ASIA DRAGON TRUST PLC

LEI: 549300W4KB0D75D1N730

Capturing growth from world-class Asian companies

 

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 AUGUST 2023

 

·    The Company's net asset value (NAV) declined by 16.7% on a total return basis, while its benchmark, the MSCI Asia ex Japan Index, fell 8.4% on a comparable basis over the reporting period. The share price declined on a total return basis by 19.5% as at 31 August 2023, with the discount to NAV per share increasing to 16.2%.

 

·    Much of the underperformance stemmed from the Company's exposure to China, which has been an unusually challenging and volatile market to navigate over the year. However, the Company is optimistic about the long-term investment opportunity in China - as well as Asia more broadly - and believes that its combination with abrdn New Dawn, which is subject to shareholder approval on 8 November 2023, strongly positions the new enlarged Company for when investors start to allocate back to Asia.

 

Performance Highlights

Net asset value total returnA ​		​	Net asset value per share ​
(16.7)% ​		​	421.3p ​
2022	(8.4)%	​	2022	513.3p
​	​	​	​	​
Share price total returnA ​		​	Share price ​
(19.5)% ​		​	353.0p ​
2022	(11.8)%	​	2022	446.0p
​	​	​	​	​
Benchmark total return (in sterling terms) ​		​	Ongoing chargesA ​
(8.4)% ​		​	0.91% ​
2022	(7.1)%	​	2022	0.84%
​	​	​	​	​
Earnings per share (revenue) ​		​	Dividend per share ​
7.06p ​		​	6.60p ​
2022	6.38p	​	2022	6.50p
A Considered to be an Alternative Performance Measure. Further details can be found below. ​ ​ ​ ​

 

Financial Calendar, Dividends and Highlights

 

Financial Calendar

Expected Completion Date of Combination with abrdn New Dawn	8 November 2023
Pre-AGM Investor Presentation	27 November 2023
Annual General Meeting	7 December 2023
Expected payment of Final Dividend	15 December 2023
Half year end	28 February 2024
Expected announcement of results for the six months ending 28 February 2024	April 2024
Financial year end	31 August 2024
Expected announcement of results for the year ending 31 August 2024	November 2024

Dividends

​	Rate	xd date	Record date	Payment date
Proposed final 2023	6.60p	26 October 2023	27 October 2023	15 December 2023
Final 2022	6.50p	10 November 2022	11 November 2022	16 December 2022

Highlights

​	31 August 2023	31 August 2022	% change
Performance	​	​	​
Total shareholders' funds (£'000)	479,169	614,369	-22.0
Net asset value per share (capital return basis) (p)	421.26	513.32	-17.9
Net asset value per share (total return basis) (%)	-16.7	-8.4	​
Share price (capital return basis) (p)	353.00	446.00	-20.9
Market capitalisation (£'000)	401,521	533,800	-24.8
MSCI AC Asia (ex Japan) Index (in sterling terms; capital return basis)	918.92	1,030.48	-10.8
MSCI AC Asia (ex Japan) Index (in sterling terms; total return basis) (%)	-8.4	-7.1	​
Revenue return per share (p)	7.06	6.38	+10.7
Total return per share (p)	(88.66)	(49.53)	+79.0
Dividend	​	​	​
Dividend per share (p)	6.60	6.50	+1.5
Gearing	​	​	​
Net gearing (%)A	5.8	9.0	​
Discount	​	​	​
Discount to net asset value (%)A	16.2	13.1	​
Operating costs	​	​	​
Ongoing charges ratioA	0.91	0.84	​
A Considered to be an Alternative Performance Measure. Further details can be found below. ​ ​ ​

 

Strategic Report

Chairman's Statement

Significant events during the year

On 21 July 2023 the Company announced that it had agreed terms with the board of abrdn New Dawn Investment Trust plc ("New Dawn") in respect of a proposed combination of the assets of the Company with those of New Dawn. Shareholders were sent documentation in September explaining that this is to be effected by way of a scheme of reconstruction and winding up of New Dawn under section 110 of the Insolvency Act 1986 (the "Scheme") and the associated transfer of the majority of the cash, assets and undertaking of New Dawn to the Company in exchange for the issue of new Ordinary shares in the Company to those New Dawn shareholders who so elect.

