TIDMDGN
RNS Number : 7935E
Asia Dragon Trust PLC
01 November 2022
ASIA DRAGON TRUST PLC
LEI: 549300W4KB0D75D1N730
Capturing growth from world-class Asian companies
ANNUAL FINANCIAL REPORT FOR THE YEARED 31 AUGUST 2022
Performance Highlights
Net asset value total return(A) Net asset value per share
(8.4)% 513.3p
2021 +20.5% 2021 566.6p
Share price total return(A) Share price
(11.8)% 446.0p
2021 +24.3% 2021 512.0p
Benchmark total return (in sterling Ongoing charges(A)
terms)
(7.1)% 0.84%
2021 +14.7% 2021 0.83%
Earnings per share (revenue) Dividend per share
6.38p 6.50p
2021 7.36p 2021 6.50p
(A) Considered to be an Alternative Performance Measure. Further details
can be found in the below
Financial Calendar, Dividends and Highlights
Financial Calendar
Pre-AGM Investor Presentation 21 November 2022
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Annual General Meeting 9 December 2022
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Payment of Final Dividend 16 December 2022
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Half year end 28 February 2023
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Expected announcement of results April 2023
for the six months ending 28 February
2023
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Financial year end 31 August 2023
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Expected announcement of results November 2023
for the year ending 31 August 2023
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Dividends
Rate xd date Record date Payment date
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Proposed final 6.50p 10 November 2022 11 November 2022 16 December
2022 2022
============== ===== ================ ================ ============
Final 2021 6.50p 18 November 2021 19 November 2021 17 December
2021
============== ===== ================ ================ ============
Highlights
31 August 31 August % change
2022 2021
======================================== ========= ========= ========
Performance
================================================ ========= ========= =======
Total shareholders' funds (GBP'000) 614,369 706,929 -13.1
================================================ ========= ========= =======
Net asset value per share (capital return
basis) (p) 513.32 566.60 -9.4
================================================ ========= ========= =======
Net asset value per share (total return
basis) (%) -8.4 +20.5
================================================ ========= ========= =======
Share price (capital return basis) (p) 446.00 512.00 -12.9
================================================ ========= ========= =======
Market capitalisation (GBP'000) 533,800 638,804 -16.4
================================================ ========= ========= =======
MSCI AC Asia (ex Japan) Index (in sterling
terms; capital return basis) 1,030.48 1,138.78 -9.5
================================================ ========= ========= =======
MSCI AC Asia (ex Japan) Index (in sterling
terms; total return basis) (%) -7.1 +14.7
================================================ ========= ========= =======
Revenue return per share (p) 6.38 7.36 -13.3
================================================ ========= ========= =======
Total return per share (p) (49.53) 96.60 -151.3
================================================ ========= ========= =======
Dividend
================================================ ========= ========= =======
Dividend per share (p) 6.50 6.50 -
================================================ ========= ========= =======
Gearing
================================================ ========= ========= =======
Net gearing (%)(A) 9.0 7.9
================================================ ========= ========= =======
Discount
================================================ ========= ========= =======
Discount to net asset value (%)(A) 13.1 9.6
================================================ ========= ========= =======
Operating costs
================================================ ========= ========= =======
Ongoing charges ratio(A) 0.84 0.83
================================================ ========= ========= =======
(A) Considered to be an Alternative Performance Measure. Further details
can be found below.
Chairman's Statement
Overview
As Shareholders are more than aware, the last 12 months have
been another challenging and, at times, turbulent period for
investors, with macroeconomic and geopolitical risks coming to the
fore. While Asian markets have proven more resilient than those of
other emerging markets, the region could not entirely avoid the
global concerns of rising inflation, recession risk and conflict in
Europe. Against this backdrop, the MSCI AC Asia ex Japan fell 7.1%
over the 12 months, while the Company's net asset value (NAV) also
declined, down 8.4%, on a total return basis.
The Company's long term performance record remains intact,
outperforming its benchmark and recording a gain, in NAV terms, of
just under 30% in the five years to 31 August 2022.
Covid-19 again dominated the early part of the period under
review, as further lockdown measures hampered recovery. However, as
2022 has progressed, most economies have begun to reopen, as
governments ramped up vaccinations and loosened Covid restrictions.
As a result, improving tourism and increasing consumer spending,
due to the release of pent-up demand, have aided economic recovery.
This has particularly benefited the Company's holdings in the ASEAN
region, with positions in Indonesia, Singapore, and off-benchmark
holdings in Vietnam among the strongest performers. In China,
however, the 'zero-Covid' policy has continued, dampening domestic
activity and impacting global supply chains. This has also put
further pressure on an economy already struggling with a weak
property market and tighter regulatory conditions. As a result,
China was among the market's worst performers, albeit your
Company's holdings have fared better in such a difficult landscape,
reflecting your Manager's focus on quality and opportunities with
long-term structural growth prospects.
At the time of writing, China's 20th Party Congress has just
ended with a new seven-strong CPC Politburo Standing Committee
being established. Xi Jinping has clearly cemented his control of
the party and the extent of this has surprised the market. The
Manager discusses this more in their Review.
Russia's invasion of Ukraine also contributed to global
inflationary pressures through the disruption of oil supplies,
driving Brent crude above US$100 per barrel at one point. Supply
fears boosted share prices and made Asia's energy sector one of the
top performers over the period. This was negative for the Company's
relative returns, as we have no exposure to the sector. With the
global transition to renewables and growing need for new energy
sources, abrdn (Asia) Limited (the Manager) favours pockets of
opportunity within this segment, especially the various parts of
the supply chains for solar and auto electrification, including the
hardware required for developing renewable energy.
One of the key themes impacting Asia has been tightening US
monetary policy, exacerbated by the build-up of global inflationary
pressures. The US Federal Reserve implemented four interest rate
increases over 2022, which continued to drive a de-rating of
expensive growth stocks and a rotation to value for much of the
period. While inflation is lower in most Asian countries than
elsewhere, many central banks, including those in Indonesia, India,
and Korea, have also begun to raise interest rates. The notable
exception here is the People's Bank of China, which cut several key
lending rates to support the economy amid significant domestic
growth challenges. As I said in this year's interim report, prudent
policies mean that most Asian policymakers have monetary and fiscal
room for manoeuvre, which mean they are better able to mitigate any
serious slowdown in growth.
Given the global backdrop, your Manager has assessed the
portfolio to ensure that it includes high-quality stocks that
should prove more resilient to volatile markets, consolidating
exposure into companies that are best able to withstand tougher
operating conditions and seize long-term structural growth
opportunities. E nvironmental, social and governance (ESG) factors
are also considered in all investment decisions, and also at Board
level, where ESG integration has become an increasingly important
part of our discussions over the course of the year. The Trust's
portfolio is ESG AA rated by MSCI, which is higher than the
benchmark rating of A.
You can find more detail on performance and portfolio activity
in the Investment Manager's Review, and our approach to ESG in the
ESG report.
Gearing
The Board believes that the sensible use of modest financial
gearing should enhance returns to shareholders over the longer
term. At the beginning of the financial year the Company had in
place a GBP75 million three-year loan facility with Scotiabank
Europe plc, of which GBP25 million was fixed and fully drawn down
with a further GBP40 million of the revolving GBP50 million
facility drawn down. The facility expired in July 2022 and the
Board was pleased to announce that it had entered into loan
facilities totalling a commitment of GBP60 million with The Royal
Bank of Scotland International Limited, London Branch. The
facilities, which are unsecured, consist of a two-year fixed
facility of GBP25m, which is fully drawn, and a two year GBP35m
multi-currency revolving credit facility which has also been fully
drawn.
At 31 August 2022, the Company's net gearing position was 9.0%,
compared to 7.9% at the end of August 2021.
The Investment Manager continues to monitor closely gearing
levels and bank covenants. As at 28 October 2022, the Company's net
assets stood at GBP490m and net gearing was 11.3%. These levels
remain comfortably within the covenant limits.
Discounts and Share Buybacks
The discount level of the Company's shares is closely monitored
by the Board and the Investment Manager and share buybacks are
undertaken when appropriate. During the year ended 31 August 2022,
5.1 million shares were bought back into treasury at a cost of
GBP24.0 million (2021: 1.6 million shares were bought back into
treasury at a cost of GBP7.7 million). Since 31 August 2022, a
further 651,351 shares have been bought back into treasury at a
cost of GBP2.7 million. The discount at the financial year end was
13.1% (2021: 9.6%). As at 28 October 2022, the discount was 13.3%
.
Revenue Account
The Company's revenue return per share was 6.38p for the year to
31 August 2022 (2021 - 7.36p). As reported in the last annual
report, the Company adopted a new policy for the allocation of
management fees and finance costs during the financial year to 31
August 2021. The new policy, to allocate 25% to revenue and 75% to
capital, continues to apply to the Company.
The Board has declared a final dividend of 6.5p per Ordinary
share (2021 - 6.5p). The Board has taken the decision to draw on
revenue reserves in order to maintain the level of dividend to be
paid to shareholders. The dividend, if approved by shareholders at
the Annual General Meeting, will be paid on 16 December 2022 to
shareholders on the register on 11 November 2022.
The Board
The Board regularly undertakes a review of its performance and
structure to ensure that it has the appropriate mix of relevant
skills, diversity and experience for the effective operation of the
Company's business. Having served nine years on the Board, the
Board was sorry to see Kathryn Langridge retire at the AGM in
December 2021. However, we were delighted to welcome Matthew Dobbs
as a non-executive Director with effect from 1 February 2022. Mr
Dobbs is a renowned Asian and Small Companies investment expert and
brings a wealth of knowledge and experience to the Board.
Annual General Meeting
In a return to the familiar format before the onset of Covid-19,
the AGM will, once again, be held in person. The AGM in 2021 was
held in Edinburgh and the Board has agreed that the AGM in 2022
should be held in London.
The AGM will take place on Friday, 9 December 2022 at 12.00pm at
the offices of abrdn plc, in Bow Bells House, 1 Bread Street,
London EC4M 9HH.
The AGM provides shareholders with an opportunity to ask any
questions that they may have of either the Board or the Manager. I
look forward to meeting as many of you as possible over
refreshments which will follow the AGM. Shareholders, whether
attending the AGM or not, are encouraged to submit questions for
the Board and/or the Manager, in advance, by email to
asia.dragon@abrdn.com .
Online Shareholder Presentation
In order to encourage as much interaction as possible with our
shareholders, we will be hosting an Online Shareholder
Presentation, which will be held at 11:00am on 21 November 2022. At
this event there will be a presentation from the Investment Manager
followed by an opportunity to ask live questions of the Chairman,
Senior Independent Director and the Investment Manager. The online
presentation is being held ahead of the AGM to allow shareholders
time to submit their proxy votes after the presentation but prior
to the deadline for submitting proxies for the AGM should they so
wish. Full details on how to register for the online event can be
found at
https://www.workcast.com/register?cpak=3501849254509496.
Outlook
Given the background I referred to above, the macroeconomic
position and geopolitical turbulence are unlikely to make the
overall investment backdrop less volatile. Asia, however, is still
less vulnerable than other emerging markets, given better economic
and corporate fundamentals. It also has yet to experience the surge
in inflation on the scale seen in the more developed markets like
Europe and the US.
Furthermore, the region is home to companies aligned with strong
long-term structural growth themes, among them the move to
decarbonisation as policy makers globally commit to a greener
future. Other themes include rising affluence in Asia, increased
urbanisation and an infrastructure boom, and the growth in 5G, big
data and digital interconnectivity.
While it cannot be immune to the global picture or to
geopolitical pressures, the Board remains convinced of the
long-term outlook for Asia and the types of businesses favoured by
your Manager; we support the Manager's view that the current
environment should see companies with strong balance sheets and
sustainable earnings prospects well positioned to emerge from the
current difficult period.
James Will
Chairman
31 October 2022
Investment Manager's Review
Portfolio review
It has been a year beset by multiple crises for Asian equities,
including the coronavirus resurgence, war in the heart of Europe
and recession risk. China experienced localised lockdowns under
Beijing's zero-Covid policy, which disrupted international supply
chains and constrained domestic growth. China's stance was in stark
contrast to that of other countries in Asia, where loosened Covid
measures led to a gradual re-opening of their economies.
Meanwhile, Russia's invasion of Ukraine triggered a commodity
price shock, pushing up already-high inflation and hastening the
reversal of accommodative monetary policies globally as evidenced
by rising interest rates. This, in turn, deepened concerns over a
global recession. In market terms, rising interest rates resulted
in significant rotation away from growth stocks towards value
across the globe
Against this background the MSCI Asia ex Japan Index fell by
7.1% on a total return basis. In comparison, your Company's net
asset value (NAV) fell by 8.4%. We continue to take a longer-term
view with regard to investment and our longer-term investment
record remains positive when compared to the benchmark index.
Given the volatile markets it is perhaps unsurprising that
performance was impacted, both positively and negatively, by more
factors than usual. China remains the Company's largest individual
exposure and, because of our strong stock selection in the country,
it had the largest positive impact in relative performance terms
when compared to our benchmark. The largest detractor from
performance, again in country terms, was India. In sector terms,
the largest positive contributor was the Food and Beverages sector
and the largest detractor, where we had no exposure, was the Energy
sector. We have sought to provide more colour on each of these
below:
China & Hong Kong
The mainland Chinese market was amongst the worst regional
performers over the period. Strict Covid controls, regulatory
tightening, liquidity concerns around the real estate sector and
continued tensions with the US weighed on investor confidence, even
while extensive policy support dispelled some of the gloom. Our
average portfolio exposure was somewhat below the benchmark's 36%
China weighting and this, helped by our overweight to more
domestically orientated stocks, aided returns relative to the
index.
This portfolio positioning reflects our focus on key investment
themes such as aspirational spending, digitalisation, renewable
energy, health and wealth. Although Covid and a slowing economy
have placed short-term pressure on aspirational spending, we
believe the consumption upgrade is a generational shift and one
supported by the government to increase self-sufficiency.
Over the year our stock selection in China contributed
positively to our performance, helped by our bias towards
high-quality companies and an emphasis on these structural growth
opportunities. Among the portfolio's standout performers in China
were holdings that reflected our core themes of green energy and
aspiration, where rising affluence spurs demand for premium goods
and services. Nari Technology was buoyed by policy supporting the
development of renewable energy in China. This grid automation
provider, an indirect play on clean energy, is well placed to
benefit from power-grid reform. Liquor maker Kweichou Moutai defied
the market slump thanks to its pricing power and earnings
resilience. The liquor maker's brand value gives it significant
competitive advantage in the domestic Chinese market, and we
believe that it is well placed as demand for premium products and
services grow alongside rising incomes from a growing middle class
in China. Other names that outperformed included Hong Kong
companies Budweiser APAC , which fared well from a share price and
demand perspective, notwithstanding Covid-related disruptions, and
AIA Group which benefited from the economic reopening outside of
China and anticipation of better investment yields. AIA Group's
premium market position and diversified pan-Asian revenue sources
give it notable defensive characteristics in the current
environment.
The performance of these stocks offset the negative impact of a
period of regulatory uncertainty around the Chinese internet sector
where we had a number of holdings. We have consolidated these into
our core holdings, including Alibaba Group, Tencent Holdings and
Meituan . We also built on the small position in JD.com, after
receiving its shares from Tencent Holdings through an in-specie
distribution. JD.com directly procures inventory which it sells to
consumers and delivers primarily via its in-house logistics
network. The company has built up significant scale and
differentiates itself through superior customer experience.
Valuations are attractive, while the sector's long-term outlook
remains promising. Although policy changes are disruptive, they
could help to create a better functioning market and more
sustainable growth, which should drive re-ratings for e-commerce
companies over the longer term.
We have been increasing our China A-share exposure where we see
unique longer-term opportunities not available offshore,
particularly those aligned with Beijing's strategic objectives.
Localisation of supply chains, for example, has accelerated as a
result of China's pursuit of self-reliance in critical industries.
Battery maker Contemporary Amperex Technology (CATL), an earlier
initiation highlighted in the interim report, is well positioned,
given its economies of scale and know-how, to gain from China's
push towards electric vehicle (EV) adoption. More reasonable
valuations also allowed us to add to Mindray, another beneficiary
of China's self-sufficiency drive. The medical equipment maker's
high-quality diversified portfolio of products reflects its heavy
focus on research and development. Other noteworthy top-ups include
well-established snack producer Chacha Food, where we see
considerable growth potential given the highly fragmented
industry.
With the recently ended Party Congress in China we believe that
the overall direction remains broadly unchanged. The main focus
remains on the continued drive for Common Prosperity and technology
localisation efforts to improve resilience and self-sufficiency.
Following the Congress, both onshore and offshore Chinese stock
markets saw a sell-off on the back of concerns that President Xi
could sacrifice economic growth for policies driven by ideology. In
particular, the market was disappointed at the lack of a specified
timeline for bringing an end to the zero-Covid policy and also the
fact that no detailed stimulus plans were laid out. Taking a step
back and reviewing the economic policies and reform initiatives of
the government over the last few years, these measures have largely
been positive and aimed at better positioning China for future
growth and increasing the country's long-term competitiveness. For
example, the deleveraging of the property sector and channelling of
capital to more productive and strategic areas have been correct,
directionally at least. However, these good policy intentions have
at times been plagued by poor execution which has led to
underwhelming outcomes, to say the least. With a more aligned new
leadership team, we believe execution should be more efficient and
effective going forward but the jury is clearly out at this stage
and geo-political tension has increased, at least in the short
term. The themes that are driving our investments in China have not
been impacted as a result of these political changes.
India
In India, several of our financial sector holdings added value.
SBI Life Insurance , mortgage lender Housing Development Finance
Corp (HDFC) and Kotak Mahindra Bank all outperformed, helped by
higher interest rates and the economic reopening. Separately, we
believe HDFC's merger with subsidiary HDFC Bank will drive scale
efficiencies and create new growth opportunities for the group over
the medium term. These contributions, however, failed to offset the
overall negative impact of our India exposure on portfolio
performance. Stock selection in India - notably the lack of
exposure to Reliance Industries - was the key driver of
underperformance. The conglomerate rallied on higher oil prices and
expectations of stronger refining margins. Additionally, our small
position in online insurance platform PB Fintech suffered due to
the rotation away from growth stocks, referred to above.
We remain sanguine about India which is home to many quality
companies underpinned by structural tailwinds. A salient
introduction over the year was Power Grid Corporation of India. The
power transmission company will play a prominent role in the growth
of renewable energy delivery to the grid in the decades ahead as
India shifts to clean energy. We also added Infosys , a leading
software developer backed by strong management, solid financials
and a sustainable business model. We view both firms' openness to
engaging with us on ESG matters favourably. With regard to the
portfolio, as a whole, we have a strong conviction that sound ESG
credentials can both complement a company's quality and reduce
portfolio risks while improving long-term returns. A comprehensive
report of our active engagement with the Trust's underlying
companies can be found below.
Energy
The Trust's zero exposure to energy detracted from performance
as energy prices surged following the outbreak of war in the
Ukraine. We are wary of the cyclical nature of earnings that
typifies the sector, as well as the significant State interference
in many national oil companies. The Ukraine war has also
highlighted the vulnerability of an over-dependence on fossil fuels
and accelerated the global adoption of renewable energy, which is a
clear structural trend over the medium to long term. Hence, our
preferred exposure to energy is through the renewables space via
investments in renewable energy, batteries, the EV supply chain and
related infrastructure; these do not feature in the MSCI's Energy
sector. The global green-energy transition is well underway, and
Asia is dominant in the clean energy supply chain. In addition to
the aforementioned CATL and Nari, we are positive on China-based
Longi Green Energy Technology, the world's largest solar wafer
maker, and Sungrow, a global supplier of solar inverters. We added
to both of the latter two over the year as their many strengths
include a formidable cost advantage and superior product quality
.
Financials
Financial stocks are traditionally among the beneficiaries of a
rising interest rate environment. As well as in India, the Trust's
exposure in this area was positive in Southeast Asia, as the
region's belated relaxation of Covid restrictions resulted in
growth during the year. Our long-held conviction in Indonesia and
Singapore was especially rewarding. Indonesia's Bank Central Asia
and Singapore lenders DBS Group and OCBC advanced on higher
interest rates and improving economic growth. We added to them over
the period as rising interest rates should boost net interest
margins. They are already seeing improving asset quality metrics
and increased demand for loans as restrictions ease.
