================== =========================== ============ ========= ====== =========
Aier Eye Hospital Group Health Care Providers
- A & Services China 6,854 1.3 -
=================================== =========================== ============ ========= ====== =========
Bank of Philippine Islands Banks Philippines 6,628 1.3 6,918
=================================== =========================== ============ ========= ====== =========
Real Estate Management
Ayala Land & Development Philippines 6,526 1.2 10,392
=================================== =========================== ============ ========= ====== =========
ShenZhen Mindray Bio-Medical Health Care Equipment
Electronics - A & Supplies China 6,526 1.2 7,963
=================================== =========================== ============ ========= ====== =========
Tata Consultancy Services IT Services India 6,193 1.2 9,832
=================================== =========================== ============ ========= ====== =========
Real Estate Management
China Resources Land & Development China 6,005 1.2 8,779
----------------------------------- --------------------------- ------------ --------- ------ ---------
Thirty largest investments 406,233 77.9
------------------------------------------------------------------------------ --------- ------ ---------
Larsen and Toubro Construction & Engineering India 5,985 1.2 -
=================================== =========================== ============ ========= ====== =========
Electronic Equipment,
Delta Electronics Instruments & Components Taiwan 5,847 1.1 8,183
=================================== =========================== ============ ========= ====== =========
Interactive Media
Info Edge (India) & Services India 5,725 1.1 6,495
=================================== =========================== ============ ========= ====== =========
Life Sciences Tools
Samsung Biologics & Services South Korea 5,550 1.1 6,766
=================================== =========================== ============ ========= ====== =========
PB Fintech Insurance India 5,325 1.0 3,237
=================================== =========================== ============ ========= ====== =========
Hotels, Restaurants
Tongcheng Travel Holdings & Leisure China 5,254 1.0 5,255
=================================== =========================== ============ ========= ====== =========
Semiconductors &
ASM International Semiconductor Equipment Netherlands 5,184 1.0 -
=================================== =========================== ============ ========= ====== =========
Mobile World Investment
Corporation Speciality Retail Vietnam 5,095 1.0 6,236
=================================== =========================== ============ ========= ====== =========
Kotak Mahindra Bank Banks India 4,877 0.9 9,895
=================================== =========================== ============ ========= ====== =========
JD.com - Class A Broadline Retail China 4,828 0.9 14,640
----------------------------------- --------------------------- ------------ --------- ------ ---------
Forty largest investments 459,903 88.2
------------------------------------------------------------------------------ --------- ------ ---------
Health Care Providers
Wuxi Biologics (Cayman) & Services China 4,825 0.9 10,429
=================================== =========================== ============ ========= ====== =========
Sungrow Power Supply Co
- A Electrical Equipment China 4,649 0.9 6,056
=================================== =========================== ============ ========= ====== =========
Nari Technology - A Electrical Equipment China 4,427 0.9 7,939
=================================== =========================== ============ ========= ====== =========
Interactive Media
Kakao Corp & Services South Korea 4,107 0.8 7,931
=================================== =========================== ============ ========= ====== =========
Chacha Food - A Food Products China 4,013 0.8 6,607
=================================== =========================== ============ ========= ====== =========
Glodon Co - A Software China 3,951 0.8 3,779
=================================== =========================== ============ ========= ====== =========
Semiconductors &
Silergy Corp Semiconductor Equipment Taiwan 3,912 0.8 6,080
=================================== =========================== ============ ========= ====== =========
Semiconductors &
Andes Technology Semiconductor Equipment Taiwan 3,872 0.7 4,657
=================================== =========================== ============ ========= ====== =========
Shenzhen Inovance Technology
- A Machinery China 3,827 0.7 3,860
=================================== =========================== ============ ========= ====== =========
Interactive Media
Autohome - ADR & Services China 3,701 0.7 -
----------------------------------- --------------------------- ------------ --------- ------ ---------
Fifty largest investments 501,187 96.2
------------------------------------------------------------------------------ --------- ------ ---------
Zhongsheng Group Holdings Speciality Retail China 3,163 0.6 5,356
=================================== =========================== ============ ========= ====== =========
GDS Holdings - Class A IT Services China 2,851 0.5 4,610
=================================== =========================== ============ ========= ====== =========
Hangzhou Tigermed Consulting Life Sciences Tools
Co(A) & Services China 2,018 0.4 3,796
=================================== =========================== ============ ========= ====== =========
509,219 97.7
---------------------------------------------------------------------------- --------- ------ ---------
Net current assets(B) 12,016 2.3
------------------------------------------------------------------------------ --------- ------ ---------
Total assets less current
liabilities(B) 521,235 100.0
------------------------------------------------------------------------------ --------- ------ ---------
(A) Holding includes investment in both 'A' and 'H' shares.
(B) Excluding bank loan of GBP39,992,000.
Note: Unless otherwise stated, foreign stock is held and all investments
are equity holdings. Values for 2023 and 2022 may not be directly comparable
due to purchases and sales made during the year.
Changes in Asset Distribution
For the year ended 31 August 2023
==================================================================================
Value at Sales Gains/ Value at
1 September Purchases proceeds (losses) 31 August
2022 2023
Country GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
========================== =========== ========= ======== ========= =========
China 223,048 53,472 48,851 (64,933) 162,736
========================== =========== ========= ======== ========= =========
Hong Kong 58,956 15,172 9,949 (10,222) 53,957
========================== =========== ========= ======== ========= =========
India 119,143 11,297 27,018 (9,898) 93,524
========================== =========== ========= ======== ========= =========
Indonesia 32,155 - 20,023 (1,179) 10,953
========================== =========== ========= ======== ========= =========
Netherlands - 3,995 - 1,189 5,184
========================== =========== ========= ======== ========= =========
Philippines 17,311 - 3,822 (335) 13,154
========================== =========== ========= ======== ========= =========
Singapore 41,014 - 19,026 (574) 21,414
========================== =========== ========= ======== ========= =========
South Korea 63,678 12,533 9,254 (8,956) 58,001
========================== =========== ========= ======== ========= =========
Taiwan 90,125 2,735 9,290 (6,581) 76,989
========================== =========== ========= ======== ========= =========
Thailand 15,457 - 12,967 (2,490) -
========================== =========== ========= ======== ========= =========
Vietnam 11,492 8,406 4,518 (2,073) 13,307
-------------------------- ----------- --------- -------- --------- ---------
Total investments 672,379 107,610 164,718 (106,052) 509,219
-------------------------- ----------- --------- -------- --------- ---------
Net current assets 4,374 - - 7,642 12,016
-------------------------- ----------- --------- -------- --------- ---------
Total assets less current
liabilities 676,753 107,610 164,718 (98,410) 521,235
-------------------------- ----------- --------- -------- --------- ---------
Investment Case Studies
ASM International
What does the company do?
ASM International (ASMI) is the global leader in a key
technology used in producing semiconductor chips that are found in
the everyday electronics products that we use, such as mobile
phones, digital cameras, televisions, washing machines and
refrigerators.
Why do we like the investment?
Globally, about 1.1 trillion semiconductor chips are sold every
year. It takes about three to four months to make one chip, and
more than 2,000 chips are needed for one electric vehicle.
In all this, ASMI's atomic layer deposition (ALD) technology
plays a key role in semiconductor chip making. The ALD technology
is a high-precision process that helps mass produce patterns on
silicon wafers through depositing layers on layers of smooth and
ultra-thin films accurately and uniformly onto them. At the final
stage of the chipmaking process, the wafers are diced into
individual chips that are placed in protective casing and ready for
use in digital devices.