I would like to take this opportunity to thank our shareholders for approving the Scheme proposals at the Company's General Meeting, held on 25 October 2023 with over 99.9% of votes in favour on all resolutions.   This has paved the way for the Scheme to progress, subject to the approval of New Dawn shareholders at its second general meeting scheduled for 8 November 2023. On the basis of the current timetable, it is expected that the combination of the Company and New Dawn will take place on or around 8 November 2023.

The expected benefits of the Scheme were set out in detail in the recent shareholder circular but are worth repeating here.  In summary, the combination will create an enlarged vehicle with the following expected benefits to shareholders:

·  Enhanced profile and marketability of the enlarged Company

·  Lower management fee (further details below)

·  Lower ongoing charges

·  Enhanced liquidity of the Company's shares

The amendments to the Investment Policy and to the Articles of Association described in the recent Circular have been approved. In addition, should the Scheme become effective, the level of any performance-related conditional tender offer of the Company (covering the period from 1 September 2021 to 31 August 2026) that may be triggered would be reduced in size to up to 15% of the issued share capital of the enlarged Company. Thereafter, any future five-yearly conditional tender offers triggered by underperformance would revert back to up to 25% of the prevailing issued share capital as was set in 2021.

Subject to the successful completion of the combination, the Manager will be implementing changes to the portfolio to reflect this new Investment Policy.

Results

Once again, rising inflation and recession risk have continued to cast a long shadow over the global economy. Asian markets have not been immune, leading to testing times for investors. In the 12 months to 31 August 2023, the MSCI AC Asia ex Japan Index fell 8.4% in sterling total return terms. The Company's net asset value ("NAV") fared worse, finishing down 16.7% on the same total return basis after accounting for dividends.  The Company's share price was impacted through this period of risk aversion, falling 20.9% to 353.0p per share from last year's 446.0p. This reflected a widening of the discount to NAV to 16.2% as at the year end.

Performance

Looking at your Company's performance over the period, the portfolio made small gains relative to its benchmark over the first few months but underperformed from the start of 2023 onwards, the key detractor being our exposure to China.  Through the period, we also saw a significant style shift towards value stocks both in China and the broader Asia Pacific ex Japan region, which worked against your Company's performance, given your Manager's long-term focus on businesses with quality characteristics.

The Manager's Review covers the Company's performance, portfolio activity and their views on the future in some detail.  Although performance has been disappointing during the period, the Board notes that much of the underperformance during the year stemmed from the Company's exposure to China, which has been an unusually challenging and volatile market to navigate over the period.  The Manager's Review also highlights the reasons for long-term optimism with regard to China, and that the recent market movements have created opportunities with some high-quality businesses seen trading on attractive valuations.

The Board continues to have confidence in Asia's longer-term growth story. Moreover, the combination with New Dawn is, we believe, strongly positioning the new combined Company at a critical time, for when investors start to allocate back to Asia.

Market Review

Investor sentiment fluctuated greatly in the year under review. On the one hand, there were concerns over the impact of policy tightening in the US, with fears that increasing interest rates to control inflation could trigger a global recession. On the other hand, there was hope that the tightening cycle would start to ease. 

At the end of the Company's half year, in February, investors were optimistic that the Fed, having raised interest rates by 425 basis points in 2022, would start to ease up. These expectations proved to be premature, although the severity of rate increases in 2023 has been much reduced.

Moving into 2023, market expectations brightened over Asia's near-term outlook. In China, the easing of Covid curbs and increasing government support boosted mainland equity markets and buoyed export-oriented markets such as Taiwan and South Korea. Investors hoped that the faster than expected re-opening would translate to a big recovery in consumer spending. However, this did not transpire as expected. The economic recovery stalled and China's increased savings rate and looser fiscal policy environment did not convert into increased spending. Another key concern was the weak property sector. We have also seen the government step up its policy support through monetary policy easing, a liquidity boost for capital markets and targeted measures for real estate.

In other parts of Asia, the growth picture was rosier. In India, for instance, a recovery in urban consumer demand and a buoyant housing market underpinned continued economic growth, placing the country among the world's fastest-growing economies. Elsewhere, Indonesia displayed signs of resilient domestic spending, while investors turned more positive on Taiwan and South Korea, in the expectation that artificial intelligence (AI) will be a fillip for semiconductor manufacturing.

Gearing

The Board believes that the sensible use of modest financial gearing should enhance returns to shareholders over the longer term, being one of the advantages of the closed end structure. The Company has loan facilities totalling a commitment of £60 million with The Royal Bank of Scotland International Limited, London Branch.  The facilities, which are unsecured, consist of a two-year fixed rate facility of £25m, which is fully drawn, and a two year £35m multi-currency revolving credit facility of which £15 million was drawn down at the year-end. 

