ABRDN ASIA FOCUS PLC
Legal Entity Identifier (LEI): 5493000FBZP1J92OQY70
ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 JULY 2024
Performance Highlights
| Net asset value total return (diluted)AB | | Net asset value per share (diluted) | ||
| +7.9% | | 324.3p | ||
| 2023 | +7.6% | | 2023 | 308.9p |
| | | | | |
| Net asset value total return since inception (diluted)AB | | Annualised Net asset value total return since inception (diluted)AB | ||
| +2472.6% | | +11.9% | ||
| 2023 | +2283.6% | | 2023 | +12.1% |
| | | | | |
| Share price total returnA | | Share price | ||
| +8.8% | | 278.0p | ||
| 2023 | +7.3% | | 2023 | 264.0p |
| | | | | |
| MSCI AC Asia ex Japan Small Cap Index total returnC | | Discount to net asset valueAB | ||
| +14.1% | | 14.3% | ||
| 2023 | +8.0% | | 2023 | 14.5% |
| | | | | |
| Ongoing charges ratioA | | | Dividends per shareD | |
| 0.89% | | 7.42p | ||
| 2023 | 0.92% | | 2023 | 8.66p |
| A Alternative Performance Measure (see definition below). | ||||
| B Presented on a diluted basis as the Convertible Unsecured Loan Stock ("CULS") are "in the money" (2023 - same). | ||||
| C Currency adjusted, capital gains basis. | ||||
| D Dividends include special dividends of 1.00p for 2024 (2023 - 2.25p). | ||||
Strategic Report
Chair's Statement
Overview
Following the market trends referenced in my half-year report, Asian small caps continued to show their resilience and outpace their larger peers over the full year despite turbulent times geopolitically. The MSCI AC Asia ex Japan Small Cap Index delivered a total return of 14.1% in sterling terms, outperforming the MSCI AC Asia ex Japan Index, which rose by 7.6%.
Across small cap markets in Asia, we saw a sharp divergence in performance. At one end was India (28.1% of portfolio), the best performer by a large margin. A buoyant economy, growth in the corporate sector and substantial foreign capital inflows drove strong gains in the domestic market. There was an element of election jitters as Prime Minister Narendra Modi won a third term in office at the polls but had to settle for a coalition government with his allies. This proved short-lived, however, with investors quickly pushing the market to new all-time highs within days.
Another solid performer was Taiwan (14.4% of portfolio), as the technology-heavy market benefited from expectations of a trough in the semiconductor cycle and the rapid advance of artificial intelligence (AI) and related applications.
At the other end, however, was China (9.1% of portfolio), with a sharp fall in domestic markets. The country's stalled economy and property woes weighed on investor sentiment, although the Chinese government stepped in and increased support with measures to bolster financial markets and the economy. There are also concerns over potential US tariffs and sanctions following the outcome of November's US presidential election.
Investment Performance
Against this backdrop, on a total return basis, your Company's net asset value (NAV) rose 7.9% in sterling terms for the 12 months ended 31 July 2024, while the share price rose 8.8%. Over the long term, your Company's NAV has averaged annual growth of 11.9% since inception, an outstanding level of sustained performance, and reflective of your Manager's ability to invest in hand-picked smaller companies in Asia that are difficult to access for UK investors.
Despite the relative underperformance, absolute returns have been reasonable relative to a broader peer group of Asian funds, and your Manager maintains a preference for more diversified exposure to the region versus the small cap index which has become increasingly concentrated across fewer markets. Stock selection has been largely positive, particularly in markets like India, where your Company's holdings across a broad swathe of sectors have benefited from the healthy economic backdrop and good management, such as real estate developer Prestige Estates, energy holding Aegis Logistics and healthcare group Vijaya Diagnostic Centre.
Your Company's off-benchmark exposure to Vietnam has also added value, primarily driven by FPT Corp, a diversified technology group with a fast-growing software outsourcing business and led by an entrepreneurial management team. More broadly, Vietnam is rising up fast as an alternative supply chain option amid geopolitical uncertainty, with foreign direct investments (FDI) pouring into higher technology sectors, especially automotive and electronics. Less positively, the Company's lack of exposure to certain sub-segments of the Taiwanese technology and utilities space cost performance in relative terms, as did weaker performance from a few of the holdings in China and Singapore. You can read more about this in the Investment Manager's Review.
Dividend and Reserves
The Board recognises the importance of your Company's dividend income for many shareholders, and the income generation of the portfolio has been robust and supportive of the new enhanced and progressive dividend policy approved by shareholders in 2022. Your Company has maintained or raised the Ordinary dividend every year since 1998. Indeed, your Company anticipates joining the AIC's next generation of dividend heroes next year.
In total, four interim dividends have been declared in respect of the financial year ended 31 July 2024 amounting to 6.42p per Ordinary 5p share (2023: 6.41p). In addition, continuing strength of dividend generation from the portfolio has allowed the Board to declare a special interim dividend of 1.0p (2023: 2.25p) in respect of the year ended 31 July 2024 which will be paid on 20 December 2024 to shareholders on the register on the record date of 22 November 2024 (ex-dividend date 21 November 2024). This special dividend brings the total distribution for the year to 7.42p (2023: 8.66p) representing a yield of 2.7% based upon the share price at the time of writing of 280.0p.
The Board's strategy is to maintain the progressive dividend policy of the last 25 years (including with the flexibility to pay dividends out of capital reserves where merited in the future) in order to provide shareholders with a regular level of income alongside capital growth prospects. Following payment of the four interims for the year to 31 July 2024, there remains well over a year's worth of revenue reserve to cover the Ordinary dividend.
Share Capital Management and Gearing
In line with the general trend across the investment trust sector, the Company's shares have continued to trade at a stubbornly wide discount to NAV. The Company's share price to NAV discount was flat over the year, opening and closing at 15%. During the period the shares have traded at an average discount of 16.1%, which remains higher than the long-term average. I would note that while the discount is wide, some of your Company's peers are trading at similar discount levels, likely reflecting a more cautious stance by UK investors towards Asian small cap equities.
Your Board is very mindful of the negative impact of large discounts to NAV to shareholders but also share price volatility. The Board increased the pace of buybacks during the year, purchasing 2,850,000 shares (2023: 500,000) in total, 1.8% of the Company's issued shares (excluding Treasury shares). A further 2,372,500 shares have been purchased since the end of the financial year to date.
We will continue to oversee the judicious use of share buy backs. The shares bought back in this reporting period were at an average discount to NAV of 15.5%, supporting the twin aims of reducing the volatility of any discount whilst modestly enhancing the NAV for continuing shareholders.
The Company's net gearing at 31 July 2024 was 10.4% (2023: 12.1%) with the debt provided by the £30m Loan Notes and the £36.6 million Convertible Unsecured Loan Stock ("CULS"), redeemable in 2025. As at 22 October 2024, the latest practicable date, the net gearing stood at 11.9%. As we approach the maturity of the CULS, scheduled for 31 May 2025 the Board, in conjunction with the Manager and advisers, is reviewing the current level of gearing, alongside opportunities for repaying or converting the CULS, and will update shareholders closer to the time. In the event that suitable opportunities are not available the Board expects to repay the CULS using the proceeds of sales across the portfolio.
Promoting the Company
Your Board and Investment Manager have made significant efforts to enhance the marketing of your Company by highlighting the depth of abrdn's resources on the ground in Asia. To learn more about the management team's travels and the underlying portfolio, visit abrdn.com/AAS. Here, existing and potential shareholders can sign up for regular email updates. By following the dedicated abrdn Asia Focus page on LinkedIn, you can stay informed about your investments. You are also invited to join us at the AGM to hear from the Investment Managers and the Board. Additionally, we hold a pre-AGM webinar (see below) with the Chair and Investment Managers, including a Q&A session, which is open to all. This session is also recorded and available to watch on demand afterwards.
Board Evolution
In my half-year statement, I had welcomed two new Board members, Lucy Macdonald who replaced Randal Dunluce, the Earl of Antrim who stepped down from the Board at the last AGM in December 2023, and Davina Curling who joined with effect from 1 March 2024 as Senior Independent Director.
Lucy has enjoyed a successful career in asset management and was, until 2020, managing director, CIO global equities at Allianz Global Investors. Lucy brings significant investment experience to the Board. She is an experienced board director and is currently a member of the investment committee of the RNLI, a non-executive council member of the Duchy of Lancaster and senior independent director of JPMorgan Global Emerging Markets Income Trust Plc. Meanwhile, Davina has also enjoyed a successful career in asset management and was formerly managing director, head of European equities at Russell Investments. More recently Davina has consulted on projects for small companies and start-ups in the financial, manufacturing and retail sectors. Davina is a non-executive director of Henderson Opportunities Trust plc and INVESCO Global Equity Income Trust plc and is a member of the investment committee of St James's Place Wealth management.
Both Lucy and Davina bring considerable investment management experience to the Board, and I am glad to report that both have settled in well and are already contributing their insights to the Board.
Your Investment Manager
The Board is encouraged by abrdn Group's commitment to Asian equities. It hasn't been the easiest environment for active managers over the past couple of years, but your Manager continues to invest in its research platform, including quantitative tools that can support fund managers' fundamental research efforts. The Asian equities team remains one of the most well-resourced in the industry with 35 analysts and portfolio managers spread across the region. Over the past year, there has been a slight evolution of the team's structure with a cleaner delineation of roles between analysts and fund managers. The idea is to streamline responsibilities and increase focus, which should be welcome news for shareholders as Managers Gabriel Sacks and Xin-Yao Ng's time will be increasingly aligned to your portfolio. In addition, the team is bulking up its analyst pool with the hiring of a senior tech analyst and an Indian small and mid-cap analyst, with the purpose of improving idea generation and supporting the role of fund managers.
Value for Money
We strive to keep the cost of investing low for shareholders to retain as much of the return on their investment as possible. Ongoing charges for the year were 0.89% (2023: 0.92%), primarily made up of the management fee. Your Company is one of the very few to have linked the management fee to the market capitalisation rather than the NAV of the Company, further aligning the Investment Manager with you, the Shareholders.
Your Board continues to keep all costs under review but believes that, given the breadth and depth of on-the-ground research by your Manager, the very selective stock picking (your Company's portfolio has an active share of 96.7 at year end) and the long-term outperformance, the current fees constitute value for money.
I would remind shareholders that in 2022 the Company introduced a performance-linked conditional tender offer for up to 25% of the issued capital. Shareholders will be offered the opportunity to realise a proportion of their holding for cash at a level close to NAV less costs in the event the Company's NAV total return underperforms the benchmark over the five year period measured from 1 August 2021. The latest performance data covering the period since the introduction of the tender offer to 30 September 2024 shows a NAV total return of 21.7% versus the benchmark which has returned 19.6%.
Responsible Investing
One of the key benefits of having an extensive on-the-ground team in Asia is your Manager's ability to actively engage with companies on environmental, social and governance matters. Whilst the Company is not a sustainable fund, it is positive to note that the portfolio's MSCI ESG rating of 'BBB' is in line with that of the Benchmark and the Economic Emission Intensity is only 25.6% that of the Benchmark. Further details on responsible investing are provided on pages 105 to 108 of the published Annual Report and financial statements for the year ended 31 July 2024.
Shareholder Engagement and Annual General Meeting
The Company's Annual General Meeting is scheduled for 11:00 a.m. on 6 December 2024. In line with best practice the voting on all business at the AGM will be conducted by way of a poll which will be administered on the day by the Company's registrar. The AGM will be preceded by a short presentation from the management team and following the formal business there will be a light shareholder buffet lunch and the opportunity to meet the Directors. In addition to the usual ordinary business being proposed at the AGM, as special business the Board is seeking to renew the authority to issue new shares and sell treasury shares for cash at a premium without pre-emption rules applying and to renew the authority to buy back shares and either hold them in treasury for future resale (at a premium to the prevailing NAV per share) or cancel them. I would encourage all shareholders to support the Company and lodge proxy voting forms in advance of the meeting, regardless of whether they intend to attend in person.
In light of the significant take up from shareholders at the online presentation held in November 2023, in advance of the AGM, the Board has decided to hold another interactive Online Shareholder Presentation which will be held at 11:00 a.m. on Monday 18 November 2024. During the presentation, shareholders will receive updates from myself and the Manager and there will be the opportunity for an interactive question and answer session where we will endeavour to answer as many questions as time allows. Following the online presentation, shareholders will still have time to submit their proxy votes prior to the AGM and I would encourage all shareholders to lodge their votes in advance in this manner. Full registration details can be found at: asia-focus.co.uk.
Outlook
Despite the ongoing global geopolitical and macroeconomic uncertainty, Asian small cap companies remain replete with opportunities for discovering high quality companies that are often overlooked.
Economic, political, and monetary policy news in the US will be significant. Expectations of US rate cuts are rising, which typically lead to US dollar weakness. This supports currencies and equities in Asia as the US-Asia yield differential narrows. In addition, lower US interest rates generally result in lower borrowing costs globally. In Asia, smaller companies have historically benefited more than larger ones from such a rate-cutting cycle as risk appetite returns to equities and the region, while companies have more room to borrow to expand and invest in their businesses. These investments help support corporate earnings and share prices.
The two largest economies in Asia will remain in the spotlight due to their diverging fortunes. China's economy is under pressure with key pain points in consumer spending and the property sector. However, the central government has adopted a calibrated approach to avoid the problems of excess liquidity but still has considerable fiscal power to support growth. India, in contrast, is well-positioned for continued growth with a positive macro outlook, buoyant property sector, strong urban consumption and a robust infrastructure investment cycle. This in turn is reviving private capital expenditure. These factors should support economic and earnings growth over the long term. As far as abrdn Asia Focus is concerned, your Company's portfolio is geared towards a broader set of markets across the region, with roughly 85% of the portfolio invested outside of China and Hong Kong in companies that exhibit strong quality characteristics and healthy levels of growth.
At this juncture, it is worth reiterating why I believe that small caps continue to offer immense potential and unique opportunities to capitalise on the dynamic and rapidly evolving economies of Asia. Asian small caps provide very different exposures compared to the large caps in the region, both in terms of markets and sectors, together with being companies that are inherently more agile and exhibiting faster growth due to the early stage of their corporate lifecycle. These smaller companies operate in diverse industries, especially in niche areas like technology and healthcare, and are often at the forefront of innovation. Most importantly, they can be more direct beneficiaries of Asia's structural growth and long-term trends. The region boasts some of the world's fastest-growing economies and a rising middle class. Asia is a key hub for semiconductor supply chains, especially with booming AI demand, and is heavily investing in the green transition. Supply chains continue to move from China to other low-cost Asian markets such as Indonesia, India and Vietnam. This diversification is expected to boost growth through increased foreign investments and manufacturing, supporting domestic earnings.
With all of this in mind, I and the Board remain confident in your Manager, who is committed to carefully selecting high-quality smaller companies with sound fundamentals that can capitalise on the growth potential of this dynamic region and achieve sustainable long-term returns. The small cap universe is fertile ground for active stock picking because it is a less efficient market that is often poorly researched. Here, your Manager's extensive on-the-ground presence and long track record investing in Asia will enable it to make the most of inefficiencies in pricing smaller companies and unearthing hidden gems across the rich and diverse small cap universe. Investment trusts such as abrdn Asia Focus offer UK investors access to businesses that are otherwise inaccessible via mainstream funds and passive investments.
I remain confident that Asian smaller companies will continue to thrive and flourish over the longer term and that your Company continues to be well-positioned to unlock this potential and, with it, very welcome sustainable long-term returns.
Krishna Shanmuganathan
Chair
23 October 2024
Investment Manager's Review
Performance Review
Over the 12-month period to 31 July 2024 it has been a tale of two halves for Asian small caps as they traded within a narrow range in the first six months before gathering pace to finish the year on a strong note. The MSCI AC Asia Ex Japan Small Cap Index (the "benchmark") returned 14.1% in sterling terms over the period whilst your Company's net asset value ("NAV") and share price, both in total return terms, increased by 7.9% and 8.8%, respectively.
As your Chair has highlighted, various key macroeconomic and political themes influenced investor sentiment and market movements, such as China's slowdown, global recession concerns, US monetary policy and geopolitics, including the conflict in the Middle East.
Through the uncertainty and volatility witnessed, your Company's portfolio posted positive absolute returns, a testament to the quality and resilience of the underlying holdings. The initial months proved challenging, due to unfavourable country allocation effects, but performance saw a significant improvement in the second half, led primarily by strong stock selection in India.
Looking at the key drivers of performance, we would naturally highlight India, where the small cap market was exceptionally buoyant, rising by 50% over the year. This market strength came at a time when the stars appeared to have aligned for the country. GDP growth has been averaging 6-7% annually. The government's focus on structural reforms, particularly in infrastructure and the supply side of the economy, has boosted investor and corporate confidence. Also drawing in capital investment flows was the inclusion of Indian government bonds in JP Morgan's emerging market indices in June 2024.
Political stability counts, too. While the result of the general election in India came as a surprise to many, Prime Minister Narendra Modi secured a third term in office, this time with a coalition government. The new government's first budget presented in July showed that fiscal prudence was high on the agenda, with a continued focus on infrastructure development, albeit with some moderation in the pace of growth. There also appeared to be efforts to plug gaps in the economy around consumption, rural demand and employment - all of which was generally well received. Such a supportive economic and policy environment was reflected in strength at the corporate level, with solid earnings results especially in sectors like power and industrials. This generally upbeat mood has been supported by a domestic investor boom, with locals increasingly channelling their savings into the equity market.
We remain positive on India, as we have been since the inception of the Company almost 30 years ago, with the country representing a sizeable 27% of the portfolio at year-end, our highest country weighting. The small-cap benchmark, however, has an even higher allocation to India at 34%. While our relatively lighter exposure to India proved costly, this was more than compensated for by the strong performance of our holdings across a range of sectors. Notably, six of the portfolio's top ten stock performers this year came from India. The best performer was Prestige Estates, which we believe is well positioned as one of the few quality, listed operators in the Indian property space. It has benefited from the ongoing upcycle in residential property. In the energy sector, Aegis Logistics continued to benefit from India's shift away from fossil fuels towards cleaner energy, with demand for liquefied petroleum gas bolstered by its cost competitiveness relative to other gas alternatives. Elsewhere, in the healthcare sector, Vijaya Diagnostic Centre reported consistently good results, with organic growth that continued to be well ahead of industry peers. Organic growth was a result of a combination of existing centres continuing to grow as well as from new centres that were opened over the last two years.
The other key country to highlight is Taiwan, a market that is well represented in the small cap index. With global equity investors fixated on Nvidia and the rise of artificial intelligence (AI), this technology-heavy market did well. Indeed, Taiwanese corporates have benefited from both a cyclical upturn in semiconductor pricing and strong incremental demand for advanced chips. Throughout this, we have been bullish on technology, and the semiconductor sector specifically, although we have been highly selective, focusing our interest on businesses that we feel are true leaders in their field with clear and defensible business moats. As a result, we have averaged a significantly lower allocation to Taiwan over the year compared to the small-cap benchmark, which weighed on relative performance. In addition, several of our stocks lagged the benchmark's rise despite still posting reasonable returns. Despite our underweight position, and the recent sell-off in technology stocks that we have witnessed since the end of the Company's fiscal year-end, we continue to be confident in the prospects for high-quality technology and semiconductor stocks in the region. As evidence of this, we invested in Chroma Ate during the year, a company that is one of the top test equipment businesses globally, specialising in power testing across a range of industries, but also increasingly involved in system-level testing for semiconductors. We expect Chroma to be in a prime position to benefit from the structural growth trend in advanced semiconductor manufacturing.
Elsewhere, we also saw gains from the off-benchmark exposure that the Company has to Vietnam, which was about 7% of the portfolio as of end-July 2024. The country is seeing foreign direct investments pour into higher technology sectors, especially automotive and electronics as some multinational corporations seek to reduce their reliance on China and mitigate geopolitical risks. Here, the software service company, FPT, continued to deliver impressive earnings. Despite its share price gains over the year, we believe the company is still trading at an attractive valuation.