We see this as a strong competitive advantage of ASMI, which we
introduced to the portfolio in April 2023, because its technology
helps make semiconductor chips smaller, faster and more powerful.
As semiconductor chips get increasingly smaller, demand for more
sophisticated deposition technology like ALD is rising across the
logic, foundry and memory segments and, in turn, expanding the
addressable market for ASMI, which derives most of its revenues
from Asia.There is also a significant "green" aspect to ASMI's
technology, which enables more energy-efficient chips, with
transistors and memory elements that consume less power per
operation and interconnect with lower power losses. The precision
in its technology also allows the development of 3D structures
vital to the future of electronics, including saving space while
delivering chips with higher performance that consume less power.
Hence, we view ASMI as an enabler in reducing the carbon footprint
of its customers and end-customers.
Beyond that, we are impressed with ASMI's efforts on the broader
ESG front, especially with regard to its disclosure around key
material risks, including financial health, protecting and using
intellectual property, ethics code of conduct, talent, worker
health and safety, product safety and environmental compliance and
IT security, as well as actionable targets and impact. The company
also scores well on corporate governance, such as a fully
independent supervisory board. Rating agency MSCI has given ASMI an
ESG rating of AA, which we view as well deserved.
More broadly, the semiconductor industry is poised for a
cyclical recovery in the short term while longer term, demand
potential has only strengthened on the back of structural growth
from generative AI which may mean a multi-year demand boost for
data centre content and infrastructure upgrade which is positive
for the advanced semiconductor sector, and companies in its supply
chain such as ASMI.
Shenzhen Mindray
What does the company do?
Mindray is China's largest medical equipment maker. It has a
diversified product portfolio targeting essential healthcare
services, such as life-support, in-vitro diagnostics and medical
imaging.
Why do we like the investment?
The company is positioned as a leading player with high-quality
products reflecting its heavy focus on research and development but
priced significantly cheaper than global peers. This has enabled
the company to successfully take substantial market share in the
US, EU and elsewhere, with overseas sales now contributing more
than 40% of total sales.
We also see Mindray as among those best positioned to ride
China's localisation or domestic substitution drive as it offers
cutting-edge technology that can compete with global leaders while
pricing its products within an accessible range, in-line with its
commitment of "healthcare within reach".
What is our key area of engagement?
We have been regularly engaging Mindray, China's largest medical
equipment maker, since 2021 to understand its ESG management
framework, and to encourage better disclosures in human capital
management, product quality and the positive impact the company has
on society. We encouraged the company to disclose on how often it
engages with its employees through various feedback and
communication channels, and to highlight examples of how it uses
results from its employee engagement surveys to implement changes.
We also asked Mindray to place more emphasis on improving product
quality and reducing product recalls.
More recently in August 2023, the company's share price was
volatile owing to weak sentiment around an anti-corruption
investigation into the mainland health-care sector. The company was
quick to respond to market concerns, and we spoke with the
management to get more clarity on any potential impact of the
anti-corruption drive. They guided for delays, instead of
cancellations, in tenders from public hospitals, but they expect to
offset this with market share gains and have maintained their
full-year earnings growth guidance at 20%, which is in line with
the target. We have reduced our position, as a mitigatory measure
given sentiment headwinds, but we remain confident of the
fundamentals and prospects of Mindray over the long term.
What is the result?
Mindray recently received a triple rating upgrade from MSCI from
'BB' to 'AA', driven by new disclosures across human capital
development, product safety and quality as well as business ethics
policy and carbon emissions. These are areas where we have engaged
Mindray to improve disclosures to the market, and we are pleased
with the MSCI upgrade which reflects Mindray's good ESG management.
We will continue to provide feedback and keep the discussions with
Mindray ongoing.
In addition, our engagement around the anti-corruption drive
also highlights how our ESG engagement efforts help our fundamental
analysis and investment. For Mindray, anti-corruption measures are
among the areas of material risks discussed in our regular
engagement with the company. We view the company as having a sound
footing here. The company has a detailed and manageable policy to
curb corruption and bribery, anti-corruption and bribery agreements
with and training for all its distributors, and annual business
ethics audits supervised by its chairman and supported by a
whistleblower system.
More broadly, by owning high quality companies and engaging with
our holdings on ESG, we are funda-mentally better positioned in
policy campaigns triggered by ESG risks.
Directors' Report
Capital Structure
At 31 August 2023, the Company had 113,745,386 fully paid
Ordinary shares of 20p each in issue (2022: 119,686,001) with a
further 45,866,291 Ordinary shares of 20p held in treasury (2022:
39,925,676). During the year to 31 August 2023 5,940,615 Ordinary
Shares were bought back and held in treasury (2022: 5,080,349).
Further details on the changes to the capital structure during the
year ended 31 August 2023 are provided in note 14. Subsequent to
the period end a further 973,136 Ordinary shares have been
purchased in the market for treasury.
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, Gaynor Coley, Matthew Dobbs, Susan Sternglass Noble and
Charlie Ricketts. Biographies of the Directors of the Company are
shown on pages 52 to 54 of the Annual Report and financial
statements for the year ended 31 August 2023.
It is intended that, subject to the successful completion of the
proposals for Combination with abrdn New Dawn, Donald Workman,
Stephen Souchon and Nicole Yuen (each a New Dawn Director) will be
appointed as non-executive Directors of the Company. As such, the
Board will then, initially, consist of eight Directors, comprising
the five current Directors of the Company and three New Dawn
Directors. After a transition period that will end on the six month
anniversary of completion, it is intended that the number of
Directors on the Board will be reduced to five, with Donald
Workman, Charlie Ricketts and Gaynor Coley expected to retire from
the Board at that time
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 recommend that a final dividend of 6.6p per
Ordinary share (2022: 6.5p) be paid on 15 December 2023 to
shareholders on the register on 27 October 2023. The ex-dividend
date is 26 October 2023.
Management Agreement
The Company has appointed abrdn Fund Managers Limited, 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 Aberdeen Asset Managers
Limited.
Details of the management agreement, including the notice period
and fees paid to the abrdn Group companies during the year ended 31
August 2023, are shown in note 4 to the financial statements.
Reduction in Management Fee
As detailed in the Company's circular to shareholders dated 22
September 2023, pursuant to an agreement dated 20 September 2023
and subject to the implementation of the Combination proposals with
abrdn New Dawn, the Manager has agreed that, with effect from
completion of the Combination, the management fee payable by the
Company to AFML will be reduced to 0.75 per cent. per annum
(currently 0.85 per cent. per annum) on the initial GBP350 million
of the Company's NAV and 0.50 per cent. per annum on the Company's
NAV in excess of GBP350 million. In addition, the Manager has
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 will constitute 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.
Borrowings
The Company has a GBP35 million multicurrency 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. At the year end GBP15m of this
facility had been drawn down at a rate of 6.184%. At the date of
this Report the Company had drawn down GBP15m million at a rate of
6.188% and, subject to the completion of the Combination with abrdn
New Dawn, the Manager expects to maintain broadly the same level of
net gearing. Under the terms of the revolving credit facility, the
Company has the option to increase the level of the commitment from
GBP35 million to GBP50 million at any time.
On 29 July 2022, the Company also entered into a new fixed loan
facility agreement of GBP25 million 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 agreement of
this facility incurred an arrangement fee of GBP7,500, which will
be amortised over the life of the loan.
Corporate Governance
The Statement of Corporate Governance, which forms part of the
Directors' Report, is contained on pages 59 to 64 of the Annual
Report and financial statements for the year ended 31 August
2023.