At 31 August 2023, the Company's net gearing position was 5.8%, compared to 9.0% at the end of August 2022.

The Manager continues to monitor closely gearing levels and bank covenants.  As at 1 November 2023, the Company's net assets stood at £449.6 million and net gearing was 7.7%.  These levels remain comfortably within the covenant limits. 

It is the Manager's intention, subject to implementation of the Scheme, to draw down an additional amount under its revolving credit facility, post the combination of assets, for identified investment opportunities and to maintain approximately the Company's current gearing level.

Discounts and Share Buybacks

The discount level of the Company's shares is closely monitored by the Board and share buybacks are undertaken when appropriate. During the year ended 31 August 2023, 5.9 million shares were bought back into treasury at a cost of £23.7 million (2022: 5.1 million shares were bought back into treasury at a cost of £24.0 million). Since 31 August 2023, a further 973,136 shares have been bought back into treasury at a cost of £3.45 million. The discount at the financial year end was 16.2% (2022: 13.1%). As at 1 November 2023, the discount was 16.9%.

Revenue Account

The Company's revenue return per share was 7.06p for the year to 31 August 2023 (2022 - 6.38p). The Board has declared a final dividend of 6.6p per Ordinary share (2022 - 6.5p) which, if approved by shareholders at the Annual General Meeting ("AGM"), will be paid on 15 December 2023 to shareholders on the register on 27 October 2023. As this date precedes the proposed implementation of the Scheme, New Dawn shareholders who elect to receive the Company's shares as part of the Scheme, will not receive this dividend.

Composition of the Board

As previously outlined, it is intended that, subject to New Dawn shareholders' approval of the Scheme, Donald Workman, Stephen Souchon and Nicole Yuen will be appointed as non-executive Directors of the Company. As such, the Board will then, initially, consist of eight Directors, comprising the five current Directors of the Company and three New Dawn Directors. However, after a transition period that will end on 8 May 2024, the expected six-month anniversary of completion of the Scheme, it is intended that the number of Directors on the Board will be reduced to five, with Donald Workman, Charlie Ricketts and Gaynor Coley expected to retire from the Board at that time.  Resolutions proposing the election of Donald, Stephen and Nicole are included in the Notice of AGM and will be proposed, subject to successful completion of the proposed combination with abrdn New Dawn.

Investment Objective and Policy and Management Arrangements

At the Company's General Meeting held on 25 October 2023, shareholders approved certain amendments to the Company's investment objective and policy, including permitting investment in Australasia. This change was made to provide the Company's management team with greater geographic flexibility and to clarify and modernise the policy. The full policy is set out on page 19 of the Annual Report and financial statements for the year ended 31 August 2023.

As part of the Scheme proposals, abrdn has also agreed to reduce its management fee from the effective date of the Scheme.  The management fee payable by the Company to AFML will be reduced to 0.75% per annum (currently 0.85% per annum) on the first £350 million of the Company's NAV and 0.50% per annum on the Company's NAV in excess of £350 million.

Finally, Adrian Lim our portfolio co-manager has decided to retire from abrdn and, on behalf of the Board, I would like to take this opportunity to thank Adrian for his many years of service and dedication to the Company and we wish him all the very best in the future.  Pruksa Iamthongthong will continue as joint lead portfolio manager and has been joined as co-manager by James Thom, who is currently co-manager of New Dawn.

Annual General Meeting

The AGM returns to Scotland this year and will take place on 7 December 2023 at 9:00 a.m. in the Esk Suite, The Balmoral Hotel, 1 Princes Street Edinburgh EH2 2EQ.

The AGM provides shareholders with an opportunity to meet representatives from the Manager and ask any questions that they may have of either the Board or the Manager. I look forward to meeting as many of you as possible over light refreshments which will follow the AGM. Shareholders, whether attending the AGM or not, are encouraged to submit questions for the Board and/or the Manager, in advance, by email to asia.dragon@abrdn.com.