Other Portfolio Activity
The growth company sell-off impacted our holdings in South
Korean internet application provider Kakao Corp and Taiwan-listed
integrated circuit maker Silergy Corp.
Meanwhile, market turmoil led to opportunities to add some new
names to the portfolio. Apart from Thailand's Kasikornbank, which
we detailed in the interim report, more recent additions included
Astra International and Singtel. Astra is a well-managed
conglomerate; as well as being the industry leader in cars and
motorcycles, it is also a strong player in auto financing, mining
services, plantations and infrastructure. Telecom operator Singtel
has steady operations in Singapore and Australia, while its
regional franchises are exposed to growth in Asia's emerging
markets. The company offers a healthy dividend yield, buttressed by
sound financials and cash flow, with new leadership executing well
on more efficient capital allocation and management.
To help to navigate the near-term challenges we took a number of
other actions. We trimmed our technology exposure as recession
risks clouded the demand outlook, especially for the semiconductor
hardware segment, with sales of ASM Pacific Technology, Accton
Technology and GlobalWafers. We are also monitoring the broader
cost inflation picture and its subsequent impact upon corporate
profitability. We have scrutinised our holdings, ascertaining their
ability to pass on cost pressures and protect their margins.
Accordingly, we trimmed and exited positions in companies that
could be more vulnerable in the rising cost environment, with Midea
and Wanhua Chemical among the divestments.
Outlook
Volatility has been a feature of global stock markets in recent
years. That appears unlikely to change any time soon. Markets
continue to face a daunting set of challenges: rising interest
rates to stem inflation, geopolitical risk, energy and food crises,
and an increasingly fragile world economy .
Asia will not be immune to global developments. The good news is
that the region is likely to be in a better position than developed
economies in the West. The pace at which consumer prices are rising
across most parts of Asia is still relatively slow; this has
allowed central banks to adopt a more gradual stance in raising
interest rates to stem inflationary pressures.
On a related point, this difference in the pace of interest rate
increases between the developed West and Asia is also resulting in
US dollar strength, with US dollar assets yielding more, and
relative Asian currency weakness. We have seen some Asian central
banks intervene in the foreign exchange market to support their
domestic currencies, some of which have fallen to multi-year lows
against the US dollar.
On the ground, we are receiving more reports from our holdings
of rising input costs and the pressure on margins but,
encouragingly, the earnings of many of our holdings have met our
expectations in the latest results reporting season. This
environment reinforces the importance of innovation, a
premiumisation strategy, brand equity and/or channel control.
We should also not forget that many economies, particularly
those in South-East Asia, are still recovering following their
post-Covid reopening, and this should help to support earnings.
China continues to be a cause of market angst, with Beijing's
zero-Covid policy a key overhang. However, we are cautiously upbeat
about its outlook. The country remains an outlier in the global
tightening cycle thanks to benign inflation. We expect a continued
recovery in economic activity as monetary easing and stimulus
measures take effect. The next few months should also provide
greater clarity on the policy front, and we think the central
government will continue with measures to support and stabilise the
economy.
More broadly, we would highlight that valuations of Asian stocks
are attractive, below the long-term average and below the
valuations of US and global markets.
Against this backdrop, we have sought to position the portfolio
to weather near-term risks while keeping in mind Asia's long-term
structural trends. Our focus remains on quality companies with
sustainable business models, robust finances and access to
structural growth drivers. We continue to favour fundamental themes
like consumption, technology and green energy, which we believe
will deliver positive results for Shareholders over the long
run.
Adrian Lim and Pruksa Iamthongthong
abrdn (Asia) Limited
31 October 2022
Overview of Strategy
Business Model
The business model of the Company is to operate as an investment
trust for UK capital gains tax purposes in line with its investment
objective. The Directors are of the opinion that the Company has
conducted its affairs for the year ended 31 August 2022 so as to
enable it to comply with the relevant eligibility conditions for
investment trust status as defined by Section 1158 of the
Corporation Tax Act 2010.
Investment Policy
The Company's assets are invested in a diversified portfolio of
securities in quoted companies spread across a range of industries
and economies in the Asia Pacific region, excluding Japan and
Australasia. The shares that make up the portfolio are selected
from companies that have proven management and whose shares are
considered to be attractively priced. The Company invests in a
diversified range of sectors and countries. Investments are not
limited as to market capitalisation, sector or country weightings
within the region.
The Company's policy is to invest no more than 15% of gross
assets in other listed investment companies (including listed
investment trusts).
The Company complies with Chapter 4 of Part 24 of the
Corporation Tax Act 2010 and the Investment Trust (Approved
Company) (Tax) Regulations 2011 and does not invest more than 15%
of its assets in the shares of any one company.
When appropriate the Company will utilise gearing to maximise
long-term returns, subject to a maximum gearing level of 20% of net
assets imposed by the Board.
The Company does not currently utilise derivatives but keeps
this under review.
Company Benchmark
The total return of the MSCI All Country Asia (ex Japan) Index
(sterling adjusted).
Alternative Investment Fund Manager ("AIFM")
The AIFM is abrdn Fund Managers Limited, called Aberdeen
Standard Fund Managers Limited until 31 July 2022, (aFML or the
"Manager") which is authorised and regulated by the Financial
Conduct Authority.
The Company's portfolio is managed on a day-to-day basis by
abrdn (Asia) Limited ("abrdn Asia" or the "Investment Manager") by
way of a delegation agreement. abrdn Asia and aFML are both wholly
owned subsidiaries of abrdn plc.
Achieving the Investment Policy and Objective
The Directors are responsible for determining the investment
policy and the investment objective of the Company. Day-to-day
management of the Company's assets has been delegated to the
Investment Manager. The Investment Manager follows a bottom-up
investment process based on a disciplined evaluation of companies
through direct contact by its fund managers and analysts. Stock
selection is the major source of added value. No stock is bought
without the Investment Manager having first met management, either
in person, where possible, or virtually. The Investment Manager
evaluates a company's worth in two stages: quality then price.
Quality is defined by reference to management, business focus, the
balance sheet and corporate governance. Price is evaluated by
reference to key financial ratios, the market, the peer group and
business prospects. Stock selection is key in constructing a
diversified portfolio of companies.
For the purposes of achieving the Investment Policy and
Objective, the Investment Manager is permitted to invest up to 30%
of the portfolio in companies which are not listed in the Asia
Pacific region but which generate more than 50% of annual turnover
or revenue in the region.
A comprehensive analysis of the Company's portfolio by country
and by sector is disclosed below, including a description of the
ten largest investments, the full investment portfolio by value and
sector/geographical analysis. At 31 August 2022, the Company's
portfolio consisted of 61 holdings.
Gearing is used to leverage the Company's portfolio in order to
enhance returns when this is considered appropriate to do so. At 31
August 2022, the Company's net gearing was 9.0%.
Principal and Emerging Risks and Uncertainties
The Board carries out a regular review of the risk environment
in which the Company operates, changes to the environment and
individual risks. There are a number of other risks which, if
realised, could have a material adverse effect on the Company and
its financial condition, performance and prospects. The Board has
considered the Company's principal and emerging risks, which
include those that would threaten its business model, future
performance, solvency, liquidity or reputation.
The Company's risks are regularly assessed by the Audit &
Risk Committee and managed by the Board through the adoption of a
risk matrix which identifies the key risks for the Company,
including emerging risks, and covers strategy, investment
management, operations, shareholders, regulatory and financial
obligations and third-party service providers.
The principal risks and uncertainties facing the Company, which
have been identified by the Board, are described in the table
below, together with the mitigating actions.
The Board notes that there are a number of contingent risks
stemming from the global geo-political environment that may impact
the operation of the Company.
Inflation and the resultant volatility that it created in global
stock markets was a key risk during the financial year, as well as
the ongoing tensions between China and Taiwan, China and the West,
and the Russian invasion of Ukraine, all of which created
geo-political uncertainty which further increased market risk and
volatility. The impact of the global pandemic and the risk of its
return remain, not least in China where a zero-covid policy
continues to stifle economic activity.
The Board is also very conscious of the risks resulting from the
increased ESG challenges. The recent scrutiny of human rights
violations in China by Western governments is one example of the
need for continued vigilance and engagement regarding supply chains
and the fair treatment of workers. Likewise, as climate change
pressures increase, the Board continues to monitor, through its
Manager, the potential risk that investee companies may fail to
maintain acceptable standards.
In all other respects, the Company's principal risks and
uncertainties have not changed materially since the date of this
Annual Report and are not expected to change materially for the
current financial year.
Risk Mitigating Action
==================================== =======================================================
Major market event or geo-political Exogenous risks over which the Company has
risk no control are always a risk. The Company
The Company is exposed to does what it can to address these risks
stockmarket volatility or where possible, not least operationally
illiquidity as a result and to try and meet the Company's investment
of a major market shock objectives.
due to a national or global As part of its investment processes, the
crisis. The impact of such Manager regularly assesses the Company's
risks, associated with the portfolio as a whole, and each constituent
portfolio or the Company part, and, during the financial year, remained
itself, could result in in close communication with the underlying
disruption of the operations investee companies in order to navigate
of the Company and losses. and guide the Company through macroeconomic
Risk Increased during the and geopolitical challenges.
year The Manager's focus on quality companies
with sustainable business models and robust
finances, the diversified nature of the
portfolio and a managed level of gearing
all serve to provide a degree of protection
in times of market volatility.
==================================== =======================================================
Unacceptable Discount Volatility The Board monitors the discount level of
Failure to manage the discount the Company's shares and has in place a
effectively or an inappropriate buyback mechanism whereby the Manager is
marketing strategy could authorised to buy back shares within certain
result in the Company's limits. The macroeconomic and geopolitical
share price trading at a challenges during the year led to volatility
discount to its underlying in equity markets and a widening of the
net asset value and reduced Company's share price discount to NAV. As
investor sentiment. a result, the Company bought back 5.1 million
Risk Increased during the shares into treasury. The Board and Manager
year communicate with major shareholders regularly
to gauge their views on the Company, including
discount volatility.
==================================== =======================================================
Investment Performance The Board continually monitors the investment
The Company's investment performance of the Company, taking account
performance is the most of stockmarket factors, and reviews the
critical factor to the Company's Company's performance compared to its benchmark
long-term success. Sustained index and peer group at every
underperformance may result Board Meeting.
in reduced demand for the A formal annual review is undertaken by
Company's shares and loss the Management Engagement Committee. In
of investor confidence. addition to its own due diligence, the Board
Risk Unchanged during the has previously used consultants to provide
year an independent perspective on the Manager's
process and performance.
The Board and Manager communicates with
major shareholders regularly to gauge their
views on the Company, including performance.
At the AGM in 2021, shareholders voted in
favour of the introduction of a performance-related
conditional tender offer, which will take
place every five years. The first performance-related
period runs from 1 September 2021 to
31 August 2026.
==================================== =======================================================
Concentration Risk The Board reviews, on a regular basis, the
Trading volumes in certain Manager's total holdings for each stock
securities of emerging markets within the Company's portfolio and the liquidity
can be low. The Investment of these stocks. The Board also considers
Manager may accumulate investment the portfolio's stock, sector and country
positions across all its concentration to ensure that the portfolio
managed funds that represent is suitably diversified and exposure is
a significant multiple of not overly concentrated in any particular
the daily trading volumes region or sector.
of an investment which may
result in a lack of liquidity
and price volatility. Accordingly,
the Company will not necessarily
be able to realise, within
a short period of time,
an illiquid investment and
any such realisation that
may be achieved may be at
considerably lower prices
than the Company's valuation
of that investment for the
purpose of calculating the
NAV per Ordinary share.
Risk Unchanged during the
year
==================================== =======================================================
Resource The Board reviews the performance of the
The Company is an investment Manager on a regular basis and its compliance
trust and has no employees. with the management contract formally on
The responsibility for the an annual basis. As part of that review,
provision of investment the Board assesses the Manager's succession
management, marketing and plans, risk management framework and marketing
administration services activities.
for the Company has been
delegated to the AIFM, abrdn
Fund Managers Limited, under
the management agreement.
The terms of the management
agreement cover the necessary
duties and conditions expected
of the Manager. As a result,
the Company is dependent
on the performance of the
AIFM.
Risk Unchanged during the
year
==================================== =======================================================
Operational The Audit & Risk Committee reviews reports
The Company is dependent from the Manager on its internal controls
on a number of third-party and risk management (including an annual
providers, in particular ISAE Report) and considers assurances from
those of the Manager, depositary all its other significant service providers
and registrar. Failure by on at least an annual basis, including on
any service provider to matters relating to business continuity
carry out its contractual and cyber security. The Audit & Risk Committee
obligations could have a meets representatives from the Manager's
detrimental impact Compliance and Internal Audit teams on at
or disruption on the Company least an annual basis and discusses any
operations, including that findings and recommendations relevant to
caused by information technology the Company. Written agreements are in place
breakdown or other with all third-party service providers.
cyber-related issues. The Manager monitors closely the control
Risk Unchanged during the environments and quality of services provided
year by third parties, including those of the
Depositary, through service level agreements,
regular meetings and key performance indicators.
A formal appraisal of the Company's main
third-party service providers is carried
out by the Management Engagement Committee
on an annual basis. The operational requirements
of the Company, including its service providers,
were subject to rigorous testing during
the Covid-19 pandemic, including increased
use of online communication and out of office
working and reporting.
==================================== =======================================================
Gearing In order to manage the level of gearing,
As at 31 August 2022 the the Board has set a maximum gearing ratio
Company had GBP60 million of 20% of net assets and receives regular
of bank borrowings. Gearing updates from the Manager on the actual gearing
has the effect of exacerbating levels the Company has reached together
market falls and gains. with the assets and liabilities of the Company
Risk Unchanged during the and reviews these at each Board meeting.
year
==================================== =======================================================
Regulatory The Board receives updates on relevant changes
The Company operates in in regulation from the Manager, industry
a complex regulatory environment bodies and external advisers and the Board
and faces a number of regulatory and Audit & Risk Committee monitor compliance
risks. Serious breaches with regulations by review of internal control
of regulations, such as reports from the Manager. Directors are
the tax rules for investment encouraged to attend relevant external training
companies, the UKLA Listing courses.
Rules and the Companies
Act.
Risk Unchanged during the
year
==================================== =======================================================
The principal risks associated with an investment in the
Company's shares can be found in the pre-investment disclosure
document ("PIDD") published by the Manager, which is available from
the Company's website: www.asiadragontrust.co.uk .
Performance
Key Performance Indicators
At each Board meeting, the Directors consider a number of
performance measures to assess the Company's success in achieving
its objectives. The key performance indicators ("KPIs") are
established industry measures and are as follows.
KPI Description
============================== ====================================================
Net asset value and share The Board monitors the NAV and share price
price (total return) performance of the Company over different
time periods. Performance figures for one,
three and five years are provided in the
Annual Report.
============================== ====================================================
Performance against benchmark Performance is measured against the Company's
benchmark, the MSCI All Country Asia (ex
Japan) Index (in sterling terms), on a total
return basis. Charts showing the Company's
performance against benchmark by quarter
during the financial year, and over one,
three and five years, and are shown in the
Annual Report.
The Board also considers peer group comparative
performance over a range of time periods,
taking into consideration the differing investment
policies and objectives employed by those
companies.
============================== ====================================================
Discount/Premium to net The discount/premium relative to the NAV
asset value represented by the share price is closely
monitored by the Board. The objective is
to avoid large fluctuations in the discount
relative to similar investment companies
investing in the region by the use of share
buy backs subject to market conditions. A
graph showing the share price discount relative
to the NAV is shown in the Annual Report.
============================== ====================================================
Further analysis of the above KPIs is provided in the Chairman's
Statement.
Promoting the Success of the Company
The Board is required to report on how it has discharged its
duties and responsibilities under section 172 of the Companies Act
2006 (the "s172 Statement"). Under section 172, the Directors have
a duty to promote the success of the Company for the benefit of its
members as a whole, taking into account the likely long-term
consequences of decisions, the need to foster relationships with
the Company's stakeholders and the impact of the Company's
operations on the environment.
The Company consists of five Directors and has no employees or
customers in the traditional sense. As the Company has no
employees, the culture of the Company is embodied in the Board of
Directors. The Board seeks to promote a culture of strong
governance, high standards of business conduct and to challenge, in
a constructive and respectful way, the Company's third-party
service providers and advisers, whilst considering the impact on
the Company and other stakeholders.
The Board's principal concern has been, and continues to be, the
interests of the Company's shareholders and potential investors and
the need to act fairly between shareholders. The Manager undertakes
an annual programme of meetings with the largest shareholders and
investors and reports back to the Board on issues raised at these
meetings. The Investment Manager, who is based in Singapore, will
attend such meetings, where possible. The Board encourages all
shareholders to attend and participate in the Company's AGM and
Pre-AGM Investor Event and shareholders can contact the Directors
via the Company Secretary Shareholders and investors can obtain
up-to-date information on the Company through its website and the
Manager's information services and have direct access to the
Company through the Manager's customer services team or the Company
Secretary.
As an investment trust, a number of the Company's functions are
outsourced to third parties. The key outsourced function is the
provision of investment management services to the Manager and
other third-party providers support the Company by providing
secretarial, administration, depositary, custodial, banking and
audit services.
The Board undertakes a robust evaluation of the Manager,
including investment performance and responsible ownership, to
ensure that the Company's objective of providing capital growth for
its investors is met, whilst taking ESG factors into account. The
Board typically visits the Manager's offices in Singapore on an
annual basis. This enables the Board to conduct due diligence of
the fund management and research teams. Due to the travel
restrictions arising from the Covid-19 pandemic during the
financial year, the Board undertook a virtual visit to the region
to conduct due diligence on the fund management and research teams.
The Board met with the senior management team and the fund
management team and attended virtual investee company meetings
alongside the Manager.
The portfolio activities undertaken by the Manager on behalf of
the Company can be found in the Investment Manager's Review and
details of the Board's relationship with the Manager and other
third-party providers, including oversight, is provided in the
Statement of Corporate Governance.
During the year, the Board focused on the performance of the
Manager in achieving the Company's investment objective within an
appropriate risk framework. In addition to ensuring that the
Company's investment objective was being pursued, a number of key
decisions and actions were undertaken by the Directors as
follows:
-- The Board has declared a final dividend of 6.5p per Ordinary
share (2021 - 6.5p) which, if approved by shareholders at the
Annual General Meeting, will be paid on 16 December 2022.
-- The Board has continued to consider Board succession
planning, as it recognises the benefits of regular Board
refreshment, and appointed Matthew Dobbs as a new non-executive
director on 1 February 2022, following the retirement of Kathryn
Langridge at the Company's AGM in December 2021.
-- To continue the Board's discount control policy through the
buyback of shares which provides a degree of liquidity to the
market at times when the discount widens.
-- The Board continues to believe that the sensible use of
modest financial gearing should enhance returns to shareholders
over the longer term. The Company has in place loan facilities
totalling a commitment of GBP60 million with The Royal Bank of
Scotland International Limited, London Branch. The facilities,
which are unsecured, consist of a two-year fixed facility of
GBP25m, which is fully drawn, and a two year GBP35m multi-currency
revolving credit facility which has also been fully drawn.
-- The Board continues to alternate the location of its AGM
between Edinburgh and London to allow the Board to physically meet
with shareholders in different locations. In order to encourage as
much interaction as possible with shareholders, the Board has
agreed to host an Online Shareholder Presentation, in advance of
the AGM, to allow as many shareholders as possible to engage with,
and ask questions of, the Board.
In summary, the Directors are cognisant of their duties under
section 172 and decisions made by the Board take into account the
interests of all the Company's key stakeholders and reflect the
Board's belief that the long-term sustainable success of the
Company is linked directly to its key stakeholders.
Duration
The Company does not have a fixed life, but shareholders are
given the opportunity to vote on the continuation of the Company at
every fifth Annual General Meeting. The last continuation vote was
passed at the AGM on 15 December 2021. The frequency of
continuation votes was extended from triennial continuation votes
to five-yearly continuation votes at the AGM in 2021 in order to
align them with the assessment period for performance-related
conditional tender offers approved by shareholders at the AGM in
2021. The next performance related conditional tender offer will
cover the period from 1 September 2021 to 31 August 2026 and the
continuation vote is due to take place at the AGM in December
2026.