In South Korea, our lighter than benchmark exposure and stock picks were positive for performance. The domestic market lagged the region, as weak export demand and disappointing domestic economic growth weighed on capex and corporate earnings. In terms of our holdings, Korea Shipbuilding & Offshore Engineering (KSOE), which we had initiated during the year, performed well. We feel it is well placed to benefit from the industry's long-term cycle of vessel newbuilds, due to the need to replace ageing ships and comply with emissions regulation. This offset weakness witnessed in Park Systems, a leading manufacturer of atomic force microscopy systems for scientific research, which lagged the broader strength in the technology sector and posted slightly lower than expected results.
In contrast, parts of Southeast Asia weighed on performance. Our overweight to Indonesia was a drag despite good stock selection. The market was weak on the back of a lack of catalysts and soft corporate earnings for the second quarter of 2024. Furthermore, the government's budget plan for 2025 aimed to maintain economic growth above 5%, but the cut in infrastructure spending pulled down infrastructure-linked stocks and sectors, which together with a surprise interest rate increase by the central bank, worsened the overall market sentiment.
Another key detractor was Singapore's AEM Holdings, a business that has lots of potential but saw its shares sell off on concerns over a shortfall in inventory, the resignation of its CEO and results that missed market expectations. On the back of these developments, we decided to exit our position to focus on higher conviction technology holdings elsewhere in the region.
Portfolio Activity
We have continued to focus on earnings visibility and cashflow generation to ensure that the portfolio remains fundamentally strong and resilient amid the challenging environment, with very disparate performance across markets and sectors.
In China, for instance, we have shifted our exposure towards more consumer-oriented stocks which we believe have a positive long-term growth outlook despite subdued consumer spending at this point in time. This included introducing Proya Cosmetics and Tongcheng Travel to the portfolio. Proya Cosmetics, a leading domestic beauty and skincare company, is known for its innovative products and strong market presence. The company is enhancing operational efficiency and marketing efforts, especially on digital platforms like Douyin (TikTok) and Alibaba, and is set to benefit from continued 'localisation' as consumers shift from expensive foreign brands towards more affordable local offerings. Tongcheng Travel, the largest online travel agency in China by monthly active users, offers air, train, and bus tickets, as well as hotel bookings. It has strong backing from Tencent and Trip.com, its largest shareholders, and enjoys strong margins. We believe Tongcheng Travel is well positioned to benefit from increasing domestic travel among Chinese residents in lower-tier cities. To fund these new positions, we exited other mainland holdings with more challenged earnings, such as Joinn Laboratories and Sinoma Science & Technology. Overall, our China weighting has remained relatively stable compared to the benchmark, with a slight underweight due to our cautious outlook on China.
Elsewhere, in India, we have increased our country exposure as a result of strong idea generation from the team and a positive outlook for growth. We participated in the IPO of Bharti Hexacom, a subsidiary of Bharti Airtel, as it is a pure domestic player in the Indian telecom sector with operations in Rajasthan and the North-East region. The market is close to a duopoly, with Bharti Hexacom holding a 43.5% market share. These markets have grown faster than the rest of the country over the past five years, and we expect future growth from rising penetration and the 5G transition. We also invested in JB Chemicals and Pharma, a top pharmaceutical company in India with a strong contract manufacturing business, attractive financial profile and capable management team. Additionally, we invested in 360 One WAM, the leading wealth manager for ultra-high net worth individuals in India, which has been growing rapidly due to buoyant capital markets and an acceleration in stake sales by India's entrepreneurial promoters. Management highlights their focus and superior service levels as key competitive advantages, along with a strong technology platform, brand and people.
Meanwhile, we introduced a new holding in Korea that is well placed to ride on the decarbonisation trend in the shipping industry. Korea Shipbuilding & Offshore Engineering (KSOE) owns Hyundai Heavy Industry (80%), Samho Heavy Industry (100%), and Hyundai Mipo Dockyard (43%). Together, they form the world's largest shipbuilding company with a 17% global market share. KSOE's prospects are supported by two key pillars. First, the industry is in a long-term cycle of vessel newbuilds due to the need to replace aging ships and comply with emissions regulations, leading to a profit upturn from increased dock use and delivery gains. Second, KSOE is gaining market share in eco-friendly ships due to its strong R&D capabilities. It is a leader in eco-friendly technologies and could play a critical role in the industry's decarbonisation. KSOE is a market leader in LNG-dual fuel engines, focusing on X-DF engines, which lower carbon emissions by reducing heavy-fuel oil usage and are more profitable than fossil fuel engines.
We also added a new consumer holding in the Philippines, a large market with an improving economy as inflation stabilises and global interest rates drop. Century Pacific Food, the largest canned food company locally, caters to mass and premium markets across marine, meat, plant-based, and milk segments. The Po family, who are well-regarded, run the company. Century Pacific has a strong brand presence in tuna and is growing in meat and milk. The company benefits from resilient demand in its core categories and a product diversification strategy that should enhance margins over time. It has a good track record of growing new brands and product categories.
We funded the above by reducing smaller and more illiquid positions in which we had lower confidence. These were mostly in Southeast Asia including Singapore (Bukit Sembawang Estates and Yoma Holdings), Malaysia (Oriental Holdings and Shangri-La Hotels), Thailand (Tisco Financial and Hana Microelectronics) and the Philippines, where Cebu Holdings finally consummated its merger with Ayala Land.
Outlook
Recent volatility across markets reinforces the extent to which macroeconomic, political and policy concerns continue to affect investor sentiment. Technology stocks are among those which have borne the brunt of the volatility, although investor hopes appear to wax and wane based mostly on Nvidia's announcements. Global recession fears persist amid worries over whether the US Federal Reserve can engineer a soft landing for the US economy, while the consumer outlook remains weak in China. Geopolitics simmer in the background, with the upcoming presidential election in the US still deadlocked and tensions in the Middle East escalating.
In such a still-uncertain backdrop, there are some potential tailwinds. In September, the Federal Reserve cut interest rates by 50 basis points, suggesting a turning point in global monetary conditions. With the West leading in policy easing, we are moving into a rate cutting cycle in Asia too, that is likely to boost Asian currencies and allow more room for governments to support economic growth. This will benefit smaller companies because of their more domestic exposure. A lower rate environment also means lower funding costs for smaller companies, allowing them to pursue growth more efficiently.
Looking ahead, Asian smaller companies are forecast to deliver outsized earnings growth of around 41% in 2024, bouncing back strongly from a negative 2023. This growth significantly outpaces their larger counterparts, with large caps expected to see about 19% earnings growth and world equities around 7%. It is noteworthy that small cap companies are not only delivering earnings but are forecast to lead in earnings growth until 2025. Valuations are also on our side, with Asian smaller companies still cheap relative to their US counterparts, trading at a relative discount of about 24% to US small caps.
More broadly, micro, small, and medium-sized enterprises (MSMEs) remain important drivers of growth across developing Asia, accounting for an average 97% of all enterprises, 56% of the workforce, and 28% of a country's economic output. In effect, these companies are the backbone of Asian economies.
As a result, we see much potential in Asian smaller companies, and our portfolio of well-researched Asian small caps offers a unique investing opportunity. The portfolio is concentrated, high-conviction and highly differentiated, with an active share of close to 97%. We bring considerable expertise to the table, given our long track record in Asia with a deep and experienced team of around 35 analysts and portfolio managers. We aim to find exciting smaller companies that will benefit from Asia's expanding middle class, with our on-the-ground team making the most of inefficiencies in pricing under-researched smaller companies across the region.
Gabriel Sacks, Flavia Cheong and Xin-Yao Ng
abrdn Asia Limited
23 October 2024
Overview of Strategy
Business Model
The business of the Company is that of an investment company which seeks to qualify as an investment trust for UK capital gains tax purposes.
Investment Objective
The Company aims to maximise total return to shareholders over the long term from a portfolio made up predominantly of quoted smaller companies in the economies of Asia excluding Japan.
Investment Policy
The Company invests in a diversified portfolio of securities (including equity shares, preference shares, convertible securities, warrants and other equity-related securities) predominantly issued by quoted smaller companies spread across a range of industries and economies in the Investment Region. The Investment Region includes Bangladesh, Cambodia, China, Hong Kong, India, Indonesia, Korea, Laos, Malaysia, Myanmar, Pakistan, The Philippines, Singapore, Sri Lanka, Taiwan, Thailand and Vietnam, together with such other economies in Asia as approved by the Board.
The Company may invest up to 10% of its net assets in collective investment schemes, and up to 10% of its net assets in unquoted companies, calculated at the time of investment.
The Company may also invest in companies traded on stock markets outside the Investment Region provided over 75% of each company's consolidated revenue, operating income or pre-tax profit is earned from trading in the Investment Region or the company holds more than 75% of their consolidated net assets in the Investment Region.
When the Board considers it in shareholders' interests, the Company reserves the right to participate in rights issues by an investee company.
Risk Diversification
The Company will invest no more than 15% of its gross assets in any single holding including listed investment companies at the time of investment.
Gearing
The Board is responsible for determining the gearing strategy for the Company. Gearing is used selectively to leverage the Company's portfolio in order to enhance returns where and to the extent this is considered appropriate to do so. Gearing is subject to a maximum gearing level of 25% of NAV at the time of draw down.
Investment Manager and Alternate Investment Fund Manager
The Company's Alternative Investment Fund Manager, appointed as required by EU Directive 2011/61/EU, is abrdn Fund Managers Limited ("aFML") which is authorised and regulated by the Financial Conduct Authority. Day to day management of the portfolio is delegated to abrdn Asia Limited ("abrdn Asia", the "Manager" or the "Investment Manager"). aFML and abrdn Asia are wholly owned subsidiaries of abrdn plc.
Delivering the Investment Policy
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, via the AIFM, to the Investment Manager, abrdn Asia. abrdn Asia invests in a diversified range of companies throughout the Investment Region in accordance with the investment policy. abrdn Asia follows a bottom-up investment process based on a disciplined evaluation of companies through direct visits by its fund managers. Stock selection is the major source of added value. No stock is bought without the fund managers having first met management. abrdn Asia estimates 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 calculated by reference to key financial ratios, the market, the peer group and business prospects. Top-down investment factors are secondary in the abrdn Asia's portfolio construction, with diversification rather than formal controls guiding stock and sector weights. Whilst the management of the Company's investments is not undertaken with any specific instructions to exclude certain asset types or classes, the Investment Manager considers ESG as part of the research for each asset class during the investment review process. For the manager, ESG investment is about active engagement, in the belief that the performance of assets held around the world can be improved over the longer term.
A detailed description of the investment process and risk controls employed by abrdn Asia is disclosed on pages 103 and 104 of the published Annual Report and financial statements for the year ended 31 July 2024. A comprehensive analysis of the Company's portfolio is disclosed on pages 28 to 36 of the published Annual Report and financial statements for the year ended 31 July 2024 including a description of the ten largest investments, the portfolio investments by value, sector/geographical analysis and currency/market performance. At the year end the Company's portfolio consisted of 59 holdings.
Comparative Indices
From 1 August 2021 the Manager has utilised the MSCI AC Asia ex Japan Small Cap Index (currency adjusted) as well as peer group comparisons for Board reporting. For periods prior to 1 August 2021, a composite index is used comprising the MSCI AC Asia Pacific ex Japan Small Cap Index (currency adjusted) up to 31 July 2021 and the MSCI AC Asia ex Japan Small Cap Index (currency adjusted) thereafter. It is likely that performance will diverge, possibly quite dramatically in either direction, from the comparative index. The Manager seeks to minimise risk by using in-depth research and does not see divergence from an index as risk.
Promoting the Company's Success
In accordance with corporate governance best practice, the Board is now required to describe to the Company's shareholders how the Directors have discharged their duties and responsibilities over the course of the financial year following the guidelines set out under section 172 (1) of the Companies Act 2006 (the "s172 Statement"). This Statement, from 'Promoting the Success of the Company' to "Long Term Investment", provides an explanation of how the Directors have promoted 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 all stakeholders and the impact of the Company's operations on the environment.
The purpose of the Company is to act as a vehicle to provide, over time, financial returns to its shareholders. The Company's Investment Objective is disclosed above. The activities of the Company are overseen by the Board of Directors of the Company.
The Board's philosophy is that the Company should operate in a transparent culture where all parties are treated with respect and provided with the opportunity to offer practical challenge and participate in positive debate which is focused on the aim of achieving the expectations of shareholders and other stakeholders alike. The Board reviews the culture and manner in which the Manager operates at its regular meetings and receives regular reporting and feedback from the other key
service providers.
Investment trusts, such as the Company, are long-term investment vehicles, with a recommended holding period of five or more years. Typically, investment trusts are externally managed, have no employees, and are overseen by an independent non-executive board of directors. Your Company's Board of Directors sets the investment mandate, monitors the performance of all service providers (including the Manager) and is responsible for reviewing strategy on a regular basis. All this is done with the aim of preserving and, indeed, enhancing shareholder value over the longer term.
Stakeholders
The Company's main stakeholders have been identified as its shareholders, the Manager (and Investment Manager), service providers, investee companies and debt providers. More broadly, the environment and community at large are also stakeholders in the Company. The Board is responsible for managing the competing interests of these stakeholders. Ensuring that the Manager delivers outperformance for Ordinary shareholders over the longer term without adversely affecting the risk profile of the Company which is known and understood by the loan note holders and CULS holders. This is achieved by ensuring that the Manager stays within the agreed investment policy.
Shareholders
Shareholders are key stakeholders in the Company - they look to the Manager to achieve the investment objective over time. The following table describes some of the ways we engage with our shareholders:
| AGM | The AGM normally provides an opportunity for the Directors to engage with shareholders, answer their questions and meet them informally. The next AGM will take place on 6 December 2024 in London. We encourage shareholders to lodge their vote by proxy on all the resolutions put forward. |
| Online Shareholder Presentation | In November 2023 the Board held an online shareholder presentation which was attended by over 200 shareholders and prospective investors. Based on the success of this event a further online presentation will be held on Monday 18 November 2024 at 11:00 a.m. |
| Annual Report | We publish a full annual report each year that contains a strategic report, governance section, financial statements and additional information. The report is available online and in paper format. |
| Company Announcements | We issue announcements for all substantive news relating to the Company. You can find these announcements on the website. |
| Results Announcements | We release a full set of financial results at the half year and full year stage. Updated net asset value figures are announced on a daily basis. |
| Monthly Factsheets | The Manager publishes monthly factsheets on the Company's website including commentary on portfolio and market performance. |
| Website | Our website contains a range of information on the Company and includes a full monthly portfolio listing of our investments as well as updates from the investment management team. Details of financial results, the investment process and Investment can be found at asia-focus.co.uk |
| Investor Relations | The Company subscribes to the Manager's Investor Relations programme (further details are on page 17 of the published Annual Report and financial statements for the year ended 31 July 2024). |
| Social Media | Shareholders can access up to date news on the Company and management team by following the dedicated abrdn Asia Focus page on LinkedIn. |
The Manager
The key service provider for the Company is the Alternative Investment Fund Manager and the performance of the Manager is reviewed in detail at each Board meeting. The Manager's investment process is outlined on pages 103 and 104 of the published Annual Report and financial statements for the year ended 31 July 2024 and further information about the Manager is given on page 102 of the published Annual Report and financial statements for the year ended 31 July 2024. Shareholders are key stakeholders in the Company - they are looking to the Manager to achieve the investment objective over time and to maximise total return to shareholders over the long term from a portfolio made up predominantly of quoted smaller companies in the economies of Asia excluding Japan. The Board is available to meet at least annually with shareholders at the Annual General Meeting and this includes informal meetings with them over lunch following the formal business of the AGM. This is seen as a very useful opportunity to understand the needs and views of the shareholders. In between AGMs, the Directors and Manager also conduct programmes of investor meetings with larger institutional, private wealth and other shareholders to ensure that the Company is meeting their needs. Such regular meetings may take the form of joint presentations with the Investment Manager or meetings directly with a Director where any matters of concern may be raised directly.
Other Service Providers
The other key stakeholder group is that of the Company's third party service providers. The Board is responsible for selecting the most appropriate outsourced service providers and monitoring the relationships with these suppliers regularly in order to ensure a constructive working relationship. Our service providers look to the Company to provide them with a clear understanding of the Company's needs in order that those requirements can be delivered efficiently and fairly. The Board, via the Management Engagement Committee, ensures that the arrangements with service providers are reviewed at least annually in detail. The aim is to ensure that contractual arrangements remain in line with best practice, services being offered meet the requirements and needs of the Company and performance is in line with the expectations of the Board, Manager, Investment Manager and other relevant stakeholders. Reviews include those of the Company's depositary and custodian, share registrar, broker and auditor.
Principal Decisions
Pursuant to the Board's aim of promoting the long term success of the Company, the following principal decisions have been taken during the year:
Portfolio The Investment Manager's Review details the key investment decisions taken during the year and subsequently. The Investment Manager has continued to monitor the investment portfolio throughout the year under the supervision of the Board. A list of the key portfolio changes can be found in the Investment Manager's Report.
Directorate During the year the Board concluded its search for two new independent Directors as part of the Board succession plans as explained on page 49 of the published Annual Report and financial statements for the year ended 31 July 2024.
Long Term Investment
The Investment Manager's investment process seeks to outperform over the longer term. The Board has in place the necessary procedures and processes to continue to promote the long term success of the Company. The Board will continue to monitor, evaluate and seek to improve these processes as the Company continues to grow over time, to ensure that the investment proposition is delivered to shareholders and other stakeholders in line with their expectations.
Key Performance Indicators (KPIs)
The Board uses a number of financial performance measures to assess the Company's success in achieving its objective and to determine the progress of the Company in pursuing its investment policy. The main KPIs identified by the Board in relation to the Company, which are considered at each Board meeting, are as follows:
| KPI | Description |
| NAV Return | The Board considers the Company's NAV total return figures to be the best indicator of performance over time and is therefore the main indicator of performance used by the Board. The figures for this year and for the past 1, 3, 5, 10 years and since inception are set out on page 24 of the published Annual Report and financial statements for the year ended 31 July 2024. |
| Performance against comparative indices | The Board also measures performance against the MSCI AC Asia ex Japan Small Cap Index (currency adjusted) as well as peer group comparisons for Board reporting. For periods prior to 1 August 2021, a composite index is used comprising the MSCI AC Asia Pacific ex Japan Small Cap Index (currency adjusted) up to 31 July 2021 and the MSCI AC Asia ex Japan Small Cap Index (currency adjusted) thereafter. Graphs showing performance are shown on pages 26 and 27 of the published Annual Report and financial statements for the year ended 31 July 2024. At its regular Board meetings the Board also monitors share price performance relative to competitor investment trusts over a range of time periods, taking into consideration the differing investment policies and objectives employed by those companies. |
| Share price | The Board also monitors the price at which the Company's shares trade relative to the MSCI Asia ex Japan Small Cap Index (sterling adjusted) on a total return basis over time. A graph showing the total NAV return and the share price performance against the comparative index is shown on page 27 of the published Annual Report and financial statements for the year ended 31 July 2024. |
| Discount/Premium to NAV | The discount/premium relative to the NAV per share 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 premium/(discount) relative to the NAV is also shown on page 25 of the published Annual Report and financial statements for the year ended 31 July 2024. |
| Dividend | In 2022 the Board introduced a target dividend of 6.4p per share and the aim is to maintain a progressive Ordinary dividend so that shareholders can rely on a consistent stream of income. Dividends paid over the past 10 years are set out on page 24 of the published Annual Report and financial statements for the year ended 31 July 2024. |
Principal Risks and Uncertainties
There are a number of risks which, if realised, could have a material adverse effect on the Company and its financial condition, performance and prospects. Risks are identified and documented through a risk management framework and further details on the risk matrix are provided in the Directors' Report. The Board, through the Audit Committee, has undertaken a robust review of the principal risks and uncertainties facing the Company including those that would threaten its business model, future performance, solvency or liquidity. Those principal risks are disclosed in the table below together with a description of the mitigating actions taken by the Board. The principal risks associated with an investment in the Company's Shares are published monthly on the Company's factsheet or they can be found in the pre-investment disclosure document published by the Manager, both of which are available on the Company's website.
The Board also has a process to review longer term risks and consider emerging risks and if any of these are deemed to be significant these risks are categorised, rated and added to the risk matrix.