Online Shareholder Presentation

In order to encourage as much interaction as possible with our enlarged shareholder base, we will be hosting another Online Shareholder Presentation, which will be held at 11 a.m. on 27 November 2023. At this event there will be a presentation from the Investment Manager followed by an opportunity to ask live questions of the Chairman, Senior Independent Director and the Investment Manager. The online presentation is being held ahead of the AGM to allow shareholders time to submit their proxy votes after the presentation but prior to the deadline for submitting proxies for the AGM should they so wish. Full details on how to register for the online event can be found at https://www.workcast.com/register?cpak=6427494394082991. We hope that many of our existing and new shareholders are able to attend.

Migration of abrdn Savings Plans to interactive investor ("ii")

The Company's Manager, abrdn, has reviewed its current service provider for its investment trust share plans (abrdn Savings Plan, Children's Plan and ISA).  In May 2022, abrdn completed the acquisition of ii and the UK's second largest, award-winning investment platform for self-directing private investors. Having considered the various options, abrdn has concluded its review and has decided to migrate its share plan customers to ii in December 2023, given the strength of the ii offering, its understanding of and enthusiasm for investment trusts and the strong representation of investment trusts in its customer portfolios.  Plan participants who have queries in respect of the migration should raise them directly with abrdn's investor services team by email at inv.trusts@abrdn.com or by telephone on 0808 500 4000 or 00 44 1268 448 222 (Monday to Friday 9am to 5pm - call charges will vary).

Outlook

Given prevailing concerns over global growth, US monetary policy and China, it seems unlikely that investor sentiment will change significantly in the immediate future. The global growth outlook remains clouded by the impact of tightened monetary policy in the developed world, which could add to financial system vulnerabilities, dampen credit growth and weigh on confidence. Commodity prices also add another layer of uncertainty to the inflation backdrop.

There are reasons to be more optimistic, however. In China, the government is clearly aware of the need to stimulate growth and there is evidence of this taking place in several sectors.  This is expected to continue.

Elsewhere in Asia, as companies diversify their supply chains, this is benefiting economies and stock markets including Indonesia and Vietnam. Meanwhile, India is in the initial stages of a cyclical upswing and enjoying a demographic dividend that places the country well for sustainable long-term growth. Restructuring and reform are starting to take root as well.

Adding to this, most Asian countries only have low levels of borrowings, corporate earnings are forecast to grow in 2024 after a subdued 2023 and market corrections have created opportunities to invest in high quality companies at relatively attractive valuations.

The investment focus on quality companies remains undiminished. The Manager believes that good stock selection will be the major source of added value over the long term and it is committed to its quality, bottom-up investment process based on a disciplined evaluation of companies.

 

James Will
Chairman
2 November 2023

 

Investment Manager's Review

Performance

The MSCI AC Asia ex Japan benchmark index decreased by 8.4% in sterling terms over the year while the Company's net asset value (NAV) fell by 16.7%, in total return terms.

Contrary to some predictions of a recession at the end of 2022, the US economy remained strong in 2023 with continued economic and employment growth. Concerns over rising price pressures led to the Federal Reserve ("Fed") increasing interest rates to their highest levels in more than 22 years. In Asia, on the other hand, China's macroeconomic recovery was slower than expected, as the weakness of the property market weighed on the broader economy and consumer confidence. The weak macroeconomic data raised expectations of a major policy stimulus - the lack of which has meant that investors were disappointed and raised questions on China's commitment to economic growth.  As shown in Chart 1 in the Annual Report and financial statements for the year ended 31 August 2023,  this led to underperformance of the Chinese and Hong Kong markets over the past year.

Elsewhere in Asia, markets in India, Taiwan and South Korea outperformed the region. India's earnings growth underpinned some rich equity valuations and it benefited from substantial foreign capital inflows, given that it is one of the few countries around the world still seeing solid growth in its economy and corporate sector. The technology-heavy markets of Taiwan and South Korea made strong gains as investors judged that the semiconductor cycle was nearing its trough and responded to rapid developments made in artificial intelligence (AI).

As shown in Chart 2 in the Annual Report and financial statements for the year ended 31 August 2023, most of the Company's underperformance arose at the start of 2023 and has continued since then:

China and Hong Kong were the main detractors from the Company's performance, as shown in Chart 3 in the Annual Report and financial statements for the year ended 31 August 2023. Mainland markets rose in the final quarter of 2022 on hopes that consumption would recover after the country's post-Covid reopening. However, the beginning of 2023 saw an inflection point with a reversal in sentiment as the consumption recovery, which our portfolio was positioned for, proved much weaker than anticipated.  Accordingly, we suffered in terms of stock selection, where our positioning in what we deemed to be long term structural growth areas such as the consumer discretionary (China Tourism Group Duty Free), technology (GDS, JD.com) and healthcare (Aier Eye Hospital Group) sectors failed to perform. These were a function of a slower than expected pace of consumer spending recovery, the high savings rate as well as weak sentiment resulting from the anti-corruption drive.  Investor flows have followed the theme of reforms to State Owned Enterprises ("SOE") - this in turn has benefited the more value-based sectors, such as telecommunications, energy and financials (where SOEs are a significant influence). We remain sceptical about whether such reform is bringing about real and lasting impact. It is also worth highlighting that many companies in these sectors are on the entity/sanction lists of the US Government, hindering the ability of most Western based institutions to invest in them.

But Asia is more than China (see chart 4 in the Annual Report and financial statements for the year ended 31 August 2023) and outside of China, the rest of the region is benefiting from supply-chain diversification, as more and more companies look to diversify their supply chains. India and Vietnam are well positioned to benefit from these trends. The Made in India initiative has started to gain traction after 10 years, post a series of reforms that help to improve the ease of doing business in India. For those that have visited India, it is hardly surprising that India needs more power and infrastructure to cater to rising supply chain needs. The higher demand for power, and a rising mix of renewable power, is driving demand for grid upgrades. This, in turn, provides multi year earnings growth visibility for our utility holding in Power Grid. Similarly, improving prospects from the long-awaited property sector recovery have translated into higher demand for cement, which benefited our holding in leading industry cement manufacturer, UltraTech Cement. 

Indonesia has not received as much attention as India but it is also an exciting market from our perspective. The country benefits from a demographic advantage, being the world's fourth-largest population, with most of its population aged between 15 and 64. It is also undergoing a structural transformation up the commodity value chain, from selling raw ore to producing value-added commodities. Global battery makers and electric vehicle producers are investing in Indonesia to secure a part of the nickel supply chain; this is especially beneficial when the world is moving towards renewables and electrification. All of these trends should prove supportive of economic growth and we believe our holding in Bank Central Asia, Indonesia's largest private sector bank, should continue to be a key beneficiary of this.

Turning to South Korea and Taiwan, we see them as key nodes in Asia's technology supply chains, which are well positioned for structural growth related to the rollout of 5G, big data and digital interconnectivity. Although our holdings here contributed to our underperformance against the index, the rapid advances in artificial intelligence are expected to be a major driver of demand for semiconductors over the coming years and many of Asia's companies, including several of our holdings, should be key beneficiaries of this over the medium term.  We view generative AI as a game changer. When it comes to generative AI applications, ChatGPT is just the tip of the iceberg and demand for AI has accelerated much faster than expected, with the server and networking supply chain among the winners in this rapidly growing market. We see the content upgrade and architecture redesign as a multi-year process, going hand in hand with the growth of generative AI applications, with ChatGPT among the first of many more to come. Our core holdings in both Samsung Electronics and Taiwan Semiconductor Manufacturing Corp (TSMC), are well positioned to benefit from this trend. In the case of the former we see particular value in the preference shares, where their discount to the ordinary shares has widened sharply.

Portfolio

When reviewing the portfolio, and given the uncertain outlook, we focused, firstly, on adding to companies with higher near-term earnings visibility. We added to Larsen & Toubro, the leading infrastructure conglomerate in India whose order book has benefited from capital expenditure spending in India. As mentioned, we continue to back Power Grid as well as TSMC, where we have strong visibility over future earnings.

Secondly, we focussed on our highest "quality" positions. We have increased our semiconductor and technology hardware exposure as the inventory cycle reached a bottom. For example, we initiated a position in ASM International, the global leader in advanced deposition semiconductor equipment (more details in the case study).  The aforementioned TSMC would also fall into this category, as would Samsung Electronics, both trading on attractive valuations.

Thirdly, while consumer confidence remains low in China overall, the end of Covid-related restrictions is nonetheless boosting businesses with inelastic demand and valuations have substantially de-rated in some cases. For example, we have initiated a position in Aier Eye Hospital Group, China's leading eyecare specialist chain, where we expect patient traffic to normalise after the disruptions caused by the pandemic. We have added to our highest conviction holdings in the China internet space. In this sector Tencent stands out on recovering advertising spending despite the weak macroeconomic backdrop. Its gaming business also showed signs of recovery as games approvals resumed.  Similarly we have built up the position in the online food delivery and platform business, Meituan.