Going Concern
The Directors have undertaken a rigorous review and believe that
it is appropriate to continue to adopt the going concern basis in
the preparation of the financial statements. This conclusion is
consistent with the longer term Viability Statement on page 25 of
the Annual Report and financial statements for the year ended 31
August 2023.
The Company's assets consist substantially of equity shares in
companies listed on recognised stock exchanges and in normal
circumstances are realisable within a short timescale. The Board
has set limits for borrowing and regularly reviews the level of any
gearing, cash flow projections and compliance with banking and loan
covenants.
The Directors are mindful of the principal risks and
uncertainties disclosed on pages 19 to 22 of the Annual Report and
financial statements for the year ended 31 August 2023 including
the refinancing risk arising in July 2024, and have reviewed
forecasts detailing revenues and liabilities and undertaken
sensitivity analysis. The Directors are satisfied that the Company
has adequate resources to continue in operational existence for the
foreseeable future and has the ability to meet its financial
obligations as they fall due for a period of at least twelve months
from the date of approval of this Report. They have arrived at this
conclusion having confirmed that the Company's diversified
portfolio of realisable securities is sufficiently liquid and could
be used to meet short-term funding requirements were they to arise
in July 2024. The Directors have also reviewed the revenue and
ongoing expenses forecasts for the coming year and considered the
Company's Statement of Financial Position as at 31 August 2023
which shows net current liabilities of GBP27.9 million at that
date. The Directors believe that adopting a going concern basis of
accounting remains appropriate.
Substantial Share Interests
At 31 August 2023 the Company had been notified or was aware of
the following substantial interests in the Ordinary shares:
Number
of Ordinary
shares
Shareholder held % held
============================= ============ ======
City of London Investment
Management 34,144,519 30.0
============================= ============ ======
Allspring Global Investments 17,252,523 15.2
============================= ============ ======
Lazard Asset Management 10,506,479 9.2
============================= ============ ======
abrdn Retail Plans 4,311,140 3.8
============================= ============ ======
Rathbones 3,791,711 3.3
============================= ============ ======
Evelyn Partners 3,432,386 3.0
============================= ============ ======
On 31 October 2023 Allspring Global Investments confirmed that
their interest in the Company amounted to 16,844,505 Ordinary
shares (14.93%). As at the date of this Report, no other changes to
the above interests had been notified to the Company.
Independent Auditors
The respective responsibilities of the Directors and the
independent auditors in connection with the financial statements
appear on pages 71 and 79 of the Annual Report and financial
statements for the year ended 31 August 2023.
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 is aware of that information.
Annual General Meeting
Among the resolutions being put at the Annual General Meeting of
the Company to be held on 7 December 2023, the following
resolutions will be proposed:
(i) Section 551 Authority to Allot Shares
Resolution 15, which will be proposed as an ordinary resolution,
will, if approved, give the Directors a general authority to allot
new shares up to 33.33% of the Company's issued Ordinary share
capital (excluding Treasury shares) as at the date of the passing
of this resolution (up to a maximum nominal amount of GBP7.52
million based on the Company's issued share capital as at the date
of this Report). Such authority will expire on 28 February 2025 or,
if earlier, at the conclusion of the next Annual General Meeting of
the Company (unless previously revoked, varied or extended by the
Company in general meeting).
(ii) Disapplication of Pre-emption Rights
Resolution 16, which will be proposed as a special resolution,
seeks to give the Directors power, conditional on Resolution 15
being passed, to allot Ordinary shares and to sell Ordinary shares
held in treasury for cash, without first offering them to existing
shareholders in proportion to their existing holdings, up to an
aggregate nominal value representing 5% of the Company's issued
Ordinary share capital (excluding Treasury shares) as at the date
of passing of this resolution (up to a maximum nominal amount of
GBP1.13 million based on the Company's issued share capital as at
the date of this Report).
This authority will expire on 28 February 2025 or, if earlier,
at the conclusion of the next Annual General Meeting of the Company
(unless previously revoked, varied or extended by the Company in
general meeting).
Pursuant to this power, Ordinary shares would only be issued for
cash and treasury shares would only be sold for cash at a premium
to the net asset value per share (calculated after the deduction of
prior charges at market value).
The Directors consider that the powers proposed to be granted by
the above resolutions are necessary to provide flexibility to issue
shares should they deem it to be in the best interests of
shareholders as a whole.
(iii) Purchase of the Company's own Ordinary shares
Since the Company's last AGM the Company has undertaken share
buybacks, the details of which are set out on page 56 of the Annual
Report and financial statements for the year ended 31 August 2023.
Resolution 17, which will be proposed as a special resolution, will
renew the Company's authority to make market purchases of its own
shares. Shares so repurchased will be cancelled or held "in
treasury". In respect of the Company's Ordinary shares which it
buys back and does not immediately cancel but, instead, holds in
treasury it may sell such shares (or any of them) for cash (or its
equivalent); or ultimately cancel the shares (or any of them).
No dividends will be paid on treasury shares, and no voting
rights attach to them.
The maximum number of Ordinary shares which may be purchased
pursuant to this authority shall be 14.99% of the issued share
capital of the Company (excluding Treasury shares) as at the date
of the passing of the resolution (approximately 16.91 million
Ordinary shares based on the Company's issued share capital as at
the date of this Report). The minimum price which may be paid for
an Ordinary share (exclusive of expenses) will be 20p (being an
amount equal to the nominal value of an Ordinary share). The
maximum price for an Ordinary share (again exclusive of expenses)
shall be an amount being not more than the higher of (i) 105% of
the average of the middle market quotations for the Company's
Ordinary shares for the five business days immediately preceding
the date of purchase and (ii) the higher of the price of the last
independent trade and the highest current independent bid relating
to an Ordinary share on the trading venue where the purchase is
carried out.
This authority, if conferred, will only be exercised if to do so
would enhance the net asset value per share and is in the best
interests of shareholders generally. This authority will expire on
28 February 2025 or, if earlier, at the conclusion of the next
Annual General Meeting of the Company (unless previously revoked,
varied or extended by the Company in general meeting).
(iv) Notice Period for General Meetings
Resolution 18, which will be proposed as a special resolution,
seeks the authority from shareholders for the Company to be able to
hold general meetings (other than AGMs) on 14 clear days' notice.
The approval will be effective until the conclusion of the
Company's next Annual General Meeting, when it is intended that a
similar resolution will be proposed. The Company will also need to
meet the requirements for electronic voting under the Companies Act
2006 (as amended by the Shareholders' Rights Regulations) before it
can call a general meeting on 14 clear days' notice. The Directors
confirm that the short notice provisions contained in Resolution 18
would only be used where it is merited by the purpose of the
meeting.
Proposed Changes to the Board
It is intended that, following completion of the abrdn New Dawn
Combination proposals, Donald Workman, Stephen Souchon and Nicole
Yuen (each a New Dawn Director) (the "Prospective Directors") will
be appointed as non executive Directors of the Company. As such,
the Board will then, initially, consist of eight Directors,
comprising the five current Directors of the Company and three New
Dawn Directors. After a transition period that will end on the six
month anniversary of completion of the Combination, it is intended
that the number of Directors on the Board will be reduced to five,
with Donald Workman, Charlie Ricketts and Gaynor Coley expected to
retire from the Board at that time. Each of the Prospective
Directors is independent of the AIFM and the Investment Manager. It
is intended that the resolutions to elect Mr Workman, Mr Suchon and
Ms Yuen will be proposed at the forthcoming AGM of the Company on 7
December 2023. However, shareholders should note that, in the event
that the abrdn New Dawn Combination proposals does not become
effective, it is intended that the resolutions to appoint the
Prospective Directors (Resolutions 10 to 12 in the Notice of AGM)
will be withdrawn.