Board Diversity
The Board's statement on diversity is set out in the Statement
of Corporate Governance. At 31 August 2022 there were three male
Directors and two female Directors.
Environmental, Social and Human Rights Issues
The Company has no employees and therefore no disclosures are
required to be made in respect of employees.
More information on socially responsible investment is set out
below.
Viability Statement
In accordance with the provisions of the Listing Rules and UK
Corporate Governance Code the Board has assessed the viability of
the Company. The Company is a long-term investor, and the Board
believes it is appropriate to assess the Company's viability over a
five year horizon which reflects the Investment Manager's long-term
approach. The Directors believe this period reflects a proper
balance between the long-term horizon and the inherent
uncertainties of looking to the future. This conclusion is
consistent with Going Concern Assessment.
In assessing the viability of the Company, the Directors have
carried out a robust assessment of the following factors:
-- the principal risks set out in the Strategic Report and the
steps available to mitigate these risks;
-- the liquidity and diversity (in both sector and geography) of
the Company's investment portfolio. The Company is invested in
readily realisable listed securities in normal market conditions
and there is a spread of investments held. Stress testing has
confirmed that shares can be easily liquidated, despite the more
uncertain and volatile economic environment;
-- the level of revenue surplus generated by the Company;
-- the level of gearing is closely monitored by the Board.
Covenants are actively monitored and there is adequate headroom in
place. The Company has a fixed term loan facility of GBP25 million
and a multi-currency revolving loan facility of GBP35 million in
place until July 2024. The Company has the ability to repay its
gearing through proceeds from equity sales or renew the facility,
depending on market conditions and requirements at that time;
and
-- the successful passing of the continuation vote at the
Company's AGM in 2021, the change of frequency of continuation vote
from every three years to every five years (with the next
continuation vote due to take place at the AGM in 2026), and the
introduction of the five-yearly performance-related conditional
tender.
Taking into account all of these factors, the Company's current
position and the potential impact of the principal risks and
uncertainties faced by the Company, the Board has concluded that it
has a reasonable expectation that the Company will be able to
continue in operation and meet its liabilities as they fall due
over the five year period of this assessment to 31 August 2027.
In making its assessment, the Board has considered that there
are other matters that could have an impact on the Company's
prospects or viability in the future, including the current rising
inflation, recession risk, a further increase in geo-political
tension in the Asian region, war in Ukraine, economic shocks or
significant stock market volatility caused by other factors, and
changes in regulation or investor sentiment.
The Strategic Report has been approved by the Board and signed
on its behalf by:
James Will,
Chairman
31 October 2022
Our Manager's Approach to ESG
The Company aims to outperform whilst maintaining a better ESG
profile and a lower carbon footprint than the benchmark. In
response to a number of questions, the Board has expanded the "Our
Manager's Approach to ESG" in the Annual Report to present more
information on the Investment Manager's approach to integrating ESG
into its investment decision-making and the implications for the
Trust.
ESG Highlights for Asia Dragon
-- We have been actively integrating ESG into our investment
decision-making process for 30 years and believe that ESG factors
are financially material and can meaningfully affect a company's
performance
-- Deep, on the ground ESG resources and expertise enable us to
glean insights from company visits and obtain an ESG information
advantage
-- The Trust's portfolio is ESG AA rated by MSCI
-- The Trust's carbon footprint is 48% of its benchmark
What is ESG?
-- Environmental factors relate to how a company conducts itself
with regard to environmental impact and sustainability. Types of
environmental risks and opportunities may include a company's
energy and water consumption, waste disposal, land use and
development and its carbon footprint.
-- Social factors pertain to a company's relationship with its
employees, vendors, and a broad set of societal stakeholders. Risks
and opportunities include conditions and rates of pay, the
company's initiatives on employee attraction and retention, gender
discrimination and how a company is managing its supply chain,
including for example the risk of forced and child labour.
-- Corporate Governance factors may include the corporate
decision-making structure, the independence of board members,
treatment of minority shareholders, executive compensation and
political contributions, capital allocation and the risk of bribery
and corruption.
ESG at abrdn in Asia
The abrdn Sustainability Institute, in Asia Pacific, was
launched in September 2021. Bringing together sustainability
experts from across the firm, the Institute's objectives are to
deliver Asia Pacific-centric sustainability solutions and insights,
build an Asia Pacific sustainable investing knowledge community and
contribute to progress in regional sustainable investing.
Over the past year, we have ramped up our sustainable investing
capabilities in Asia Pacific, doubling our dedicated sustainability
resources from five to 10 colleagues across various teams. In
addition, under our 'Grow Sustainably' learning & development
program, we hired 10 interns for sustainability-focused roles
across investment desks, research, marketing and compliance teams
in Singapore, Malaysia and Australia and are supporting them
through external qualifications. In addition, two scholarships were
granted for colleagues to attend online courses.
In May 2022, we held our first ever abrdn Sustainability Week,
also celebrating our 30 years of investing in Asia Pacific. The
week culminated with the abrdn Sustainability Summit, a one-day
hybrid conference bringing together colleagues, clients and
partners from Singapore and across the region. Insights from the
conference were shared with the broader public in our regular
Thinking Aloud articles. We also held our first leadership
roundtable in Singapore, to discuss climate change and net-zero
alignment in Asia Pacific with key clients and our subject-matter
experts. Going forward, we will seek to replicate this roundtable
across our key regional markets.
Our Investment Process
Our investment process considers both macro and micro ESG
issues.
-- Macro ESG factors are broad thematic issues that impact
companies and the products and services they provide. These include
issues like climate change, access to finance or access to
healthcare. These are secular, industry-impacting trends that may
present a clear risk or opportunity for a company.
-- Micro ESG factors are company/industry specific issues that
relate to how a company's products or services are made or
delivered.
Our five stages of ESG integration:
-- Idea generation: Understanding themes and dynamics inherent
in sectors, countries, and companies, we are able to use ESG as a
lens to generate new investment ideas for the portfolio. This could
include companies that are well placed to help in climate
transition or companies that are managing their supply chain in a
way that makes them more attractive to global clients.
-- Research: ESG disclosure by companies in Asia tends to be
lower quality than might be observed in Europe or North America but
while such disclosure means it may be challenging to collect
information, it also means that extensive company due diligence by
us can create investment opportunities.
-- Buy / sell: At this stage we must weigh the decision to buy
(or sell) a company. We have a quality threshold for investment and
ESG is a fundamental and non-negotiable part of this.
-- Portfolio Construction: Whilst a simplification, the better
quality a company, and the more conviction we have in the company,
the more of that company we might elect to buy (whilst being
sensitive to valuations). ESG is a key part of the discussion
around 'position sizing', or just how much of a company to buy.
-- Engagement: We continue discussing ESG issues with senior
management over the course of the investment, both to protect and
to enhance the value of investments through constructive challenge
and debate around strategy and execution, with the mutual aim of
fostering sustainable shareholder returns.
The Importance of Engagement
We believe that informed and constructive engagement helps to
foster better companies, enhancing the value of the Trust's
investments. We are committed to regular, ongoing engagement with
companies to help maintain and enhance their ESG standards into the
future. These meetings provide an opportunity to discuss various
relevant ESG issues including board composition, remuneration,
audit, climate change, labour issues, human rights, bribery and
corruption. Companies are strongly encouraged to set clear targets
or key performance indicators on all material ESG risks so as to
enable performance monitoring. Discussions cover both risk and
opportunities; we constructively challenge management teams on
issues relating to strategy and execution, as well as capital
allocation and return.
Moreover, and since ESG disclosure by Asian companies is often
poor, these engagements give us an opportunity to source additional
information and potentially to:
-- Exploit an information gap: if a company does not disclose
ESG information and the market is unable to form a robust view of
its quality, its shares may be priced inefficiently. Using our
research capabilities including on-site, face to face visits, we
are able to develop an informed view of every company and to
exploit any pricing inefficiency that we judge may exist.
-- Close the information gap: if we own a company that is
misunderstood by the market, we can work constructively with the
company's management team to encourage improved and enhanced
disclosure, allowing the market to better understand, and hence
better price, the company's securities.
Considering Trust specific examples, the Trust owns shares in
Budweiser Brewing Company APAC Ltd ., a company which listed in
Hong Kong in 2019. Whilst we viewed the company as high quality,
MSCI had awarded the company a BB rating, an overly negative view
of the company in our view (and well below our internal rating).
Since listing in 2019 we have engaged with the company to better
understand it's approach to issues including water stress
management, encouraged the company to disclose more information,
and spoken with MSCI to encourage them to recognise the quality of
the group. These efforts resulted in a series of upgrades by MSCI,
from BB to BBB in October 2020, from BBB to A in December 2021, and
from A to AA in June 2022 .
The same is true of China Resources Land , recently upgraded
MSCI from BBB to A, continuing a series of upgrades which saw the
firm upgraded from B to BB (October 2020), from BB to BBB (August
2021), and from BBB to A (August 2022). This is very pleasing given
we had been engaging with the group to improve their disclosure -
and hence receive scores that reflected the ESG quality of the firm
- for a number of years now.
ESG engagements are conducted with consideration of the 10
principles of the United Nations Global Compact and companies are
expected to meet fundamental responsibilities in the areas of human
rights, labour, the environment and anti-corruption.
Engagement is not limited to a company's management team. It can
include many other stakeholders such as non-government agencies,
industry and regulatory bodies, as well as activists and the
company's customers and clients. During the period under review the
breadth of issues covered in ESG specific company engagements for
the Trust covered Climate Change (including air quality and energy
management), Environment (including waste and waste management, and
supply chain management), Labour Management (including health and
safety), Human Risk & Stakeholders, Corporate Behaviour
(including Practices and Processes) and Corporate Governance. :
Measurement of ESG, including our Proprietary ESG Scoring
System
Some ESG issues can be quantified, for example the diversity of
a board, the carbon footprint of a company, and the level of
employee turnover. But not everything that matters can be measured.
While diversity can be monitored, measuring inclusion is more of a
challenge. Although it is possible to measure the level of staff
turnover, it is more challenging to quantify corporate culture.
Nevertheless, after researching and analysing a company, and after
meeting senior management, we allocate a company an ESG score of
between one and five. This score of one to five is applied across
every stock covered globally. Examples of each category and a small
sample of the criteria used are detailed below:
1. Best in class 2. Leader 3. Average 4. Below average 5. Laggard
====================== =================== ====================== ======================= ========================
ESG considerations ESG considerations ESG risks are Evidence of Many financially
are material not market considered as some financially material controversies
part of the leading a part of principal material controversies Severe governance
company's core Disclosure is business Poor governance concerns
business strategy good, but not Disclosure in or limited oversight Poor treatment
Excellent disclosure best in class line with regulatory of key ESG issues of minority
Makes opportunities Governance is requirements Some issues shareholders
from strong generally very Governance is in treating
ESG risk management good generally good minority shareholders
but some minor poorly
concerns
====================== =================== ====================== ======================= ========================
We also make use of third party ESG data for two primary
reasons:
-- To help build a view of a company: third party ESG data
provides insights into a company based on that company's
disclosure. Whilst that disclosure may have limits there is still
merit in reading research from a speciality researcher. We buy in
research as a "sense check" against internal analysis to ensure
that issues or developments are not missed or weighted
incorrectly.
-- To provide a proxy for market perspective: We use third party
data and scoring as a proxy for market perception and make use of
these scores to compare with internal assessments. If the market
views a company as low quality and we see the company as not only
higher quality but also on a positive trajectory, it may be
appropriate to exploit this information asymmetry. The market may
react and change perceptions over time as performance and
disclosure on ESG issues improves, but we are interested in the
journey as much as arrival.
Taking an independent view on ESG allows us to anticipate
upgrades and drive change through our engagement. External research
agencies primarily use backward looking data to create ESG ratings
and in doing so form the market view of a company's ESG
credentials. Through our fundamental research we form a
forward-looking view of company's ESG credentials and anticipate
changes, attempting to take advantage of this inefficiency.
Climate Change
Climate change is one of the most significant challenges of the
21st century and has big implications for investors. The energy
transition is underway in many parts of the world, and policy
changes, falling costs of renewable energy, and a change in public
perception are happening at a rapid pace. Assessing the risks and
opportunities of climate change is a core part of the investment
process. In particular, we consider:
-- Transition risks and opportunities. Governments can take
robust climate change mitigation action to reduce emissions and
transition to a low-carbon economy. This is reflected in targets,
policies and regulation and can have a considerable impact on
high-emitting companies.
-- Physical risks and opportunities. Insufficient climate change
mitigation action will lead to more severe and frequent physical
damage. This results in financial implications, including damage to
crops and infrastructure and the need for physical adaptation such
as flood defences.
We are a signatory to the UN supported Principles for
Responsible Investment (PRI) and has aligned our approach to that
advocated by the PRI agenda. This aims to promote responsible
investment as a way of enhancing returns and better managing
risk.
PRI provides an intellectual framework to steer the massive
transition of financial capital towards low-carbon opportunities.
It also encourages fund managers to demonstrate climate action
across four areas: investments; corporate engagement; investor
disclosure; and policy advocacy.
Climate scenario analysis proprietary tool - We believe that
Climate scenario analysis provides a forward looking, quantitative
assessment of the financial impact of climate risks and
opportunities on the value of assets under different climate
pathways. As a result, we work in partnership with Planetrics to
quantify the impact of climate scenarios where a probability
weighted view based on a range of off the shelf and bespoke
scenarios is taken. This allows us to model a quantitative
financial impact under 15 different climate risk scenarios at both
the stock level and at the Trust level.
We joined the Net Zero Asset Management (NZAM) initiative to
demonstrate our strong support for the global net zero 2050 goal.
The core commitment is to support the goal of net zero greenhouse
gas ('GHG') emissions by 2050, in line with global efforts to limit
warming to 1.5degC ('net zero emissions by 2050 or sooner'). It
also commits to support investing aligned with net zero emissions
by 2050 or sooner.
The Trust is focused on real-world decarbonisation by investing
in transition leaders and climate solutions rather than the fast
removal of carbon intensive companies from our portfolios. We
engage with the highest carbon-emitting companies across the
portfolio through a focused priority watchlist, with a focus on
clear expectations and outcomes combined with time-bound
milestones.
How does the Asia Dragon portfolio measure up?
Whilst we note above the many qualitative assessments of ESG
undertaken, as well as the limitations of external third-party
data, there is merit in demonstrating the ESG "quality" of the
portfolio versus the reference benchmark. We track the score of the
portfolio within MSCI's ESG framework and compare this to a
benchmark score. We also track the carbon intensity of the
portfolio versus the reference benchmark.
The Trust's portfolio is ESG AA rated by MSCI. This is higher
than the benchmark rating of A, and is an improvement against the
equivalent score one year ago, when the Trust was rated A. The
improvement in the Trust's ESG MSCI rating is a result of a mixture
of changes in the portfolio as well as MSCI upgrades on the ESG
scores of a number of investee companies.
The portfolio contains more ESG "Leaders," and fewer laggards,
than the benchmark.
The Trust's carbon footprint is 48% of its benchmark (2021:
66%). The improvement in the Trust's carbon intensity, versus the
prior year, is also driven by changes in the underlying
portfolio.
Important Note
The Company does not specifically exclude any sectors from its
investment universe. All investments have to pass a quality test
and ESG issues are only part of the investment analysis.
We may, for example, invest in, and vigorously engage with, a
well-managed, capitalised and valued fossil fuel company that is
able to deploy a sizeable balance sheet and lower cost of capital
to that of a renewables-only alternative.
It is also important to recognise that there may be periods in
the future where it is impossible for us to make sequential annual
improvements in some ESG factors like carbon intensity. We intend
to maintain a lower carbon footprint relative to the benchmark but
there may be times when we invest in companies that currently have
a higher footprint but have a commitment to improve this over time.
We will monitor and assess their commitment on a regular basis.
abrdn (asia) Limited
31 October 2022
Results
Year's Highs/Lows
High Low
================================================ =========== ===========
Share price (p) 534.0 409.0
================================================ =========== ===========
Net asset value (p) 589.7 456.9
================================================ =========== ===========
Discount (%)(A) -10.4 -14.8
------------------------------------------------ ----------- -----------
(A) Considered to be an Alternative Performance
Measure.
Performance (total return)
1 year return 3 year return 5 year return
% % %
================================== ============= ============= =============
Share price(A) -11.8 +14.7 +30.5
================================== ============= ============= =============
Net asset value(AB) -8.4 +15.6 +29.8
================================== ============= ============= =============
MSCI AC Asia (ex Japan) Index (in
sterling terms) -7.1 +18.2 +21.1
---------------------------------- ------------- ------------- -------------
(A) Considered to be an Alternative Performance Measure. Further details
can be found below.
(B) 1 year and 3 year returns are presented on an undiluted basis;
5 year return presented on a diluted basis as CULS in issue during
those periods were "in the money".
Ten Year Financial Record
Equity Net asset Revenue Expenses
as a
shareholders' value per return Ordinary Share Dividend % of average
per price per
interest Ordinary Ordinary share discount Ordinary shareholders'
share share price share
Year ended 31 GBP'000 p p p % p funds
August
============== ============= ========= ======== ======== ======== ========= =============
2013 550,346 280.26 3.42 254.70 9.1 2.20 1.23
============== ============= ========= ======== ======== ======== ========= =============
2014 603,077 307.10 3.43 272.50 11.3 2.20 1.23
============== ============= ========= ======== ======== ======== ========= =============
2015 518,635 267.22 4.13 235.75 11.8 3.00 1.15
============== ============= ========= ======== ======== ======== ========= =============
2016 664,159 348.62 4.50 302.00 13.4 3.20 1.14
============== ============= ========= ======== ======== ======== ========= =============
2017 807,330 423.26 4.68 361.00 13.1 3.30 1.03
============== ============= ========= ======== ======== ======== ========= =============
2018 788,019 421.54 5.03 370.00 12.2 4.00 0.80
============== ============= ========= ======== ======== ======== ========= =============
2019 589,708 458.03 4.87 402.50 12.1 4.75 0.83
============== ============= ========= ======== ======== ======== ========= =============
2020 599,431 474.39 5.01 416.00 12.3 4.75 0.89
============== ============= ========= ======== ======== ======== ========= =============
2021 706,929 566.60 7.36 512.00 9.6 6.50 0.83
-------------- ------------- --------- -------- -------- -------- --------- -------------
2022 614,369 513.32 6.38 446.00 13.1 6.50 0.84
-------------- ------------- --------- -------- -------- -------- --------- -------------
Portfolio
Ten Largest Investments
As at 31 August 2022
Taiwan Semiconductor Samsung Electronics (Pref)
Manufacturing Company
As the world's largest pure-play One of the global leaders in the
semiconductor manufacturer, TSMC memory chips segment, and a major
provides a full range of integrated player in smartphones and display
foundry services, along with a panels as well. It has a vertically
robust balance sheet and good integrated business model and
cash generation that enables it robust
to keep investing in cutting-edge balance sheet, alongside good
technology free cash
and innovation. flow generation.
Tencent Holdings AIA Group
The internet giant continues to A leading pan-Asian life insurance
strengthen company, it is poised to take
its ecosystem and we see great advantage of Asia's growing affluence,
potential backed by an effective agency
in its ability to balance its force and a strong balance sheet.
multiple revenue streams and monetise
its social media and payment platforms
whilst navigating the regulatory
landscape.
Housing Development Finance Corp Bank Central Asia
A steady, well-managed financial Among the largest non state owned
services conglomerate with leading banks in Indonesia, it is well
positions in mortgage finance, capitalised and has a big and
retail banking, life insurance stable base of low-cost deposits
and asset management, supported that funds its lending, while
by a broad distribution network, asset quality has remained solid.
efficient cost structure and balance
sheet quality.
Alibaba Group DBS Group
The Chinese internet group is The largest Singapore bank, DBS
a leading global e-commerce company Group is also the best managed
with many impressive businesses, with a clear strategy. It is backed
including the Taobao and Tmall by good digital infrastructure,
online platforms in China. It and operates with a strong focus
also has interests in logistics, on efficiency of returns, as shown
media as well as cloud computing in the distinctively better return
platforms and payments. on equity than local peers.