There were some holdings that we exited on fundamental concerns, such as Longi Green Energy. Despite retaining their cost advantage, Longi's technological edge has been eroded due to technological transition and we see evidence of oversupply in the solar value chain that we expect to persist in the medium term. Another was Foshan Haitian, where, although the soy sauce maker retains a strong brand and good long-term potential, we see better prospects elsewhere. As a result of this, our holdings in China have become fewer and more focused on those companies where we see the highest quality and best earnings visibility.     

Outlook

We have seen a material sell-off in China equity markets this year, sentiment towards China remains weak, and there are certainly reasons for caution. Some important areas of the Chinese economy are still seeing persistent weakness, particularly the real estate sector, and consumer sentiment remains soft. That said, we are seeing some improvement in the services sector with encouraging demand trends, for example, in restaurant services, automotive sales and online goods sales. As another indicator, domestic travel spending during the Golden Week holiday in October was only marginally lower than pre-Covid levels. Domestic savings rates also remain unusually high pointing to significant pent-up demand across Chinese households, see Chart 5 in the Annual Report and financial statements for the year ended 31 August 2023.

Whilst major 2008-style stimulus measures have been absent, since July we have seen the Chinese authorities selectively intervene in the economy with supportive policy measures and financial conditions have also been accommodative. This points to a willingness and desire by the government to bring stability to the property market and to ensure moderate growth is maintained. If successful, this should help bolster consumer sentiment and ultimately convert some of that pent-up demand into spending. The timing of all this is unclear and rising geopolitical tensions add further complexity, but what is clear is that there has been a material de-rating in the Chinese market and possible over-shooting, and for long term investors this is creating opportunities to invest in some very high quality businesses with still healthy medium term growth prospects at very attractive valuations.

While accepting cloudy macro-economic conditions, rising geopolitical tensions and conflicts in many parts of the world, in Asia we have more cause to be optimistic:

·  earnings growth is expected to improve into 2024 with consensus forecasts of 18% earnings growth for the region, following a flattish year in 2023;

·  as mentioned, valuations are attractive; and

·  most Asian countries have relatively low levels of borrowing and more benign inflationary conditions.

Over the long term, we particularly favour attractive opportunities around these structural themes:

·  Aspiration: Rising affluence in Asia is leading to fast growth in premium consumption in areas including personal care products, financial services and food and beverage;

·  Building Asia: Urbanisation and an infrastructure boom is set to benefit property developers and mortgage providers among others;

·  Digital Future: Growing integration amid the widespread adoption of technology means a bright future for plays on gaming, internet, fintech and tech services like the cloud;

·  Going Green: Policy makers globally are committing to a greener and lower carbon future and Asia is in the driver's seat. Plays on renewable energy, batteries, electric vehicles, related infrastructure, and environmental management all have a bright future. Grid parity will be game-changing;

·  Health & Wellness: Asia is home to a diverse range of companies leading advancements in biotech and medical device technology. Our holdings include plays on contract research, vaccinations, pharmaceuticals and diagnostic products; and

·  Tech Enablers: Asia tech supply chains are well positioned for structural growth related to the rollout of 5G, big data and digital interconnectivity.

 

 

Pruksa Iamthongthong and James Thom
abrdn (Asia) Limited
2 November 2023

 

Overview of Strategy

Business Model

The business model of the Company is to operate as an investment trust for UK capital gains tax purposes in line with its investment objective.  The Directors are of the opinion that the Company has conducted its affairs for the year ended 31 August 2023 so as to enable it to comply with the relevant eligibility conditions for investment trust status as defined by Section 1158 of the Corporation Tax Act 2010.

Investment Policy (up to 25 October 2023)

For the period up to the General Meeting held on 25 October 2023 the Company's Investment Policy was as follows:

Investment Objective

To achieve long-term capital growth through investment in Asia, with the exception of Japan and Australasia. Investments are made primarily in stock markets in the region, principally in large companies. When appropriate, the Company will utilise gearing to maximise long term returns.

Investment Policy

The Company's assets are invested in a diversified portfolio of securities in quoted companies spread across a range of industries and economies in the Asia Pacific region, excluding Japan and Australasia. The shares that make up the portfolio are selected from companies that have proven management and whose shares are considered to be attractively priced. The Company invests in a diversified range of sectors and countries. Investments are not limited as to market capitalisation, sector or country weightings within the region.

The Company's policy is to invest no more than 15% of gross assets in other listed investment companies (including listed investment trusts).