Recommendation
The Directors believe that the resolutions to be proposed at the
Annual General Meeting are in the best interests of the Company and
its shareholders as a whole, and recommend that shareholders vote
in favour of the resolutions, as the Directors intend to do in
respect of their own beneficial shareholdings totalling, in
aggregate, 41,614 Ordinary shares, and representing 0.04% of the
existing issued Ordinary share capital of the Company.
Greenhouse Gas Emissions
The Company can report that it has no greenhouse gas emissions
or other emissions producing sources from its operations.
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
page 55 of the Annual Report and financial statements for the year
ended 31 August 2023 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
2 November 2023
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
2 November 2023
Statement of Comprehensive Income
Year ended 31 August Year ended 31 August
2023 2022
================================= ===== ============================= ===========================
Revenue Capital Total Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
================================= ===== ======= ========= ========= ======= ======== ========
Losses on investments held
at fair value through profit
or loss 10 - (106,052) (106,052) - (65,385) (65,385)
================================= ===== ======= ========= ========= ======= ======== ========
Currency (losses)/gains - (1,140) (1,140) - 455 455
================================= ===== ======= ========= ========= ======= ======== ========
Income 3 11,829 - 11,829 11,127 - 11,127
================================= ===== ======= ========= ========= ======= ======== ========
Investment management fee 4 (960) (2,879) (3,839) (1,097) (3,290) (4,387)
================================= ===== ======= ========= ========= ======= ======== ========
Administrative expenses 5 (1,054) (2) (1,056) (1,007) - (1,007)
--------------------------------- ----- ------- --------- --------- ------- -------- --------
Net return/(loss) before finance
costs and taxation 9,815 (110,073) (100,258) 9,023 (68,220) (59,197)
================================= ===== ======= ========= ========= ======= ======== ========
Interest payable and similar
charges 6 (534) (1,602) (2,136) (266) (798) (1,064)
--------------------------------- ----- ------- --------- --------- ------- -------- --------
Return/(loss) before taxation 9,281 (111,675) (102,394) 8,757 (69,018) (60,261)
================================= ===== ======= ========= ========= ======= ======== ========
Taxation 7 (1,015) (334) (1,349) (967) 707 (260)
--------------------------------- ----- ------- --------- --------- ------- -------- --------
Return/(loss) after taxation 8,266 (112,009) (103,743) 7,790 (68,311) (60,521)
--------------------------------- ----- ------- --------- --------- ------- -------- --------
Return per share (pence) 9 7.06 (95.72) (88.66) 6.38 (55.91) (49.53)
--------------------------------- ----- ------- --------- --------- ------- -------- --------
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 2023 31 August 2022
Notes GBP'000 GBP'000
=========================================== ===== ============== ==============
Non-current assets
=========================================== ===== ============== ==============
Investments at fair value through profit
or loss 10 509,219 672,379
------------------------------------------- ----- -------------- --------------
Current assets
=========================================== ===== ============== ==============
Debtors and prepayments 11 3,114 2,693
=========================================== ===== ============== ==============
Cash and cash equivalents 12 10,942 5,094
=========================================== ===== ============== ==============
14,056 7,787
------------------------------------------- ----- -------------- --------------
Creditors: amounts falling due within
one year
=========================================== ===== ============== ==============
Bank loan 13(a) (39,992) (35,000)
=========================================== ===== ============== ==============
Other creditors 13(b) (2,040) (3,413)
------------------------------------------- ----- -------------- --------------
(42,032) (38,413)
------------------------------------------- ----- -------------- --------------
Net current liabilities (27,976) (30,626)
------------------------------------------- ----- -------------- --------------
Creditors: amounts falling due after
more than one year
=========================================== ===== ============== ==============
Bank loan 13(a) - (24,983)
=========================================== ===== ============== ==============
Deferred tax liability on Indian capital
gains 13(c) (2,074) (2,401)
------------------------------------------- ----- -------------- --------------
(2,074) (27,384)
------------------------------------------- ----- -------------- --------------
Net assets 479,169 614,369
------------------------------------------- ----- -------------- --------------
Share capital and reserves
=========================================== ===== ============== ==============
Called-up share capital 14 31,922 31,922
=========================================== ===== ============== ==============
Share premium account 60,416 60,416
=========================================== ===== ============== ==============
Capital redemption reserve 28,154 28,154
=========================================== ===== ============== ==============
Capital reserve 15 317,532 453,273
=========================================== ===== ============== ==============
Revenue reserve 41,145 40,604
------------------------------------------- ----- -------------- --------------
Total shareholders' funds 479,169 614,369
------------------------------------------- ----- -------------- --------------
Net asset value per Ordinary share (pence) 16 421.26 513.32
------------------------------------------- ----- -------------- --------------
The financial statements were approved by the Board of Directors and
authorised for issue on 2 November 2023 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 2023
===============================================================================================
Share Capital
Share premium redemption Capital Revenue
capital account reserve reserve reserve Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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
--------------------------- ----- ------- ------- ---------- --------- ------- ---------
For the year ended 31 August 2022
Share Capital
Share premium redemption Capital Revenue
capital account reserve reserve reserve Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=========================== ===== ======= ======= ========== ========= ======= =========
Balance at 1 September
2021 31,922 60,416 28,154 545,582 40,855 706,929
=========================== ===== ======= ======= ========== ========= ======= =========
Return after taxation - - - (68,311) 7,790 (60,521)
=========================== ===== ======= ======= ========== ========= ======= =========
Buyback of Ordinary shares
for treasury 14 - - - (23,998) - (23,998)
=========================== ===== ======= ======= ========== ========= ======= =========
Dividend paid 8 - - - - (8,041) (8,041)
--------------------------- ----- ------- ------- ---------- --------- ------- ---------
Balance at 31 August 2022 31,922 60,416 28,154 453,273 40,604 614,369
--------------------------- ----- ------- ------- ---------- --------- ------- ---------
The capital reserve includes investment holding gains amounting to
GBP32,413,000 (2022 - GBP144,902,000), 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 2023 31 August 2022
Notes GBP'000 GBP'000
========================================== ================== ============== ==============
Operating activities
========================================== ================== ============== ==============
Net return before taxation (102,394) (60,261)
========================================== ================== ============== ==============
Adjustment for:
========================================== ================== ============== ==============
Losses on investments 106,052 65,385
========================================== ================== ============== ==============
Currency losses/(gains) 1,140 (455)
========================================== ================== ============== ==============
Increase in accrued dividend income (125) (232)
========================================== ================== ============== ==============
Decrease/(increase) in other debtors 801 (466)
========================================== ================== ============== ==============
(Decrease)/increase in other creditors (1,262) 1,473
========================================== ================== ============== ==============
Interest payable and similar charges 6 2,136 1,064
========================================== ================== ============== ==============
Overseas withholding tax (689) (1,323)
------------------------------------------ ------------------ -------------- --------------
Cash from operations 5,659 5,185
========================================== ================== ============== ==============
Interest paid (2,128) (1,013)
------------------------------------------ ------------------ -------------- --------------
Net cash inflow from operating activities 3,531 4,172
========================================== ================== ============== ==============
Investing activities
========================================== ================== ============== ==============
Purchases of investments (107,627) (210,345)
========================================== ================== ============== ==============
Sales of investments 163,293 243,361
========================================== ================== ============== ==============
Capital gains tax on sales (660) (701)
------------------------------------------ ------------------ -------------- --------------
Net cash inflow from investing activities 55,006 32,315
========================================== ================== ============== ==============
Financing activities
========================================== ================== ============== ==============
Equity dividends paid 8 (7,725) (8,041)
========================================== ================== ============== ==============
Buyback of Ordinary shares (23,824) (23,807)
========================================== ================== ============== ==============
Repayment of bank loans (20,000) (65,000)
========================================== ================== ============== ==============
Drawdown of bank loans - 60,000
------------------------------------------ ------------------ -------------- --------------
Net cash used in financing activities (51,549) (36,848)
------------------------------------------ ------------------ -------------- --------------
Increase/(decrease) in cash and cash
equivalents 6,988 (361)
------------------------------------------ ------------------ -------------- --------------
Analysis of changes in cash and cash
equivalents during the year
========================================== ================== ============== ==============
Opening balance 5,094 5,000
========================================== ================== ============== ==============
Effect of exchange rate fluctuations
on cash held (1,140) 455
========================================== ================== ============== ==============
Increase/(decrease) in cash and cash
equivalents as above 6,988 (361)
------------------------------------------ ------------------ -------------- --------------
Closing cash and cash equivalents 10,942 5,094
------------------------------------------ ------------------ -------------- --------------
Represented by:
========================================== ================== ============== ==============
Money market funds 5,001 1,000
========================================== ================== ============== ==============
Cash and short term deposits 5,941 4,094
------------------------------------------ ------------------ -------------- --------------
10,942 5,094
------------------------------------------ ------------------ -------------- --------------
The accompanying notes are an integral part of the financial statements.