Kweichow Moutai 'A' Oversea-Chinese Banking Corporation
Kweichow Moutai is a leading hard A well-managed Singapore bank
liquor (baijiu) producer that with a solid capital base and
boasts a dominant brand and a good cost-to-income ratio. It
cash generative business. Its is diversified by both geography
brand value stems from a long and service offerings, with interests
history and its rich heritage, spanning Southeast Asia, North
which account for its wide domestic Asia, wealth management and life
business moat. assurance as well as its core
banking activities.
At 31 August 2022
===============================================================================================================
Valuation Total Valuation
2022 assets 2021
Company Industry Country GBP'000 % GBP'000
=================================== ============================== ============ ========= ====== =========
Semiconductors
Taiwan Semiconductor Manufacturing & Semiconductor
Company Equipment Taiwan 59,819 8.8 80,788
=================================== ============================== ============ ========= ====== =========
Technology Hardware,
Samsung Electronics (Pref) Storage & Peripherals South Korea 40,687 6.0 66,610
=================================== ============================== ============ ========= ====== =========
Interactive Media
Tencent Holdings & Services China 32,211 4.8 53,993
=================================== ============================== ============ ========= ====== =========
AIA Group Insurance Hong Kong 31,254 4.6 39,446
=================================== ============================== ============ ========= ====== =========
Housing Development Finance Diversified Financial
Corp Services India 30,440 4.5 32,093
=================================== ============================== ============ ========= ====== =========
Bank Central Asia Banks Indonesia 23,282 3.5 16,968
=================================== ============================== ============ ========= ====== =========
Internet & Direct
Alibaba Group Marketing Retail China 19,547 2.9 30,664
=================================== ============================== ============ ========= ====== =========
DBS Group Banks Singapore 18,721 2.8 12,076
=================================== ============================== ============ ========= ====== =========
Kweichow Moutai 'A' Beverages China 16,405 2.4 13,627
=================================== ============================== ============ ========= ====== =========
Oversea-Chinese Banking
Corporation Banks Singapore 15,832 2.3 15,494
----------------------------------- ------------------------------ ------------ --------- ------ ---------
Top ten investments 288,198 42.6
----------------------------------- ------------------------------ ------------ --------- ------ ---------
Internet & Direct
JD.com 'H' Marketing Retail China 14,640 2.2 -
=================================== ============================== ============ ========= ====== =========
SBI Life Insurance Insurance India 12,894 1.9 10,124
=================================== ============================== ============ ========= ====== =========
China Tourism Group Duty
Free Corp (A) Speciality Retail China 12,816 1.9 12,809
=================================== ============================== ============ ========= ====== =========
China Merchants Bank (A) Banks China 12,759 1.9 13,077
=================================== ============================== ============ ========= ====== =========
Hong Kong Exchanges &
Clearing Capital Markets Hong Kong 11,605 1.7 13,009
=================================== ============================== ============ ========= ====== =========
Electronic Equipment,
Hon Hai Precision Industry Instruments & Components Taiwan 11,387 1.7 15,856
=================================== ============================== ============ ========= ====== =========
Power Grid Corporation Electric Utilities India 11,274 1.7 -
=================================== ============================== ============ ========= ====== =========
Kasikornbank 'F' Banks Thailand 10,836 1.6 -
=================================== ============================== ============ ========= ====== =========
Life Sciences Tools
Wuxi Biologics (Cayman) & Services China 10,429 1.5 11,531
=================================== ============================== ============ ========= ====== =========
Real Estate Management
Ayala Land & Development Philippines 10,392 1.5 8,728
----------------------------------- ------------------------------ ------------ --------- ------ ---------
Twenty largest investments 407,230 60.2
----------------------------------- ------------------------------ ------------ --------- ------ ---------
Kotak Mahindra Bank Banks India 9,895 1.5 10,573
=================================== ============================== ============ ========= ====== =========
Tata Consultancy Services IT Services India 9,832 1.4 17,679
=================================== ============================== ============ ========= ====== =========
Hindustan Unilever Personal Products India 9,429 1.4 6,713
=================================== ============================== ============ ========= ====== =========
Budweiser Brewing Beverages Hong Kong 9,188 1.4 6,463
=================================== ============================== ============ ========= ====== =========
Yunnan Energy New Material
A Chemicals China 8,938 1.3 9,417
=================================== ============================== ============ ========= ====== =========
Astra International Automobiles Indonesia 8,873 1.3 -
=================================== ============================== ============ ========= ====== =========
Real Estate Management
China Resources Land & Development China 8,779 1.3 10,897
=================================== ============================== ============ ========= ====== =========
LG Chem Chemicals South Korea 8,293 1.2 10,459
=================================== ============================== ============ ========= ====== =========
Electronic Equipment,
Delta Electronic Instruments & Components Taiwan 8,183 1.2 9,004
=================================== ============================== ============ ========= ====== =========
Maruti Suzuki India Automobiles India 8,119 1.2 -
----------------------------------- ------------------------------ ------------ --------- ------ ---------
Thirty largest investments 496,759 73.4
----------------------------------- ------------------------------ ------------ --------- ------ ---------
ShenZhen Mindray Bio-Medical Health Care Equipment
Electronics - A & Supplies China 7,963 1.2 3,948
=================================== ============================== ============ ========= ====== =========
Nari Technology Electrical Equipment China 7,939 1.2 11,144
=================================== ============================== ============ ========= ====== =========
Interactive Media
Kakao Corp & Services South Korea 7,931 1.2 6,370
=================================== ============================== ============ ========= ====== =========
Contemporary Amperex Technology
- A Electrical Equipment China 7,623 1.1 -
=================================== ============================== ============ ========= ====== =========
Semiconductors
Longi Green Energy Technology & Semiconductor
- A Equipment China 7,420 1.1 7,986
=================================== ============================== ============ ========= ====== =========
Bank of Philippine Islands Banks Philippines 6,918 1.0 5,765
=================================== ============================== ============ ========= ====== =========
Techtronic Industries Machinery Hong Kong 6,909 1.0 -
=================================== ============================== ============ ========= ====== =========
Life Sciences Tools
Samsung Biologics & Services South Korea 6,766 1.0 6,564
=================================== ============================== ============ ========= ====== =========
Chacha Food - A Food Products China 6,607 1.0 3,805
=================================== ============================== ============ ========= ====== =========
Ultratech Cement Construction Materials India 6,591 1.0 7,959
----------------------------------- ------------------------------ ------------ --------- ------ ---------
Forty largest investments 569,426 84.2
----------------------------------- ------------------------------ ------------ --------- ------ ---------
Interactive Media
Info Edge (India) & Services India 6,495 1.0 8,527
=================================== ============================== ============ ========= ====== =========
Singapore Telecommunications Diversified Telecommunication Singapore 6,461 1.0 -
=================================== ============================== ============ ========= ====== =========
Real Estate Management
China Vanke 'H' & Development China 6,296 0.9 6,788
=================================== ============================== ============ ========= ====== =========
Mobile World Investment
Corporation Speciality Retail Vietnam 6,236 0.9 4,129
=================================== ============================== ============ ========= ====== =========
Meituan-Dianping Class Internet & Direct
B Marketing Retail China 6,180 0.9 6,915
=================================== ============================== ============ ========= ====== =========
Semiconductors
& Semiconductor
Silergy Corp Equipment Taiwan 6,080 0.9 7,702
=================================== ============================== ============ ========= ====== =========
Sungrow Power Supply Co
- A Electrical Equipment China 6,056 0.8 4,243
=================================== ============================== ============ ========= ====== =========
Zhongsheng Group Holdings Speciality Retail China 5,356 0.8 -
=================================== ============================== ============ ========= ====== =========
Vietnam Technological
& Commercial Bank Banks Vietnam 5,256 0.8 5,507
=================================== ============================== ============ ========= ====== =========
Hotels, Restaurants
Tongcheng Elong Holdings & Leisure China 5,255 0.8 3,632
----------------------------------- ------------------------------ ------------ --------- ------ ---------
Fifty largest investments 629,097 93.0
----------------------------------- ------------------------------ ------------ --------- ------ ---------
Semiconductors
& Semiconductor
Andes Technology Equipment Taiwan 4,657 0.7 -
=================================== ============================== ============ ========= ====== =========
Siam Cement 'F' Construction Materials Thailand 4,621 0.7 5,598
=================================== ============================== ============ ========= ====== =========
GDS Holdings Class A IT Services China 4,610 0.7 3,512
=================================== ============================== ============ ========= ====== =========
Delhivery Air Freight & Logistics India 4,172 0.6 -
=================================== ============================== ============ ========= ====== =========
ShenZhen Inovance Technology
- A Machinery China 3,860 0.6 -
=================================== ============================== ============ ========= ====== =========
Yonyou Network Technology
- A Software China 3,785 0.6 -
=================================== ============================== ============ ========= ====== =========
Hangzhou Tigermed Consulting Life Sciences Tools
Co (A) & Services China 3,796 0.5 4,378
=================================== ============================== ============ ========= ====== =========
Glodon Co -A Software China 3,779 0.5 4,021
----------------------------------- ------------------------------ ------------ --------- ------ ---------
Infosys IT Services India 3,402 0.5 -
----------------------------------- ------------------------------ ------------ --------- ------ ---------
Internet & Direct
FSN E-Commerce Ventures Marketing Retail India 3,363 0.5 -
----------------------------------- ------------------------------ ------------ --------- ------ ---------
Sixty largest investments 669,142 98.9
----------------------------------- ------------------------------ ------------ --------- ------ ---------
PB Fintech Insurance India 3,237 0.5 -
----------------------------------- ------------------------------ ------------ --------- ------ ---------
672,379 99.4
----------------------------------- ------------------------------ ------------ --------- ------ ---------
Net current assets(B) 4,374 0.6
----------------------------------- ------------------------------ ------------ --------- ------ ---------
Total assets less current
liabilities(B) 676,753 100.0
----------------------------------- ------------------------------ ------------ --------- ------ ---------
(A) Holding includes
investment in both 'A'
and 'H' shares.
(B) Excluding bank loan
of GBP35,000,000.
Note: Unless otherwise stated, foreign stock is held and all investments
are equity holdings. Values for 2022 and 2021 may not be directly comparable
due to purchases and sales made during the year.
Changes in Asset Distribution
Value at Sales Gains/ Value at
1 September Purchases proceeds (losses) 31 August
2021 2022
Country GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
========================== =========== ========= ======== ======== =========
China 278,083 100,197 110,703 (44,529) 223,048
========================== =========== ========= ======== ======== =========
Hong Kong 73,302 11,293 32,696 7,057 58,956
========================== =========== ========= ======== ======== =========
India 101,770 40,859 22,344 (1,142) 119,143
========================== =========== ========= ======== ======== =========
Indonesia 16,968 8,851 1,517 7,853 32,155
========================== =========== ========= ======== ======== =========
Philippines 14,493 2,357 - 461 17,311
========================== =========== ========= ======== ======== =========
Singapore 34,146 9,522 2,378 (276) 41,014
========================== =========== ========= ======== ======== =========
South Korea 100,336 13,902 28,506 (22,054) 63,678
========================== =========== ========= ======== ======== =========
Sri Lanka 57 - 56 (1) -
========================== =========== ========= ======== ======== =========
Taiwan 128,184 10,900 38,520 (10,439) 90,125
========================== =========== ========= ======== ======== =========
Thailand 5,598 12,134 2,435 160 15,457
========================== =========== ========= ======== ======== =========
Vietnam 13,857 166 56 (2,475) 11,492
========================== =========== ========= ======== ======== =========
Total investments 766,794 210,181 239,211 (65,385) 672,379
-------------------------- ----------- --------- -------- -------- ---------
Net current assets 8,942 - - (4,568) 4,374
-------------------------- ----------- --------- -------- -------- ---------
Total assets less current
liabilities 775,736 210,181 239,211 (69,953) 676,753
-------------------------- ----------- --------- -------- -------- ---------
Investment Case Studies
Singtel (Singapore)
What does the company do?
Singtel is a telecom operator that has strong market positions
in its core markets of Singapore and Australia, and in selective
Southeast Asian and Asian emerging markets via its regional
investments.
Why do we like the investment?
Singtel operates in a competitive industry, but it is well
positioned across all of its markets, where it is often among the
top players. We believe it has sustainable competitive advantage.
Aside from technical operational know-how and astute financial
management, Singtel has a premium brand, economies of scale and a
healthy balance sheet. The group is seeing growth from monetising
data demand, as its revenue mix migrates from traditional sources
to data. We are impressed by the new management, which has been
strong in executing strategy, with a focus on profitability and
return on invested capital. Management has also been effective at
funding capex and investment by re-cycling capital from its balance
sheet. Despite a challenging macroeconomic backdrop, Singtel's
share price has matched the steady recovery of its core operations
where earnings have been resilient and dividend payouts have been
improving. We remain positive on Singtel's prospects as it
capitalises on new growth opportunities and unlocks value from
assets, amid a recovery of demand in the post-Covid economic
re-opening.
What is our key area of engagement?
Capital allocation and management because we see a lot of value
in the recycling of assets and reallocating capital more
effectively towards more productive uses.
What is the result?
Singtel's management has responded positively to our engagement.
Broadly, the group has actively recycled its capital by monetising
assets that do not align to its vision, and re-investing the
proceeds into higher growth areas. With this, Singtel aims to
deliver earnings growth and narrow its significant holding company
discount. Through 2022, the group has been rebalancing and
optimising its portfolio of associate companies, unlocking S$6
billion in capital that will fund mainly 5G capex and growth
initiatives. These transactions included the divestment of partial
stakes in Australia Tower Network and Airtel Africa; the full
disposal of subsidiary Amobee; the sale of a 3.3% direct stake in
Bharti Airtel to Bharti Telecom, a JV between Bharti Enterprises
and Singtel; and the transfer of 6,000 towers from its Indonesian
associate Telkomsel to Mitratel. Singtel also appointed Lendlease
to jointly redevelop its Comcentre headquarters into a S$3 billion
sustainable workplace. Singtel will hold 51% after a joint-venture
company is formed with Lendlease.
China Tourism Group Duty Free Corp (China)
What does the company do?
China Tourism Group Duty Free Corp (CTG) is the
world's biggest travel retail operator, focused on the
duty-free market.
Why do we like the investment?
We think CTG is a good proxy for the rising demand for duty-free
cosmetics and skincare in mainland China. It has four major
business lines: airport duty free, offshore duty free (Hainan),
downtown duty free (pre-departure) and wholesale. The group has
benefited from China's decision to loosen restrictions on its
lucrative duty-free industry, particularly in the popular tourist
island of Hainan, amid a broader supportive policy trend of the
government to bring overseas spending back to China. In addition,
CTG's growth via acquisitions is likely to result in greater scale
and stronger bargaining power with the potential for a margin
uplift versus new competition. In the Covid environment, CTG's
online business has evolved rapidly, accounting for close to half
of overall sales. The pandemic has changed the way consumers shop,
and the online business has complemented the traditional shopping
model. CTG's ongoing focus on developing its online and
digitalisation businesses should also help the company to compete
more effectively with other cross-border e-commerce operators. As
China re-opens, and over the longer term, we see CTG as well
positioned for growth, given its product portfolio, procurement
capability and prime store locations.
What is our key area of engagement?
Sustainability and ESG awareness, including carbon emissions,
data security, labour practices and supply-chain management.
What is the result?
The group has been responsive to our engagement. It has
indicated to us that its suppliers are also taking ESG issues
seriously. It is working with brands to promote sustainability and
awareness. CTG is also focusing on customer and stakeholder
engagement, and collecting feedback from stakeholders. It aims to
raise its MSCI ESG rating from BB to A and ultimately AAA over the
next two to three years. CTG has established an ESG management
framework and leadership group with the board as the highest
decision-making authority for its ESG efforts. Management has been
proactively communicating with external ESG rating agencies and we
are seeing this bear fruit. MSCI upgraded CTG from BB to BBB,
citing its improved data privacy programme and corporate governance
practices as driving the upgrade.
Directors' Report
Capital Structure
At 31 August 2022, the Company had 119,686,001 fully paid
Ordinary shares of 20p each in issue (2021: 124,766,350) with a
further 39,925,676 Ordinary shares of 20p held in treasury (2021:
34,845,327). During the year to 31 August 2022 5,080,349 Ordinary
Shares were bought back and held in treasury (2021: 1,592,103).
Further details on the changes to the capital structure during the
year ended 31 August 2022 are provided in the Annual Report.
Subsequent to the period end a further 651,351 Ordinary shares have
been purchased in the market for treasury.
The Ordinary shares carry a right to receive dividends which are
declared from time to time by an ordinary resolution of the Company
(up to the amount recommended by the Board) and to receive any
interim dividends which the Directors may resolve the Company
should pay. On a winding-up, after meeting the liabilities of the
Company, the surplus assets will be paid to Ordinary shareholders
in proportion to their shareholdings. On a show of hands, every
Ordinary shareholder present in person, or by proxy, has one vote
and, on a poll, every Ordinary shareholder present in person has
one vote for each share held and a proxy has one vote for every
share represented.
There are no restrictions concerning the holding or transfer of
the Ordinary shares and there are no special rights attached to any
of the shares. The Company is not aware of any agreements between
shareholders which may result in any restriction on the transfer of
shares or the voting rights.
In the event of a winding-up of the Company, the Ordinary shares
will rank behind any creditors or prior ranking capital of the
Company.
Directors
The Directors of the Company who were in office during the year
and up to the date of signing the financial statements were James
Will, Gaynor Coley, Matthew Dobbs, Susan Sternglass Noble and
Charlie Ricketts. Biographies of the Directors of the Company are
shown in the Annual Report and on the Company's website.
Directors' and Officers' Liability Insurance
The Company's articles of association indemnify each of the
Directors out of the assets of the Company against any liabilities
incurred by them as a Director of the Company in defending
proceedings, or in connection with any application to the Court in
which relief is granted. In addition, the Directors have been
granted qualifying indemnity provisions by the Company which are
currently in force. Directors' and Officers' liability insurance
cover has been maintained throughout the year at the expense of the
Company.
Dividends
The Directors recommend that a final dividend of 6.5p per
Ordinary share (2021: 6.5p) be paid on 16 December 2022 to
shareholders on the register on 11 November 2022. The ex-dividend
date is 10 November 2022.
Management Agreement
The Company has appointed abrdn Fund Managers Limited, a wholly
owned subsidiary of abrdn plc, as its alternative investment fund
manager. By way of group delegation agreements within the abrdn
Group the management of the Company's investment portfolio is
delegated to abrdn (Asia) Limited and company secretarial services
and administrative services are provided by Aberdeen Asset Managers
Limited.
Details of the management agreement, including the notice period
and fees paid to the abrdn Group companies during the year ended 31
August 2022, are shown in note 4 to the financial statements.
Borrowings
The Company has a GBP35 million multicurrency revolving facility
with The Royal Bank of Scotland International Limited, London
Branch. The agreement was entered into on 29 July 2022 with a
termination date of 29 July 2024. At the year end this facility had
been fully drawn down at a rate of 2. 690%. At the date of this
Report the Company had drawn down GBP25 million at a rate of 3.558
%. Under the terms of the revolving credit facility, the Company
has the option to increase the level of the commitment from GBP35
million to GBP50 million at any time.
On 29 July 2022, the Company also entered into a new fixed loan
facility agreement of GBP25 million at an interest rate of 3.5575%
with The Royal Bank of Scotland International Limited, London
Branch, with a termination date of 29 July 2024. The agreement of
this facility incurred an arrangement fee of GBP7,500, which will
be amortised over the life of the loan.
Corporate Governance
The Statement of Corporate Governance, which forms part of the
Directors' Report, is contained in the Annual Report.
Going Concern
The Directors have undertaken a rigorous review and believe that
it is appropriate to continue to adopt the going concern basis in
the preparation of the financial statements. This conclusion is
consistent with the longer term Viability Statement.
The Company's assets consist substantially of equity shares in
companies listed on recognised stock exchanges and in normal
circumstances are realisable within a short timescale. The Board
has set limits for borrowing and regularly reviews the level of any
gearing, cash flow projections and compliance with banking and loan
covenants.