The Company complies with Chapter 4 of Part 24 of the Corporation Tax Act 2010 and the Investment Trust (Approved Company) (Tax) Regulations 2011 and does not invest more than 15% of its assets in the shares of any one company.

When appropriate the Company will utilise gearing to maximise long-term returns, subject to a maximum gearing level of 20% of net assets imposed by the Board.

The Company does not currently utilise derivatives but keeps this under review.

Investment Policy (from 25 October 2023)

Following the receipt of approval from shareholders at the General Meeting held on 25 October 2023 the Company's new Investment Policy is as follows:

Investment Objective

The Company aims to achieve long-term capital growth principally through investment in companies in the Asia Pacific region, excluding Japan (the "Investment Region").

Investment Policy
Asset allocation

The Company's assets are invested principally in a diversified portfolio of public securities of companies that are incorporated, domiciled or listed in the Investment Region. The Company invests in a diversified range of sectors and countries. Investments are not limited as to market capitalisation, sector or country weightings within the Investment Region.

The Company may invest, directly or indirectly, up to 30 per cent. of its gross assets in public securities of companies which are not incorporated, domiciled or listed in the Investment Region but which generate more than 50 per cent. of their annual turnover or revenue from the Investment Region, all as measured at the time of the Company's investment.

The Company will primarily invest in equities and equity-related securities (including, but not limited to, preference shares, depositary receipts, convertible unsecured loan stock, rights, warrants and other similar securities).

For the avoidance of doubt, however, the Company may, in pursuance of the investment objective:

·  hold cash and cash equivalents, including money market mutual funds (which is not subject to any investment limit);

·  hold equity-linked derivative instruments (including options and futures on indices and individual securities) which are primarily exposed to the Investment Region; and

·  invest in index funds, listed funds, open-ended funds, mutual funds and exchange traded funds that invest primarily in the Investment Region.

Risk diversification

The Company's aggregate exposure to any single holding or issuer (or issuer group), whether direct or indirect, will not exceed 15 per cent. of its gross assets (calculated at the time of investment).

In order to comply with the Listing Rules, the Company will not invest more than 10 per cent. of its gross assets in other listed closed-ended investment funds, except that this restriction shall not apply to investments in listed closed-ended investment funds which themselves have stated investment policies to invest no more than 15 per cent. of their gross assets in other listed closed-ended investment funds. Additionally, in any event, the Company will itself not invest more than 15 per cent. of its gross assets in other listed closed-ended investment funds.

Gearing

The Company may deploy gearing to seek to enhance long-term capital growth. The Company may be geared through bank borrowings, the use of derivative instruments that have the effect of gearing the Company's portfolio, and any such other methods as the Board may determine. Gearing will not exceed 20 per cent. of the Company's net asset value at the time of drawdown of the relevant borrowings or entering into the relevant transaction, as appropriate.

Derivatives

With prior approval of the Board, the Company may use derivatives for the purpose of efficient portfolio management (for the purpose of reducing, transferring or eliminating investment risk in its investment portfolio, including protection against currency risk) and for investment purposes.

Notwithstanding the above, the Company does not intend to utilise derivatives or other financial instruments to increase the Company's gearing in excess of the limit set out in 'Gearing' above, and any restrictions set out in this investment policy shall apply equally to exposure through derivatives.

Company Benchmark

The total return of the MSCI All Country Asia (ex Japan) Index (sterling adjusted).

Alternative Investment Fund Manager ("AIFM")

The AIFM is abrdn Fund Managers Limited, (aFML or the "Manager") which is authorised and regulated by the Financial Conduct Authority.

The Company's portfolio is managed on a day-to-day basis by abrdn (Asia) Limited ("abrdn Asia" or the "Investment Manager") by way of a delegation agreement. abrdn Asia and aFML are both wholly owned subsidiaries of abrdn plc.

Achieving the Investment Policy and Objective

The Directors are responsible for determining the investment policy and the investment objective of the Company. Day-to-day management of the Company's assets has been delegated to the Investment Manager.  The Investment Manager follows a bottom-up investment process based on a disciplined evaluation of companies through direct contact by its fund managers and analysts. Stock selection is the major source of added value. No stock is bought without the Investment Manager having first met management, either in person, where possible, or virtually. The Investment Manager evaluates a company's worth in two stages: quality then price. Quality is defined by reference to management, business focus, the balance sheet and corporate governance. Price is evaluated by reference to key financial ratios, the market, the peer group and business prospects. Stock selection is key in constructing a diversified portfolio of companies. 