Notes to the Financial Statements
For the year ended 31 August 2023
1. Principal activity
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 GBP'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 . The Directors have undertaken a rigorous review
and believe that it is appropriate to continue to adopt the
going concern basis in the preparation of the financial statements.
This conclusion is consistent with the longer term Viability
Statement on page 25 of the Annual Report and financial statements
for the year ended 31 August 2023.
The Company's assets consist substantially of equity shares
in companies listed on recognised stock exchanges and in normal
circumstances are realisable within a short timescale. The Board
has set limits for borrowing and regularly reviews the level
of any gearing, cash flow projections and compliance with banking
and loan covenants.
The Directors are mindful of the principal risks and uncertainties
disclosed on pages 19 to 22 of the Annual Report and financial
statements for the year ended 31 August 2023 including the refinancing
risk arising in July 2024, and have reviewed forecasts detailing
revenues and liabilities and undertaken sensitivity analysis.
The Directors are satisfied that the Company has adequate resources
to continue in operational existence for the foreseeable future
and has the ability to meet its financial obligations as they
fall due for a period of at least twelve months from the date
of approval of this Report. They have arrived at this conclusion
having confirmed that the Company's diversified portfolio of
realisable securities is sufficiently liquid and could be used
to meet short-term funding requirements were they to arise in
July 2024. The Directors have also reviewed the revenue and
ongoing expenses forecasts for the coming year and considered
the Company's Statement of Financial Position as at 31 August
2023 which shows net current liabilities of GBP28.0 million
at that date. The Directors believe that adopting a going concern
basis of accounting remains appropriate.
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 2023 may not
be available at the time of any future distribution due to movements
between 31 August 2023 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
================================= ======= =======
2023 2022
GBP'000 GBP'000
================================= ======= =======
Income from investments
================================= ======= =======
Overseas dividend income 11,618 11,098
------------------------------------- ------- -------
11,618 11,098
------------------------------------- ------- -------
Other income
================================= ======= =======
Deposit interest 140 12
===================================== ======= =======
Interest from money market funds 71 17
------------------------------------- ------- -------
211 29
------------------------------------- ------- -------
Total income 11,829 11,127
------------------------------------- ------- -------
4. Investment management fee
====================================================================================
2023 2022
============================= ============================ ===========================
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------- -------- -------- -------- -------- -------- -------
Investment management
fee 960 2,879 3,839 1,097 3,290 4,387
----------------------------- -------- -------- -------- -------- -------- -------
Management fees paid to abrdn Fund Managers Limited ("aFML" or
"the Manager") are calculated at 0.85% per annum on net assets
up to GBP350 million and 0.50% per annum thereafter. Management
fees are calculated and payable on a quarterly basis.
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 GBP5,001,000 (2022 - GBP1,000,000) 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 balance due to the Manager at the year end was GBP905,000 (2022
- GBP2,125,000).
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
2023 2022
GBP'000 GBP'000
===================================================== ========= =========
Promotional activities 240 214
========================================================= ========= =========
Directors' fees 180 171
========================================================= ========= =========
Custody fees 219 261
========================================================= ========= =========
Depositary fees 53 61
========================================================= ========= =========
Auditors remuneration: Fees payable to
the Company's auditor for
===================================================== ========= =========
- audit of the Company's annual report 45 35
========================================================= ========= =========
Legal and professional fees 49 (6)
========================================================= ========= =========
Other expenses(A) 270 271
--------------------------------------------------------- --------- ---------
1,056 1,007
--------------------------------------------------------- --------- ---------
(A) Includes GBP2,000 (2022 - GBPnil) 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 GBP240,000 (2022 - GBP214,000)
and the sum due to the Manager at the year end was GBP160,000 (2022
- GBP133,000).
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
=============================================================================
2023 2022
=========================== ========================= =========================
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
======================= ======= ======= ======= ======= ======= =======
Interest on bank loans 533 1,600 2,133 266 798 1,064
=========================== ======= ======= ======= ======= ======= =======
Bank interest paid 1 2 3 - - -
--------------------------- ------- ------- ------- ------- ------- -------
534 1,602 2,136 266 798 1,064
--------------------------- ------- ------- ------- ------- ------- -------
7. Taxation
2023 2022
=============================== ============================= ===========================
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=============================== ======= ========= ========= ======= ======== ========
(a) Analysis of charge for the
year
=============================== ======= ========= ========= ======= ======== ========
Indian capital gains tax
charge on sales - 660 660 - 701 701
======================================== ======= ========= ========= ======= ======== ========
Overseas tax suffered 1,015 - 1,015 967 - 967
---------------------------------------- ------- --------- --------- ------- -------- --------
Total current tax charge
for the year 1,015 660 1,675 967 701 1,668
======================================== ======= ========= ========= ======= ======== ========
Movement of deferred tax
liability on Indian capital
gains (326) (326) - (1,408) (1,408)
---------------------------------------- ------- --------- --------- ------- -------- --------
Total tax charge for the
year 1,015 334 1,349 967 (707) 260
---------------------------------------- ------- --------- --------- ------- -------- --------
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 GBP2,074,000 (2022 - GBP2,401,000) on capital
gains which may arise if Indian investments are sold.
The Company has not recognised a deferred tax asset of GBP27,361,000
(2022 - GBP25,673,000) 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 (2022 - lower) than the effective rate
of corporation tax in the UK.