The Directors are mindful of the principal risks and
uncertainties disclosed above, and have reviewed forecasts
detailing revenues and liabilities and undertaken sensitivity
analysis. The Directors are satisfied that the Company has adequate
resources to continue in operational existence for the foreseeable
future and has the ability to meet its financial obligations as
they fall due for a period of at least twelve months from the date
of approval of this Report. They have arrived at this conclusion
having confirmed that the Company's diversified portfolio of
realisable securities is sufficiently liquid and could be used to
meet short-term funding requirements were they to arise. The
Directors have also reviewed the revenue and ongoing expenses
forecasts for the coming year and considered the Company's
Statement of Financial Position as at 31 August 2022 which shows
net current liabilities of GBP30.6million at that date. The
Directors believe that adopting a going concern basis of accounting
remains appropriate.
Substantial Share Interests
At 31 August 2022 the Company had been notified or
was aware of the following substantial interests in the Ordinary
shares:
Number
of Ordinary
shares
Shareholder held % held
============================= ============ ======
City of London Investment
Management 34,878,552 29.0
============================= ============ ======
Allspring Global Investments 13,729,896 11.4
============================= ============ ======
Lazard Asset Management 13,199,892 11.0
============================= ============ ======
abrdn Retail Plans 4,941,374 4.1
============================= ============ ======
Rathbones 4,498,286 3.7
============================= ============ ======
Evelyn Partners 4,297,501 3.6
============================= ============ ======
Subsequent to the year end the Company was notified of the
following changes:
-- On 14 September 2022, City of London Investment Management
reduced its holding to 34,625,304 Ordinary Shares (representing
29.0% of the issued share capital of the Company).
-- On 23 September 2022, City of London Investment Management
increased its holding to 34,670,304 Ordinary Shares (representing
29.0% of the issued share capital of the Company).
-- On 12 October 2022, City of London Investment Management
reduced its holding to 34,531,922 Ordinary Shares (representing
29.0% of the issued share capital of the Company).
As at the date of this Report, no other changes to the above
interests had been notified to the Company.
Independent Auditors
The respective responsibilities of the Directors and the
independent auditors in connection with the financial statements
appear in the Annual Report.
The Directors who held office at the date of approval of this
Directors' Report confirm that, so far as they are each aware,
there is no relevant audit information of which the Company's
auditors is unaware and each Director has taken all the steps that
he or she ought to have taken as a Director to make himself or
herself aware of any relevant audit information and to establish
that the Company's auditors is aware of that information.
Annual General Meeting
Among the resolutions being put at the Annual General Meeting of
the Company to be held on 9 December 2022, the following
resolutions will be proposed:
(i) Section 551 Authority to Allot Shares
Resolution 11, which is an ordinary resolution, will, if
approved, give the Directors a general authority to allot new
securities up to 33.33% of the Company's issued Ordinary share
capital (excluding treasury shares) as at the date of the passing
of this resolution (up to a maximum nominal amount of GBP7.86
million based on the Company's issued share capital as at the date
of this Report). Such authority will expire on 29 February 2024 or,
if earlier, at the conclusion of the next Annual General Meeting of
the Company (unless previously revoked, varied or extended by the
Company in general meeting).
(ii) Limited Disapplication of Pre-emption Rights
Resolution 12, which is a special resolution, seeks to give the
Directors power, conditional on Resolution 11 being passed, to
allot Ordinary shares and to sell Ordinary shares held in treasury
for cash, without first offering them to existing shareholders in
proportion to their existing holdings, up to an aggregate nominal
value representing 5% of the Company's issued Ordinary share
capital as at the date of passing of this resolution (up to a
maximum nominal amount of GBP1.19 million based on the Company's
issued share capital as at the date of this Report).
This authority will expire on 29 February 2024 or, if earlier,
at the conclusion of the next Annual General Meeting of the Company
(unless previously revoked, varied or extended by the Company in
general meeting).
Pursuant to this power, Ordinary shares would only be issued for
cash and treasury shares would only be sold for cash at a premium
to the net asset value per share (calculated after the deduction of
prior charges at market value).
The Directors consider that the powers proposed to be granted by
the above resolutions are necessary to provide flexibility to issue
shares should they deem it to be in the best interests of
shareholders as a whole.
(iii) Purchase of the Company's own Ordinary shares
Since the Company's last AGM the Company has undertaken share
buybacks, the details of which are set out in the Annual Report.
Resolution 13, which will be proposed as a special resolution, will
renew the Company's authority to make market purchases of its own
shares. Shares so repurchased will be cancelled or held "in
treasury". In respect of the Company's Ordinary shares which it
buys back and does not immediately cancel but, instead, holds in
treasury it may sell such shares (or any of them) for cash (or its
equivalent); or ultimately cancel the shares (or any of them).
No dividends will be paid on treasury shares, and no voting
rights attach to them.
The maximum number of Ordinary shares which may be purchased
pursuant to this authority shall be 14.99% of the issued share
capital of the Company as at the date of the passing of the
resolution (approximately 17.8 million Ordinary shares based on the
Company's issued share capital as at the date of this Report). The
minimum price which may be paid for an Ordinary share (exclusive of
expenses) shall be 20p (being an amount equal to the nominal value
of an Ordinary share). The maximum price for an Ordinary share
(again exclusive of expenses) shall be an amount being not more
than the higher of (i) 105% of the average of the middle market
quotations for the Company's Ordinary shares for the five business
days immediately preceding the date of purchase and (ii) the higher
of the price of the last independent trade and the highest current
independent bid relating to an Ordinary share on the trading venue
where the purchase is carried out.
This authority, if conferred, will only be exercised if to do so
would enhance the net asset value per share and is in the best
interests of shareholders generally. This authority will expire on
29 February 2024 or, if earlier, at the conclusion of the next
Annual General Meeting of the Company (unless previously revoked,
varied or extended by the Company in general meeting).
(iv) Notice Period for General Meetings
Resolution 14, which will be proposed as a special resolution,
seeks the authority from shareholders for the Company to be able to
hold general meetings (other than AGMs) on 14 clear days' notice.
The approval will be effective until the conclusion of the
Company's next Annual General Meeting, when it is intended that a
similar resolution will be proposed. The Company will also need to
meet the requirements for electronic voting under the Companies Act
2006 (as amended by the Shareholders' Rights Regulations) before it
can call a general meeting on 14 clear days' notice.
Recommendation
The Directors believe that the resolutions to be proposed at the
Annual General Meeting are in the best interests of the Company and
its shareholders as a whole, and recommend that shareholders vote
in favour of the resolutions, as the Directors intend to do in
respect of their own beneficial shareholdings totalling, in
aggregate, 39,114 Ordinary shares, and representing 0.033% of the
existing issued Ordinary share capital of the Company.
Greenhouse Gas Emissions
The Company can report that it has no greenhouse gas emissions
or other emissions producing sources from its operations.
Other Information
The rules concerning the appointment and replacement of
Directors, amendments to the articles of association and powers to
issue or buy back the Company's shares are contained in the
articles of association of the Company and the Companies Act 2006.
There are no agreements which the Company is party to that might
affect its control following a takeover bid; and there are no
agreements between the Company and its Directors concerning
compensation for loss of office. Other than the management
agreement with the Manager, further details of which are set out
above, the Company is not aware of any contractual or other
agreements which are essential to its business which ought to be
disclosed in the Directors' Report.
The financial risk management objectives and policies arising
from its financial instruments and the exposure of the Company to
risk are disclosed in note 18 to the Financial Statements.
By order of the Board,
Aberdeen Asset Managers Limited
Secretary
Edinburgh
31 October 2022
Registered office:
1 George Street
Edinburgh EH2 2LL
Company Registration Number: SC106049
Statement of Corporate Governance
Compliance
The Company is committed to high standards of corporate
governance. The Board is responsible for good governance, and this
statement describes how the Company applies the principles
identified in the UK Corporate Governance Code published in 2018
(the "UK Code"), which is available on the Financial Reporting
Council's website: www.frc.org.uk , throughout the financial
year.
The Company is a member of the Association of Investment
Companies ("AIC"), which has published its own Code of Corporate
Governance to recognise the special circumstances of investment
trusts ( www.theaic.co.uk ) and approved by the FRC.
The Board confirms that, during the year to 31 August 2022, the
Company complied with the recommendations of the AIC Code and the
relevant provisions of the UK Code, except as set out below:
1. the role of the chief executive (A.1.2);
2. executive Directors' remuneration (D.1.1 and D.1.2); and
3. the need for an internal audit function (C.3.6).
For the reasons set out in the AIC Code, and as explained in the
UK Code, the Board considers that these provisions are not relevant
to the position of the Company, being an externally managed
investment company.
The Board
The Board consists of five non-executive Directors. Each
Director has the requisite range of business and financial
experience to enable the Board to provide clear and effective
leadership and proper stewardship of the Company. Charlie Ricketts
is the Senior Independent Director ("SID") and is available to
shareholders in the event that there are concerns that cannot be
resolved through discussion with the Chairman.
Biographical details for each of the Directors, including their
significant external appointments, can be found in the Annual
Report and on the Company's website.
All Directors are considered to be independent of the Manager
and to be free of any material relationship with the Manager which
could interfere with the exercise of their independent judgement.
Subject both to annual re-election and renewal of the appointment
every three years, a Director's tenure of office (including that of
the Chairman) will normally be for up to nine years. When making a
recommendation for re-electing a Director, the Board will take into
account the on-going requirements of the UK Code.
Role and Operation of the Board
The Board normally meets at least five times each year, and more
frequently where business needs require. In addition, there is
regular contact between the Directors and the Manager throughout
the year. The table below sets out the number of routine Board and
Committee meetings attended by each Director during the year
compared to the number of meetings that each Director was eligible
to attend. Directors also have additional discussions when required
to address administrative matters and ad hoc issues between
scheduled Board meetings.
Management
Audit & Remuneration Nomination Engagement
Risk Committee Committee Committee Committee
Director Board Meetings Meetings(1) Meetings Meetings Meetings
======================= ============== =============== ============ ========== ===========
James Will 5 (5) n/a 1 (1) 1 (1) 1 (1)
======================= ============== =============== ============ ========== ===========
Gay Coley 5 (5) 3 (3) 1 (1) 1 (1) 1 (1)
======================= ============== =============== ============ ========== ===========
Matthew Dobbs(2) 3 (3) 2 (2) 1 (1) n/a n/a
======================= ============== =============== ============ ========== ===========
Kathryn Langridge(3) 1 (2) 0 (1) n/a 0 (1) 0 (1)
======================= ============== =============== ============ ========== ===========
Susan Sternglass Noble 5 (5) 3 (3) 1 (1) 1 (1) 1 (1)
======================= ============== =============== ============ ========== ===========
Charlie Ricketts 5 (5) 3 (3) 1 (1) 1 (1) 1 (1)
======================= ============== =============== ============ ========== ===========
(1) All Directors are members of the four Committees of the Board
with the exception of James Will who can, upon invitation, attend
Audit & Risk Committee meetings as an observer.
(2) Appointed to the Board on 1 February 2022.
(3) Retired from the Board on 15 December 2021.
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. In view of
its size, the Board will continue to ensure that all appointments
are made on the basis of merit against the specification prepared
for each appointment. In doing so, the Board will seek to meet the
targets set out in the FCA's Listing Rule 9.8.6R (9)(a), which are
set out below.
Although the Company is not required to report against these
targets until the 2023 Annual Report, the Board has resolved to do
so on a voluntary basis for the year ended 31 August 2022. In
accordance with the LR 9.8.6R (9), (10) and (11) the Board has
provided the following information in relation to its
diversity.
Board Gender as at 31 August 2022
Number of Board Percentage of the Number of senior Number in executive Percentage of
members Board positions on the management executive management
Board
====== ==================== ===================== ==================== ==================== =====================
Men 3 60% 2 (B) n/a n/a
====== ==================== ===================== ==================== ==================== =====================
Women 2 40% (A) 1 (CD) n/a n/a
====== ==================== ===================== ==================== ==================== =====================
(A) meets target of 40% as set out in LR 9.8.6R (9)(a)(i)
(B) the positions of Chair of the Board and Senior Independent
Director are held by men
(C) the positions of Chair of the Audit & Risk Committee is
held by a woman
(D) meets target of 1 as set out in LR 9.8.6R (9)(a)(ii)
Board Ethnic Background as at 31 August 2022
Number Number of Number in Percentage
of Board Percentage senior positions executive of executive
members of the on the Board management management
Board
=========================== ========= =========== ================= =========== =============
White British or other
White
(including minority-white
groups) 5 100% 3 n/a n/a
=========================== ========= =========== ================= =========== =============
Minority ethnic 0 (A) 0% 0 n/a n/a
=========================== ========= =========== ================= =========== =============
(A) is less than the target of 1 as asset out in LR 9.8.6R
(9)(a)(iii)
As shown in the above table, the Company has not as yet met the
target set out in LR 9.8.6R (9)(a)(iii), which formally comes into
effect for the financial year ending 31 August 2023, in relation to
the ethnic background of the Board. It is the Board's intention
that achieving the target as set out in LR 9.8.6R (9)(a)(iii)
continues to be a priority during the Board's next succession
appointments.
The information included above in relation to the gender and
ethnic background of the Board has been obtained following
confirmation from the individual Directors. Although not required
to be disclosed under the FCA's Listing Rules, the Board notes that
the Company's lead portfolio managers are one male and one female,
both of whom are Asian and based in Singapore.
There have been no changes since the year end that have affected
the Company's ability to meet the targets set in LR 9.8.6R
(9)(a).
Role of the Board
The Board has overall responsibility for the Company's affairs.
It delegates, through a management agreement and specific
instructions, the day-to-day management of the Company to the
Manager, abrdn Fund Managers Limited. The Board has a schedule of
matters reserved to it for decision, and the requirement for Board
approval on these matters is communicated directly to the senior
staff of the Manager.
Such matters include overall strategy, review of investment
policy, performance, gearing policy, treasury, corporate governance
policy, promotional activities and communications with
shareholders.
Full and timely information is provided to the Board to enable
the Directors to function effectively and to discharge their
responsibilities. At each meeting the Board reviews the
following:
-- Reports from the Manager covering stockmarket environment,
portfolio activities, performance and investment outlook;
-- Company financial information including revenue forecasts,
balance sheet and gearing position;
-- Shareholder analysis and relations;
-- Regulatory issues and industry matters;
-- Reports from other service providers such as brokers and
registrars.
No contract or arrangement subsisted during the period in which
any of the Directors was materially interested. The Board monitors,
on a regular basis, the direct and indirect interests of each
Director and has concluded that there were no situations which gave
rise to an interest of a Director which conflicted with the
interests of the Company. The Board adopts a zero-tolerance
approach to bribery and corruption and has implemented appropriate
procedures designed to prevent bribery.
It is the Company's policy to conduct all of 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.
Directors' Time Commitments
The Company has a policy of ensuring that all non-executive
directors of the Company have sufficient time to commit to the
respective duties and responsibilities applicable to their
particular Board roles.
When making new appointments, the Board takes into account other
demands on potential candidates' time and prior to appointment any
significant commitments are disclosed with an indication of the
time involved. In the year under review the Board assessed the time
commitment of each individual Director on external appointments.
Each Director's aggregate time commitment is discussed with him or
her as part of the annual appraisal process.
In the year under review, all Directors were considered to have
sufficient time to commit to their respective roles on the Board,
taking account of their external appointments.
If at any time any Director wishes to accept an additional
significant external appointment, the prior approval of the Board
is first required. In considering whether to grant such approval,
the Board will in particular consider the Director's other time
commitments and any potential conflicts of interest.
Board Committees
The Board has appointed four Committees with specific operations
as set out below. The terms of reference, which clearly define the
responsibilities of each Committee are available on the Company's
website. The terms of reference of each of the Committees are
renewed and re-assessed by the Board for their adequacy on an
ongoing basis.
Audit & Risk Committee
The Audit & Risk Committee Report is set out in the Annual
Report.
Remuneration Committee
The Remuneration Committee, which comprises all directors and is
chaired by Charlie Ricketts, is responsible for determining the
level of Directors' fees, having regard to external sources. The
terms of reference are available on request and on the Company's
website. Further information may be found in the Directors'
Remuneration Report in the Annual Report.
Management Engagement Committee
The Management Engagement Committee, which comprises all the
Directors and is chaired by James Will, reviews the performance of
the Manager and its compliance with the management agreement.
The Committee keeps the resources of the Manager under constant
review, conducts an annual review of the terms and conditions of
the management agreement ("Agreement") and undertakes an evaluation
of the Manager's performance under this Agreement. In monitoring
the performance of the Manager, the Board reviews the investment
performance, management processes, risk control mechanisms and
promotional activities of the Manager.
As a result of these reviews, the Board concluded that the
Manager has the investment management, promotional, secretarial and
administrative skills required for the effective operation of the
Company. The Board believes that the Manager has satisfactorily met
the terms of the management agreement with the Company, and
considers that the continuing appointment of the Manager is in the
interests of the Company and its shareholders. The performance of
the Manager remains under close review.
Nomination Committee
A Nomination Committee was established in January 2020, which
comprises all Directors and is chaired by James Will, and has
responsibility for Board evaluation, succession planning, new
appointments and training.
Performance evaluation
An appraisal of each Director, including the Chairman, and of
the operation of the Board and its Committees, was undertaken
during the year. The Chairman's performance assessment was led by
the Senior Independent Director. The Board also reviewed the
Chairman's and Directors' other commitments. The Board is satisfied
that each Director's performance continues to be effective, and
that each remains fully committed to the Company. The Company has
not been a constituent of the FTSE 350 and, as such, an external
evaluation of the Board was not undertaken during the financial
year.
Succession planning
In line with the Company's strong commitment to its corporate
governance responsibilities, the Board regularly reviews its
performance and structure to ensure it has the correct mix of
relevant skills, diversity and experience for the effective conduct
of the Company's business to complement the existing composition of
the Board whilst having due regard for the benefits of diversity,
including gender and ethnicity, on the Board.
New Board appointments are identified against the requirements
of the Company's business and the need to have a balanced Board and
are routinely facilitated by an external search consultant to
ensure that a wide range of candidates can be considered. Following
a review of its composition and, taking into account succession
plans, the Board engaged Trust Associates to identify potential
candidates for a new Board appointment. This resulted in the
appointment of Matthew Dobbs on 1 February 2022. Trust Associates
has previously been engaged by the Company as an external search
consultant to identify potential candidates for Board appointments.
Trust Associates has no other connection with the Company or any of
the Directors.
The Board has implemented the provisions of the UK Code whereby
all Directors of the Company will stand for re-election on an
annual basis. The Board has reviewed the skills and experience of
each Director, and supports their re-election. Matthew Dobbs, who
was appointed during the financial year, will stand for
election.
New Directors are given appropriate induction from the Manager
covering legal responsibilities, the Manager's operations and
investment trust industry matters. All Directors are entitled to
receive appropriate and relevant training. If necessary, there is a
procedure for a Director
to take independent professional advice at the Company's
expense.
Relations with Shareholders
The Directors place great importance on communication with
shareholders. Besides shareholders, the report and financial
statements are widely distributed to other parties who have an
interest in the Company's performance. Shareholders and potential
investors may obtain up-to-date information on the Company through
the Manager's freephone information service, and the Company
responds to letters from shareholders on a wide range of issues.
The Company's annual and half-yearly reports and other publications
can be downloaded from the Company's website,
www.asiadragontrust.co.uk .
The Board's policy is to communicate directly with shareholders
and their representative bodies without the involvement of the
management group (either the Company Secretary or the Manager) in
situations where direct communication is required. The Chairman
meets with representatives of the major shareholders during the
financial year on an annual basis in order to gauge their views.
The Manager maintains regular contact with institutional
shareholders and feeds back shareholder views to the Board.
As set out in the Chairman's Statement, the Board will be
hosting an Online Shareholder Presentation at 11:00am on 21
November 2022 in order to encourage as much interaction as possible
with the Company's shareholders. Full details on how to register
for the online event can be found on the Company's website at
www.asiadragontrust.co.uk .
It is the intention of the Board that, in the ordinary course,
the notice of the Annual General Meeting included within the annual
report and financial statements is normally sent out at least 20
working days in advance of the meeting. The Board encourages
shareholders to attend and participate at the Company's AGM. At the
AGM, the Investment Manager provides a presentation at the meeting
outlining the key investment issues that affect the Company and all
shareholders have the opportunity to raise questions. Proxy voting
figures for each resolution are announced to the meeting after
voting on a show of hands and details are available on the
Company's website.