Macroeconomic risks arising from geopolitical uncertainty such as the ongoing conflicts in Ukraine and the Middle East continue to present a significant risk to world markets. In addition to the risks listed below, the Board is also very conscious of the risks emanating from increased environmental, social and governance challenges. As climate change pressures mount, the Board continues to monitor, through its Manager, the potential risk that investee companies may fail to keep pace with the appropriate rates of change and adaption.
The Board does not consider that the principal risks and uncertainties identified have changed significantly during the year or since the date of this Annual Report and are not expected to change materially for the current financial year.
| Description | Mitigating Action |
| Shareholder and Stakeholder Risk Risk Unchanged during Year | The Company's strategy and objectives are regularly reviewed to ensure that they remain appropriate and effective. The Board monitors the discount level of the Company's shares and has in place a buyback mechanism whereby the Manager is authorised to buy back shares within certain limits. The macroeconomic and geopolitical challenges continue to cause volatility in equity markets and the Company's share price discount to NAV. The Company buys back shares into treasury seeking to limit volatility. The Broker and Manager communicate with major shareholders regularly to gauge their views on the Company, including discount volatility. There are additional direct meetings undertaken by the Chair and other Directors. The Board monitors shareholder and market reaction to Company news flow. Whilst the Board rates this risk overall as stable, the risks associated with certain constituent parts of this risk, such as Board dependence on the Manager are rising and will be the subject of continued scrutiny. |
| Investment Risk Risk Unchanged during Year | The Board sets, and monitors, its investment restrictions and guidelines, and receives regular board reports which include performance reporting on the implementation of the investment policy, the investment process and application of the guidelines and concentration/liquidity analysis of the portfolio. abrdn Group provides a team of experienced portfolio managers with detailed knowledge of the Asian markets. The Investment Manager is in attendance at all Board meetings. The Board also monitors the Company's share price relative to the NAV. The Board recognises that investing in unlisted securities carries a higher risk/reward profile. Accordingly it seeks to mitigate this risk by limiting investment into such securities to 10% of the Company's net assets (calculated at the time of investment). For the year ended 31 July 2024 no unlisted investments were made. |
| Operational Risk Risk Unchanged during Year | The Board receives reports from the Manager on internal controls and risk management at each Board meeting. It receives assurances from all its significant service providers, as well as back to back assurances where activities are themselves sub-delegated to other third party providers with which the Company has no direct contractual relationship eg accounting. The assurance reports include an independent assessment of the effectiveness of risks and internal controls at the service providers including their planning for business continuity and disaster recovery scenarios, together with their policies and procedures designed to address the risks posed to the Company's operations by cyber-crime. Further details of the internal controls which are in place are set out in the Directors' Report on pages 49 and 50 of the published Annual Report and financial statements for the year ended 31 July 2024. |
| Governance & Regulatory Risk Risk Unchanged during Year | The Board receives assurance from the Manager and Company Secretary and third party service providers on all aspects of regulatory compliance as well as drawing upon the significant experience of individual Directors. Upon appointment Directors receive a detailed induction covering relevant regulatory matters such as Corporate Governance, the Companies Act and Listing Rules and further training is available if required. |
| Major Events & Geo Political Risk Risk Unchanged during Year | External risks over which the Company has no control are always a risk. The Manager monitors the Company's portfolio and is in close communication with the underlying investee companies in order to navigate and guide the Company through macroeconomic and geopolitical risks. The Manager continues to assess and review legacy pandemic risks as well as investment risks arising from the impact of events such as the Invasion of Ukraine and increased military tension in East Asia on companies in the portfolio and takes the necessary investment decisions. The Manager monitors the potential impact of potential regional conflict and the risk of sanctions being imposed which limit the free flow of trade. In addition the Board has discussed with the Manager options that would be available to reduce the impact of conflict on the portfolio. |
Promoting the Company
The Board recognises the importance of promoting the Company to prospective investors both for improving liquidity and enhancing the value and rating of the Company's shares. The Board believes an effective way to achieve this is through subscription to and participation in the promotional programme run by the Manager on behalf of a number of investment trusts under its management. The Company's financial contribution to the programme is matched by the Manager. The Manager reports quarterly to the Board giving analysis of the promotional activities as well as updates on the shareholder register and any changes in the make-up of that register.
The purpose of the programme is both to communicate effectively with existing shareholders and to gain new shareholders with the aim of improving liquidity and enhancing the value and rating of the Company's shares. Communicating the long-term attractions of your Company is key and therefore the Company also supports the Manager's investor relations programme which involves regional roadshows, promotional and public relations campaigns.
Board Diversity
The Board recognises the importance of having a range of skilled, experienced individuals with the right knowledge represented on the Board in order to allow the Board to fulfil its obligations. The Board also recognises the benefits and is supportive of the principle of diversity in its recruitment of new Board members. The Board will not display any bias for age, gender, race, sexual orientation, religion, ethnic or national origins, or disability in considering the appointment of its Directors. Although the Board does not set diversity targets, it is mindful of best practice in this area. At 31 July 2024, there were three male Directors and three female Directors on the Board and the Company is compliant with the diversity and inclusion targets set out in Chapter 6 of the FCA's Listing Rules. Further details are disclosed in the Directors' Report.
The UK Stewardship Code and Proxy Voting
The Company supports the UK Stewardship Code 2020, and seeks to play its role in supporting good stewardship of the companies in which it invests. Responsibility for actively monitoring the activities of portfolio companies has been delegated by the Board to the Manager.
The Manager is a tier 1 signatory of the UK Stewardship Code 2020 which aims to enhance the quality of engagement by investors with investee companies in order to improve their socially responsible performance and the long term investment return to shareholders. The Manager's Annual Stewardship Report for 2023 may be found at abrdn.com. While delivery of stewardship activities has been delegated to the Manager, the Board acknowledges its role in setting the tone for the effective delivery of stewardship on the Company's behalf.
The Board has also given discretionary powers to the Manager to exercise voting rights on resolutions proposed by the investee companies within the Company's portfolio. The Manager reports to the Board on a six monthly basis on stewardship (including voting) issues and additional information may be found on pages 105 to 108 of the published Annual Report and financial statements for the year ended 31 July 2024.
Global Greenhouse Gas Emissions and Streamlined Energy and Carbon Reporting ("SECR")
All of the Company's activities are outsourced to third parties. The Company therefore has no greenhouse gas emissions to report from the operations of its business, nor does it have responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013. For the same reason as set out above, the Company considers itself to be a low energy user under the SECR regulations and therefore is not required to disclose energy and carbon information. Further information on the Manager's obligatory disclosures under the Taskforce on Climate-related Financial Disclosures ("TCFD") may be found on the Company's website.
Environmental, Community, Social and Human Rights Issues
The Company has no employees and, accordingly, there are no disclosures to be made in respect of employees. In relation to the investment portfolio, the Board has delegated assessment of these issues to the Investment Manager, responsibility and further information may be found on page 105 to 108 of the published Annual Report and financial statements for the year ended 31 July 2024.
Modern Slavery Act
Due to the nature of its business, being a Company that does not offer goods and services to customers, the Board considers that the Company is not within the scope of the Modern Slavery Act 2015 because it has no turnover. The Company is therefore not required to make a slavery and human trafficking statement. The Board considers the Company's supply chains, dealing predominantly with professional advisers and service providers in the financial services industry, to be low risk in relation to this matter.
Viability Statement
The Company does not have a formal fixed period strategic plan but the Board formally considers risks and strategy at least annually. The Board considers the Company, with no fixed life, to be a long term investment vehicle, but for the purposes of this viability statement has decided that a period of three years is an appropriate period over which to report. The Board considers that this period reflects a balance between looking out over a long term horizon and the inherent uncertainties of looking out further than three years.
In assessing the viability of the Company over the review period the Directors have conducted a robust review of the principal risks, focusing upon the following factors:
- The principal risks detailed in the Strategic Report;
- The ongoing relevance of the Company's investment objective in the current environment;
- The demand for the Company's Shares evidenced by the historical level of premium and or discount;
- The level of income generated by the Company;
- The level of gearing provided by the Company's Loan Stock and Loan Notes (including the flexibility afforded by the additional £35m available for drawing under the Loan Note Facility (uncommitted and subject to lender credit committee approval) to repay CULS if required in 2025); and
In the event of triggering the conditional Tender Offer in 2026, the liquidity of the Company's portfolio including the results of stress test analysis performed by the Manager under a wide number of market scenarios.
In making this assessment, the Board has examined scenario analysis covering the impact of significant historical market events such as the 2008 Global Financial Crisis, Covid-19 and the Chinese Devaluation on the liquidity of the portfolio, as well as future scenarios such as geo-political tensions in East Asia, and how these factors might affect the Company's prospects and viability in the future.
Accordingly, taking into account the Company's current position, the fact that the Company's investments are mostly liquid and the potential impact of its principal risks and uncertainties, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due for a period of three years from the date of this Report. In making this assessment, the Board has considered that matters such as significant economic or stock market volatility, a substantial reduction in the liquidity of the portfolio or changes in investor sentiment could have an impact on its assessment of the Company's prospects and viability in the future.
Future
The Board's view on the general outlook for the Company can be found in my Chair's Statement whilst the Investment Manager's views on the outlook for the portfolio are included on pages 14 and 15 of the published Annual Report and financial statements for the year ended 31 July 2024.
The Strategic Report has been approved by the Board and signed on its behalf by:
Krishna Shanmuganathan,
Chair
23 October 2024
Results
Performance (total return)
| | 1 year | 3 year | 5 year | 10 year | Since |
| | % returnB | % returnC | % return | % return | inception |
| Share priceA | +8.8 | +14.8 | +37.7 | +80.7 | +2357.6 |
| Net asset value per Ordinary share - dilutedAB | +7.9 | +13.8 | +39.6 | +103.9 | +2472.6 |
| MSCI AC Asia ex Japan Small Cap Index (currency adjusted) | +14.1 | +17.0 | +62.6 | +120.5 | +312.2 |
| A Considered to be an Alternative Performance Measure (see below for more information). | |||||
| B 1 year return calculated on a diluted basis as CULS is "in the money". All other returns are calculated on a diluted basis. | |||||
| C Also represents the period, following the commencement of monitoring performance with effect from 31 July 2021 to determine whether a tender offer for the Ordinary shares of the Company should be undertaken after five years. | |||||
| Source: abrdn, Morningstar, Lipper & MSCI | |||||
Ten Largest Investments
As at 31 July 2024
| Aegis Logistics | |
| FPT Corporation | ||
| A strong and conservative player in India's gas and liquids logistics sector, with a first mover advantage in key ports and a fair amount of capacity expansion to come. The government's push for the adoption of cleaner energy is also boosting its liquefied natural gas business. | | FPT is a diversified technology group with a fast-growing software outsourcing business. It also owns a telecoms unit, an electronics retailing company, and has interests in other sectors, such as education. | ||||
| | | | | | ||
| Park Systems Corporation | |
| AKR Corporindo | ||
| The Korean company is the leading developer of atomic force microscopes, a nascent technology that could have broad industrial application in sectors such as chip-making and biotechnology. | | AKR is one of the main players in industrial fuel in Indonesia, which has a high entry barrier. Its key strength is its extensive infrastructure and logistic facilities throughout the country. | ||||
| | | | | | ||
| Prestige Estates Projects | |
| Taiwan Union | ||
| Prestige Estates is a leading South Indian developer with a good reputation for executing and completing projects. It is well-placed to benefit from ongoing reforms in the real estate industry, and the recovery of the Bangalore property market. | | Taiwan Union Technology Corp is a leading maker of copper clad laminate (CCL), a key base material used to make printed circuit boards. With a strong commitment to R&D, it has moved up the value chain through the years. | ||||
| | | | | | ||
| Bank OCBC NISP | |
| M. P. Evans Group | ||
| An Indonesian listed banking and financial services company, which is a steady consistent performer backed by healthy asset quality. | | M.P. Evans is an Indonesian producer of sustainable crude palm oil (CPO) with plantations in five Indonesian provinces. We expect appreciation for the group to improve over time with the delivery and realisation of its estates' value and cashflow generating potential. | ||||
| | | | | | ||
| Affle India Affle India operates a data platform that helps direct digital advertising. It is dominant in India where digitalisation has reached an inflection point. The company has also pursued a broader emerging markets growth strategy and now has some positions in Southeast Asia and Latin America. | |
| John Keells Holdings | ||
| | A respected and reputable Sri Lanka conglomerate with a healthy balance sheet and good execution, John Keells has a hotels and leisure segment that includes properties in the Maldives. It has other interests in consumer, transportation and financial services. |
Portfolio
| As at 31 July 2024 | |||||
| | | | Valuation | Total | Valuation |
| | | | 2024 | assets | 2023 |
| Company | Industry | Country | £'000 | % | £'000 |
| Aegis Logistics | Oil, Gas & Consumable Fuels | India | 25,221 | 4.7 | 16,974 |
| FPT Corporation | IT Services | Vietnam | 22,926 | 4.2 | 16,849 |
| Park Systems Corporation | Electronic Equipment, Instruments & Components | South Korea | 18,070 | 3.3 | 28,924 |
| AKR Corporindo | Oil, Gas & Consumable Fuels | Indonesia | 17,804 | 3.3 | 16,518 |
| Prestige Estates Projects | Real Estate Management & Development | India | 17,104 | 3.2 | 10,887 |
| Taiwan Union Technology Corp | Electronic Equipment, Instruments & Components | Taiwan | 16,354 | 3.0 | 14,928 |
| Bank OCBC NISP | Banks | Indonesia | 15,361 | 2.8 | 23,675 |
| M.P. Evans Group | Food Products | United Kingdom | 14,751 | 2.7 | 12,293 |
| Affle India | Media | India | 14,652 | 2.7 | 13,612 |
| John Keells Holdings | Industrial Conglomerates | Sri Lanka | 13,801 | 2.6 | 14,586 |
| Top ten investments | | | 176,044 | 32.5 | |
| KFin Technologies | Capital Markets | India | 13,532 | 2.5 | - |
| Chroma ATE | Electronic Equipment, Instruments & Components | Taiwan | 13,474 | 2.5 | - |
| Vijaya Diagnostic Centre | Health Care Providers & Services | India | 13,285 | 2.5 | 8,027 |
| Asian Terminals | Transportation Infrastructure | Philippines | 12,623 | 2.3 | 10,329 |
| 360 One Wam | Capital Markets | India | 12,605 | 2.3 | - |
| Mega Lifesciences (Foreign) | Pharmaceuticals | Thailand | 12,507 | 2.3 | 13,715 |
| Precision Tsugami China | Machinery | China | 12,143 | 2.2 | 10,931 |
| LEENO Industrial | Semiconductors & Semiconductor Equipment | South Korea | 12,036 | 2.2 | 11,610 |
| Dah Sing Financial | Banks | Hong Kong | 12,010 | 2.2 | 12,225 |
| Medikaloka Hermina | Health Care Providers & Services | Indonesia | 11,877 | 2.2 | 12,728 |
| Top twenty investments | | | 302,136 | 55.7 | |
| Sporton International | Professional Services | Taiwan | 11,869 | 2.2 | 13,280 |
| Autohome - ADR | Interactive Media & Services | China | 10,072 | 1.8 | 11,462 |
| Zhejiang Shuanghuan Driveline - A | Auto Components | China | 10,012 | 1.8 | - |
| United Plantations | Food Products | Malaysia | 9,768 | 1.8 | 6,067 |
| CE Info Systems | Software | India | 9,651 | 1.8 | 4,774 |
| Apar Industries | Industrial Conglomerates | India | 9,576 | 1.8 | - |
| Nam Long Invest Corporation | Real Estate Management & Development | Vietnam | 9,548 | 1.8 | 14,312 |
| Makalot Industrial | Textiles, Apparel & Luxury Goods | Taiwan | 9,349 | 1.7 | - |
| Bharti Hexacom | Telecommunications Service Providers | India | 9,327 | 1.7 | - |
| AEON Credit Service (M) | Consumer Finance | Malaysia | 9,016 | 1.7 | 7,677 |
| Top thirty investments | | | 400,324 | 73.8 | |
| HD Korea Shipbuilding & Offshore Engineering | Machinery | South Korea | 8,926 | 1.6 | - |
| UNO Minda | Auto Components | India | 8,817 | 1.6 | - |
| SINBON Electronics | Electronic Equipment, Instruments & Components | Taiwan | 8,688 | 1.6 | 6,824 |
| Ultrajaya Milk Industry & Trading | Food Products | Indonesia | 8,510 | 1.6 | 11,124 |
| HD Hyundai Marine Solution | Industiral Transportation | South Korea | 8,355 | 1.5 | - |
| Proya Cosmetics - A | Personal Care Products | China | 8,000 | 1.5 | - |
| Military Commercial Joint Stock Bank | Banks | Vietnam | 7,957 | 1.5 | - |
| Aptus Value Housing Finance | Financial Services | India | 7,651 | 1.4 | - |
| Sunonwealth Electric Machine Industry | Machinery | Taiwan | 7,500 | 1.4 | 10,029 |
| J.B. Chemicals & Pharmaceuticals | Pharmaceuticals | India | 7,489 | 1.4 | - |
| Top forty investments | | | 482,217 | 88.9 | |
| Millenium & Copthorne Hotels New Zealand (A) | Hotels, Restaurants & Leisure | New Zealand | 6,727 | 1.2 | 8,546 |
| Cyient | IT Services | India | 6,724 | 1.2 | 19,980 |
| Century Pacific Food | Food Products | Philippines | 6,390 | 1.2 | - |
| Alchip Technologies | Semiconductors & Semiconductor Equipment | Taiwan | 6,194 | 1.1 | - |
| Hansol Chemical | Chemicals | South Korea | 5,980 | 1.1 | - |
| Tongcheng Travel Holdings | Hotels, Restaurants & Leisure | China | 5,742 | 1.1 | - |
| Chacha Food - A | Food Products | China | 5,642 | 1.1 | 7,903 |
| MOMO.com | Internet & Direct Marketing Retail | Taiwan | 5,520 | 1.0 | 9,222 |
| Humanica (Foreign) | Professional Services | Thailand | 5,068 | 0.9 | - |
| ASMPT Ltd | Semiconductors & Semiconductor Equipment | Hong Kong | 4,804 | 0.9 | - |
| Top fifty investments | | | 541,008 | 99.7 | |
| Bangkok Chain Hospital | Health Care Providers & Services | Thailand | 4,772 | 0.9 | - |
| Pentamaster International | Semiconductors & Semiconductor Equipment | Malaysia | 4,405 | 0.8 | 6,782 |
| Hang Lung Properties | Real Estate Management & Development | Hong Kong | 4,383 | 0.8 | - |
| Global Health | Health Care Providers & Services | India | 3,377 | 0.6 | - |
| Asia Vital Components | Technology Hardware, Storage & Peripherals | Taiwan | 2,486 | 0.5 | - |
| Convenience Retail Asia | Consumer Staples Distribution | Hong Kong | 2,077 | 0.4 | 4,013 |
| Credit Bureau Asia | Professional Services | Singapore | 2,068 | 0.4 | 2,953 |
| First Sponsor Group (Warrants 21/03/2029) | Real Estate Management & Development | Singapore | 221 | - | 247 |
| G3 Exploration | Oil, Gas & Consumable Fuels | China | - | - | - |
| Total investments | | | 564,797 | 104.1 | |
| Net current assets | | | (22,340) | (4.1) | |
| Total assetsB | | | 542,457 | 100.0 | |
| A Holding includes investment in both common and preference lines. | |||||
| B Total assets less current liabilities. | |||||
Investment Case Studies
Zhejiang Shuanghuan Driveline
In which year did we first invest?
2023
% Holding:
1.8%
Where is its head office?
Hangzhou, China
What does Zhejiang Shuanghuan Driveline do?
The Chinese company has been making transmission gears for more than 40 years. Its gears are used widely in the automotive, construction machinery and power tool industries.
Why do we like the company?