2023 2022
=============================== ======= ========= ========= ======= ======== ========
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=============================== ======= ========= ========= ======= ======== ========
Return before taxation 9,281 (111,675) (102,394) 8,757 (69,018) (60,261)
======================================== ======= ========= ========= ======= ======== ========
Effective rate of corporation
tax at 21.5% (2022 - 19%) 1,996 (24,010) (22,014) 1,664 (13,113) (11,449)
======================================== ======= ========= ========= ======= ======== ========
Effects of:
=============================== ======= ========= ========= ======= ======== ========
Losses on investments not
taxable - 22,801 22,801 - 12,423 12,423
======================================== ======= ========= ========= ======= ======== ========
Currency losses/(gains)
not taxable - 245 245 - (86) (86)
======================================== ======= ========= ========= ======= ======== ========
Other non-taxable income (2,498) - (2,498) (2,109) - (2,109)
======================================== ======= ========= ========= ======= ======== ========
Expenses not deductible
for tax purposes 14 - 14 4 - 4
======================================== ======= ========= ========= ======= ======== ========
Increase in excess expenses
and loan relationship deficit 488 964 1,452 441 776 1,217
======================================== ======= ========= ========= ======= ======== ========
Indian capital gains tax
charge on sales - 660 660 - 701 701
======================================== ======= ========= ========= ======= ======== ========
Movement in deferred tax
liability on Indian capital
gains - (326) (326) - (1,408) (1,408)
======================================== ======= ========= ========= ======= ======== ========
Net overseas tax suffered 1,015 - 1,015 967 - 967
---------------------------------------- ------- --------- --------- ------- -------- --------
Total tax charge for year 1,015 334 1,349 967 (707) 260
---------------------------------------- ------- --------- --------- ------- -------- --------
8. Dividends
In order to comply with the requirements of Sections 1158 - 1159
of the Corporation Tax Act 2010 and with company law, the Company
is required to make a final dividend distribution.
The proposed final dividend is subject to approval by shareholders
at the Annual General Meeting and has not been included as a liability
in these financial statements.
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 GBP8,266,000
(2022 - GBP7,790,000).
2023 2022
GBP'000 GBP'000
--------------------------------------------------------- ---------- ---------
Proposed final dividend for 2023 - 6.60p
per Ordinary share (2022 - 6.50p) 7,443 7,725
------------------------------------------------------------- ---------- ---------
The final dividend will be paid on 15 December 2023 to shareholders
who were on the register at the close of business on 27 October
2023.
9. Return per share
================================================================================
2023 2022
================================= ====================== =====================
GBP'000 pence GBP'000 pence
================================= ========= =========== ======== ===========
Revenue return 8,266 7.06 7,790 6.38
===================================== ========= =========== ======== ===========
Capital return (112,009) (95.72) (68,311) (55.91)
------------------------------------- --------- ----------- -------- -----------
Total return (103,743) (88.66) (60,521) (49.53)
------------------------------------- --------- ----------- -------- -----------
Weighted average Ordinary shares
in issue 117,009,550 122,191,909
------------------------------------- --------- ----------- -------- -----------
10. Investments at fair value through profit
or loss
==================================================== ========== ==========
2023 2022
GBP'000 GBP'000
==================================================== ========== ==========
Opening book cost 527,477 524,806
========================================================= ========== ==========
Opening investment holding gains 144,902 241,988
--------------------------------------------------------- ---------- ----------
Opening fair value 672,379 766,794
========================================================= ========== ==========
Analysis of transactions made during the
year
==================================================== ========== ==========
Purchases at cost 107,610 210,181
========================================================= ========== ==========
Sales - proceeds (164,718) (239,211)
========================================================= ========== ==========
Losses on investments (106,052) (65,385)
--------------------------------------------------------- ---------- ----------
Closing fair value 509,219 672,379
--------------------------------------------------------- ---------- ----------
Closing book cost 476,806 527,477
========================================================= ========== ==========
Closing investment gains 32,413 144,902
--------------------------------------------------------- ---------- ----------
Closing fair value 509,219 672,379
--------------------------------------------------------- ---------- ----------
2023 2022
GBP'000 GBP'000
==================================================== ========== ==========
Investments listed on an overseas investment
exchange 509,219 672,379
--------------------------------------------------------- ---------- ----------
The Company received GBP164,718,000 (2022 - GBP239,211,000) from
investments sold in the period. The book cost of these investments
when they were purchased was GBP158,281,000 (2022 - GBP207,510,000).
These investments have been revalued over time and until they were
sold any unrealised (losses)/gains 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:
2023 2022
GBP'000 GBP'000
==================================================== ========== ==========
Purchases 165 273
========================================================= ========== ==========
Sales 301 495
--------------------------------------------------------- ---------- ----------
466 768
--------------------------------------------------------- ---------- ----------
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
===================================== ======= =======
2023 2022
GBP'000 GBP'000
===================================== ======= =======
Accrued income 443 339
========================================== ======= =======
Overseas withholding tax recoverable 1,148 1,455
========================================== ======= =======
Amounts due from brokers 1,425 -
========================================== ======= =======
Other debtors and prepayments 98 899
------------------------------------------ ------- -------
3,114 2,693
------------------------------------------ ------- -------
12. Cash and cash equivalents
========================== ======= =======
2023 2022
GBP'000 GBP'000
========================== ======= =======
Cash at bank and in hand 5,941 4,094
=============================== ======= =======
Money market funds 5,001 1,000
------------------------------- ------- -------
10,942 5,094
------------------------------- ------- -------
13. Creditors
2023 2022
(a) Bank loans GBP'000 GBP'000
=================================================== ========= ========
Falling due within one year 40,000 35,000
============================================================= ========= ========
Falling due in more than one year - 25,000
============================================================= ========= ========
Unamortised expenses (8) (17)
------------------------------------------------------------- --------- --------
39,992 59,983
------------------------------------------------------------- --------- --------
The Company has a GBP50,000,000 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. At the year end GBP15,000,000
of this facility had been drawn down at a rate of 6.184% which
matured on 25 September 2023. At the date of this Report the
Company had drawn down GBP15,000,000 at a rate of 6.188%.
On 29 July 2022, the Company entered into a new fixed loan facility
agreement of GBP25,000,000 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 GBP18,140, which will be 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 GBP375 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.
2023 2022
(b) Other creditors - falling due within GBP'000 GBP'000
one year
=================================================== ========= ========
Amounts due to brokers - 17
============================================================= ========= ========
Amounts due for the purchase of own
shares to treasury 178 270
============================================================= ========= ========
Other amounts due 1,862 3,126
------------------------------------------------------------- --------- --------
2,040 3,413
------------------------------------------------------------- --------- --------
2023 2022
GBP'000 GBP'000
--------------------------------------------------- --------- --------
Deferred tax liability on Indian capital
(c) gains 2,074 2,401
-------------------------------------------------------- --------- --------
14. Called-up share capital
================================================================================
2023 2022
GBP'000 GBP'000
==================================== ============== =========== =============
Allotted, called-up and fully
paid:
==================================== ============== =========== =============
Ordinary shares of 20p (2022:
20p) 22,749 23,937
========================================= ============== =========== =============
Treasury shares 9,173 7,985
----------------------------------------- -------------- ----------- -------------
31,922 31,922
----------------------------------------- -------------- ----------- -------------
Ordinary Treasury Total
shares shares shares
Number Number Number
==================================== ============== =========== =============
At 31 August 2022 119,686,001 39,925,676 159,611,677
========================================= ============== =========== =============
Buyback of own shares (5,940,615) 5,940,615 -
----------------------------------------- -------------- ----------- -------------
At 31 August 2023 113,745,386 45,866,291 159,611,677
----------------------------------------- -------------- ----------- -------------
During the year 5,940,615 Ordinary shares of 20p each were purchased
to be held in treasury by the Company (2022 - 5,080,349) at a total
cost of GBP23,732,000 (2022 - GBP23,998,000). At the year end 45,866,291
(2022 - 39,925,676) Ordinary shares of 20p each were held in treasury,
which represents 29% (2022 - 25%) of the Company's total issued
share capital at 31 August 2023.