Environmental, Social and Governance ("ESG") Investing
Our Investment Manager's approach to ESG matters is included
above.
The UK Stewardship Code and Proxy Voting
The Company supports the UK Stewardship Code, 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 which has sub-delegated that authority to the Investment
Manager. abrdn plc 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 and the long term investment return to shareholders.
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 on a
quarterly basis on stewardship (including voting) issues.
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report
and financial statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law they are
required to prepare the financial statements in accordance with UK
accounting standards, including FRS 102 The Financial Reporting
Standard applicable in the UK and Republic of Ireland.
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Company and of its profit or
loss for that period. In preparing these financial statements, the
Directors are required to:
-- select suitable accounting policies and then apply them
consistently;
-- make judgements and estimates that are reasonable and
prudent;
-- state whether applicable UK accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements;
-- assess the Company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern;
and
-- use the going concern basis of accounting unless they either
intend to liquidate the Company or to cease operations, or have no
realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
its financial statements comply with the Companies Act 2006. They
are responsible for such internal control as they determine is
necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error,
and have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the Company and
to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report, Directors' Report,
Directors' Remuneration Report and Corporate Governance Statement
that complies with that law and those regulations.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in the UK governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
Responsibility statement of the Directors in respect of the
annual financial report
We confirm that to the best of our knowledge:
-- the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the Company; and
-- the Strategic report /Director's report include a fair review
of the development and performance of the business and the position
of the issuer, together with a description of the principal risks
and uncertainties that they face.
We consider the annual report and financial statements, taken as
a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Company's
position and performance, business model and strategy.
For Asia Dragon Trust plc
James Will,
Chairman
31 October 2022
Statement of Comprehensive Income
Year ended 31 August Year ended 31 August
2022 2021
============= ========================== ========= ==================================== =================================
Revenue Capital Total Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
============= ========================== ========= ========= ============= ========== ======= ========== ============
(Losses)/gains on investments
held at fair value through
profit or loss 10 - (65,385) (65,385) - 119,603 119,603
========================================= ========= ========= ============= ========== ======= ========== ============
Currency gains/(losses) - 455 455 - (573) (573)
========================================= ========= ========= ============= ========== ======= ========== ============
Income 3 11,127 - 11,127 13,074 - 13,074
========================================= ========= ========= ============= ========== ======= ========== ============
Investment management fee 4 (1,097) (3,290) (4,387) (1,194) (3,580) (4,774)
========================================= ========= ========= ============= ========== ======= ========== ============
Administrative expenses 5 (1,007) - (1,007) (1,102) - (1,102)
----------------------------------------- --------- --------- ------------- ---------- ------- ---------- ------------
Net return/(loss) before
finance costs and taxation 9,023 (68,220) (59,197) 10,778 115,450 126,228
========================================= ========= ========= ============= ========== ======= ========== ============
============= ========================== ========= ========= ========= ===== === ======= === ===== ========
Interest payable and similar
charges 6 (266) (798) (1,064) (189) (567) (756)
----------------------------------------- --------- --------- ------------- ---------- ------- ---------- ------------
Return/(loss) before taxation 8,757 (69,018) (60,261) 10,589 114,883 125,472
========================================= ========= ========= ============= ========== ======= ========== ============
============= ========================== ========= ========= ========= ===== === ======= === ===== ========
Taxation 7 (967) 707 (260) (1,349) (2,942) (4,291)
----------------------------------------- --------- --------- ------------- ---------- ------- ---------- ------------
Return/(loss) after taxation 7,790 (68,311) (60,521) 9,240 111,941 121,181
----------------------------------------- --------- --------- ------------- ---------- ------- ---------- ------------
============= ========================== ========= ========= ========= ===== === ======= === ===== ========
Return per share (pence) 9 6.38 (55.91) (49.53) 7.36 89.24 96.60
----------------------------------------- --------- --------- ------------- ---------- ------- ---------- ------------
The total column of this statement represents the profit and loss account
of the Company.
All revenue and capital items in the above statement derive from continuing
operations.
The accompanying notes are an integral part of the financial statements.
Statement of Financial Position
As at As at
31 August 31 August
2022 2021
Notes GBP'000 GBP'000
========================== ========= ========= ========= ========= ================= ===============
Non-current assets
=========================================================== ===== === ======= === ===== ========
Investments at fair value through profit
or loss 10 672,379 766,794
------------------------------------------------------------------------- --------- ----------------- ---------------
Current assets
=========================================================== ===== === ======= === ===== ========
Debtors and prepayments 11 2,693 5,782
========================================================================= ========= ================= ===============
Cash and cash equivalents 12 5,094 5,000
------------------------------------------------------------------------- --------- ----------------- ---------------
7,787 10,782
---------------------------------------- --------- --------- --------- ----- ----------------- ---------------
Creditors: amounts falling due within one
year
=========================================================== ===== === ======= === ===== ========
Bank loan 13(a) (35,000) (64,998)
========================================================================= ========= ================= ===============
Other creditors 13(b) (3,413) (1,840)
------------------------------------------------------------------------- --------- ----------------- ---------------
(38,413) (66,838)
---------------------------------------- --------- --------- --------- ----- ----------------- ---------------
Net current liabilities (30,626) (56,056)
------------------------------------------------------------------------- ----- ----------------- ---------------
Creditors: amounts falling due after more
than one year
=========================================================== ===== === ======= === ===== ========
Bank loan 13(a) (24,983) -
========================================================================= ========= ================= ===============
Deferred tax liability on Indian capital
gains 13(c) (2,401) (3,809)
========================================================================= ========= ================= ===============
(27,384) (3,809)
---------------------------------------- --------- --------- --------- ----- ----------------- ---------------
Net assets 614,369 706,929
------------------------------------------------------------------------- ----- ----------------- ---------------
Share capital and reserves
=========================================================== ===== === ======= === ===== ========
Called-up share capital 14 31,922 31,922
========================================================================= ========= ================= ===============
Share premium account 60,416 60,416
========================================================================= ===== ================= ===============
Capital redemption reserve 28,154 28,154
========================================================================= ===== ================= ===============
Capital reserve 15 453,273 545,582
========================================================================= ========= ================= ===============
Revenue reserve 40,604 40,855
------------------------------------------------------------------------- ----- ----------------- ---------------
Total shareholders' funds 614,369 706,929
------------------------------------------------------------------------- ----- ----------------- ---------------
Net asset value per Ordinary share (pence) 16 513.32 566.60
------------------------------------------------------------------------- --------- ----------------- ---------------
The financial statements were approved by the Board of Directors and
authorised for issue on 31 October 2022 and were signed on its behalf
by:
James Will
Chairman
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Equity
For the year ended 31 August 2022
=============================================================================================
Share Capital
Share premium redemption Capital Revenue
capital account reserve reserve reserve Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=========================== ===== ======= ======= ========== ======== ======= ========
Balance at 1 September
2021 31,922 60,416 28,154 545,582 40,855 706,929
=========================== ===== ======= ======= ========== ======== ======= ========
Return after taxation - - - (68,311) 7,790 (60,521)
=========================== ===== ======= ======= ========== ======== ======= ========
Buyback of Ordinary shares
for treasury 14 - - - (23,998) - (23,998)
=========================== ===== ======= ======= ========== ======== ======= ========
Dividend paid 8 - - - - (8,041) (8,041)
--------------------------- ----- ------- ------- ---------- -------- ------- --------
Balance at 31 August
2022 31,922 60,416 28,154 453,273 40,604 614,369
--------------------------- ----- ------- ------- ---------- -------- ------- --------
For the year ended 31 August 2021
Share Capital
Share premium redemption Capital Revenue
capital account reserve reserve reserve Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=========================== ===== ======= ======= ========== ======== ======= ========
Balance at 1 September
2020 31,922 60,416 28,154 441,359 37,580 599,431
=========================== ===== ======= ======= ========== ======== ======= ========
Return after taxation - - - 111,941 9,240 121,181
=========================== ===== ======= ======= ========== ======== ======= ========
Buyback of Ordinary shares
for treasury 14 - - - (7,718) - (7,718)
=========================== ===== ======= ======= ========== ======== ======= ========
Dividend paid 8 - - - - (5,965) (5,965)
--------------------------- ----- ------- ------- ---------- -------- ------- --------
Balance at 31 August
2021 31,922 60,416 28,154 545,582 40,855 706,929
--------------------------- ----- ------- ------- ---------- -------- ------- --------
The capital reserve includes investment holding gains amounting to
GBP144,902,000 (2021 - GBP241,988,000), as disclosed in note 10.
The Revenue reserve and the part of the Capital reserve represented
by realised capital gains represent the amount of the Company's reserves
distributable by way of dividend.
The accompanying notes are an integral part of the financial statements.
Statement of Cash Flows
====
Year ended Year ended
31 August 31 August
2022 2021
Notes GBP'000 GBP'000
===================== ======================================= ================ ========== =================
Operating activities
============================================================== ================ ========== =========== ====
Net return before taxation (60,261) 125,472
============================================================== ================ ========== =================
Adjustment for:
============================================================== ================ ========== =========== ====
Losses/(gains) on investments 65,385 (119,603)
============================================================== ================ ========== =================
Currency (gains)/losses (455) 573
============================================================== ================ ========== =================
(Increase)/decrease in accrued dividend
income (232) 568
============================================================== ================ ========== =================
(Increase)/decrease in other debtors (466) 14
============================================================== ================ ========== =================
Increase in other creditors 1,473 176
============================================================== ================ ========== =================
Interest payable and similar charges 6 1,064 756
============================================================== ================ ========== =================
Scrip dividends included in investment income - (587)
============================================================== ================ ========== =================
Overseas withholding tax (1,323) (1,767)
-------------------------------------------------------------- ---------------- ---------- -----------------
Cash from operations 5,185 5,602
============================================================== ================ ========== =================
Interest paid (1,013) (749)
-------------------------------------------------------------- ---------------- ---------- -----------------
Net cash inflow from operating activities 4,172 4,853
============================================================== ================ ========== =================
Investing activities
============================================================== ================ ========== =========== ====
Purchases of investments (210,345) (259,733)
============================================================== ================ ========== =================
Sales of investments 243,361 229,021
============================================================== ================ ========== =================
Capital gains tax on sales (701) (187)
-------------------------------------------------------------- ---------------- ---------- -----------------
Net cash inflow/(outflow) from investing
activities 32,315 (30,899)
============================================================== ================ ========== =================
Financing activities
============================================================== ================ ========== =========== ====
Equity dividends paid 8 (8,041) (5,965)
============================================================== ================ ========== =================
Buyback of Ordinary shares (23,807) (7,806)
============================================================== ================ ========== =================
Repayment of bank loans (65,000) -
-------------------------------------------------------------- ---------------- ---------- -----------------
Drawdown of bank loans 60,000 34,000
-------------------------------------------------------------- ---------------- ---------- -----------------
Net cash (used in)/from financing activities (36,848) 20,229
-------------------------------------------------------------- ---------------- ---------- -----------------
Decrease in cash and cash equivalents (361) (5,817)
-------------------------------------------------------------- ---------------- ---------- -----------------
Analysis of changes in cash and cash equivalents
during the year
============================================================== ================ ========== =========== ====
Opening balance 5,000 11,390
============================================================== ================ ========== =================
Effect of exchange rate fluctuations on
cash held 455 (573)
============================================================== ================ ========== =================
Decrease in cash and cash equivalents as
above (361) (5,817)
-------------------------------------------------------------- ---------------- ---------- -----------------
Closing cash and cash equivalents 5,094 5,000
-------------------------------------------------------------- ---------------- ---------- -----------------
Represented by:
============================================================== ================ ========== =========== ====
Money market funds 1,000 500
============================================================== ================ ========== =================
Cash and short term deposits 4,094 4,500
-------------------------------------------------------------- ---------------- ---------- -----------------
5,094 5,000
--------------------- --------------------------------------- ---------------- ---------- -----------------
The accompanying notes are an integral part of the financial statements.
Notes to the Financial Statements
For the year ended 31 August 2022
1. Principal activity
The Company is a closed-end investment company, registered in Scotland
No SC106049, with its Ordinary shares being listed on the London
Stock Exchange.
2. Accounting policies
(a) Basis of preparation . The financial statements have been prepared
in accordance with Financial Reporting Standard 102, the Companies
Act 2006 and with the Statement of Recommended Practice 'Financial
Statements of Investment Trust Companies and Venture Capital
Trusts' issued in April 2021. The financial statements are prepared
in Sterling which is the functional currency of the Company
and rounded to the nearest GBP'000. They have also been prepared
on the assumption that approval as an investment trust will
continue to be granted. The accounting policies applied are
unchanged from the prior year and have been applied consistently.
The Company's assets consist substantially of equity shares
in companies listed on recognised stock exchanges and in normal
circumstances are realisable within a short timescale. The Company
has adequate resources to continue in operational existence
for the foreseeable future and has the ability to meet its financial
obligations as they fall due for a period of at least twelve
months from the date of approval of this Report. The revenue
forecast for the coming year demonstrates that the Company has
the ability to cover its expenses. The Company has a two year
loan facility of GBP35 million multicurrency revolving facility
in place until July 2024. The Company also has in place a fixed
loan facility of GBP25 million in place until July 2024. The
Board has set limits for borrowing and regularly reviews the
Company's gearing levels and its compliance with bank covenants.
A replacement option would be sought in advance of the expiry
of the facility in July 2024, or, should the Board decide not
to renew this facility, any outstanding borrowing would be repaid
through the proceeds of equity sales as required. Shareholders
are given the opportunity to vote on the continuation of the
Company every five years. The last continuation vote held in
December 2021 was passed, and the next continuation vote is
due to be held in December 2026. The Board has considered the
ongoing impact of Covid-19 on the Company and its underlying
portfolio and believes that it will continue to have a limited
financial impact on the Company's operational resources and
existence. Given that the Company's portfolio comprises primarily
"Level One" assets (listed on a recognisable exchange and realisable
within a short timescale), and the Company's relatively low
level of gearing, the Directors believe that adopting a going
concern basis of accounting remains appropriate.
The Company's investments and borrowings are made in a number
of currencies, however the Board considers the Company's functional
currency to be Sterling. In arriving at this conclusion, the
Board considered that the shares of the Company are listed on
the London Stock Exchange, it is regulated in the United Kingdom,
principally having its shareholder base in the United Kingdom,
pays dividends and expenses in Sterling. Consequently, the Board
also considers the Company's presentational currency to be Sterling.
Significant accounting judgements, estimates and assumptions.
The preparation of financial statements requires the consideration
of certain significant accounting judgements, estimates and
assumptions when management may need to exercise its judgement
in the process of applying the accounting policies and these
are continually evaluated. The Directors do not consider there
to be any significant estimates within the financial statements.
(b) Investments. Listed investments have been designated upon initial
recognition as held at fair value through profit or loss. Investments
are recognised and de-recognised on the trade date at fair value,
which is generally deemed to be the cost of the investment at
that point. Subsequent to initial recognition, investments are
valued at fair value, which for listed investments is deemed
to be bid market prices or closing prices for SETS (London Stock
Exchange's electronic trading service) stocks sourced from the
London Stock Exchange. Gains and losses arising from changes
in fair value are included as a capital item in the Income Statement
and are ultimately recognised in the capital reserve.
(c) Income. Dividends (other than special dividends), including
taxes deducted at source, are included in revenue by reference
to the date on which the investment is quoted ex-dividend. Special
dividends are reviewed on a case-by-case basis and may be credited
to capital, if circumstances dictate. Dividends receivable on
equity shares where no ex-dividend date is quoted are brought
into account when the Company's right to receive payment is
established. Where the Company has elected to receive its dividends
in the form of additional shares rather than cash, the amount
of the foregone cash dividend is recognised as income. Any excess
in the value of the shares received over the amount of cash
dividend foregone is recognised in capital reserves. Interest
receivable on bank balances is dealt with on an accruals basis.
(d) Expenses. All expenses are accounted for on an accruals basis.
Expenses are charged through the revenue column of the Statement
of Comprehensive Income except as follows:
- expenses directly relating to the acquisition or disposal
of an investment, which are charged to the capital column of
the Statement of Comprehensive Income and are separately identified
and disclosed in note 10; and
- the Company charges 75% of investment management fees and
finance costs to the capital column and 25% to the revenue column
of the Statement of Comprehensive Income, in accordance with
the Board's expected long term return in the form of capital
gains and income respectively from the investment portfolio
of the Company.
(e) Taxation. The tax expense represents the sum of the tax currently
payable and deferred tax. Tax payable is based on the taxable
profit for the year. Taxable profit differs from profit before
tax as reported in the Statement of Comprehensive Income because
it excludes items of income or expense that are taxable or deductible
in other years and it further excludes items that are never
taxable or deductible. The Company's liability for current tax
is calculated using tax rates that have been enacted or substantively
enacted by the Statement of Financial Position date.
Deferred tax is recognised in respect of all temporary differences
at the Statement of Financial Position date, where transactions
or events that result in an obligation to pay more tax in the
future or right to pay less tax in the future have occurred
at the Statement of Financial Position date. This is subject
to deferred tax assets only being recognised if it is considered
more likely than not that there will be suitable profits from
which the future reversal of the temporary differences can be
deducted. Deferred tax assets and liabilities are measured at
the rates applicable to the legal jurisdictions in which they
arise, using enacted tax rates that are expected to apply at
the date the deferred tax position is unwound.
(f) Nature and purpose of reserves
Called-up share capital. The Ordinary share capital on the Statement
of Financial Position relates to the number of shares in issue
and in treasury. Only when the shares are cancelled, either
from treasury or directly, is a transfer made to the capital
redemption reserve. This reserve is not distributable.
Share premium account . The balance classified as share premium
includes the premium above nominal value from the proceeds on
issue of any equity share capital comprising Ordinary shares
of 20p. This reserve is not distributable.
Capital redemption reserve. The capital redemption reserve arose
when Ordinary shares were redeemed, and subsequently cancelled
by the Company, at which point an amount equal to the par value
of the Ordinary share capital was transferred from the Ordinary
share capital to the capital redemption reserve. This reserve
is not distributable.
Capital reserve . This reserve reflects any gains or losses
on investments realised in the period along with any increases
and decreases in the fair value of investments held that have
been recognised in the Statement of Comprehensive Income. The
realised gains part of reserve is distributable for the purpose
of funding share buybacks and dividends.
Revenue reserve. This reserve reflects all income and costs
which are recognised in the revenue column of the Statement
of Comprehensive Income. The revenue reserve represents the
amount of the Company's reserves distributable by way of dividend.
The amount of the revenue reserve as at 31 August 2022 may not
be available at the time of any future distribution due to movements
between 31 August 2022 and the date of distribution.
When making a distribution to shareholders, the Directors determine
profits available for distribution by reference to Guidance
on realised and distributable profits under the Companies Act
2006 issued by the Institute of Chartered Accountants in England
and Wales and the Institute of Chartered Accountants of Scotland
in April 2017. The availability of distributable reserves in
the Company is dependent on those dividends meeting the definition
of qualifying consideration within the guidance and on available
cash resources of the Company and other accessible sources of
funds. The distributable reserves are therefore subject to any
future restrictions or limitations at the time such distribution
is made.
(g) Foreign currency. Monetary assets and liabilities in foreign
currencies are translated at the rates of exchange ruling on
the reporting date. Transactions involving foreign currencies
are converted at the rate ruling on the date of the transaction.
Gains and losses on the realisation of foreign currencies are
recognised in the Statement of Comprehensive Income and are
then transferred to the capital reserve. Unrealised and realised
gains and losses on foreign currency movements on investments
held through profit or loss are recognised in the capital column
of the Statement of Comprehensive Income.
(h) Dividends payable. Final dividends are recognised in the financial
statements in the period in which Shareholders approve them.
(i) Treasury shares. When the Company purchases its Ordinary shares
to be held in treasury, the amount of the consideration paid,
which includes directly attributable costs, is net of any tax
effect, and is recognised as a deduction from the capital reserve.
When these shares are sold subsequently, the amount received
is recognised as an increase in equity, and any resulting surplus
on the transaction is transferred to the share premium account
and any resulting deficit is transferred from the capital reserve.