Shuanghuan is a leading supplier of high-precision gears for electric vehicle (EV) manufacturers in China, benefiting from its expertise in gear design and manufacturing. Its strong research and development capabilities and commitment to innovation and quality are evident in its top-tier customer base. We see the company as well placed to capitalise on the growing outsourcing trend among original equipment manufacturers (OEMs) and increasing EV penetration, with the company commanding over 50% market share in gears for Chinese EVs. Areas of growth would include smart plastic gears, which are penetrating into various applications including smart home devices and vehicles, as well as industrial robots. The company's overseas expansion is also ahead of schedule, with a new factory in Hungary set to open in the fourth quarter of this year.
When did we engage the company on ESG?
We last met the company as a priority engagement effort in November 2022, in addition to our regular meetings with the company since then.
What were the key areas of engagement?
We sent an engagement letter to the board secretary to suggest that the company take proactive actions to identify potential ESG risks and improve disclosures on corporate governance, carbon emission, labour safety and product quality. We also shared a few ESG reports in the automobile industry with the company, and explained to management why we feel these some of these issues can be financially material.
What efforts have the company made on the ESG front?
We have a favorable view of the company's culture and governance standards. The staff is relatively diverse for an industrial company in China, with many women working on the factory floor. Employees are incentivized and aligned with the controllers via stock options. As an enabler of further EV penetration globally, the company's operations support decarbonization efforts by auto OEMs. The company has set up an ESG committee at the board level to formulate ESG goals, oversee operations, conduct research, and provide insights on enhancing ESG performance. This committee reports to the board. Furthermore, the company has also established an ESG working group, which promotes ESG and submits proposals to the ESG committee, to enhance the group's overall risk framework. The company published its first ever ESG report in 2022.
When do we next meet the company and what will be on the agenda?
We would look to engage the company over the next six months to check on its progress in engaging with rating agency MSCI because the company is a small-cap stock and has yet to be rated by MSCI for its ESG efforts.
From an operational perspective, we are likely to question management on the profile of its order book, any changes to the demand outlook domestically and overseas, and progress on its overseas expansion. We would also want to drill down into the company's individual segments to check on opportunities and risks, and get an update on any changes to the long-term strategic plans.
KFin Technologies
In which year did we first invest?
2023
% Holding:
2.5%
Where is its head office?
Hyderabad, India
What does KFin do?
KFin is a digital platform business that serves the asset management industry in India, by providing services that help manage investments. For instance, KFIn acts as a registrar and transfer agent (RTA) for domestic mutual funds, handling the administrative tasks related to managing these funds.
Why do we like the company?
We see the company as a key beneficiary of India's growing wealth accumulation trend, with more people turning to financial markets for savings. The industry is attractive due to a duopoly structure in the core RTA business, a loyal customer base, and high entry barriers from its low-cost operating model. The market is growing rapidly, and the company is successfully diversifying its revenue by product line and geography. We are impressed by KFin's management and the CEO's growth ambitions, with future acquisitions likely to accelerate its international expansion. This is an exciting growth company with a highly recurring core business, strong financials, a high operating margin of over 40%, healthy cash flow, and a solid balance sheet.
When did we engage the company on ESG?
We last discussed ESG issues with the company in March 2024.
What were the key areas of engagement?
We have been engaging the company on regulatory risks, data privacy and cybersecurity, operational risks such as fraud and money laundering, as well as talent retention.
What efforts have the company made on the ESG front?
Regulatory risks are significant in the industry, but KFin has a commendable track record with no material client errors or issues with the Reserve Bank of India. The company also has a robust code of conduct to ensure compliance with regulatory standards, particularly concerning insider trading. o address staff attrition, KFin has implemented long-term incentives and employee stock ownership plans to help retain talent. Additionally, the company focuses on user consent, data security, and transparency, aligning with best practices in data privacy management.
When do we next meet the company and what will be on the agenda?
We plan to meet the company before the end of 2024 to discuss key issues such as regulatory trends and labour management, especially staff attrition rates and talent retention. We also want to hear management's thoughts on the ramp-up of its RTA business in Southeast Asia, their capital allocation priorities, and the most exciting growth opportunities. Finally, we will touch base on key customer relationships and any potential fee pressures, which we do not believe to be the case.
Humanica
In which year did we first invest?
2024
% Holding:
0.9%
Where is its head office?
Bangkok, Thailand
What does Humanica do?
Humanica is a leading provider of HR technology and outsourcing services, such as employee data management, benefits administration, payroll processing, and reporting, across Southeast Asia.
Why do we like the company?
We see room for growth in this industry with Humanica's prospects enhanced by its merger with DataOn Group, the largest provider of HR solutions in Indonesia in May 2022. This merger combined the strengths of both companies' software developers, resulting in the creation of a new flagship software called Workplaze, completed in March 2023. Workplaze is a strong competitor to international human resource management software because of its lower pricing and localised features tailored to each country; elements that are often missing in globally renowned software products. It is gaining momentum across markets in Southeast Asia. Following the merger, Humanica's management team remains strong and intact. Its financials have improved significantly due to post-acquisition benefits and the higher average selling price of Workplaze compared to its flagship software Humatrix is likely to expand margins over time. The company continues to target the premium-mass segment, which still offers plenty room for growth over the long term.
When did we engage Humanica on ESG?
We last met the company in April 2024.
What were the key areas of engagement?
Our key areas of engagement with the company have been on data security and the sustainability of research and development that help prevent its software from becoming obsolete.
What efforts have the company made on the ESG front?
On data security, Humanica plans to apply for ISO 27001 by 2025 and ISO 27701 by 2024. They have set up a committee to oversee information security and personal data protection. The company has allocated 100 million baht per year for upgrading its human resource management and digital healthcare software, developing new applications, and seeking new partners.
When do we next meet the company and what will be on the agenda?
We plan to meet the company in the second half of 2024 to discuss its progress on ISO licences and updates on key ESG areas, including data security and corporate governance.
In addition, we need to monitor Humanica's progress in acquiring new customers across its key markets, retaining them, and cross-selling new software. As with any software business, it is important that we track the glide path towards higher profitability as the company gains scale and how management balances this with investments in sales and marketing, R&D and other business development opportunities.
Directors' Report
The Directors present their Report and the audited financial statements for the year ended 31 July 2024.
Results and Dividends
Details of the Company's results and proposed dividends are shown on page 24 of the published Annual Report and financial statements for the year ended 31 July 2024.
Investment Trust Status
The Company (registered in England & Wales No. 03106339) has been accepted by HM Revenue & Customs as an investment trust subject to the Company continuing to meet the relevant eligibility conditions of Section 1158 of the Corporation Tax Act 2010 and the ongoing requirements of Part 2 Chapter 3 Statutory Instrument 2011/2999 for all financial years commencing on or after 1 August 2012. The Directors are of the opinion that the Company has conducted its affairs for the year ended 31 July 2024 so as to enable it to comply with the ongoing requirements for investment trust status.
Individual Savings Accounts
The Company has conducted its affairs so as to satisfy the requirements as a qualifying security for Individual Savings Accounts. The Directors intend that the Company will continue to conduct its affairs in this manner.
Capital Structure, Buybacks and Issuance
The Company's capital structure is summarised in note 14 to the financial statements.
At 31 July 2024, there were 153,626,718 fully paid Ordinary shares of 5p each (2023 - 156,457,978 Ordinary shares of 5p each) in issue with a further 55,094,590 Ordinary shares of 5p held in treasury (2023 - 52,244,590 Ordinary shares of 5p each held in treasury). During the year 2,850,000 Ordinary shares were purchased in the market for treasury (2023 - 500,000). During the period and up to the date of this report no new Ordinary shares were issued for cash and no shares were sold from treasury Subsequent to the period end, 2,372,500 Ordinary shares were purchased in the market for treasury.
On 14 December 2023, 24,012 units of Convertible Unsecured Loan Stock 2025 were converted into 8,191 new Ordinary shares of 5p each. On 14 June 2024 30,927 units of Convertible Unsecured Loan Stock 2025 were converted into 10,549 new Ordinary shares of 5p each. In accordance with the terms of the CULS Issue, (as adjusted to reflect the five for one share subdivision in February 2022), the conversion price of the CULS for both conversions was determined at 293.0p nominal of CULS for one Ordinary share of 5p.
Voting Rights
Ordinary shareholders are entitled to vote on all resolutions which are proposed at general meetings of the Company. The Ordinary shares carry a right to receive dividends. 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.
CULS holders have the right to attend but not vote at general meetings of the Company. A separate resolution of CULS holders would be required to be passed before any modification or compromise of the rights attaching to the CULS can be made.
Gearing
On 1 December 2020 the Company issued a £30 million Senior Unsecured Loan Note (the "Loan Note") at an annualised interest rate of 3.05%. The Loan Note is unsecured, unlisted and denominated in sterling and due to mature in 2035. The Loan Note ranks pari passu with the Company's other unsecured and unsubordinated financial indebtedness.
Management Agreement
The Company has appointed abrdn Fund Managers Limited ("aFML"), a wholly owned subsidiary of abrdn plc ("abrdn Group"), as its alternative investment fund manager. aFML has been appointed to provide investment management, risk management, administration and company secretarial services and promotional activities to the Company. The Company's portfolio is managed by abrdn Asia Limited ("abrdn Asia") by way of a group delegation agreement in place between aFML and abrdn Asia. In addition, aFML has sub-delegated administrative and secretarial services to abrdn Holdings Limited and promotional activities to abrdn Investments Limited ("aIL").
Management Fee
The annual management fee is based upon the market capitalisation of the Company and charged at 0.85% for the first £250,000,000, 0.60% for the next £500,000,000 and 0.50% over £750,000,000. Investment management fees are charged 25% to revenue and 75% to capital.
The management agreement may be terminated by either the Company or the Manager on the expiry of three months' written notice. On termination, the Manager would be entitled to receive fees which would otherwise have been due to that date.
The Management Engagement Committee reviews the terms of the management agreement on a regular basis and have confirmed that, due to the long-term relative performance, investment skills, experience and commitment of the investment management team, in their opinion the continuing appointment of aFML and abrdn Asia is in the interests of shareholders as a whole.
Political and Charitable Donations
The Company does not make political donations (2023 - nil) and has not made any charitable donations during the year (2023 - nil).
Risk Management
Details of the financial risk management policies and objectives relative to the use of financial instruments by the Company are set out in note 19 to the financial statements.
The Board
The current Directors, C Black, K Shanmuganathan, L Cooper, A Finn, L Macdonald (appointed 5 December 2023) and D Curling (appointed 1 March 2024), together with Randal Dunluce (The Earl of Antrim), who retired on 5 December 2023, were the only Directors who served during the year. Pursuant to Principle 23 of the AIC's Code of Corporate Governance which recommends that all directors should be subject to annual re-election by shareholders, all the members of the Board will retire at the AGM scheduled for 6 December 2024 and, with the exception of the Earl of Antrim, will offer themselves for re-election. Details of each Director's contribution to the long term success of the Company are provided on page 49 of the published Annual Report and financial statements for the year ended 31 July 2024.
The Board considers that there is a balance of skills and experience within the Board relevant to the leadership and direction of the Company and that all the Directors contribute effectively.
In common with most investment trusts, the Company has no employees. Directors' & Officers' liability insurance cover has been maintained throughout the year at the expense of the Company.
The Role of the Chair
The Chair is responsible for providing effective leadership to the Board, by setting the tone of the Company, demonstrating objective judgement and promoting a culture of openness and debate. The Chair facilitates the effective contribution, and encourages active engagement, by each Director. In conjunction with the Company Secretary, the Chair ensures that Directors receive accurate, timely and clear information to assist them with effective decision-making. The Chair leads the evaluation of the Board and individual Directors, and acts upon the results of the evaluation process by recognising strengths and addressing any weaknesses. The Chair also engages with major shareholders and ensures that all Directors understand shareholder views.
Davina Curling has been appointed Senior Independent Director, acting as a sounding board for the Chair and acting as an intermediary for other Directors as applicable. The Audit Committee Chairman and Senior Independent Director are both available to shareholders to discuss any concerns they may have.
Board Diversity
The Board recognises the importance of having a range of skilled, experienced individuals with the right knowledge represented on the Board in order to allow it to fulfil its obligations. The Board also recognises the benefits and is supportive of, and will give due regard to, the principle of diversity in its recruitment of new Board members. The Board will not display any bias for age, gender, race, sexual orientation, socio-economic background, religion, ethnic or national origins or disability in considering the appointment of Directors. The Board will continue to ensure that all appointments are made on the basis of merit against the specification prepared for each appointment whilst also taking account of the targets set out in the FCA's Listing Rules, which are set out overleaf.
The Board has resolved that the Company's year-end date is the most appropriate date for disclosure purposes. The following information has been provided by each Director through the completion of questionnaires.
Table for reporting on gender as at 31 July 2024
| | Number of board members | Percentage of the board | Number of senior positions (CEO, CFO, Chair and SID) | Number in executive management | Percentage of executive management |
| Men | 3 | 50% | 2 | n/a (note 4) | n/a (note 4) |
| Women | 3 | 50% (note 1) | 1 (note 3) | ||
| Not specified/prefer not to say | - | - | - |
Table for reporting on ethnic background as at 31 July 2024
| | Number of board members | Percentage of the board | Number of senior positions (CEO, CFO, Chair and SID) | Number in executive management | Percentage of executive management |
| White British or other White | 5 | 80% | 2 (note 3) | n/a (note 4) | n/a (note 4) |
| Mixed / Multiple Ethnic Groups | - | - | - | ||
| Asian/Asian British | 1 | 20% (note 2) | 1 | ||
| Black/African/Caribbean/Black British | - | - | - | ||
| Other ethnic group, including Arab | - | - | - | ||
| Not specified/prefer not to say | - | - | - |
Notes:
1. The Company meets the target that at least 40% of Directors are women as set out in LR 6.6.6R (9)(a)(i) for the year ended 31 July 2024.
2. The Company meets the target that at least one Director is from a minority ethnic background as set out in LR 6.6.6R (9)(a)(iii)
3. The Company meets the target that at least one of the senior positions is filled by a woman set out in LR 6.6.6R(a)(ii), for the year to 31 July 2024 as Ms Davina Curling is Senior independent Director. The Company is externally managed and does not have any executive staff specifically it does not have either a CEO or CFO. The Board believes that it is appropriate and reasonable that the role of Audit Committee Chairman on an investment trust that has no executive staff should also be considered to be a senior position.
4. This column is not applicable as the Company is externally managed and does not have any executive staff.
Corporate Governance
The Company is committed to high standards of corporate governance. The Board is accountable to the Company's shareholders for good governance and this statement describes how the Company has applied the principles identified in the UK Corporate Governance Code as published in July 2018 (the "UK Code"), which is available on the Financial Reporting Council's (the "FRC") website: frc.org.uk.
The Board has also considered the principles and provisions of the AIC Code of Corporate Governance as published in February 2019 (the "AIC Code"). The AIC Code addresses the principles and provisions set out in the UK Code, as well as setting out additional provisions on issues that are of specific relevance to the Company. The AIC Code is available on the AIC's website: theaic.co.uk.
The Board considers that reporting against the principles and provisions of the AIC Code, which has been endorsed by the FRC provides more relevant information to shareholders.
The Board confirms that, during the year, the Company complied with the principles and provisions of the AIC Code and the relevant provisions of the UK Code, except as set out below.
- Interaction with the workforce (provisions 2, 5 and 6);
- the role and responsibility of the chief executive (provisions 9 and 14);
- previous experience of the chairman of a remuneration committee (provision 32); and
- executive directors' remuneration (provisions 33 and 36 to 40).
For the reasons set out in the AIC Code, and as explained in the UK Corporate Governance Code, the Board considers that provisions 1 to 4 above are not relevant to the position of the Company, being an externally managed investment company. In particular, all of the Company's day-to-day management and administrative functions are outsourced to third parties. As a result, the Company has no executive directors, employees or internal operations. The Company has therefore not reported further in respect of provisions 1 to 4 above. The full text of the Company's Corporate Governance Statement can be found on the Company's website:
asia-focus.co.uk.
The Board is cognisant of the FRC's new Corporate Governance Code 2024 provisions effective for financial years commencing on 1 January 2025 and is in the process of assessing any consequential changes to be made to operations and governance.
During the year ended 31 July 2024, the Board had five scheduled meetings. In addition, the Audit Committee met twice and the Management Engagement Committee met once and there has been a number of ad hoc Board meetings. Between meetings the Board maintains regular contact with the Manager. Directors have attended the following scheduled Board meetings and Committee meetings during the year ended 31 July 2024 (with their eligibility to attend the relevant meeting in brackets):
| Director | Board | Audit | Nomination Committee | Management Engagement |
| K Shanmuganathan D | 5 (5) | n/a | 1 (1) | 1 (1) |
| C Black | 5 (5) | 2 (2) | 1 (1) | 1 (1) |
| L. Cooper | 5 (5) | 2 (2) | 1 (1) | 1 (1) |
| A Finn | 5 (5) | 2 (2) | 1 (1) | 1 (1) |
| L Macdonald A | 3 (3) | 1 (1) | 1 (1) | 0 (0) |
| D Curling B | 3 (3) | 1 (1) | 1 (1) | 0 (0) |
| Earl of Antrim C | 2 (2) | 1 (1) | 0 (0) | 1 (1) |
| A Ms Macdonald was appointed to the Board on 5 December 2023 B Ms Curling was appointed to the Board on 1 March 2024 C The Earl of Antrim retired on 5 December 2023 D The Chair is not a member of the Audit Committee but typically attends each meeting by invitation. | ||||
Policy on Tenure
In compliance with the provisions of the AIC Code, it is expected that Directors will serve in accordance with the nine-year time limits laid down by the AIC Code.
Board Committees
Audit Committee
The Audit Committee Report is on pages 59 to 61 of the published Annual Report and financial statements for the year ended 31 July 2024.
Nomination Committee
All appointments to the Board of Directors are considered by the Nomination Committee which comprises all of the Directors. The Board's overriding priority in appointing new Directors to the Board is to identify the candidate with the best range of skills and experience to complement existing Directors. The Board also recognises the benefits of diversity and its policy on diversity is referred to in the Strategic Report.
During the year the Nomination Committee completed a search for two new independent non-executive Directors using the services of Fletcher Jones Limited, an independent recruitment consultant. As part of the search a specification of desired attributes and qualities was prepared and the recruitment process culminated in the decision to appoint Ms Lucy Macdonald and Ms Davina Curling as independent non-executive Directors with effect from 5 December 2023 and 1 March 2024.
The Board undertakes an annual evaluation of the Board, Directors, the Chair and the Audit Committee which is conducted by questionnaires. In light of a number of changes to Board composition during the year, the Board is in the process of agreeing the terms and remit of the 2024 Board evaluation which will be an externally facilitated evaluation overseen by an independent specialist firm.
The Nomination Committee has reviewed the contributions of each Director ahead of their proposed re-elections at the AGM on 6 December 2024. Ms Black has continued to bring significant financial promotion, marketing and communications expertise to the Board and has been closely involved in the ongoing development of the Company's website; Mr Shanmuganathan has continued to bring his deep experience of Asia and has seamlessly assumed the role of Chair during the year to great effect; Mr Cooper has brought the weight of his significant local Asian market experience to the Board's discussions; and Mr Finn has brought relevant and recent accounting and financial experience to the board and has led the Audit Committee with expertise. Ms Macdonald and Ms Curling were appointed during the year and have both been on the Board for a relatively short time but each has already contributed significantly to Board discussions in areas such as portfolio management and performance reporting. For the foregoing reasons, the independent members of the Nomination Committee have no hesitation in recommending the re-election of each Director who will be submitting themselves for re-election at the AGM on 6 December 2024.
Management Engagement Committee
The Management Engagement Committee comprises all the Directors and is chaired by Mr Finn. The Committee is responsible for reviewing the performance of the Investment Manager and its compliance with the terms of the management and secretarial agreement. The terms and conditions of the Investment Manager's appointment, including an evaluation of fees, are reviewed by the Committee on an annual basis. The Committee believes that the continuing appointment of the Manager on the terms agreed is in the interests of shareholders as a whole.
Remuneration Committee
Under the UK Listing Authority rules, where an investment trust has only non-executive directors, the Code principles relating to directors' remuneration do not apply. Accordingly, matters relating to remuneration are dealt with by the full Board, which acts as the Remuneration Committee, and is chaired by the Chair.