Since the year end a further 973,136 Ordinary shares of 20p each
have been purchased by the Company at a total cost of GBP3,446,000
all of which were held in treasury.
15. Capital reserve
============================================== ========== =========
2023 2022
GBP'000 GBP'000
============================================== ========== =========
At 1 September 2022 453,273 545,582
=================================================== ========== =========
Movement in fair value gains (106,052) (65,385)
=================================================== ========== =========
Foreign exchange movement (1,140) 455
=================================================== ========== =========
Buyback of Ordinary shares for treasury (23,732) (23,998)
=================================================== ========== =========
Expenses allocated to capital (4,483) (4,088)
=================================================== ========== =========
Movement in capital gains tax charge (334) 707
--------------------------------------------------- ---------- ---------
As at 31 August 2023 317,532 453,273
--------------------------------------------------- ---------- ---------
The capital reserve includes investment holding gains amounting
to GBP32,413,000 (2022 - GBP144,902,000), as disclosed in note
10.
16. Net asset value 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:
2023 2022
============================================== ============= ============
Net assets attributable to the Ordinary
shareholders (GBP'000) 479,169 614,369
=================================================== ============= ============
Number of Ordinary shares in issue(A) 113,745,386 119,686,001
=================================================== ============= ============
Net asset value per share (p) 421.26 513.32
--------------------------------------------------- ------------- ------------
(A) Excluding shares held in treasury.
17. Analysis of changes in net debt
===========================================================================================
At Currency Non-cash At
1 September differences Cash flows movements 31 August
2022 2023
GBP'000 GBP'000 GBP'000 GBP'000 GBP'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)
---------------------------------- ----------- ------------ ---------- ---------- ---------
At Currency Non-cash At
1 September differences Cash flows movements 31 August
2021 2022
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
============================= =========== ============ ========== ========== =========
Cash and short term deposits 5,000 455 (361) - 5,094
================================== =========== ============ ========== ========== =========
Debt due within one year (64,998) - 30,000 (2) (35,000)
================================== =========== ============ ========== ========== =========
Debt due after one year - - (25,000) 17 (24,983)
---------------------------------- ----------- ------------ ---------- ---------- ---------
(59,998) 455 4,639 15 (54,889)
---------------------------------- ----------- ------------ ---------- ---------- ---------
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 5 of the Annual
Report and financial statements for the year ended 31 August 2023.
Details of the loan facilities the Company has in place can be
found in note 13 on page 94 of the Annual Report and financial
statements for the year ended 31 August 2023.
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 average Fixed Floating
which
rate is fixed interest rate rate rate
At 31 August 2023 Years % GBP'000 GBP'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 -
GBP15,000,000 0.07 6.18 15,000 -
===================== =================== =============== ======== =========
Short-term loan -
GBP25,000,000 0.91 3.56 24,992 -
--------------------- ------------------- --------------- -------- ---------
- - 39,992 -
--------------------- ------------------- --------------- -------- ---------
Weighted average Weighted
period for average Fixed Floating
which
rate is fixed interest rate rate rate
At 31 August 2022 Years % GBP'000 GBP'000
===================== =================== =============== ======== =========
Assets
===================== =================== =============== ======== =========
Sterling - 0.40 - 3,852
===================== =================== =============== ======== =========
Hong Kong Dollars - - - 5
===================== =================== =============== ======== =========
Indian Rupee - - - 4
===================== =================== =============== ======== =========
US Dollar - - - 9
===================== =================== =============== ======== =========
Vietnamese Dong - - - 1,224
--------------------- ------------------- --------------- -------- ---------
Total assets n/a n/a - 5,094
--------------------- ------------------- --------------- -------- ---------
Liabilities
===================== =================== =============== ======== =========
Short-term loan -
GBP35,000,000 0.07 2.69 35,000 -
===================== =================== =============== ======== =========
Long-term loan -
GBP25,000,000 1.91 3.56 24,983 -
===================== =================== =============== ======== =========
- - 59,983 -
--------------------- ------------------- --------------- -------- ---------
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 2023 31 August 2022
==================== =============================== ===============================
Net Total Net Total
Overseas monetary currency Overseas monetary currency
investments assets exposure investments assets exposure
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
==================== =========== ======== ======== =========== ======== ========
Chinese Yuan(A) 162,736 - 162,736 223,048 - 223,048
==================== =========== ======== ======== =========== ======== ========
Hong Kong Dollar(A) 53,957 - 53,957 58,956 (12) 58,944
==================== =========== ======== ======== =========== ======== ========
Indian Rupee 93,524 1,253 94,777 119,143 4 119,147
==================== =========== ======== ======== =========== ======== ========
Indonesian Rupiah 10,953 - 10,953 32,155 - 32,155
==================== =========== ======== ======== =========== ======== ========
Korean Won 58,001 - 58,001 63,678 - 63,678
==================== =========== ======== ======== =========== ======== ========
Netherlands
Euro 5,184 - 5,184 - - -
==================== =========== ======== ======== =========== ======== ========
Philippine Peso 13,154 172 13,326 17,311 - 17,311
==================== =========== ======== ======== =========== ======== ========
Singapore Dollar 21,414 - 21,414 41,014 - 41,014
==================== =========== ======== ======== =========== ======== ========
Taiwanese Dollar 76,989 - 76,989 90,125 - 90,125
==================== =========== ======== ======== =========== ======== ========
Thailand Baht - - - 15,457 - 15,457
==================== =========== ======== ======== =========== ======== ========
US Dollar(A) - 8 8 - 9 9
==================== =========== ======== ======== =========== ======== ========
Vietnamese Dong 13,307 125 13,432 11,492 1,224 12,716
-------------------- ----------- -------- -------- ----------- -------- --------
509,219 1,558 510,777 672,379 1,225 673,604
==================== =========== ======== ======== =========== ======== ========
Sterling - 10,631 10,631 - 3,582 3,582
-------------------- ----------- -------- -------- ----------- -------- --------
Total 509,219 12,189 521,408 672,379 4,807 677,186
-------------------- ----------- -------- -------- ----------- -------- --------
(A) If currency denomination of overseas investments is used
then exposure for Chinese Yuan is GBP61,709,000 (2022 - GBP97,032,000),
for Hong Kong Dollar GBP151,283,000 (2022 - GBP184,972,000) and
for US Dollar GBP3,701,000 (2022 - nil).
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.
2023 2022
GBP'000 GBP'000
==================== =========== ======== ======== =========== ======== ========
Chinese Yuan 16,274 22,305
==================== =========== ======== ======== =========== ======== ========
Hong Kong Dollar 5,396 5,894
==================== =========== ======== ======== =========== ======== ========
Indian Rupee 9,478 11,915
==================== =========== ======== ======== =========== ======== ========
Indonesian Rupiah 1,095 3,215
==================== =========== ======== ======== =========== ======== ========
Korean Won 5,800 6,368
==================== =========== ======== ======== =========== ======== ========
Netherlands
Euro 518 -
==================== =========== ======== ======== =========== ======== ========
Philippine Peso 1,333 1,731
==================== =========== ======== ======== =========== ======== ========
Singapore Dollar 2,141 4,101
==================== =========== ======== ======== =========== ======== ========
Taiwanese Dollar 7,699 9,012
==================== =========== ======== ======== =========== ======== ========
Thailand Baht - 1,546
==================== =========== ======== ======== =========== ======== ========
US Dollar 1 1
==================== =========== ======== ======== =========== ======== ========
Vietnamese Dong 1,343 1,272
-------------------- ----------- -------- -------- ----------- -------- --------
51,078 67,360
-------------------- ----------- -------- -------- ----------- -------- --------
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 18 and 19 of the Annual Report and
financial statements for the year ended 31 August 2023, act to
reduce market risk. The Manager actively monitors market prices
throughout the year and reports to the Board, which meets regularly
in order to review investment strategy. The investments held by
the Company are listed on various stock exchanges worldwide.