(j) Cash and cash equivalents. Cash comprises cash at bank and in
hand. Cash equivalents are short-term, comprising money market
funds and highly-liquid investments that are readily convertible
to known amounts of cash, which are subject to an insignificant
risk of changes in value.
(k) Borrowings. Bank loans are initially recognised at cost, being
the fair value of the consideration received, net of any issue
expenses. Subsequently, they are measured at amortised cost
using the effective interest method. Finance charges are accounted
for on an accruals basis using the effective interest rate method
and are charged 25% to revenue and 75% to capital.
3. Income
=========================================== ========= ==========
2022 2021
GBP'000 GBP'000
=========================================== ========= ==========
Income from investments
=========================================== ========= ==========
Overseas dividend income 11,098 12,474
=========================================== ========= ==========
Scrip dividends - 587
------------------------------------------- --------- ----------
11,098 13,061
------------------------------------------- --------- ----------
Other income
=========================================== ========= ==========
Deposit interest 12 -
=========================================== ========= ==========
Interest from money market funds 17 3
=========================================== ========= ==========
Other income - 10
------------------------------------------- --------- ----------
29 13
------------------------------------------- --------- ----------
Total income 11,127 13,074
------------------------------------------- --------- ----------
4. Investment management fee
====================================================================================
2022 2021
========================= ============================ ===========================
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
========================= ======== ======== ======== ======== ======== =======
Investment management
fee 1,097 3,290 4,387 1,194 3,580 4,774
------------------------- -------- -------- -------- -------- -------- -------
Management fees paid to abrdn Fund Managers Limited ("aFML" or
"the Manager") are calculated at 0.85% per annum on net assets
up to GBP350 million and 0.50% per annum thereafter. Management
fees are calculated and payable on a quarterly basis.
Net assets, per the management agreement, and for the purposes
of the management fee calculation exclude long term borrowings
less (i) the value of any investment funds managed by the Manager
and (ii) 50% of the value of any investment funds managed or advised
by investment managers other than the Manager. During the year
and at the year end, the Company held GBP1,000,000 (2021 - GBP500,000)
in Aberdeen Standard Liquidity Fund (Lux) - Sterling Fund which
is managed and administered by abrdn. The Company pays a management
fee on the value of these holdings but no fee is chargeable at
the underlying fund level.
The balance due to the Manager at the year end was GBP2,125,000
(2021 - GBP1,190,000).
The management agreement is terminable by the Company on three
months' notice or in the event of a change of control in the ownership
of the Manager. The notice period required to be given by the Manager
is six months.
5. Administrative expenses
================================================= ========== ==========
2022 2021
GBP'000 GBP'000
================================================= ========== ==========
Promotional activities 214 200
================================================= ========== ==========
Directors' fees 171 176
================================================= ========== ==========
Custody fees 261 289
================================================= ========== ==========
Depositary fees 61 69
================================================= ========== ==========
Auditors remuneration: Fees payable to the
Company's auditor for
================================================= ========== ==========
- audit of the Company's annual report 35 30
================================================= ========== ==========
Legal and professional fees (6) 61
================================================= ========== ==========
Other expenses 271 277
------------------------------------------------- ---------- ----------
1,007 1,102
------------------------------------------------- ---------- ----------
The Company has an agreement with abrdn Fund Managers Limited for
the provision of promotional activities. The total fees paid and
payable under the agreement were GBP214,000 (2021 - GBP200,000)
and the sum due to the Manager at the year end was GBP133,000 (2021
- GBP34,000).
No pension contributions were made in respect
of any of the Directors.
The Company does not have any employees.
6. Interest payable and similar charges
===============================================================================
2022 2021
========================= ========================= =========================
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
========================= ======= ======= ======= ======= ======= =======
Interest on bank loans 266 798 1,064 189 567 756
------------------------- ------- ------- ------- ------- ------- -------
7. Taxation
==============================================================================================
2022 2021
============================== =========================== ===========================
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
============================== ======= ======== ======== ======= ======== ========
(a) Analysis of charge for
the year
============================== ======= ======== ======== ======= ======== ========
Indian capital gains
tax charge on sales - 701 701 - 187 187
============================== ======= ======== ======== ======= ======== ========
Overseas tax suffered 967 - 967 1,349 - 1,349
------------------------------ ------- -------- -------- ------- -------- --------
Total current tax charge
for the year 967 701 1,668 1,349 187 1,536
============================== ======= ======== ======== ======= ======== ========
Movement of deferred
tax liability on Indian
capital gains - (1,408) (1,408) - 2,755 2,755
------------------------------ ------- -------- -------- ------- -------- --------
Total tax charge for
the year 967 (707) 260 1,349 2,942 4,291
------------------------------ ------- -------- -------- ------- -------- --------
On 1 April 2018, the Indian Government withdrew an exemption
from capital gains tax on investments held for twelve months
or longer. Accordingly, the Company has recognised a deferred
tax liability of GBP2,401,000 (2021 - GBP3,809,000) on capital
gains which may arise if Indian investments are sold.
The Company has not recognised a deferred tax asset of GBP25,673,000
(2021 - GBP24,071,000) arising as a result of excess management
expenses and non-trading loan relationship deficits. These expenses
will only be utilised if the Company has profits chargeable
to UK corporation tax in the future. The Finance Act 2021 received
Royal Assent on 10 June 2021 and the rate of Corporation Tax
of 25% effective from 1 April 2023 has been used to calculate
the potential deferred tax asset.
(b) Factors affecting the tax charge for the year . The tax assessed
for the year is lower (2021 - lower) than the effective rate
of corporation tax in the UK.
============================== ======= ======== ======== ======= ======== ========
2022 2021
============================== ======= ======== ======== ======= ======== ========
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
============================== ======= ======== ======== ======= ======== ========
Return before taxation 8,757 (69,018) (60,261) 10,589 114,883 125,472
============================== ======= ======== ======== ======= ======== ========
============================== ======= ======== ======== ======= ======== ========
Effective rate of corporation
tax at 19.00% (2021 -
19.00%) 1,664 (13,113) (11,449) 2,012 21,828 23,840
============================== ======= ======== ======== ======= ======== ========
Effects of:
============================== ======= ======== ======== ======= ======== ========
Losses/(gains) on investments
not taxable - 12,423 12,423 - (22,725) (22,725)
============================== ======= ======== ======== ======= ======== ========
Currency (gains)/losses
not taxable - (86) (86) - 109 109
============================== ======= ======== ======== ======= ======== ========
Other non-taxable income (2,109) - (2,109) (2,482) - (2,482)
============================== ======= ======== ======== ======= ======== ========
Expenses not deductible
for tax purposes 4 - 4 3 - 3
============================== ======= ======== ======== ======= ======== ========
Increase in excess expenses
and loan relationship
deficit 441 776 1,217 467 788 1,255
============================== ======= ======== ======== ======= ======== ========
Indian capital gains
tax charge on sales - 701 701 - 187 187
============================== ======= ======== ======== ======= ======== ========
Movement in deferred
tax liability on Indian
capital gains - (1,408) (1,408) - 2,755 2,755
============================== ======= ======== ======== ======= ======== ========
Net overseas tax suffered 967 - 967 1,349 - 1,349
------------------------------ ------- -------- -------- ------- -------- --------
Total tax charge for
year 967 (707) 260 1,349 2,942 4,291
------------------------------ ------- -------- -------- ------- -------- --------
8. Dividends
In order to comply with the requirements of Sections 1158 -1159
of the Corporation Tax Act 2010 and with company law, the Company
is required to make a final dividend distribution.
The proposed final dividend is subject to approval by shareholders
at the Annual General Meeting and has not been included as a liability
in these financial statements.
The table below sets out the total dividends paid and proposed
in respect of the financial year, which is the basis on which the
requirements of Sections 1158 - 1159 are considered. The revenue
available for distribution by way of dividend for the year is GBP7,790,000
(2021 - GBP9,240,000).
===================================================== ============ ===========
2022 2021
GBP'000 GBP'000
===================================================== ============ ===========
Proposed final dividend for 2022 - 6.50p
per Ordinary share (2021 - 6.50p) 7,737 8,041
----------------------------------------------------- ------------ -----------
The amounts reflected above for the cost of the proposed final
dividend for 2022 is based on 119,034,650 Ordinary shares in issue,
being the number of Ordinary shares in issue at the date of this
Report.
The final dividend will be paid on 16 December 2022 to shareholders
on the register at the close of business on 11 November 2022.
9. Return per share
==============================================================================
2022 2021
================================= ===================== ====================
GBP'000 pence GBP'000 pence
================================= ======== =========== ======= ===========
Revenue return 7,790 6.38 9,240 7.36
================================= ======== =========== ======= ===========
Capital return (68,311) (55.91) 111,941 89.24
--------------------------------- -------- ----------- ------- -----------
Total return (60,521) (49.53) 121,181 96.60
--------------------------------- -------- ----------- ------- -----------
Weighted average Ordinary shares
in issue 122,191,909 125,442,821
--------------------------------- -------- ----------- ------- -----------
10. Investments at fair value through profit
or loss
=================================================== =========== ==========
2022 2021
GBP'000 GBP'000
=================================================== =========== ==========
Opening book cost 524,806 441,336
=================================================== =========== ==========
Opening investment holding gains 241,988 179,491
--------------------------------------------------- ----------- ----------
Opening fair value 766,794 620,827
=================================================== =========== ==========
Analysis of transactions made during the
year
=================================================== =========== ==========
Purchases at cost 210,181 257,402
=================================================== =========== ==========
Sales - proceeds (239,211) (231,038)
=================================================== =========== ==========
(Losses)/gains on investments (65,385) 119,603
--------------------------------------------------- ----------- ----------
Closing fair value 672,379 766,794
--------------------------------------------------- ----------- ----------
=================================================== =========== ==========
Closing book cost 527,477 524,806
=================================================== =========== ==========
Closing investment gains 144,902 241,988
--------------------------------------------------- ----------- ----------
Closing fair value 672,379 766,794
--------------------------------------------------- ----------- ----------
=================================================== =========== ==========
2022 2021
GBP'000 GBP'000
=================================================== =========== ==========
Investments listed on an overseas investment
exchange 672,379 766,794
--------------------------------------------------- ----------- ----------
The Company received GBP239,211,000 (2021 - GBP231,038,000) from
investments sold in the period. The book cost of these investments
when they were purchased was GBP207,510,000 (2021 - GBP173,932,000).
These investments have been revalued over time and until they were
sold any unrealised (losses)/gains were included in the fair value
of investments.
Transaction costs . During the year expenses were incurred in acquiring
or disposing of investments classified as fair value through profit
or loss. These have been expensed through capital and are included
within gains on investments in the Statement of Comprehensive Income.
The total costs were as follows:
=================================================== =========== ==========
2022 2021
GBP'000 GBP'000
=================================================== =========== ==========
Purchases 273 313
=================================================== =========== ==========
Sales 495 466
--------------------------------------------------- ----------- ----------
768 779
--------------------------------------------------- ----------- ----------
The above transaction costs are calculated in line with the AIC
SORP. The transaction costs in the Company's Key Information Document
are calculated on a different basis and in line with the PRIIPs
regulations.
11. Debtors and prepayments
========================================== ========== =========
2022 2021
GBP'000 GBP'000
========================================== ========== =========
Accrued income 339 137
========================================== ========== =========
Overseas withholding tax recoverable 1,455 1,062
========================================== ========== =========
Amounts due from brokers - 4,150
========================================== ========== =========
Other debtors and prepayments 899 433
------------------------------------------ ---------- ---------
2,693 5,782
------------------------------------------ ---------- ---------
12. Cash and cash equivalents
========================================== ========== =========
2022 2021
GBP'000 GBP'000
========================================== ========== =========
Cash at bank and in hand 4,094 4,500
========================================== ========== =========
Money market funds 1,000 500
------------------------------------------ ---------- ---------
5,094 5,000
------------------------------------------ ---------- ---------
13. Creditors
===================================================== =========== ==========
2022 2021
(a) Bank loans GBP'000 GBP'000
=============================================== =========== ==========
Falling due within one year 35,000 65,000
=============================================== =========== ==========
Falling due in more than one year 25,000 -
=============================================== =========== ==========
Unamortised expenses (17) (2)
----------------------------------------------- ----------- ----------
59,983 64,998
----------------------------------------------- ----------- ----------
The Company has a GBP50,000,000 multi-currency revolving facility
with The Royal Bank of Scotland International Limited, London
Branch. The agreement was entered into on 29 July 2022 with
a termination date of 29 July 2024. At the year end GBP35,000,000
of this facility had been drawn down at a rate of 2.690% which
matured on 26 September 2022. At the date of this Report the
Company had drawn down GBP25,000,000 at a rate of 3.558%.
On 29 July 2022, the Company entered into a new fixed loan facility
agreement of GBP25,000,000 at an interest rate of 3.5575% with
The Royal Bank of Scotland International Limited, London Branch,
with a termination date of 29 July 2024. The facility has been
drawn down in full. The agreement of this facility incurred
an arrangement fee of GBP18,140, which will be amortised over
the life of the loan.
The agreements contains the following
covenants:
- the net asset value of the Company shall not at any time be
less than GBP375 million.
- consolidated gross borrowings expressed as a percentage of
adjusted portfolio value shall not exceed 25% at any time.
- the number of eligible investments
shall not be less than 30 at any time.
All covenants have been complied with
throughout the year.
=============================================== =========== ==========
2022 2021
(b) Other creditors - falling due within GBP'000 GBP'000
one year
=============================================== =========== ==========
Amounts due to brokers 17 181
=============================================== =========== ==========
Amounts due for the purchase of own shares
to treasury 270 79
=============================================== =========== ==========
Other amounts due 3,126 1,580
----------------------------------------------- ----------- ----------
3,413 1,840
----------------------------------------------- ----------- ----------
=============================================== =========== ==========
2022 2021
GBP'000 GBP'000
=============================================== =========== ==========
Deferred tax liability on Indian capital
(c) gains 2,401 3,809
----------------------------------------------- ----------- ----------
14. Called-up share capital
==================================== ============= ============ ============
2022 2021
GBP'000 GBP'000
==================================== ============= ============ ============
Allotted, called-up and fully
paid:
==================================== ============= ============ ============
Ordinary shares of 20p (2021:
20p) 23,937 24,953
==================================== ============= ============ ============
Treasury shares 7,985 6,969
------------------------------------ ------------- ------------ ------------
31,922 31,922
------------------------------------ ------------- ------------ ------------
==================================== ============= ============ ============
Ordinary Treasury Total
shares shares shares
Number Number Number
==================================== ============= ============ ============
At 31 August 2021 124,766,350 34,845,327 159,611,677
==================================== ============= ============ ============
Buyback of own shares (5,080,349) 5,080,349 -
------------------------------------ ------------- ------------ ------------
At 31 August 2022 119,686,001 39,925,676 159,611,677
------------------------------------ ------------- ------------ ------------
During the year 5,080,349 Ordinary shares of 20p each were purchased
to be held in treasury by the Company (2021 - 1,592,103) at a total
cost of GBP23,998,000 (2021 - GBP7,718,000). At the year end 39,925,676
(2021 - 34,845,327) Ordinary shares of 20p each were held in treasury,
which represents 25% (2021 - 21.8%) of the Company's total issued
share capital at 31 August 2022.
Since the year end a further 651,351 Ordinary shares of 20p each
have been purchased by the Company at a total cost of GBP2,724,000
all of which were held in treasury.
15. Capital reserve
============================================== =========== =========
2022 2021
GBP'000 GBP'000
============================================== =========== =========
At 1 September 2021 545,582 441,359
============================================== =========== =========
Movement in fair value gains (65,385) 119,603
============================================== =========== =========
Foreign exchange movement 455 (573)
============================================== =========== =========
Buyback of Ordinary shares for treasury (23,998) (7,718)
============================================== =========== =========
Expenses allocated to capital (4,088) (4,147)
============================================== =========== =========
Movement in capital gains tax charge 707 (2,942)
---------------------------------------------- ----------- ---------
As at 31 August 2022 453,273 545,582
---------------------------------------------- ----------- ---------
The capital reserve includes investment holding gains amounting
to GBP144,902,000 (2021 - GBP241,988,000), as disclosed in note
10.
16. Net asset value per share
The net asset value per share and the net asset values attributable
to the Ordinary shareholders at the year end calculated in accordance
with the Articles of Association were as follows:
===================================================== =========== ===========
2022 2021
===================================================== =========== ===========
Net assets attributable to the Ordinary shareholders
(GBP'000) 614,369 706,929
===================================================== =========== ===========
Number of Ordinary shares in issue(A) 119,686,001 124,766,350
===================================================== =========== ===========
Net asset value per share (p) 513.32 566.60
----------------------------------------------------- ----------- -----------
(A) Excluding shares held in treasury.
17. Analysis of changes in net debt
==============================================================================
At Currency Non-cash At
1 September differences Cash flows movements 31 August
2021 2022
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
================ =========== ============ ========== ========== =========
Cash and short
term deposits 5,000 455 (361) - 5,094
================ =========== ============ ========== ========== =========
Debt due within
one year (64,998) - 30,000 (2) (35,000)
================ =========== ============ ========== ========== =========
Debt due after
one year - - (25,000) 17 (24,983)
---------------- ----------- ------------ ---------- ---------- ---------
(59,998) 455 4,639 15 (54,889)
---------------- ----------- ------------ ---------- ---------- ---------
At Currency Non-cash At
1 September differences Cash flows movements 31 August
2020 2021
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
================ =========== ============ ========== ========== =========
Cash and short
term deposits 11,390 (573) (5,817) - 5,000
================ =========== ============ ========== ========== =========
Debt due within
one year (6,000) - (34,000) (24,998) (64,998)
================ =========== ============ ========== ========== =========
Debt due after
one year (24,995) - - 24,995 -
---------------- ----------- ------------ ---------- ---------- ---------
(19,605) (573) (39,817) (3) (59,998)
---------------- ----------- ------------ ---------- ---------- ---------
A statement reconciling the movement in net funds to the net cash
flow has not been presented as there are no differences from the
above analysis.
18. Financial instruments
Risk management . The Company's investment activities expose it
to various types of financial risk associated with the financial
instruments and markets in which it invests. The Company's financial
instruments comprise securities and other investments, cash balances,
bank loans and debtors and creditors that arise directly from its
operations; for example, in respect of sales and purchases awaiting
settlement, and debtors for accrued income.
The Board has delegated the risk management function to aFML under
the terms of its management agreement with aFML (further details
of which are included under note 4). The Board regularly reviews
and agrees policies for managing each of the key financial risks
identified with the Manager. The types of risk and the Manager's
approach to the management of each type of risk, are summarised
below. Such approach has been applied throughout the year and has
not changed since the previous accounting period. The numerical
disclosures exclude short-term debtors and creditors.
Risk management framework . The directors of aFML collectively
assume responsibility for aFML's obligations under the AIFMD including
reviewing investment performance and monitoring the Company's risk
profile during the year.
aFML is a fully integrated member of the abrdn Group (the "Group"),
which provides a variety of services and support to aFML in the
conduct of its business activities, including in the oversight
of the risk management framework for the Company. The AIFM has
delegated the day to day administration of the investment policy
to abrdn (Asia) Limited, which is responsible for ensuring that
the Company is managed within the terms of its investment guidelines
and the limits set out in its pre-investment disclosures to investors
(details of which can be found on the Company's website). The AIFM
has retained responsibility for monitoring and oversight of investment
performance, product risk and regulatory and operational risk for
the Company.
The Manager conducts its risk oversight function through the operation
of the Group's risk management processes and systems which are
embedded within the Group's operations. The Group's Risk Division
supports management in the identification and mitigation of risks
and provides independent monitoring of the business. The Division
includes Compliance, Business Risk, Market Risk, Risk Management
and Legal. The team is headed up by the Group's Chief Risk Officer,
who reports to the Group's Chief Executive Officer. The Risk Division
achieves its objective through embedding the Risk Management Framework
throughout the organisation using the Group's operational risk
management system ("SHIELD").
The Group's Internal Audit Department is independent of the Risk
Division and reports directly to the Group's Chief Executive Officer
and to the Audit and Risk Committee of the Group's Board of Directors.