The Company's remuneration policy is to set remuneration at a level to attract individuals of a calibre appropriate to the Company's future development. Further information on remuneration is disclosed in the Directors' Remuneration Report on pages 55 to 57 of the published Annual Report and financial statements for the year ended 31 July 2024.
Terms of Reference
The terms of reference of all the Board Committees may be found on the Company's website asia-focus.co.uk and copies are available from the Company Secretary upon request. The terms of reference are reviewed and re-assessed by the Board for their adequacy on an annual basis.
Internal Control
In accordance with the Disclosure and Transparency Rules (DTR 7.2.5), the Board is ultimately responsible for the Company's system of internal control and for reviewing its effectiveness and confirms that there is an ongoing process for identifying, evaluating and managing the significant risks faced by the Company. This process has been in place for the year under review and up to the date of approval of this Annual Report and Financial Statements. It is regularly reviewed by the Board and accords with the FRC Guidance.
The Board has reviewed the effectiveness of the system of internal control. In particular, it has reviewed and updated the process for identifying and evaluating the significant risks affecting the Company and policies by which these risks are managed.
The Directors have delegated the investment management of the Company's assets to the abrdn Group within overall guidelines, and this embraces implementation of the system of internal control, including financial, operational and compliance controls and risk management. Internal control systems are monitored and supported by the abrdn Group's internal audit function which undertakes periodic examination of business processes, including compliance with the terms of the management agreement, and ensures that recommendations to improve controls are implemented.
Risks are identified and documented through a risk management framework by each function within the abrdn Group's activities. Risk includes financial, regulatory, market, operational and reputational risk. This helps the internal audit risk assessment model identify those functions for review. Any weaknesses identified are reported to the Board, and timetables are agreed for implementing improvements to systems. The implementation of any remedial action required is monitored and feedback provided to the Board.
The significant risks faced by the Company have been identified as being financial; operational; and compliance related.
The key components of the process designed by the Directors to provide effective internal control are outlined below:
- the Manager prepares forecasts and management accounts which allow the Board to assess the Company's activities and review its performance;
- the Board and Manager have agreed clearly defined investment criteria, specified levels of authority and exposure limits. Reports on these issues, including performance statistics and investment valuations, are regularly submitted to the Board and there are meetings with the Manager and Investment Manager
as appropriate;
- as a matter of course the Manager's compliance department continually reviews abrdn's operations and reports to the Board on a six monthly basis;
- written agreements are in place which specifically define the roles and responsibilities of the Manager and other third-party service providers and, where relevant, ISAE3402 Reports, a global assurance standard for reporting on internal controls for service organisations, or their equivalents are reviewed;
- the Board has considered the need for an internal audit function but, because of the compliance and internal control systems in place within abrdn, has decided to place reliance on the Manager's systems and internal audit procedures; and
- at its October 2024 meeting, the Audit Committee carried out an annual assessment of internal controls for the year ended 31 July 2024 by considering documentation from the Manager, Investment Manager and the Depositary, including the internal audit and compliance functions and taking account of events since 31 July 2024. The results of the assessment, that internal controls are satisfactory, were then reported to the Board at the next Board meeting.
Internal control systems are designed to meet the Company's particular needs and the risks to which it is exposed. Accordingly, the internal control systems are designed to manage rather than eliminate the risk of failure to achieve business objectives and by their nature can only provide reasonable and not absolute assurance against mis-statement and loss.
Going Concern
In accordance with the Financial Reporting Council's guidance the Directors have undertaken a rigorous review of the Company's ability to continue as a going concern. The Company's assets consist of equity shares in companies listed on recognised stock exchanges and are considered by the Board to be realisable within a relatively short timescale under normal market conditions. The Board has set overall limits for borrowing and reviews regularly the Company's level of gearing, cash flow projections and compliance with banking covenants.
The Board is mindful that the Convertible Unsecured Loan Stock 2025 ("CULS") is due to mature on 31 May 2025. The Board expects to be able to refinance the CULS if desired, by arranging a new bank facility, drawing down under the Loan Note Shelf Facility (which is uncommitted and subject to lender credit committee approval) or by arranging alternative finance. In the event that the Board chooses not to refinance the maturing CULS the Company will repay the CULS from portfolio sales. To this end the Manager has conducted stress testing on the portfolio covering reasonably possible downside market scenarios with attention on the resulting liquidity of the portfolio. The plausible downside scenarios modelled include historical market events including the Chinese Devaluation, COVID-19 and other similar shocks and resulted in a reduction in portfolio valuation of up to 27.5% in the worst case which would not impact any future plans to redeem of the CULS or the business model of the Company.
The Directors are mindful of the Principal Risks and Uncertainties disclosed in the Strategic Report and they believe that the Company has adequate financial resources to continue its operational existence for a period of 12 months from the date of approval of this Annual 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, including in potentially less favourable market conditions. 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 July 2024 which shows net current liabilities of £22.3 million at that date, and do not consider this to be a concern due to the liquidity of the portfolio which would enable the Company to meet any short term liabilities if required. Accordingly, the Directors believe that it is appropriate to continue to adopt the going concern basis in preparing the financial statements.
Management of Conflicts of Interest
The Board has a procedure in place to deal with a situation where a Director has a conflict of interest. As part of this process, the Directors prepare a list of other positions held and all other conflict situations that may need to be authorised either in relation to the Director concerned or his connected persons. The Board considers each Director's situation and decides whether to approve any conflict, taking into consideration what is in the best interests of the Company and whether the Director's ability to act in accordance with his or her wider duties is affected. Each Director is required to notify the Company Secretary of any potential, or actual, conflict situations that will need authorising by the Board. Authorisations given by the Board are reviewed at each Board meeting.
No Director has a service contract with the Company although Directors are issued with letters of appointment upon appointment. The Directors' interests in contractual arrangements with the Company are as shown in note 18 to the financial statements. No other Directors had any interest in contracts with the Company during the period or subsequently.
The Board has adopted appropriate procedures designed to prevent bribery. The Company receives periodic reports from its service providers on the anti-bribery policies of these third parties. It also receives regular compliance reports from the Manager.
The Criminal Finances Act 2017 introduced a new corporate criminal offence of "failing to take reasonable steps to prevent the facilitation of tax evasion". The Board has confirmed that it is the Company's policy to conduct all its business in an honest and ethical manner. The Board takes a zero-tolerance approach to facilitation of tax evasion, whether under UK law or under the law of any foreign country.
Accountability and Audit
The respective responsibilities of the Directors and the auditors in connection with the financial statements are set out on pages 58 and 69 respectively of the published Annual Report and financial statements for the year ended 31 July 2024.
Each Director confirms that:
- so far as he or she is aware, there is no relevant audit information of which the Company's auditors are unaware; and,
- each Director has taken all the steps that they could reasonably be expected to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Company's auditors are aware of that information.
Additionally, there have been no important events since the year end that impact this Annual Report.
The Directors have reviewed the independent auditors' procedures in connection with the provision of non-audit services. No non-audit services were provided by the independent auditors during the year and the Directors remain satisfied that the auditors' objectivity and independence has been safeguarded.
Independent Auditors
At the December 2023 AGM shareholders approved the re-appointment of PricewaterhouseCoopers LLP ("PwC") as independent auditors to the Company. PwC has expressed its willingness to continue to be the Company's auditors and a Resolution to re-appoint PwC as the Company's auditors and to authorise the Directors to fix the auditors' remuneration will be put to the forthcoming Annual General Meeting.
Substantial Interests
The Board has been advised that the following shareholders owned 3% or more of the issued Ordinary share capital of the Company at 31 July 2024:
| Shareholder | No. of Ordinary shares held | % held |
| City of London Investment | 36,485,774 | 23.75 |
| Interactive Investor (non-beneficial) | 20,097,651 | 13.1 |
| Allspring Global Investments | 19,541,334 | 12.7 |
| Hargreaves Lansdown (non-beneficial) | 10,950,336 | 7.1 |
| Funds managed by abrdn plc | 6,051,791 | 3.9 |
| 1607 Capital Partners | 5,261,928 | 3.4 |
| Charles Stanley | 4,704,334 | 3.1 |
On 23 August 2024 Allspring Global Investments notified a change in holding to 19,916,065 (12.97%) Ordinary shares; on 17 October 2024 abrdn plc notified a change in holding to 9,033,837 (6.0%) Ordinary shares; and on 21 October 2024 City of London Investment Management notified a change in holding to 32,692,372 (21.6%) Ordinary shares. There have been no other significant changes notified in respect of the above holdings between 31 July 2024 and 23 October 2024.
The UK Stewardship Code and Proxy Voting
Responsibility for actively monitoring the activities of portfolio companies has been delegated by the Board to the AIFM which has sub-delegated that authority to the Manager.
The Manager is a tier 1 signatory of the UK Stewardship Code which aims to enhance the quality of engagement by investors with investee companies in order to improve their socially responsible performance.
Relations with Shareholders
The Directors place a great deal of importance on communication with shareholders. The Annual Report is widely distributed to other parties who have an interest in the Company's performance. Shareholders and investors may obtain up to date information on the Company through the Manager's freephone information service and the Company's website asia-focus.co.uk. The Company responds to letters from shareholders on a wide range
of issues. The Chair, often in conjunction with another Director, meets with the largest shareholders at least annually.
The Board's policy is to communicate directly with shareholders and their representative bodies without the involvement of the abrdn Group (either the Company Secretary or the Manager) in situations where direct communication is required and usually a representative from the Board meets with major shareholders on an annual basis to gauge their views.
The Notice of the Annual General Meeting, included within the Annual Report and financial statements, is sent out at least 20 working days in advance of the meeting. All shareholders have the opportunity to put questions to the Board or the Manager, either formally at the Company's Annual General Meeting or, where possible, at the subsequent buffet luncheon for shareholders. The Company Secretary is available to answer general shareholder queries at any time throughout the year.
Consumer Duty
The FCA's Consumer Duty rules were published in July 2022. The rules comprise a fundamental component of the FCA's consumer protection strategy and aim to improve outcomes for retail customers across the entire financial services industry through the assessment of various outcomes, one of which is an assessment of whether a product provides value. Under the Consumer Duty, the Manager is the product 'manufacturer' of the Company and therefore the Manager was required to publish its assessment of value from April 2023. Using a newly developed assessment methodology, the Manager assessed the Company as 'expected to provide fair value for the reasonably foreseeable future'. During 2023 the Board has gained an understanding of the Manager's basis of assessment and no concerns were identified with either the assessment method or the outcome of the assessment.
Special Business at the Annual General Meeting
Directors' Authority to Allot Relevant Securities
Approval is sought in Resolution 11, an ordinary resolution, to renew the Directors' existing general power to allot securities but will also, provide a further authority (subject to certain limits), to allot shares under a fully pre-emptive rights issue. The effect of Resolution 11 is to authorise the Directors to allot up to a maximum of 102.19 million shares in total (representing approximately 2/3 of the existing issued capital of the Company), of which a maximum of 51.09 million shares (approximately 1/3 of the existing issued share capital) may only be applied to fully pre-emptive rights issues. This authority is renewable annually and will expire at the conclusion of the next Annual General Meeting. The Board has no present intention to utilise this authority.
Disapplication of Pre-emption Rights
Resolution 12 is a special resolution that seeks to renew the Directors' existing authority until the conclusion of the next Annual General Meeting to make limited allotments of shares for cash of up to 10% of the issued share capital other than according to the statutory pre-emption rights which require all shares issued for cash to be offered first to all existing shareholders. This authority includes the ability to sell shares that have been held in treasury (if any), having previously been bought back by the Company. The Board has established guidelines for treasury shares and will only consider buying in shares for treasury at a discount to their prevailing NAV and selling them from treasury at or above the then prevailing NAV.
New shares issued in accordance with Resolution 12 and subject to the authority to be conferred by Resolution 11 will always be issued at a premium to the NAV per Ordinary share at the time of issue. The Board will issue new Ordinary shares or sell Ordinary shares from treasury for cash when it is appropriate to do so, in accordance with its current policy. It is therefore possible that the issued share capital of the Company may change between the date of this document and the Annual General Meeting and therefore the authority sought will be in respect of 10% of the issued share capital as at the date of the Annual General Meeting rather than the date of this document.
Purchase of the Company's Shares
Resolution 13 is a special resolution proposing to renew the Directors' authority to make market purchases of the Company's shares in accordance with the provisions contained in the Companies Act 2006 and the Listing Rules of the Financial Conduct Authority. The minimum price to be paid per Ordinary share by the Company will not be less than 5p per share (being the nominal value) and the maximum price should not be more than the higher of (i) 5% above the average of the middle market quotations for the shares for the preceding five business days; and (ii) the higher of the last independent trade and the current highest independent bid on the trading venue where the purchase is carried out. The Directors do not intend to use this authority to purchase the Company's Ordinary shares unless to do so would result in an increase in NAV per share and would be in the interests of shareholders generally. The authority sought will be in respect of 14.99% of the issued share capital as at the date of the Annual General Meeting rather than the date of this document.
The authority being sought in Resolution 13 will expire at the conclusion of the next Annual General Meeting unless it is renewed before that date. Any Ordinary shares purchased in this way will either be cancelled and the number of Ordinary shares will be reduced accordingly or under the authority granted in Resolution 12 above, may be held in treasury. During the year the Company has not bought back any Ordinary shares for Treasury.
If Resolutions 11 to 13 are passed then an announcement will be made on the date of the Annual General Meeting which will detail the exact number of Ordinary shares to which each of these authorities relate.
These powers will give the Directors additional flexibility going forward and the Board considers that it will be in the interests of the Company that such powers be available. Such powers will only be implemented when, in the view of the Directors, to do so will be to the benefit of shareholders as a whole.
Notice of Meetings
Resolution 14 is a special resolution seeking to authorise the Directors to call general meetings of the Company (other than Annual General Meetings) on 14 days' notice. This approval will be effective until the Company's next Annual General Meeting in 2025. In order to utilise this shorter notice period, the Company is required to ensure that shareholders are able to vote electronically at the general meeting called on such short notice. The Directors confirm that, in the event that a general meeting is called, they will give as much notice as practicable and will only utilise the authority granted by Resolution 14 in limited and time sensitive circumstances.
Dividend Policy
As a result of the timing of the payment of the Company's quarterly dividends, the Company's Shareholders are unable to approve a final dividend each year. In line with good corporate governance, the Board therefore proposes to put the Company's dividend policy to Shareholders for approval at the Annual General Meeting and on an annual basis thereafter.
The Company's dividend policy shall be that dividends on the Ordinary Shares are payable quarterly in relation to periods ending October, January, April and July. It is intended that the Company will pay quarterly dividends consistent with the expected annual underlying portfolio yield. The Company has the flexibility in accordance with its Articles to make distributions from capital. Resolution 3, an ordinary resolution, will seek shareholder approval for the dividend policy.
Recommendation
Your Board considers Resolutions 11 to 14 to be in the best interests of the Company and its members as a whole and most likely to promote the success of the Company for the benefit of its members as a whole. Accordingly, your Board unanimously recommends that shareholders should vote in favour of Resolutions 11 to 14 to be proposed at the AGM, as they intend to do in respect of their own beneficial shareholdings amounting to 29,837 Ordinary shares.