Other price risk sensitivity . If market prices at the reporting
date had been 10% higher or lower while all other variables remained
constant, the return attributable to Ordinary shareholders for
the year ended 31 August 2023 would have increased/decreased by
GBP50,922,000 (2022 - increased/decreased by GBP67,238,000) 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 2023, the Company had drawn
down GBP15,000,000 from a GBP50,000,000 Revolving Facility Agreement
with The Royal Bank of Scotland International Limited, London Branch,
which matured on 25 September 2023. At the date of this Report
the Company had drawn down GBP15,000,000 at a rate of 6.188%. There
was a further facility of GBP25,000,000 with The Royal Bank of
Scotland International Limited, London Branch due for repayment
on 29 July 2024, details of which are disclosed in note 13 on page
94 of the Annual Report and financial statements for the year ended
31 August 2023.
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' carries 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:
2023 2022
======================= ============== ======== ================= =====================
Balance Maximum Balance Maximum
Sheet exposure Sheet exposure
Current assets GBP'000 GBP'000 GBP'000 GBP'000
======================= ============== ======== ======= ======== ======== ===========
Loans and receivables 3,092 3,092 2,693 2,693
================================================= === ======= ======== ======== ===========
Cash and cash equivalents 10,942 10,942 5,094 5,094
--------------------------------------- ------------- ------- -------- -------- -----------
14,034 14,034 7,787 7,787
-------------- ------------------------------------- ------- -------- -------- -----------
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:
2023 2022
GBP'000 GBP'000
======================= ============== ======== ======= ======== ======== ===========
In less than one
year 42,032 38,413
================================= ================== ======= ======== ======== ===========
In more than one
year * - 24,983
--------------------------------- ------------------ ------- -------- -------- -----------
42,032 63,396
--------------------------------- ------------------ ------- -------- -------- -----------
* Excludes Indian
CGT liability.
Fair value of financial assets and liabilities . The fair value
of the term loan is GBP25,000,000 as at 31 August 2023 (2022 -
GBP25,942,000) compared to an accounts value in the financial statements
of GBP24,992,000 (2022 - GBP24,983,000) (note 13). Due to the term
loan now being short-term in nature, the fair value and the accounts
value are deemed to be the same (excluding unamortised expenses).
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: i nputs 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 (2022 -
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 2023 of GBP509,219,000 (31 August 2022 - GBP672,379,000)
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 70 of the Annual Report and financial statements
for the year ended 31 August 2023.
The Company has an agreement in place with aFML for the provision
of management and administration services, promotional activities
and secretarial services. Details of transactions during the year
and balances outstanding at the year end disclosed in notes 4 and
5.
At the year end the Company had GBP5,001,000 (31 August 2022 -
GBP1,000,000 ) 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.
On 22 September 2023 the Company published a Prospectus and Circular
including proposals to combine with abrdn New Dawn Investment Trust
plc ("New Dawn"), with an effective date of 8 November 2023. Under
the terms of transaction aFML has agreed that, with effect from
8 November 2023, the management fee payable by the Company to aFML
will be reduced to 0.75%. per annum on the initial GBP350 million
of the Company's NAV and 0.50% per annum thereafter. aFML has also
agreed to make a contribution to the costs of the combination by
means of a reduction in the management fee payable by the enlarged
Company to aFML. The fee reduction will constitute a waiver of
the management fee that would otherwise be payable by the enlarged
Company to aFML in respect of the assets transferred by New Dawn
to the Company pursuant to the combination for the first six months
following the effective date of 8 November 2023. This contribution
is subject to the Company not terminating the management agreement
(other than for cause as provided for under the management agreement)
within three years from the effective date of 8 November 2023,
failing which the enlarged Company will be obliged to repay all
or part of this contribution (depending on the point of termination
and reducing by one-third on each anniversary of the effective
date of 8 November 2023).
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. Subsequent events
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. Shareholders were sent documentation in
September explaining that this is to be 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 so elect.
Shareholders approved the Scheme proposals at the Company's General
Meeting held on 25 October 2023 and New Dawn's shareholders approved
the Scheme proposals at their General Meeting held on 23 October
2023 paving the way for the Scheme to progress. On the basis of
the current timetable, should the Scheme proceed, it is expected
that the combination of the Company and New Dawn will take place
on or around 8 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 35 of the Annual Report and financial statements for
the year ended 31 August 2023.
31 August 2023 31 August 2022
========================================== ============ ============== ==============
NAV per Ordinary share (p) a 421.26 513.32
========================================== ============ ============== ==============
Share price (p) b 353.00 446.00
========================================== ============ ============== ==============
Discount (a-b)/a 16.2% 13.1%
------------------------------------------ ------------ -------------- --------------
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 2023 31 August 2022
========================================== ============ ============== ==============
Borrowings (GBP'000) a 39,992 59,983
========================================== ============ ============== ==============
Cash (GBP'000) b 10,942 5,094
========================================== ============ ============== ==============
Amounts due to brokers (GBP'000) c - 287
========================================== ============ ============== ==============
Amounts due from brokers (GBP'000) d 1,425 -
========================================== ============ ============== ==============
Shareholders' funds (GBP'000) e 479,169 614,369
------------------------------------------ ------------ -------------- --------------
Net gearing (a-b+c-d)/e 5.8% 9.0%
------------------------------------------ ------------ -------------- --------------
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.
2023 2022
========================================== ============ ============== ==============
Investment management fees (GBP'000) 3,839 4,387
======================================================== ============== ==============
Administrative expenses (GBP'000) 1,056 1,007
======================================================== ============== ==============
Less: non-recurring charges(A) (GBP'000) (7) (33)
-------------------------------------------------------- -------------- --------------
Ongoing charges (GBP'000) 4,888 5,361
-------------------------------------------------------- -------------- --------------
Average net assets (GBP'000) 538,331 640,938
-------------------------------------------------------- -------------- --------------
Ongoing charges ratio 0.91% 0.84%
-------------------------------------------------------- -------------- --------------
(A) Comprises legal and professional fees which are not expected to
recur.
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 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%
------------------------------------------ ------------ -------------- --------------
Share
Year ended 31 August 2022 NAV Price
========================================== ============ ============== ==============
Opening at 1 September 2021 a 566.60p 512.00p
========================================== ============ ============== ==============
Closing at 31 August 2022 b 513.32p 446.00p
========================================== ============ ============== ==============
Price movements c=(b/a)-1 -9.4% -12.9%
========================================== ============ ============== ==============
Dividend reinvestment(A) d 1.0% 1.1%
------------------------------------------ ------------ -------------- --------------
Total return c+d -8.4% -11.8%
------------------------------------------ ------------ -------------- --------------
(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 BTBTTMTTMTJJ
(END) Dow Jones Newswires
November 03, 2023 03:05 ET (07:05 GMT)
Grafico Azioni Asia Dragon (LSE:DGN)
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Da Apr 2024 a Mag 2024
Grafico Azioni Asia Dragon (LSE:DGN)
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