The Internal Audit Department is responsible for providing an independent
assessment of the Group's control environment.
The Group's corporate governance structure is supported by several
committees to assist the board of directors of abrdn Group, its
subsidiaries and the Company to fulfil their roles and responsibilities.
The Group's Risk Division is represented on all committees, with
the exception of those committees that deal with investment recommendations.
The specific goals and guidelines on the functioning of those committees
are described on the committees' terms of reference.
Risk management . The main risks the Company faces from its financial
instruments are (i) market risk (comprising interest rate risk,
currency risk and price risk), (ii) liquidity risk and (iii) credit
risk.
Market risk . The fair value of, or future cash flows from a financial
instrument held by the Company may fluctuate because of changes
in market prices. This market risk comprises three elements - interest
rate risk, currency risk and other price risk. The Company is exposed
to gearing risk which has the effect of exacerbating market falls
and gains. The level of net gearing is shown above. Details of
the loan facilities the Company has in place can be found in note
13.
Interest rate risk . Interest rate movements may affect the level
of income receivable on cash deposits.
Management of the risk . The possible effects on fair value and
cash flows that could arise as a result of changes in interest
rates are taken into account when making investment and borrowing
decisions.
I nterest risk profile. The interest rate risk profile of the portfolio
of the Company's financial assets and liabilities, excluding equity
holdings which are all non-interest bearing, at the reporting date
was as follows:
=============================== ================ ============= ========== =========
Weighted average Weighted
period for average Fixed Floating
which
rate is fixed interest rate rate rate
At 31 August 2022 Years % GBP'000 GBP'000
=============================== ================ ============= ========== =========
Assets
=============================== ================ ============= ========== =========
Sterling - 0.40 - 3,852
=============================== ================ ============= ========== =========
Hong Kong Dollars - - - 5
=============================== ================ ============= ========== =========
Indian Rupee - - - 4
=============================== ================ ============= ========== =========
Sri Lanka Rupee - - - -
=============================== ================ ============= ========== =========
Taiwanese Dollar - - - -
=============================== ================ ============= ========== =========
Thailand Baht - - - -
=============================== ================ ============= ========== =========
US Dollar - - - 9
=============================== ================ ============= ========== =========
Vietnamese Dong - - - 1,224
------------------------------- ---------------- ------------- ---------- ---------
Total assets n/a n/a - 5,094
------------------------------- ---------------- ------------- ---------- ---------
Liabilities
=============================== ================ ============= ========== =========
Short-term loan -
GBP35,000,000 0.07 2.69 35,000 -
=============================== ================ ============= ========== =========
Long-term loan - GBP25,000,000 1.91 3.56 24,983 -
------------------------------- ---------------- ------------- ---------- ---------
- - 59,983 -
------------------------------- ---------------- ------------- ---------- ---------
=============================== ================ ============= ========== =========
Weighted average Weighted
period for average Fixed Floating
which
rate is fixed interest rate rate rate
At 31 August 2021 Years % GBP'000 GBP'000
=============================== ================ ============= ========== =========
Assets
=============================== ================ ============= ========== =========
Sterling - 0.04 - 2,991
=============================== ================ ============= ========== =========
Hong Kong Dollars - - - 224
=============================== ================ ============= ========== =========
Indian Rupee - - - 24
=============================== ================ ============= ========== =========
Sri Lanka Rupee - - - 1,553
=============================== ================ ============= ========== =========
Taiwanese Dollar - - - 97
=============================== ================ ============= ========== =========
Thailand Baht - - - 100
=============================== ================ ============= ========== =========
US Dollar - - - 9
=============================== ================ ============= ========== =========
Vietnamese Dong - - - 2
------------------------------- ---------------- ------------- ---------- ---------
Total assets n/a n/a - 5,000
------------------------------- ---------------- ------------- ---------- ---------
Liabilities
=============================== ================ ============= ========== =========
Short-term loan -
GBP35,000,000 0.07 1.00 40,000 -
=============================== ================ ============= ========== =========
Long-term loan - GBP25,000,000 0.91 1.61 24,998 -
------------------------------- ---------------- ------------- ---------- ---------
- - 64,998 -
------------------------------- ---------------- ------------- ---------- ---------
The weighted average interest rate is based on the current yield
of each asset, weighted by its market value.
The floating rate assets consist of cash deposits on call earning
interest at prevailing market rates.
The Company's equity portfolio and short-term debtors and creditors
have been excluded from the above tables.
Interest rate sensitivity. Movements in interest rates would not
significantly affect net assets attributable to the Company's shareholders
and total profit.
Foreign currency risk . The majority of the Company's investment
portfolio is invested in overseas securities and the Statement
of Financial Position, therefore, can be significantly affected
by movements in foreign exchange rates.
Management of the risk . It is not the Company's policy to hedge
this risk on a continuing basis but the Company may, from time
to time, match specific overseas investments with foreign currency
borrowings.
The Statement of Comprehensive Income is subject to currency fluctuation
arising on dividends paid in foreign currencies. The Company does
not hedge this currency risk.
Foreign currency risk exposure by currency of listing of incorporation
is as follows:
==================== =========== ======== ======== =========== ======== ========
31 August 2022 31 August 2021
==================== =============================== ===============================
Net Total Net Total
Overseas monetary currency Overseas monetary currency
investments assets exposure investments assets exposure
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
==================== =========== ======== ======== =========== ======== ========
Chinese Yuan(A) 223,048 - 223,048 278,083 - 278,083
==================== =========== ======== ======== =========== ======== ========
Hong Kong Dollar(A) 58,956 (12) 58,944 73,302 43 73,345
==================== =========== ======== ======== =========== ======== ========
Indian Rupee 119,143 4 119,147 101,770 24 101,794
==================== =========== ======== ======== =========== ======== ========
Indonesian Rupiah 32,155 - 32,155 16,968 1,415 18,383
==================== =========== ======== ======== =========== ======== ========
Korean Won 63,678 - 63,678 100,336 2,735 103,071
==================== =========== ======== ======== =========== ======== ========
Philippine Peso 17,311 - 17,311 14,493 - 14,493
==================== =========== ======== ======== =========== ======== ========
Singapore Dollar 41,014 - 41,014 34,146 - 34,146
==================== =========== ======== ======== =========== ======== ========
Sri Lankan Rupee - - - 57 1,553 1,610
==================== =========== ======== ======== =========== ======== ========
Taiwanese Dollar 90,125 - 90,125 128,184 97 128,281
==================== =========== ======== ======== =========== ======== ========
Thailand Baht 15,457 - 15,457 5,598 100 5,698
==================== =========== ======== ======== =========== ======== ========
US Dollar(A) - 9 9 - 9 9
==================== =========== ======== ======== =========== ======== ========
Vietnamese Dong 11,492 1,224 12,716 13,857 2 13,859
-------------------- ----------- -------- -------- ----------- -------- --------
672,379 1,225 673,604 766,794 5,978 772,772
==================== =========== ======== ======== =========== ======== ========
Sterling - 3,582 3,582 - 2,912 2,912
-------------------- ----------- -------- -------- ----------- -------- --------
Total 672,379 4,807 677,186 766,794 8,890 775,684
-------------------- ----------- -------- -------- ----------- -------- --------
(A) If currency denomination of overseas investments is used then
exposure for Chinese Yuan is GBP97,032,000 (2021 - GBP91,958,000),
for Hong Kong Dollar GBP184,972,000 (2021 - GBP255,915,000) and
for US Dollar GBPnil (2021 - GBP10,088,000).
Foreign currency sensitivity . The following table details the
Company's sensitivity to a 10% increase and decrease in sterling
against the foreign currencies in which the Company has exposure
as set out in the foreign currency risk table above.
==================== =========== ======== ======== =========== ======== ========
2022 2021
GBP'000 GBP'000
==================== =========== ======== ======== =========== ======== ========
Chinese Yuan 22,305 27,808
==================== =========== ======== ======== =========== ======== ========
Hong Kong Dollar 5,894 7,335
==================== =========== ======== ======== =========== ======== ========
Indian Rupee 11,915 10,179
==================== =========== ======== ======== =========== ======== ========
Indonesian Rupiah 3,215 1,838
==================== =========== ======== ======== =========== ======== ========
Korean Won 6,368 10,307
==================== =========== ======== ======== =========== ======== ========
Philippine Peso 1,731 1,449
==================== =========== ======== ======== =========== ======== ========
Singapore Dollar 4,101 3,415
==================== =========== ======== ======== =========== ======== ========
Sri Lankan Rupee - 161
==================== =========== ======== ======== =========== ======== ========
Taiwanese Dollar 9,012 12,828
==================== =========== ======== ======== =========== ======== ========
Thailand Baht 1,546 570
==================== =========== ======== ======== =========== ======== ========
US Dollar 1 1
==================== =========== ======== ======== =========== ======== ========
Vietnamese Dong 1,272 1,386
-------------------- ----------- -------- -------- ----------- -------- --------
67,360 77,277
-------------------- ----------- -------- -------- ----------- -------- --------
Other price risk . Other price risks (i.e. changes in market prices
other than those arising from interest rate or currency risk) may
affect the value of the quoted investments.
Management of the risk . It is the Board's policy to hold an appropriate
spread of investments in the portfolio in order to reduce the risk
arising from factors specific to a particular country or sector.
Both the allocation of assets and the stock selection process act
to reduce market risk. The Manager actively monitors market prices
throughout the year and reports to the Board, which meets regularly
in order to review investment strategy. The investments held by
the Company are listed on various stock exchanges worldwide.
Other price risk sensitivity. If market prices at the reporting
date had been 10% higher or lower while all other variables remained
constant, the return attributable to Ordinary shareholders for
the year ended 31 August 2022 would have increased/decreased by
GBP67,238,000 (2021 - increased/decreased by GBP76,679,000) and
equity reserves would have increased/decreased by the same amount.
Liquidity risk . This is the risk that the Company will encounter
difficulty in meeting obligations associated with financial liabilities.
Management of the risk . The Company's assets mainly comprise readily
realisable securities which can be sold to meet funding requirements
if necessary. In order to monitor the concentration of Dragon's
investee companies with abrdn, the total percentage holdings of
those securities owned by abrdn-managed funds is reviewed by the
Board.
The Board imposes borrowing limits to ensure gearing levels are
appropriate to market conditions, and reviews these on a regular
basis. The Board has imposed a maximum gearing level, measured
on the most stringent basis of calculation after netting off cash
equivalents, of 20%. Short-term flexibility can be achieved through
the use of loan and overdraft facilities.
Liquidity risk exposure . At 31 August 2022, the Company had drawn
down GBP35,000,000 from a GBP50,000,000 Revolving Facility Agreement
with The Royal Bank of Scotland International Limited, London Branch,
which matured on 26 September 2022. At the date of this Report
the Company had drawn down GBP25,000,000 at a rate of 3.558%. There
was a further facility of GBP25,000,000 with The Royal Bank of
Scotland International Limited, London Branch due for repayment
on 29 July 2024, details of which are disclosed in note 13.
Management of
the risk
- investment transactions are carried out with a large number
of brokers, whose credit-standing is reviewed periodically by the
Manager, and limits are set on the amount that may be due from
any one broker;
- the risk of counterparty, including the Depositary, exposure
due to failed trades causing a loss to the Company is mitigated
by the review of failed trade reports on a daily basis. In addition,
the third party administrators' carries out a stock reconciliation
to the Depositary's records on a daily basis to ensure discrepancies
are picked up on a timely basis. The Manager's Compliance department
carries out periodic reviews of the Depositary's operations and
reports its finding to the Manager's Risk Management Committee.
This review will also include checks on the maintenance and security
of investments held;
- cash is held only with reputable banks with high quality external
credit enhancements.
None of the Company's financial assets are secured by collateral
or other credit enhancements.
Credit risk exposure . In summary, compared to the amounts in the
Statement of Financial Position, the maximum exposure to credit
risk at 31 August was as follows:
=================== ========== ======== === ==== ======== ======== ======== ==========
2022 2021
=================== ========== ======== === ==== ================== ====================
Balance Maximum Balance Maximum
Sheet exposure Sheet exposure
Current assets GBP'000 GBP'000 GBP'000 GBP'000
========================================= === ==== ======== ======== ======== ==========
Loans and receivables 2,693 2,693 5,782 5,782
========================================= === ==== ======== ======== ======== ==========
Cash and cash equivalents 5,094 5,094 5,000 5,000
----------------------------------------- --- ---- -------- -------- -------- ----------
7,787 7,787 10,782 10,782
------------------- ---------- -------- --- ---- -------- -------- -------- ----------
None of the Company's financial assets is past due or impaired.
Maturity of financial liabilities. The maturity profile of the
Company's financial liabilities at 31 August was as follows:
=================== ========== ======== === ==== ======== ======== ======== ==========
2022 2021
GBP'000 GBP'000
=================== ========== ======== === ==== ======== ======== ======== ==========
In less than
one year 38,413 66,838
=================== ========== ======== === ==== ======== ======== ======== ==========
In more than
one year * 24,983 -
------------------- ---------- -------- --- ---- -------- -------- -------- ----------
63,396 66,838
------------------- ---------- -------- --- ---- -------- -------- -------- ----------
* Excludes Indian
CGT liability.
Fair value of financial assets and liabilities . The fair value
of the long-term loan has been calculated GBP25,942,000 as at 31
August 2022 (2021 - nil) compared to an accounts value in the financial
statements of GBP24,983,000 (2021 - nil) (note 13). The fair value
of each loan is determined by aggregating the expected future cash
flows for that loan discounted at a rate comprising the borrower's
margin plus an average of market rates applicable to loans of a
similar period of time and currency. The carrying values of fixed
asset investments are stated at their fair values, which have been
determined with reference to quoted market prices.
19. Fair value hierarchy
FRS 102 requires an entity to classify fair value measurements
using a fair value hierarchy that reflects the significance of
the inputs used in making the measurements. The fair value hierarchy
shall have the following classifications:
Level 1: unadjusted quoted prices in an active market for identical
assets or liabilities that the entity can access at the measurement
date.
Level 2: inputs other than quoted prices included within Level
1 that are observable (i.e. developed using market data) for the
asset or liability, either directly or indirectly.
Level 3: inputs are unobservable (i.e. for which market data is
unavailable) for the asset or liability.
All of the Company's investments are in quoted equities (2021 -
same) which are actively traded on recognised stock exchanges,
with their fair value being determined by reference to their quoted
bid prices at the reporting date. The total value of the investments
as at 31 August 2022 of GBP672,379,000 (31 August 2021 - GBP766,794,000)
has therefore been deemed as Level 1.
20. Related party transactions and transactions with the Manager
Fees payable during the year to the Directors and their interests
in shares of the Company are disclosed within the Directors' Remuneration
Report.
The Company has an agreement in place with aFML for the provision
of management and administration services, promotional activities
and secretarial services. Details of transactions during the year
and balances outstanding at the year end disclosed in notes 4 and
5.
At the year end the Company had GBP1,000,000 (31 August 2021 -
GBP500,000) invested in Aberdeen Standard Liquidity Fund (Lux)
- Sterling Fund which is managed and administered by abrdn plc.
The Company pays a management fee on the value of these holdings
but no fee is chargeable at the underlying fund level.
21. Capital management policies and procedures
The Company's capital management objectives are:
- to ensure that the Company will be able to continue as a going
concern; and
- to maximise the capital return to its equity shareholders through
an appropriate balance of equity capital and debt. The Board has
imposed a maximum gearing level of 20% of net assets.
The Board monitors and reviews the broad structure of the Company's
capital on an ongoing basis. This review includes the nature and
planned level of gearing, which takes account of the Manager's
views on the market, and the extent to which revenue in excess
of that which is required to be distributed should be retained.
The Company has no externally imposed capital requirements.
22. Subsequent events
Subsequent to the year end, the Company's NAV and share price has
suffered as a result of a decline in stockmarket values. At the
date of this Report the latest NAV per share was 411.24p as at
the close of business on 28 October 2022, a decline of 19.9% compared
the NAV per share of 513.32p at the year end. The latest share
price was 355.00p as at the close of business on 28 October 2022,
a decline of 20.4% compared the share price of 446.00p at the year
end.
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. The highest and lowest discount during the year is
shown above.
========================================== ============ ============== ==============
31 August 2022 31 August 2021
========================================== ============ ============== ==============
NAV per Ordinary share (p) a 513.32 566.60
========================================== ============ ============== ==============
Share price (p) b 446.00 512.00
========================================== ============ ============== ==============
Discount (a-b)/a 13.1% 9.6%
------------------------------------------ ------------ -------------- --------------
Net gearing
Net gearing measures the total borrowings less cash and cash equivalents
divided by shareholders' funds, expressed as a percentage. Under AIC
reporting guidance cash and cash equivalents includes net amounts due
to and from brokers at the year end as well as cash and short term
deposits.
========================================== ============ ============== ==============
31 August 2022 31 August 2021
========================================== ============ ============== ==============
Borrowings (GBP'000) a 59,983 64,998
========================================== ============ ============== ==============
Cash (GBP'000) b 5,094 5,000
========================================== ============ ============== ==============
Amounts due to brokers (GBP'000) c 287 260
========================================== ============ ============== ==============
Amounts due from brokers (GBP'000) d - 4,150
========================================== ============ ============== ==============
Shareholders' funds (GBP'000) e 614,369 706,929
------------------------------------------ ------------ -------------- --------------
Net gearing (a-b+c-d)/e 9.0% 7.9%
------------------------------------------ ------------ -------------- --------------
Ongoing charges
The ongoing charges ratio has been calculated in accordance with guidance
issued by the AIC as the total of investment management fees and administrative
expenses and expressed as a percentage of the average published daily
net asset values with debt at fair value published throughout the year.
========================================== ============ ============== ==============
2022 2021
========================================== ============ ============== ==============
Investment management fees (GBP'000) 4,387 4,774
========================================== ============ ============== ==============
Administrative expenses (GBP'000) 1,007 1,102
========================================== ============ ============== ==============
Less: non-recurring charges(A) (GBP'000) (33) (18)
------------------------------------------ ------------ -------------- --------------
Ongoing charges (GBP'000) 5,361 5,858
------------------------------------------ ------------ -------------- --------------
Average net assets (GBP'000) 640,938 707,217
------------------------------------------ ------------ -------------- --------------
Ongoing charges ratio 0.84% 0.83%
------------------------------------------ ------------ -------------- --------------
(A) Comprises legal and professional
fees which are not expected to recur.
The ongoing charges ratio provided in the Company's Key Information
Document is calculated in line with the PRIIPs regulations which among
other things, includes the cost of borrowings and transaction costs.
Total return
NAV and share price total returns show how the NAV and share price
has performed over a period of time in percentage terms, taking into
account both capital returns and dividends paid to shareholders. Share
price and NAV total returns are monitored against open-ended and closed-ended
competitors, and the Benchmark Index, respectively.
========================================== ============ ============== ==============
Share
Year ended 31 August 2022 NAV Price
========================================== ============ ============== ==============
Opening at 1 September 2021 a 566.60p 512.00p
========================================== ============ ============== ==============
Closing at 31 August 2022 b 513.32p 446.00p
========================================== ============ ============== ==============
Price movements c=(b/a)-1 -9.4% -12.9%
========================================== ============ ============== ==============
Dividend reinvestment(A) d 1.0% 1.1%
------------------------------------------ ------------ -------------- --------------
Total return c+d -8.4% -11.8%
------------------------------------------ ------------ -------------- --------------
========================================== ============ ============== ==============
Share
Year ended 30 August 2021 NAV Price
========================================== ============ ============== ==============
Opening at 1 September 2020 a 474.39p 416.00p
========================================== ============ ============== ==============
Closing at 31 August 2021 b 566.60p 512.00p
========================================== ============ ============== ==============
Price movements c=(b/a)-1 +19.4% +23.1%
========================================== ============ ============== ==============
Dividend reinvestment(A) d 1.1% 1.2%
------------------------------------------ ------------ -------------- --------------
Total return c+d +20.5% +24.3%
------------------------------------------ ------------ -------------- --------------
(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.
This information is provided by RNS, the news service of the
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END
ACSMBBFTMTJJBBT
(END) Dow Jones Newswires
November 01, 2022 03:00 ET (07:00 GMT)
Edinburgh Dragon (LSE:EFM)
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