By order of the Board
abrdn Holdings Limited -Secretaries
280 Bishopsgate
London EC2M 4AG
23 October 2024
Statement of Comprehensive Income
| | | Year ended 31 July 2024 | Year ended 31 July 2023 | ||||
| | | Revenue | Capital | Total | Revenue | Capital | Total |
| | Notes | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
| Gains on investments | 10 | - | 39,271 | 39,271 | - | 25,318 | 25,318 |
| Income | 3 | 17,272 | - | 17,272 | 19,984 | - | 19,984 |
| Exchange losses | | - | (1,052) | (1,052) | - | (384) | (384) |
| Investment management fees | 4 | (769) | (2,307) | (3,076) | (753) | (2,259) | (3,012) |
| Administrative expenses | 5 | (1,306) | - | (1,306) | (1,312) | (16) | (1,328) |
| Net return before finance costs and taxation | | 15,197 | 35,912 | 51,109 | 17,919 | 22,659 | 40,578 |
| Finance costs | 6 | (501) | (1,504) | (2,005) | (501) | (1,502) | (2,003) |
| Net return before taxation | | 14,696 | 34,408 | 49,104 | 17,418 | 21,157 | 38,575 |
| Taxation | 7 | (1,407) | (10,372) | (11,779) | (1,279) | (2,107) | (3,386) |
| Net return after taxation | | 13,289 | 24,036 | 37,325 | 16,139 | 19,050 | 35,189 |
| | | | | | | | |
| Return per share (pence): | 9 | | | | | | |
| Basic | | 8.59 | 15.53 | 24.12 | 10.29 | 12.14 | 22.43 |
| Diluted | | 8.08 | 14.77 | 22.85 | 9.66 | 11.65 | 21.31 |
| | | | | | | | |
| For the year ended 31 July 2024 the conversion option for potential Ordinary shares within the Convertible Unsecured Loan Stock was dilutive to the revenue and capital return per Ordinary share (2023 - dilutive to revenue and capital return). | |||||||
| The total column of this statement represents the profit and loss account of the Company. There is no other comprehensive income and therefore the net return after taxation is also the total comprehensive income for the year. | |||||||
| 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 July 2024 | 31 July 2023 |
| | Notes | £'000 | £'000 |
| Non-current assets | | | |
| Investments at fair value through profit or loss | 10 | 564,797 | 549,672 |
| | | | |
| Current assets | | | |
| Debtors and prepayments | 11 | 3,808 | 2,237 |
| Cash and cash equivalents | | 12,703 | 5,807 |
| | | 16,511 | 8,044 |
| | | | |
| Creditors: amounts falling due within one year | | | |
| Other creditors | 12 | (2,483) | (1,250) |
| 2.25% Convertible Unsecured Loan Stock 2025 | 12 | (36,368) | - |
| | | (38,851) | (1,250) |
| Net current (liabilities)/assets | | (22,340) | 6,794 |
| Total assets less current liabilities | | 542,457 | 556,466 |
| | | | |
| Non-current liabilities | | | |
| Creditors: amounts falling due after more than one year | | | |
| 2.25% Convertible Unsecured Loan Stock 2025 | 13 | - | (36,175) |
| 3.05% Senior Unsecured Loan Note 2035 | 13 | (29,906) | (29,898) |
| Deferred tax liability on Indian capital gains | 13 | (10,291) | (4,609) |
| | | (40,197) | (70,682) |
| Net assets | | 502,260 | 485,784 |
| | | | |
| Capital and reserves | | | |
| Called up share capital | 14 | 10,436 | 10,435 |
| Capital redemption reserve | | 2,062 | 2,062 |
| Share premium account | | 60,495 | 60,441 |
| Equity component of 2.25% Convertible Unsecured Loan Stock 2025 | 13 | 1,057 | 1,057 |
| Capital reserve | 15 | 409,798 | 393,238 |
| Revenue reserve | | 18,412 | 18,551 |
| Total shareholders' funds | | 502,260 | 485,784 |
| | | | |
| Net asset value per share (pence): | | | |
| Basic | 16 | 326.94 | 310.49 |
| Diluted | 16 | 324.26 | 308.93 |
| | | | |
| The financial statements were approved by the Board of Directors and authorised for issue on 23 October 2024 and were signed on behalf of the Board by: | |||
| Krishna Shanmuganathan | | | |
| Chair | | | |
| The accompanying notes are an integral part of the financial statements. | |||
Statement of Changes in Equity
| For the year ended 31 July 2024 | ||||||||
| | | | Capital | Share | Equity | | | |
| | | Share | redemption | premium | Component | Capital | Revenue | |
| | | capital | reserve | account | CULS 2025 | reserve | reserve | Total |
| | Note | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
| Balance at 1 August 2023 | | 10,435 | 2,062 | 60,441 | 1,057 | 393,238 | 18,551 | 485,784 |
| Conversion of 2.25% CULS 2025 | 12, 13 | 1 | - | 54 | - | - | - | 55 |
| Purchase of own shares to treasury | 14 | - | - | - | - | (7,476) | - | (7,476) |
| Net return after taxation | | - | - | - | - | 24,036 | 13,289 | 37,325 |
| Dividends paid | 8 | - | - | - | - | - | (13,428) | (13,428) |
| Balance at 31 July 2024 | | 10,436 | 2,062 | 60,495 | 1,057 | 409,798 | 18,412 | 502,260 |
| | | | | | | | | |
| | | | | | | | | |
| For the year ended 31 July 2023 | ||||||||
| | | | Capital | Share | Equity | | | |
| | | Share | redemption | premium | Component | Capital | Revenue | |
| | | capital | reserve | account | CULS 2025 | reserve | reserve | Total |
| | Note | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
| Balance at 1 August 2022 | | 10,435 | 2,062 | 60,428 | 1,057 | 375,450 | 14,964 | 464,396 |
| Conversion of 2.25% CULS 2025 | 13 | - | - | 13 | - | - | - | 13 |
| Purchase of own shares to treasury | 14 | - | - | - | - | (1,262) | - | (1,262) |
| Net return after taxation | | - | - | - | - | 19,050 | 16,139 | 35,189 |
| Dividends paid | 8 | - | - | - | - | - | (12,552) | (12,552) |
| Balance at 31 July 2023 | | 10,435 | 2,062 | 60,441 | 1,057 | 393,238 | 18,551 | 485,784 |
| | | | | | | | | |
| The accompanying notes are an integral part of the financial statements. | ||||||||
Statement of Cash Flows
| | | Year ended | Year ended |
| | | 31 July 2024 | 31 July 2023 |
| | Notes | £'000 | £'000 |
| Cash flows from operating activities | | | |
| Net return before finance costs and tax | | 51,109 | 40,578 |
| Adjustments for: | | | |
| Dividend income | 3 | (16,802) | (19,798) |
| Interest income | 3 | (470) | (186) |
| Dividends received | | 16,561 | 20,094 |
| Interest received | | 459 | 169 |
| Interest paid | | (1,758) | (1,743) |
| Gains on investments | 10 | (39,271) | (25,318) |
| Foreign exchange movements | | 1,052 | 384 |
| Decrease/(increase) in prepayments | | 3 | (5) |
| Increase in other debtors | | (2) | (15) |
| Increase/(decrease) in other creditors | | 31 | (1,621) |
| Stock dividends included in investment income | | - | (25) |
| Overseas withholding tax suffered | 7 | (1,509) | (1,432) |
| Net cash inflow from operating activities | | 9,403 | 11,082 |
| | | | |
| Cash flows from investing activities | | | |
| Purchase of investments | | (199,205) | (76,870) |
| Sales of investments | | 223,289 | 76,321 |
| Capital (losses)/gains tax on sales | | (4,690) | - |
| Net cash inflow/(outflow) from investing activities | | 19,394 | (549) |
| | | | |
| Cash flows from financing activities | | | |
| Purchase of own shares for treasury | | (7,421) | (1,261) |
| Equity dividends paid | 8 | (13,428) | (12,552) |
| Net cash outflow from financing activities | | (20,849) | (13,813) |
| Increase/(decrease) in cash and cash equivalents | | 7,948 | (3,280) |
| | | | |
| Analysis of changes in cash and short term deposits | | | |
| Opening balance | | 5,807 | 9,471 |
| Increase/(decrease) in cash and short term deposits | | 7,948 | (3,280) |
| Foreign exchange movements | | (1,052) | (384) |
| Closing balance | | 12,703 | 5,807 |
| | | | |
| Represented by: | | | |
| Money market funds | | 8,486 | - |
| Cash and short term deposits | | 4,217 | 5,807 |
| | | 12,703 | 5,807 |
| | | | |
| The accompanying notes are an integral part of the financial statements. | |||
Notes to the Financial Statements
For the year ended 31 July 2024
| 1. | Principal activity |
| | The Company is a closed-end investment company, registered in England & Wales No 03106339, 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 the AIC's Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued in July 2022. The financial statements are prepared in Sterling which is the functional currency of the Company and rounded to the nearest £'000. They have also been prepared on a going concern basis and on the assumption that approval as an investment trust will continue to be granted by HMRC. |
| | | Going concern. In accordance with the Financial Reporting Council's guidance the Directors have undertaken a rigorous review of the Company's ability to continue as a going concern. The Company's assets consist of equity shares in companies listed on recognised stock exchanges and are considered by the Board to be realisable within a relatively short timescale under normal market conditions. The Board has set overall limits for borrowing and reviews regularly the Company's level of gearing, cash flow projections and compliance with banking covenants. |
| | | The Board is mindful that the Convertible Unsecured Loan Stock 2025 ("CULS") is due to mature on 31 May 2025. The Board expects to be able to refinance the CULS if desired, by arranging a new bank facility, drawing down under the Loan Note Shelf Facility or by arranging alternative finance. In the event that the Board chooses not to refinance the maturing CULS the Board and Manager will repay the CULS from portfolio sales. To this end the Manager has conducted stress testing on the portfolio covering reasonably possible downside market scenarios with attention on the resulting liquidity of the portfolio. The plausible downside scenarios modelled include historical market events including the Chinese Devaluation, COVID-19 and other similar shocks and resulted in a reduction in portfolio valuation of up to 27.5% in the worst case which would not impact any future plans to redeem of the CULS or the business model of the Company. |
| | | The Directors are mindful of the Principal Risks and Uncertainties disclosed in the Strategic Report on pages 20 and 21 of the published Annual Report and financial statements for the year ended 31 July 2024 and they believe that the Company has adequate financial resources to continue its operational existence for a period of 12 months from the date of approval of this Annual 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, including in potentially less favourable market conditions. 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 July 2024 which shows net current liabilities of £22.3 million at that date, and do not consider this to be a concern due to the liquidity of the portfolio which would enable the Company to meet any short term liabilities if required. Accordingly, the Directors believe that it is appropriate to continue to adopt the going concern basis in preparing the financial statements. |
| | | Significant accounting judgements, estimates and assumptions. The preparation of financial statements requires the use of certain significant accounting judgements, estimates and assumptions which requires management to exercise its judgement in the process of applying the accounting policies and are continually evaluated. Special dividends are assessed and credited to capital or revenue according to their circumstances and are considered to require significant judgement. The Directors do not consider there to be any significant estimates within the financial statements. |
| | (b) | Valuation of investments. The Company has chosen to apply the recognition and measurement provisions of IAS 39 Financial Instruments: Recognition and Measurement and investments have been designated upon initial recognition at fair value through profit or loss. Investments are recognised and de-recognised at trade date where a purchase or sale is under a contract whose terms require delivery within the time frame established by the market concerned, and are initially measured at fair value. Subsequent to initial recognition, investments are measured at fair value. For listed investments, this is deemed to be bid market prices. Gains and losses arising from changes in fair value and disposals are included as a capital item in the Statement of Comprehensive Income and are ultimately recognised in the capital reserve. |
| | (c) | 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. The Company charges 25% of finance charges to revenue and 75% to capital. |
| | (d) | Income. 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. Fixed returns on non-equity shares are recognised on a time apportioned basis so as to reflect the effective yield on shares. Other returns on non-equity shares are recognised when the right to return is established. Where the Company has elected to receive its dividends in the form of additional shares rather than cash, the amount of the cash dividend is recognised as income. Any excess in the value of the shares received over the amount of the cash dividend is recognised in capital reserves. Interest receivable on bank balances is dealt with on an accruals basis. |
| | (e) | Expenses. 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 25% of investment management fees and finance costs to the revenue column and 75% to the capital column of the Statement of Comprehensive Income, in accordance with the Board's expected long term return in the form of revenue and capital gains respectively from the investment portfolio of the Company. |
| | (f) | Taxation. The tax expense represents the sum of tax currently payable and deferred tax. Any tax payable is based on the taxable profit for the year. Taxable profit differs from net profit 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 were applicable at the Statement of Financial Position date. |
| | | Deferred taxation is recognised in respect of all timing differences that have originated but not reversed 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 underlying timing differences can be deducted. Timing differences are differences arising between the Company's taxable profits and its results as stated in the financial statements which are capable of reversal in one or more subsequent periods. Deferred tax is measured on a non-discounted basis at the tax rates that are expected to apply in the periods in which timing differences are expected to reverse, based on tax rates and laws enacted or substantively enacted at the Statement of Financial Position date. |
| | | The tax effect of different items of income/gain and expenditure/loss is allocated between capital and revenue within the Statement of Comprehensive Income on the same basis as the particular item to which it relates using the Company's effective rate of tax for the year, based on the marginal basis. |
| | | Gains and losses on sale of investments purchased and sold in India after 1 April 2017 are liable to capital gains tax in India. At each year end date, a provision for capital gains tax is calculated based upon the Company's realised and unrealised gains and losses. There are two rates of tax: short-term and long-term. The short-term rate of tax is applicable to investments held for less than 12 months and the long-term rate of tax is applicable to investments held for more than twelve months. The provision is recognised in the Statement of Financial Position and the year-on-year movement in the provision is recognised in the Statement of Comprehensive Income. |
| | (g) | Foreign currency. Assets and liabilities in foreign currencies are translated at the rates of exchange ruling on the Statement of Financial Position date. Transactions involving foreign currencies are converted at the rate ruling on the date of the transaction. Gains and losses on dividends receivable are recognised in the Statement of Comprehensive Income and are reflected in the revenue reserve. Gains and losses on the realisation of investments in foreign currencies and unrealised gains and losses on investments in foreign currencies are recognised in the Statement of Comprehensive Income and are then transferred to the capital reserve. |
| | (h) | Convertible Unsecured Loan Stock. Convertible Unsecured Loan Stock ("CULS") issued by the Company is regarded as a compound instrument, comprising of a liability component and an equity component. At the date of issue, the fair value of the liability component of the 2.25% CULS 2025 was estimated by assuming that an equivalent non-convertible obligation of the Company would have an effective interest rate of 3.063%. The fair value of the equity component, representing the option to convert liability into equity, is derived from the difference between the issue proceeds of the CULS and the fair value assigned to the liability. The liability component is subsequently measured at amortised cost using the effective interest rate and the equity component remains unchanged. |
| | | Direct expenses associated with the CULS issue are allocated to the liability and equity components in proportion to the split of the proceeds of the issue. Expenses allocated to the liability component are amortised over the life of the instrument using the effective interest rate. |
| | (i) | Cash and cash equivalents. Cash comprises cash in hand and short term deposits. Cash equivalents includes bank overdrafts repayable on demand and short term, highly liquid investments, that are readily convertible to known amounts of cash and that are subject to an insignificant risk of change in value. |
| | (j) | Nature and purpose of reserves |
| | | Capital redemption reserve. The capital redemption reserve arose when Ordinary shares were redeemed and cancelled, at which point an amount equal to the par value of the Ordinary share capital was transferred from the share capital account to the capital redemption reserve. This is not a distributable reserve. |
| | | 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 5p (2023 - 5p). This is not a distributable reserve. |
| | | Capital reserve. This reserve reflects any gains or losses on investments realised in the period along with any movement in the fair value of investments held that have been recognised in the Statement of Comprehensive Income. These include gains and losses from foreign currency exchange differences arising on monetary assets and liabilities except for dividend income receivable. Share buybacks to be held in treasury, which is considered to be a distribution to shareholders, is also deducted from this reserve. The realised gains part of this reserve is also distributable for the purpose of funding 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 is distributable by way of dividend. The amount of the revenue reserve as at 31 July 2024 may not be available at the time of any future distribution due to movements between 31 July 2024 and the date of distribution. |
| | (k) | Treasury shares. When the Company purchases the Company's equity share capital as treasury shares, the amount of the consideration paid, which includes directly attributable costs is recognised as a deduction from equity. When these shares are sold or reissued subsequently, the amount received is recognised as an increase in equity, and the resulting surplus or deficit on the transaction is transferred to or from the capital reserve. |
| | (l) | Dividends payable. Final dividends are recognised in the financial statements in the period in which Shareholders approve them. |
| | (m) | Segmental reporting. The Directors are of the opinion that the Company is engaged in a single segment of business activity, being investment business. Consequently, no business segmental analysis is provided however an analysis of the geographic exposure of the Company's investments is provided on page 35 of the published Annual Report and financial statements for the year ended 31 July 2024. |
| 3. | Income | | |
| | | 2024 | 2023 |
| | | £'000 | £'000 |
| | Income from investments | | |
| | Overseas dividends | 16,007 | 19,055 |
| | UK dividend income | 795 | 718 |
| | Stock dividends | - | 25 |
| | | 16,802 | 19,798 |
| | | | |
| | Other income | | |
| | Deposit interest | 150 | 186 |
| | Interest from money market funds | 320 | - |
| | | 470 | 186 |
| | Total income | 17,272 | 19,984 |
| 4. | Investment management fees | |||||||
| | | 2024 | 2023 | |||||
| | | Revenue | Capital | Total | Revenue | Capital | Total | |
| | | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| | Investment management fees | 769 | 2,307 | 3,076 | 753 | 2,259 | 3,012 | |
| | | | | | | | | |
| | The Company has an agreement with abrdn Fund Managers Limited ("aFML") for the provision of management services, under which investment management services have been delegated to abrdn Asia Limited ("abrdn Asia"). | |||||||
| | The management fee is payable monthly in arrears, on a tiered basis, exclusive of VAT where applicable, based on market capitalisation at an annual rate of 0.85% for the first £250 million, 0.6% for the next £500 million and 0.5% thereafter. Market capitalisation is defined as the Company's closing Ordinary share price quoted on the London Stock Exchange multiplied by the number of Ordinary shares in issue (excluding those held in Treasury), as determined on the last business day of the calendar month to which the remuneration relates. The balance due to the Manager at the year end was £534,000 (2023 - £506,000) which represents two months' fees (2023 - two months). | |||||||
| | The management agreement may be terminated by either the Company or the Manager on the expiry of three months' written notice. On termination, the Manager would be entitled to receive fees which would otherwise have been due to that date. |
| ||||||
| 5. | Administrative expenses | | | |
| | | | 2024 | 2023 |
| | | | £'000 | £'000 |
| | Administration feesA | | 119 | 112 |
| | Directors' feesB | | 173 | 161 |
| | Promotional activitiesC | | 210 | 219 |
| | Auditors' remunerationD | | | |
| | - fees payable to the auditors for the audit of the annual financial statements | 52 | 48 | |
| | Custodian charges | | 364 | 278 |
| | Depositary fees | | 49 | 46 |
| | Registrar fees | | 43 | 55 |
| | Legal and professional fees | | 57 | 93 |
| | Other expenses | | 239 | 300 |
| | | | 1,306 | 1,312 |
| | A The Company has an agreement with aFML for the provision of administration services. The administration fee is payable quarterly in advance and is adjusted annually to reflect the movement in the Retail Prices Index. The balance due to aFML at the year end was £60,000 (2023 - £86,000). The agreement is terminable on six months' notice. | |||
| | B No pension contributions were made in respect of any of the Directors. | |||
| | C Under the management agreement, the Company has also appointed aFML to provide promotional activities to the Company by way of its participation in the abrdn Investment Trust Share Plan and ISA. aFML has delegated this role to abrdn plc. The total fee paid and payable under the agreement in relation to promotional activities was £210,000 (2023 - £219,000). There was a £173,000 (2023 - £73,000) balance due to abrdn plc at the year end. | |||
| | D There are no non-audit fees charged. | | | |
| 6. | Finance costs | | | | | | |
| | | 2024 | 2023 | ||||
| | | Revenue | Capital | Total | Revenue | Capital | Total |
| | | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
| | Bank interest paid | 5 | 15 | 20 | 1 | 2 | 3 |
| | Interest on 3.05% Senior Unsecured Loan Note 2035 | 231 | 692 | 923 | 230 | 691 | 921 |
| | Interest on 2.25% CULS 2025 | 203 | 611 | 814 | 208 | 623 | 831 |
| | Notional interest on 2.25% CULS 2025 | 39 | 115 | 154 | 39 | 115 | 154 |
| | Amortisation of 2.25% CULS 2025 issue expenses | 23 | 71 | 94 | 23 | 71 | 94 |
| | | 501 | 1,504 | 2,005 | 501 | 1,502 | 2,003 |
| | | | | | | | |
| | Finance costs have been charged 25% to revenue and 75% to capital. | ||||||
| 7. | Taxation | |||||||
| | | | | 2024 | | | 2023 | |
| | | | Revenue | Capital | Total | Revenue | Capital | Total |
| | | | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
| | (a) | Analysis of charge for the year | | | | | | |
| | | Indian capital gains tax charge on sales | - | 4,690 | 4,690 | - | - | - |
| | | Overseas taxation | 1,407 | - | 1,407 | 1,279 | 182 | 1,461 |
| | | Total current tax charge for the year | 1,407 | 4,690 | 6,097 | 1,279 | 182 | 1,461 |
| | | Deferred tax charge on Indian capital gains | - | 5,682 | 5,682 | - | 1,925 | 1,925 |
| | | Total tax charge for the year | 1,407 | 10,372 | 11,779 | 1,279 | 2,107 | 3,386 |
| | | | | | | | | |
| | | The Company has recognised a deferred tax liability of £10,291,000 (2023 - £4,609,000) on capital gains which may arise if Indian investments are sold. The Company has not provided for UK deferred tax on any realised and unrealised gains or losses of investments as it is exempt from UK tax on these items due to its status as an investment trust company. | ||||||
| | | At 31 July 2024 the Company had surplus management expenses and loan relationship deficits of £82,534,000 (2023 - £76,652,000) in respect of which a deferred tax asset has not been recognised. This is due to the Company having sufficient excess management expenses available to cover the potential liability and the Company is not expected to generate taxable income in the future in excess of deductible expenses. 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 of £20,634,000 (2023 - £19,163,000). | ||||||
| | (b) | Factors affecting the tax charge for the year. The tax assessed for the year is the current standard rate of corporation tax in the UK for a large company of 25% (2023 - lower). The differences are explained below: | ||||||
| | | | | | | | | |
| | | | | 2024 | | | 2023 | |
| | | | Revenue | Capital | Total | Revenue | Capital | Total |
| | | | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
| | | Return before taxation | 14,696 | 34,408 | 49,104 | 17,418 | 21,157 | 38,575 |
| | | | | | | | | |
| | | Return multiplied by the standard tax rate of corporation tax of 25% (2023 - effective rate of 21%) | 3,674 | 8,602 | 12,276 | 3,658 | 4,443 | 8,101 |
| | | Effects of: | | | | | | |
| | | Gains on investments not taxable | - | (9,818) | (9,818) | - | (5,317) | (5,317) |
| | | Exchange losses | - | 263 | 263 | - | 81 | 81 |
| | | Overseas tax | 1,407 | - | 1,407 | 1,279 | 182 | 1,461 |
| | | Movement in deferred tax liability on Indian capital gains | - | 5,682 | 5,682 | - | 1,925 | 1,925 |
| | | Indian capital gains tax charged on sales | - | 4,690 | 4,690 | - | - | - |
| | | UK dividend income | (199) | - | (199) | (151) | - | (151) |
| | | Non-taxable dividend income | (4,002) | - | (4,002) | (4,007) | - | (4,007) |
| | | Expenses not deductible for tax purposes | 9 | - | 9 | 4 | 3 | 7 |
| | | Movement in unutilised management expenses | 634 | 577 | 1,211 | 391 | 474 | 865 |
| | | Movement in unutilised loan relationship deficits | (116) | 376 | 260 | 105 | 316 | 421 |
| | | Total tax charge for the year | 1,407 | 10,372 | 11,779 | 1,279 | 2,107 | 3,386 |
| 8. | Dividends | | |
| | | 2024 | 2023 |
| | | £'000 | £'000 |
| | Third interim dividend for 2023 - 1.6p (2022 - 1.6p) | - | 2,511 |
| | Fourth interim dividend for 2023 - 1.61p (2022 - nil) | 2,515 | - |
| | Special dividend for 2023 - 2.25p (2022 - 1.6p) | 3,498 | 2,511 |
| | First interim dividend for 2024 - 1.6p (2023 - 1.6p) | 2,488 | 2,511 |
| | Second interim dividend for 2024 - 1.6p (2023 - 1.6p) | 2,466 | 2,511 |
| | Third interim dividend for 2024 - 1.6p (2023 - 1.6p) | 2,461 | 2,508 |
| | | 13,428 | 12,552 |
| | | | |
| | Dividends declared and paid subsequent to the year end are not included as a liability in the financial statements. | ||
| | We set out below the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of Sections 1158 - 1159 of the Corporation Tax Act 2010 are considered. The revenue available for distribution by way of dividend for the current year is £13,289,000 (2023- £16,139,000). | ||
| | | | |
| | | 2024 | 2023 |
| | | £'000 | £'000 |
| | First interim dividend for 2024 - 1.6p (2023 - 1.6p) | 2,488 | 2,511 |
| | Second interim dividend for 2024 - 1.6p (2023 - 1.6p) | 2,466 | 2,511 |
| | Third interim dividend for 2024 - 1.6p (2023 - 1.6p) | 2,461 | 2,508 |
| | Fourth interim dividend for 2024 - 1.62p (2023 - 1.61p) | 2,488 | 2,515 |
| | Proposed special dividend for 2024 - 1.00p (2023 - 2.25p) | 1,513 | 3,498 |
| | | 11,416 | 13,543 |
| | | | |
| | The amount reflected above for the cost of the special dividend for 2024 is based on 151,254,218 Ordinary shares, being the number of Ordinary shares in issue excluding shares held in treasury at the date of this Report. | ||
| 9. | Return per share | | | | | | |
| | | | 2024 | | | 2023 | |
| | | Revenue | Capital | Total | Revenue | Capital | Total |
| | Basic | | | | | | |
| | Net return after taxation (£'000) | 13,289 | 24,036 | 37,325 | 16,139 | 19,050 | 35,189 |
| | Weighted average number of shares in issueA | | | 154,769,839 | | | 156,862,299 |
| | Return per share (p) | 8.59 | 15.53 | 24.12 | 10.29 | 12.14 | 22.43 |
| | | | | | | | |
| | | | | | | | |
| | | | 2024 | | | 2023 | |
| | Diluted | Revenue | Capital | Total | Revenue | Capital | Total |
| | Net return after taxation (£'000) | 13,511 | 24,704 | 38,215 | 16,366 | 19,730 | 36,096 |
| | Weighted average number of shares in issueAB | | | 167,264,923 | | | 169,366,591 |
| | Return per share (p) | 8.08 | 14.77 | 22.85 | 9.66 | 11.65 | 21.31 |
| | A Calculated excluding shares held in treasury. | | | | | | |
| | B The calculation of the diluted total, revenue and capital returns per Ordinary share is carried out in accordance with IAS 33, "Earnings per Share". For the purpose of calculating total, revenue and capital returns per Ordinary share, the number of Ordinary shares used is the weighted average number used in the basic calculation plus the number of Ordinary shares deemed to be issued for no consideration on exercise of all 2.25% Convertible Unsecured Loan Stock 2025 ("CULS"). The calculations indicate that the exercise of CULS would result in an increase in the weighted average number of Ordinary shares of 12,495,085 (2023 - 12,504,292) to 167,264,923 (2023 - 169,366,591) Ordinary shares. | ||||||
| | For the year ended 31 July 2024 the assumed conversion for potential Ordinary shares was dilutive to the revenue and the capital return per Ordinary share (2023 - dilutive to the revenue return and the capital return). Where dilution occurs, the net returns are adjusted for interest charges and issue expenses relating to the CULS (2024 - £890,000; 2023 - £907,000). Total earnings for the period are tested for dilution. Once dilution has been determined individual revenue and capital earnings are adjusted. | ||||||
| 10. | Investments at fair value through profit or loss | | |
| | | 2024 | 2023 |
| | | £'000 | £'000 |
| | Opening book cost | 397,237 | 377,733 |
| | Opening investment holding gains | 152,435 | 147,108 |
| | Opening fair value | 549,672 | 524,841 |
| | Analysis of transactions made during the year | | |
| | Purchases at cost | 200,360 | 76,896 |
| | Sales proceeds received | (224,506) | (77,383) |
| | Gains on investments | 39,271 | 25,318 |
| | Closing fair value | 564,797 | 549,672 |
| | | | |
| | Closing book cost | 407,225 | 397,237 |
| | Closing investment gains | 157,572 | 152,435 |
| | Closing fair value | 564,797 | 549,672 |
| | | | |
| | | | |
| | | 2024 | 2023 |
| | | £'000 | £'000 |
| | Investments listed on an overseas investment exchange | 550,046 | 537,379 |
| | Investments listed on the UK investment exchange | 14,751 | 12,293 |
| | | 564,797 | 549,672 |
| | | | |
| | The Company received £224,506,000 (2023 - £77,383,000) from investments sold in the period. The book cost of these investments when they were purchased was £190,372,000 (2023 - £57,392,000). These investments have been revalued over time and until they were sold any unrealised gains/losses were included in the fair value of the investments. | ||
| | Transaction costs. During the year expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within gains/(losses) on investments in the Statement of Comprehensive Income. The total costs were as follows: | ||
| | | 2024 | 2023 |
| | | £'000 | £'000 |
| | Purchases | 257 | 95 |
| | Sales | 446 | 159 |
| | | 703 | 254 |
| | | | |
| | 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: amounts falling due within one year | | |
| | | 2024 | 2023 |
| | | £'000 | £'000 |
| | Amounts due from brokers for sales | 2,560 | 1,343 |
| | Other debtors | 897 | 754 |
| | Prepayments and accrued income | 351 | 140 |
| | | 3,808 | 2,237 |
| | | | |
| | None of the above amounts is past their due date or impaired (2023 - same). | ||
| 12. | Creditors: amounts falling due within one year | ||||||||||||||
| | | | | | | | 2024 | 2023 | |||||||
| | (a) | Other creditors | | | | | £'000 | £'000 | |||||||
| | | Amounts due to brokers for purchases | | | | | 1,155 | - | |||||||
| | | Amounts due for the purchase of own shares to treasury | | 56 | - | ||||||||||
| | | Other creditors | | | | | 1,272 | 1,250 | |||||||
| | | | | | | | 2,483 | 1,250 | |||||||
| | | | | | | | | | |||||||
| | | | 2024 | 2023 | |||||||||||
| | | | Number of | Liability | Equity | Number of | Liability | Equity | |||||||
| | | | units | component | component | units | component | component | |||||||
| | (b) | 2.25% CULS 2025 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||||||
| | | Balance at beginning of year | 36,629 | 36,175 | 1,057 | - | - | - | |||||||
| | | Conversion of 2.25% CULS 2025 | (55) | (55) | - | - | - | - | |||||||
| | | Notional interest on CULS transferred to revenue reserve | - | 154 | - | - | - | - | |||||||
| | | Amortisation and issue expenses | - | 94 | - | - | - | - | |||||||
| | | Balance at end of year | 36,574 | 36,368 | 1,057 | - | - | - | |||||||
| | | | | | | | | | |||||||
| | | The 2.25% CULS 2025 can be converted at the election of holders into Ordinary shares during the months of May and November each year throughout their life, commencing 30 November 2018 to 31 May 2025 at a rate of 1 Ordinary share for every 293.0p (2023 - 293.0p) nominal of CULS. Interest is payable on the CULS on 31 May and 30 November each year, commencing on 30 November 2018. | |||||||||||||
| | | The CULS has been constituted as an unsecured subordinated obligation of the Company by the Trust Deed between the Company and the Trustee, the Law Debenture Trust Corporation p.l.c., dated 23 May 2018. The Trust Deed details the 2025 CULS holders' rights and the Company's obligations to the CULS holders and the Trustee oversees the operation of the Trust Deed. In the event of a winding-up of the Company the rights and claims of the Trustee and CULS holders would be subordinate to the claims of all creditors in respect of the Company's secured and unsecured borrowings, under the terms of the Trust Deed. | |||||||||||||
| | | In 2024 the Company received elections from CULS holders to convert £54,939 (2023 - £12,753) nominal amount of CULS into 18,740 (2023 - 4,347) Ordinary shares. | |||||||||||||
| | | The fair value of the 2025 CULS at 31 July 2024 was £35,441,000 (2023 - £34,890,000). | |||||||||||||
| 13. | Non-current liabilities | |||||||||||
| | | | 2024 | 2023 | ||||||||
| | | | Number of | Liability | Equity | Number of | Liability | Equity | ||||
| | | | units | component | component | units | component | component | ||||
| | (a) | 2.25% CULS 2025 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||||
| | | Balance at beginning of year | - | - | - | 36,642 | 35,940 | 1,057 | ||||
| | | Conversion of 2.25% CULS 2025 | - | - | - | (13) | (13) | - | ||||
| | | Notional interest on CULS transferred to revenue reserve | - | - | - | - | 154 | - | ||||
| | | Amortisation and issue expenses | - | - | - | - | 94 | - | ||||
| | | Balance at end of year | - | - | - | 36,629 | 36,175 | 1,057 | ||||
| | | | | | | | | | ||||
| | | The 2.25% CULS 2025 can be converted at the election of holders into Ordinary shares during the months of May and November each year throughout their life, commencing 30 November 2018 to 31 May 2025 at a rate of 1 Ordinary share for every 293.0p (2023 - 293.0p) nominal of CULS. Interest is payable on the CULS on 31 May and 30 November each year, commencing on 30 November 2018. | ||||||||||
| | | The CULS has been constituted as an unsecured subordinated obligation of the Company by the Trust Deed between the Company and the Trustee, the Law Debenture Trust Corporation p.l.c., dated 23 May 2018. The Trust Deed details the 2025 CULS holders' rights and the Company's obligations to the CULS holders and the Trustee oversees the operation of the Trust Deed. In the event of a winding-up of the Company the rights and claims of the Trustee and CULS holders would be subordinate to the claims of all creditors in respect of the Company's secured and unsecured borrowings, under the terms of the Trust Deed. | ||||||||||
| | | In 2024 the Company received elections from CULS holders to convert £54,939 (2023 - £12,753) nominal amount of CULS into 18,740 (2023 - 4,347) Ordinary shares. | ||||||||||
| | | The fair value of the 2025 CULS at 31 July 2024 was £35,441,000 (2023 - £34,890,000). | ||||||||||
| | | | | | | | | | ||||
| | | | | | | | 2024 | 2023 | ||||
| | (b) | Loan Note | | | | | £'000 | £'000 | ||||
| | | 3.05% Senior Unsecured Loan Note 2035 | | | | | 30,000 | 30,000 | ||||
| | | Unamortised Loan Note issue expenses | | | | | (94) | (102) | ||||
| | | | | | | | 29,906 | 29,898 | ||||
| | | | | | | | | | ||||
| | | On 1 December 2020 the Company issued £30,000,000 of a 15 year loan note at a fixed rate of 3.05%. Interest is payable in half yearly instalments in June and December and the Loan Note is due to be redeemed at par on 1 December 2035. The issue costs of £118,000 will be amortised over the life of the loan note. There is also a shelf facility of £35,000,000 available to the Company for the purpose of repaying the CULS, which has not been unutilised. The shelf facility is uncommitted and subject to credit committee approval in advance of any drawing. The Company has complied with the Note Purchase Agreement that the ratio of total borrowings to adjusted net assets will not exceed 0.20 to 1.00, that the ratio of total borrowings to adjusted net liquid assets will not exceed 0.60 to 1.00, that net tangible assets will not be less than £225,000,000 and that the minimum number of listed assets will not be less than 40. | ||||||||||
| | | The fair value of the Senior Unsecured Loan Note as at 31 July 2024 was £27,112,000 (2023 - £26,603,000), the value being based on a comparable quoted debt security. | ||||||||||
| | | | | | | | | | ||||
| | | | | | | | 2024 | 2023 | ||||
| | | | | | | | £'000 | £'000 | ||||
| | (c) | Deferred tax liability on Indian capital gains | | | | | 10,291 | 4,609 | ||||
| 14. | Called up share capital | | | |
| | | | 2024 | 2023 |
| | | | £'000 | £'000 |
| | Allotted, called-up and fully paid | | | |
| | Ordinary shares of 5p (2023 - 5p) | | 7,681 | 7,823 |
| | Treasury shares | | 2,755 | 2,612 |
| | | | 10,436 | 10,435 |
| | | | | |
| | | | | |
| | | Ordinary | Treasury | Total |
| | | shares | shares | shares |
| | | Number | Number | Number |
| | At 31 July 2023 | 156,457,978 | 52,244,590 | 208,702,568 |
| | Conversion of CULS | 18,740 | - | 18,740 |
| | Buyback of own shares | (2,850,000) | 2,850,000 | - |
| | At 31 July 2024 | 153,626,718 | 55,094,590 | 208,721,308 |
| | | | | |
| | During the year 2,850,000 Ordinary shares of 5p were purchased (2023 - 500,000 Ordinary shares of 5p were purchased) by the Company at a total cost of £7,476,000 (2023 - total cost of £1,262,000), all of which were held in treasury. At the year end 55,094,590 (2023 - 52,244,590) shares were held in treasury, which represents 26.40% (2023 - 25.03%) of the Company's total issued share capital at 31 July 2024. During the year there were a further 18,740 (2023 - 4,347) Ordinary shares issued as a result of CULS conversions. | |||
| | Since the year end the Company bought back for treasury a further 2,372,500 Ordinary shares for a total consideration of £6,809,000. | |||
| 15. | Reserves | | |
| | | 2024 | 2023 |
| | | £'000 | £'000 |
| | Capital reserve | | |
| | At 31 July 2023 | 393,238 | 375,450 |
| | Movement in investment holdings fair value | 5,137 | 5,327 |
| | Gains on realisation of investments at fair value | 34,134 | 19,991 |
| | Purchase of own shares to treasury | (7,476) | (1,262) |
| | Movement in deferred liability on Indian capital gains | (5,682) | (1,925) |
| | Capital gains tax on sales | - | (182) |
| | Foreign exchange movement | (1,052) | (384) |
| | Capital expenses | (3,811) | (3,777) |
| | At 31 July 2024 | 414,488 | 393,238 |
| | | | |
| | The capital reserve includes investment holding gains amounting to £157,572,000 (2023 - £152,435,000) as disclosed in note 10. The above split in capital reserve is shown in accordance with provisions of the Statement of Recommended Practice 'Financial Statements Of Investment Trust Companies and Venture Capital Trusts'. | ||
| 16. | Net asset value per share | | |
| | | 2024 | 2023 |
| | Basic | | |
| | Net assets attributable | £502,260,000 | £485,784,000 |
| | Number of shares in issueA | 153,626,718 | 156,457,978 |
| | Net asset value per share | 326.94p | 310.49p |
| | | | |
| | | | |
| | | 2024 | 2023 |
| | Diluted | | |
| | Net assets attributable | £538,628,000 | £521,959,000 |
| | Number of shares in issueA | 166,109,558 | 168,959,568 |
| | Net asset value per shareB | 324.26p | 308.93p |
| | A Calculated excluding shares held in treasury. | ||
| | B The diluted net asset value per share has been calculated on the assumption that £36,574,720 (2023 - £36,629,659) 2.25% Convertible Unsecured Loan Stock 2025 ("CULS") is converted at 293.0p (2023 - 293.0p) per share, giving a total of 166,109,558 (2023 - 168,959,568) shares. Where dilution occurs, the net assets are adjusted for items relating to the CULS. | ||
| | Net asset value per share - debt converted. In accordance with the Company's understanding of the current methodology adopted by the AIC, convertible financial instruments are deemed to be "in the money" if the cum income net asset value ("NAV") exceeds the conversion price of 293.0p (2023 - 293.0p) per share. In such circumstances a net asset value is produced and disclosed assuming the convertible debt is fully converted. At 31 July 2024 the cum income NAV was 326.94p (2023 - 310.49p) and thus the CULS were 'in the money' (2023 - same). | ||
| 17. | Analysis of changes in net debt | | | | | |
| | | At | | | | At |
| | | 31 July | Currency | Cash | Non-cash | 31 July |
| | | 2023 | differences | flows | movements | 2024 |
| | | £'000 | £'000 | £'000 | £'000 | £'000 |
| | Cash and short term deposits | 5,807 | (1,052) | 7,948 | - | 12,703 |
| | Debt due within one year | - | - | - | (36,368) | (36,368) |
| | Debt due after more than one year | (70,682) | - | - | 30,485 | (40,197) |
| | | (64,875) | (1,052) | 7,948 | (5,883) | (63,862) |
| | | | | | | |
| | | | | | | |
| | | At | | | | At |
| | | 31 July | Currency | Cash | Non-cash | 31 July |
| | | 2022 | differences | flows | movements | 2023 |
| | | £'000 | £'000 | £'000 | £'000 | £'000 |
| | Cash and short term deposits | 9,471 | (384) | (3,280) | - | 5,807 |
| | Debt due after more than one year | (68,516) | - | - | (2,166) | (70,682) |
| | | (59,045) | (384) | (3,280) | (2,166) | (64,875) |
| | | | | | | |
| | 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. | 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 considered to be related party transactions and are disclosed within the Directors' Remuneration Report on pages 56 and 57 of the published Annual Report and financial statements for the year ended 31 July 2024. The balance of fees due to Directors at the year end was £nil (2023 - £nil). |
| | The Company's Investment Manager, abrdn Asia, is a wholly-owned subsidiary of abrdn plc, which has been delegated, under an agreement with aFML, to provide management services to the Company, the terms of which are outlined in notes 4 and 5 along with details of transactions during the year and balances outstanding at the year end. |
| 19. | 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 equities and other investments, cash balances, loans and debtors and creditors that arise directly from its operations; for example, in respect of sales and purchases awaiting settlement, and debtors for accrued income. |
| | The Board has delegated the risk management function to aFML under the terms of its management agreement with aFML (further details of which are included under note 4 and in the Directors' Report) however, it remains responsible for the risk and control framework and operation of third parties. 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. |
| | 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, 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 Group's Internal Audit Department is independent of the Risk Division and reports directly to the Group CEO and to the Audit Committee of the Group's Board of Directors. The Internal Audit Department is responsible for providing an independent assessment of the Group's control environment. |
| | The 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 CEO of the Group. 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 corporate governance structure is supported by several committees to assist the board of directors, its subsidiaries and the Company to fulfil their roles and responsibilities. The Group's Risk Division is represented on all committees, with the exception of those committees that deal with investment recommendations. The specific goals and guidelines on the functioning of those committees are described in the committees' terms of reference. |
| | Risk management. The main risks the Company faces from these financial instruments are (i) market risk (comprising interest rate, foreign currency and other 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. |
| | Interest rate risk. Interest rate movements may affect: |
| | - the level of income receivable on cash deposits; |
| | - valuation of debt securities in the portfolio. |
| | 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. When drawn down, interest rates are fixed on borrowings. |
| | Interest rate risk profile. The interest rate risk profile of the Company's financial assets and liabilities, excluding equity holdings which are all non-interest bearing, at the reporting date was as follows: | ||||
| | | | | | |
| | | Weighted average | Weighted | | |
| | | period for which | average | Fixed | Floating |
| | | rate is fixed | interest rate | rate | rate |
| | At 31 July 2024 | Years | % | £'000 | £'000 |
| | Assets | | | | |
| | Sterling | - | - | - | 11,295 |
| | Chinese Renminbi | - | - | - | 985 |
| | Vietnam Dong | - | - | - | 247 |
| | New Taiwan Dollar | | | | 155 |
| | Indian Rupee | - | - | - | 20 |
| | US Dollar | - | - | - | 1 |
| | | - | - | - | 12,703 |
| | Liabilities | | | | |
| | 2.25% Convertible Unsecured Loan Stock 2025 | 0.83 | 2.3 | 36,368 | - |
| | 3.05% Senior Unsecured Loan Note 2035 | 11.34 | 3.1 | 29,906 | - |
| | | - | - | 66,274 | - |
| | | | | | |
| | | | | | |
| | | Weighted average | Weighted | | |
| | | period for which | average | Fixed | Floating |
| | | rate is fixed | interest rate | rate | rate |
| | At 31 July 2023 | Years | % | £'000 | £'000 |
| | Assets | | | | |
| | Sterling | - | - | - | 4,664 |
| | Chinese Renminbi | - | - | - | 775 |
| | Vietnam Dong | - | - | - | 361 |
| | Thailand Baht | - | - | - | 4 |
| | US Dollar | - | - | - | 3 |
| | | - | - | - | 5,807 |
| | Liabilities | | | | |
| | 2.25% Convertible Unsecured Loan Stock 2025 | 1.83 | 2.3 | 36,175 | - |
| | 3.05% Senior Unsecured Loan Note 2035 | 12.35 | 3.1 | 29,898 | - |
| | | - | - | 66,073 | - |
| | | | | | |
| | The weighted average interest rate is based on the current yield of each asset or liability, 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 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 return. |
| | Foreign currency risk. Most 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 investment with foreign currency borrowings. |
| | The revenue account is subject to currency fluctuations arising on dividends receivable in foreign currencies and, indirectly, due to the impact of foreign exchange rates upon the profits of investee companies. It is not the Company's policy to hedge this currency risk but the Board keeps under review the currency returns in both capital and income. |
| | Foreign currency risk exposure by currency of denomination: | ||||||
| | | | | | | | |
| | | 31 July 2024 | 31 July 2023 | ||||
| | | | Net monetary | Total | | Net monetary | Total |
| | | Overseas | assets/ | currency | Overseas | assets/ | currency |
| | | investments | (liabilities) | exposure | Investments | (liabilities) | exposure |
| | | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
| | Chinese Renminbi | 23,653 | 985 | 24,638 | 21,839 | 775 | 22,614 |
| | Danish Krona | | - | - | 10,937 | - | 10,937 |
| | Hong Kong Dollar | 45,564 | - | 45,564 | 49,118 | - | 49,118 |
| | Indian Rupee | 159,012 | 20 | 159,032 | 89,410 | - | 89,410 |
| | Indonesian Rupiah | 53,552 | - | 53,552 | 64,045 | - | 64,045 |
| | Korean Won | 53,366 | - | 53,366 | 46,231 | - | 46,231 |
| | Malaysian Ringgit | 18,784 | - | 18,784 | 30,827 | - | 30,827 |
| | New Taiwan Dollar | 81,434 | 155 | 81,589 | 69,008 | - | 69,008 |
| | New Zealand Dollar | 6,727 | - | 6,727 | 12,605 | - | 12,605 |
| | Philippine Peso | 19,012 | - | 19,012 | 20,287 | - | 20,287 |
| | Singapore Dollar | 2,290 | - | 2,290 | 33,221 | - | 33,221 |
| | Sri Lankan Rupee | 13,801 | - | 13,801 | 14,586 | - | 14,586 |
| | Thailand Baht | 22,347 | - | 22,347 | 32,643 | 4 | 32,647 |
| | US Dollar | 10,073 | 1 | 10,074 | 11,461 | 3 | 11,464 |
| | Vietnamese Dong | 40,431 | 247 | 40,678 | 31,161 | 361 | 31,522 |
| | | 550,046 | 1,408 | 551,454 | 537,379 | 1,143 | 538,522 |
| | Sterling | 14,751 | (54,979) | (40,228) | 12,293 | (61,409) | (49,116) |
| | Total | 564,797 | (53,571) | 511,226 | 549,672 | (60,266) | 489,406 |
| | | | | | | | |
| | Foreign currency sensitivity. The Company's foreign currency financial instruments are in the form of equity investments, fixed interest investments, cash and bank loans. The sensitivity of the former has been included within other price risk sensitivity analysis so as to show the overall level of exposure. Due consideration is paid to foreign currency risk throughout the investment process. | ||||||
| | Other price risk. Other price risks (ie changes in market prices other than those arising from interest rate or currency risk) may affect the value of the quoted investments. | ||||||
| | Investment in Far East equities or those of companies that derive significant revenue or profit from the Far East involves a greater degree of risk than that usually associated with investment in the securities in major securities markets. The securities that the Company owns may be considered speculative because of this higher degree of 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 103 and 104 of the published Annual Report and financial statements for the year ended 31 July 2024, act to reduce market risk. The Manager actively monitors market prices throughout the year and reports to the Board, which meets regularly in order to review investment strategy. The investments held by the Company are listed on various stock exchanges worldwide. | ||||||
| | Other price risk sensitivity. If market prices at the reporting date had been 20% (2023 - 20%) higher or lower while all other variables remained constant, the return attributable to Ordinary shareholders for the year ended 31 July 2024 would have increased/(decreased) by £112,959,000 (2023 - increased/(decreased) by £109,934,000) 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 Board imposes borrowing limits to ensure gearing levels are appropriate to market conditions and reviews these on a regular basis. Gearing comprises both senior unsecured loan notes and convertible unsecured loan stock. The Board has imposed a maximum gearing level, measured on the most stringent basis of calculation after netting off cash equivalents, of 25%. Details of borrowings at the 31 July 2024 are shown in note 13. | ||||||
| | Liquidity risk is not considered to be significant as the Company's assets comprise mainly readily realisable securities, which can be sold to meet funding commitments if necessary. Details of the Board's policy on gearing are shown in the investment policy section on page 16 of the published Annual Report and financial statements for the year ended 31 July 2024. | ||||||
| | Liquidity risk exposure. At 31 July 2024 the Company had borrowings in the form of the £36,574,000 (2023 - £36,629,000) nominal of 2.25% Convertible Unsecured Loan Stock 2025 and £29,906,000 (2023 - £29,898,000) in the form of the 3.05% Senior Unsecured Loan Note 2035. | ||||||
| | At 31 July 2024 the amortised cost of the Company's 3.05% Senior Unsecured Loan Note 2035 was £29,906,000 (2023 - £29,898,000). The maximum exposure at 31 July 2024 was £29,906,000 (2023 - £29,898,000) and the minimum exposure at 31 July 2024 was £29,898,000 (2023 - £29,892,000). | ||||||
| | The maturity profile of the Company's existing borrowings is set out below. | ||||||
| | | | | | | | |
| | | | | | | Due | |
| | | | | | Due | between | |
| | | | | Expected | within | 3 months | Due after |
| | | | | cashflows | 3 months | and 1 year | 1 year |
| | 31 July 2024 | | | £'000 | £'000 | £'000 | £'000 |
| | 2.25% Convertible Unsecured Loan Stock 2025 | 37,053 | - | 37,053 | - | ||
| | 3.05% Senior Unsecured Loan Note 2035 | 40,523 | - | 915 | 39,608 | ||
| | | | | 77,576 | - | 37,968 | 39,608 |
| | | | | | | | |
| | | | | | | Due | |
| | | | | | Due | between | |
| | | | | Expected | within | 3 months | Due after |
| | | | | cashflows | 3 months | and 1 year | 1 year |
| | 31 July 2023 | | | £'000 | £'000 | £'000 | £'000 |
| | 2.25% Convertible Unsecured Loan Stock 2025 | 37,691 | - | 827 | 36,864 | ||
| | 3.05% Senior Unsecured Loan Note 2035 | 41,438 | - | 915 | 40,523 | ||
| | | | | 79,129 | - | 1,742 | 77,387 |
| | | | | | | | |
| | Credit risk. This is the risk of failure of the counterparty to a transaction to discharge its obligations under that transaction that could result in the Company suffering a loss. | ||||||
| | Management of the risk. Investment transactions are carried out with a large number of brokers, whose credit-standing is reviewed periodically by the Investment Manager, and limits are set on the amount that may be due from any one broker. Settlement of investment transactions are also done on a delivery versus payment basis; | ||||||
| | - the risk of counterparty exposure due to failed trades causing a loss to the Company is mitigated by the review of failed trade reports on a monthly basis. In addition, the third party administrator carries out a stock reconciliation to Custodian records on a monthly basis to ensure discrepancies are picked up on a timely basis. The Manager's compliance department carries out periodic reviews of the Custodian'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; and | ||||||
| | - cash is held only with reputable banks with high quality external credit ratings. | ||||||
| | It is the Manager's policy to trade only with A- and above (Long Term rated) and A-1/P-1 (Short Term rated) counterparties. | ||||||
| | None of the Company's financial assets is 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 July was as follows: | ||||||
| | | | | | | | |
| | | | | 2024 | 2023 | ||
| | | | | Statement | | Statement | |
| | | | | of Financial | Maximum | of Financial | Maximum |
| | | | | Position | exposure | Position | exposure |
| | Current assets | | | £'000 | £'000 | £'000 | £'000 |
| | Debtors and prepayments | 3,808 | 3,808 | 2,237 | 2,237 | ||
| | Cash and short term deposits | 12,703 | 12,703 | 5,807 | 5,807 | ||
| | | | | 16,511 | 16,511 | 8,044 | 8,044 |
| | | | | | | | |
| | None of the Company's financial assets is past due or impaired. | ||||||
| | Fair values of financial assets and financial liabilities. The fair value of the loan note has been calculated at £27,112,000 as at 31 July 2024 (2023 - £26,603,000) compared to a value at amortised cost in the financial statements of £29,906,000 (2023 - £29,898,000) (note 13). The fair value of the loan note 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. Investments held at fair value through profit or loss are valued at their quoted bid prices which equate to their fair values. The Directors are of the opinion that the other financial assets and liabilities, excluding CULS which are held at amortised cost, are stated at fair value in the Statement of Financial Position and considered that this approximates to the carrying amount. | ||||||
| 20. | 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. | |||||||||
| | Level 1: unadjusted quoted prices in an active market for identical assets or liabilities that the entity can access at the measurement date. | |||||||||
| | Level 2: inputs other than quoted prices included within Level 1 that are observable (ie developed using market data) for the asset or liability, either directly or indirectly. | |||||||||
| | Level 3: inputs are unobservable (ie for which market data is unavailable) for the asset or liability. | |||||||||
| | The financial assets measured at fair value in the Statement of Financial Position are grouped into the fair value hierarchy at 31 July 2024 as follows: | |||||||||
| | | | | | | | ||||
| | | | Level 1 | Level 2 | Level 3 | Total | ||||
| | As at 31 July 2024 | Note | £'000 | £'000 | £'000 | £'000 | ||||
| | Financial assets and liabilities at fair value through profit or loss | | | | | | ||||
| | Quoted equities | a) | 562,138 | - | - | 562,138 | ||||
| | Quoted preference shares | b) | - | - | 2,438 | 2,438 | ||||
| | Quoted warrants | b) | - | 221 | - | 221 | ||||
| | Net fair value | | 562,138 | 221 | 2,438 | 564,797 | ||||
| | | | | | | | ||||
| | | | | | | | ||||
| | | | Level 1 | Level 2 | Level 3 | Total | ||||
| | As at 31 July 2023 | Note | £'000 | £'000 | £'000 | £'000 | ||||
| | Financial assets and liabilities at fair value through profit or loss | | | | | | ||||
| | Quoted equities | a) | 536,515 | - | 9,958 | 546,473 | ||||
| | Quoted preference shares | b) | - | - | 2,835 | 2,835 | ||||
| | Quoted warrants | b) | - | 247 | 117 | 364 | ||||
| | Net fair value | | 536,515 | 247 | 12,910 | 549,672 | ||||
| | | | | | | | ||||
| | a) Quoted equities. The fair value of the Company's investments in quoted equities has been determined by reference to their quoted bid prices at the reporting date. Quoted equities included in Fair Value Level 1 are actively traded on recognised stock exchanges. | |||||||||
| | b) Quoted preference shares and quoted warrants. The fair value of the Company's investments in quoted preference shares and quoted warrants has been determined by reference to their quoted bid prices at the reporting date. Investments categorised as Level 2 are not considered to trade as actively as Level 1 assets. | |||||||||
| | | | | | | | ||||
| | | | | | Year ended | Year ended | ||||
| | | | | | 31 July 2024 | 31 July 2023 | ||||
| | Level 3 Financial assets at fair value through profit or loss | | | | £'000 | £'000 | ||||
| | Opening fair value | | | | 12,910 | 9,664 | ||||
| | Transfer to level 1 | | | | (9,958) | - | ||||
| | Transfers from level 2 | | | | - | 2,952 | ||||
| | Total gains or losses included in losses on investments in the Statement of Comprehensive Income: | | | | | | ||||
| | - assets disposed of during the year | | | | - | - | ||||
| | - assets held at the end of the year | | | | (514) | 294 | ||||
| | Closing balance | | | | 2,438 | 12,910 | ||||
| | | | | | | | ||||
| | The Company's investee, CEBU Holdings received final regulatory approval to merge with another company, Ayala Land, during the year and new shares were issued in Ayala Land to satisfy the transaction by a share conversion. The valuation methodology previously employed was based on the underlying quoted price of Ayala Land and the implied conversion ratio providing a value of £9,958,000 at the previous year end, 31 July 2023. As a result, a transfer of £9,958,000 has been made from level 3 to level 1. | |||||||||
| | Transfers from level 2 during 2023 comprise Millennium & Copthorne preference shares of £2,835,000 to reflect the absence of a consistent market quote. These have been priced in line with their Ordinary shares and valued at £2,438,000 at the current year end. In addition First Sponsor Group warrants of £117,000 have been classified as level 3 to reflect their illiquidity. Their fair value has been based on a trade executed in February 2023 and the holding was sold during the year. | |||||||||
| 21. | Capital management policies and procedures | | |
| | The Company manages its capital to ensure that it will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt (comprising CULS and Loan Note) and equity balance. | ||
| | The Company's capital comprises the following: | ||
| | | 2024 | 2023 |
| | | £'000 | £'000 |
| | Equity | | |
| | Equity share capital | 10,436 | 10,435 |
| | Reserves | 491,824 | 475,349 |
| | Liabilities | | |
| | 3.05% Senior Unsecured Loan Note 2035 | 29,906 | 29,898 |
| | 2.25% Convertible Unsecured Loan Stock 2025 | 36,368 | 36,175 |
| | | 568,534 | 551,857 |
| | | | |
| | The Board's policy is to utilise gearing when the Manager believes it appropriate to do so, up to a maximum of 25% geared at the time of drawdown. Gearing for this purpose is defined as the excess amount above shareholders' funds of total assets (including net current assets/liabilities) less cash/cash equivalents, expressed as a percentage of the shareholders' funds. If the amount so calculated is negative, this is shown as a 'net cash' position. | ||
| | | | |
| | | 2024 | 2023 |
| | | £'000 | £'000 |
| | Investments at fair value through profit or loss | 564,797 | 549,672 |
| | Current assets excluding cash and cash equivalents | 1,248 | 894 |
| | Current liabilities | (1,328) | (1,250) |
| | Deferred tax liability on Indian capital gains | (10,291) | (4,609) |
| | | 554,426 | 544,707 |
| | | | |
| | Shareholders' funds | 502,260 | 485,784 |
| | | | |
| | Gearing (%) | 10.4 | 12.1 |
| | | | |
| | The Board monitors and reviews the broad structure of the Company's capital on an ongoing basis. The review includes: | ||
| | - the planned level of gearing which takes account of the Manager's views on the market; | ||
| | - the level of equity shares in issue; | ||
| | - the extent to which revenue in excess of that which is required to be distributed should be retained. | ||
| | The Company's objectives, policies and processes for managing capital are unchanged from the preceding accounting period. | ||
| | The Company does not have any externally imposed capital requirements. | ||
Alternative Performance Measures
| Alternative Performance Measures ("APMs") are numerical measures of the Company's current, historical or future performance, financial position or cash flows, other than financial measures defined or specified in the applicable financial framework. The Company's applicable financial framework includes FRS 102 and the AIC SORP. The Directors assess the Company's performance against a range of criteria which are viewed as particularly relevant for closed-end investment companies. | |||
| Discount to net asset value per Ordinary share | |||
| The difference between the share price and the net asset value per Ordinary share expressed as a percentage of the net asset value per Ordinary share. 2024 has been presented on a diluted basis as the Convertible Unsecured Loan Stock ("CULS") is "in the money" (2023 - same). | |||
| | | | |
| | | As at | As at |
| | | 31 July 2024 | 31 July 2023 |
| NAV per Ordinary share (p) | a | 324.26 | 308.93 |
| Share price (p) | b | 278.00 | 264.00 |
| Discount | (a-b)/a | 14.3% | 14.5% |
| | | | |
| Dividend cover | | | |
| Revenue return per Ordinary share divided by dividends declared for the year per Ordinary share expressed as a ratio. | |||
| | | | |
| | | Year ended | Year ended |
| | | 31 July 2024 | 31 July 2023 |
| Revenue return per Ordinary share (p) | a | 8.59 | 10.29 |
| Dividends declared (p) | b | 6.42 | 8.66 |
| Dividend cover | a/b | 1.34 | 1.19 |
| | | | |
| 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 from and to brokers at the year end as well as cash and short term deposits. | |||
| | | | |
| | | Year ended | Year ended |
| | | 31 July 2024 | 31 July 2023 |
| Borrowings (£'000) | a | 66,274 | 66,073 |
| Cash and short term deposits (£'000) | b | 12,703 | 5,807 |
| Amounts due to brokers (£'000) | c | 1,155 | - |
| Amounts due from brokers (£'000) | d | 2,560 | 1,343 |
| Shareholders' funds (£'000) | e | 502,260 | 485,784 |
| Net gearing | (a-b+c-d)/e | 10.4% | 12.1% |
| | | | |
| 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 throughout the year. | |||
| | | | |
| | | 2024 | 2023 |
| Investment management fees (£'000) | | 3,076 | 3,012 |
| Administrative expenses (£'000) | | 1,306 | 1,328 |
| Less: non-recurring chargesA (£'000) | | (32) | (67) |
| Ongoing charges (£'000) | | 4,350 | 4,273 |
| Average net assets (£'000) | | 488,772 | 462,127 |
| Ongoing charges ratio | | 0.89% | 0.92% |
| A Professional fees comprising corporate and legal fees considered unlikely to recur. | |||
| | | | |
| The ongoing charges ratio provided in the Company's Key Information Document is calculated in line with the PRIIPs regulations, which includes finance costs and transaction charges. | |||
| | | | |
| 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. NAV and share price total returns are monitored against open-ended and closed-ended competitors, and the Reference Index, respectively. | |||
| | | | |
| | | | Share |
| Year ended 31 July 2024 | | NAV | Price |
| Opening at 1 August 2023 | a | 308.93p | 264.00p |
| Closing at 31 July 2024 | b | 324.26p | 278.00p |
| Price movements | c=(b/a)-1 | 5.0% | 5.3% |
| Dividend reinvestmentA | d | 2.9% | 3.5% |
| Total return | c+d | +7.9% | +8.8% |
| | | | |
| | | | |
| | | | Share |
| Year ended 31 July 2023 | | NAV | Price |
| Opening at 1 August 2022 | a | 295.25p | 254.00p |
| Closing at 31 July 2023 | b | 308.93p | 264.00p |
| Price movements | c=(b/a)-1 | 4.6% | 3.9% |
| Dividend reinvestmentA | d | 3.0% | 3.4% |
| Total return | c+d | +7.6% | +7.3% |
| 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. | |||
The Annual General Meeting will be held at 18 Bishops Square, London, E1 6EG, at 11:00 a.m. on 6 December 2024.
Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise and may be affected by exchange rate movements. Investors may not get back the amount they originally invested.
The Annual Financial Report Announcement is not the Company's statutory accounts. The above results for the year ended 31 July 2024 are an abridged version of the Company's full financial statements, which have been approved and audited with an unqualified report. The 2023 and 2024 statutory accounts received unqualified reports from the Company's auditors and did not include any reference to matters to which the auditors drew attention by way of emphasis without qualifying the reports and did not contain a statement under s.498(2) or 498(3) of the Companies Act 2006. The financial information for 2023 is derived from the statutory accounts for 2021 which have been delivered to the Registrar of Companies. The 2024 financial statements will be filed with the Registrar of Companies in due course.
The audited Annual Report and financial statements will be posted to shareholders in November. Copies may be obtained during normal business hours from the Company's Registered Office, 280 Bishopsgate, London EC2M 4AG or from the Company's website, asia-focus.co.uk*
* Neither the content of the Company's website nor the content of any website accessible from hyperlinks on the Company's website (or any other website) is (or is deemed to be) incorporated into, or forms (or is deemed to form) part of this announcement.
By Order of the Board
abrdn Holdings Limited
Secretary
23 October 2024
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