A comprehensive analysis of the Company's portfolio by country and by sector is disclosed on pages 45 to 47 of the Annual Report and financial statements for the year ended 31 August 2023, including a description of the ten largest investments, the full investment portfolio by value and sector/geographical analysis. At 31 August 2023, the Company's portfolio consisted of 53 holdings.

Gearing is used to leverage the Company's portfolio in order to enhance returns when this is considered appropriate to do so. At 31 August 2023, the Company's net gearing was 5.8%.

Principal and Emerging Risks and Uncertainties

The Board carries out a regular review of the risk environment in which the Company operates, changes to the environment and individual risks.  There are a number of other risks which, if realised, could have a material adverse effect on the Company and its financial condition, performance and prospects. The Board has considered the Company's principal and emerging risks, which include those that would threaten its business model, future performance, solvency, liquidity or reputation.

The Company's risks are regularly assessed by the Audit & Risk Committee and managed by the Board through the adoption of a risk matrix which identifies the key risks for the Company, including emerging risks, and covers strategy, investment management, operations, shareholders, regulatory and financial obligations and third-party service providers. A deep dive review of the Risk Register has been performed during the year.

The principal risks and uncertainties facing the Company, which have been identified by the Board, are described in the table below, together with the mitigating actions.

The Board notes that there are a number of contingent risks stemming from the global geo-political environment that may impact the operation of the Company.

Inflation and the resultant volatility that it created in global stock markets continued to be a key risk during the financial year, as well as the ongoing tensions between China and Taiwan, China and the West, and the Russian invasion of Ukraine, all of which created geo-political uncertainty which further increased market risk and volatility.  The Board is also very conscious of the risks resulting from the increased ESG challenges. The recent scrutiny of human rights violations in China by Western governments is one example of the need for continued vigilance and engagement regarding supply chains and the fair treatment of workers. Likewise, as climate change pressures increase, the Board continues to monitor, through its Manager, the potential risk that investee companies may fail to maintain acceptable standards.

In all other respects, the Company's principal risks and uncertainties have not changed materially since the date of this Annual Report and are not expected to change materially for the current financial year.

 

Risk		Mitigating Action
Investment Risk ·  The Company's investment performance is the most critical factor to the Company's long-term success. ·  The Company is exposed to the risk of Sustained Underperformance as a result of implementing an unattractive investment strategy ·  The Company is exposed to the risk of Portfolio Stock Concentration as a result of the combined market share of the Manager's investments ·  The Company is exposed to ESG Risk in the event that its investee companies act unethically, undertake environmentally detrimental practices or fail to integrate ESG factors adequately Risk Unchanged during the year		The Board continually monitors the investment performance of the Company, taking account of stock-market factors, and reviews the Company's performance compared to its benchmark index and peer group at every Board Meeting.  A formal annual review is undertaken by the Management Engagement Committee.  The Board has regard to the skills, depth of resources and wider capability of the abrdn group in arriving at its conclusions. The Board and Manager communicate 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. At each Board meeting the Board reviews the concentration and liquidity risk of the portfolio including the number days required to liquidate the portfolio. The Manager undertakes extensive due diligence on each investment prior to purchase including a review of the ESG credentials. Post purchase the Manager continues to monitor and actively engage with investee company managements.
Operational Risk ·  The Company is dependent on a number of third-party providers, in particular those of the Manager, depositary and registrar.  Failure by any service provider to carry out its contractual obligations could have a detrimental impact or disruption on the Company operations, including that caused by information technology breakdown or other cyber-related issues. Risk Unchanged during the year	The Board reviews the performance of the Manager on a regular basis and its compliance with the management contract formally on an annual basis. As part of that review, the Board assesses the Manager's succession plans, risk management framework and marketing activities The Audit & Risk Committee reviews reports from the Manager on its internal controls and risk management (including an annual ISAE Report) and considers assurances from all its other significant service providers on at least an annual basis, including on matters relating to business continuity and cyber security. The Audit & Risk Committee meets representatives from the Manager's Compliance and Internal Audit teams on at least an annual basis and discusses any findings and recommendations relevant to the Company. Written agreements are in place with all third-party service providers. The Manager monitors closely the control environments and quality of services provided by third parties, including those of the Depositary, through service level agreements, regular meetings and key performance indicators. A formal appraisal of the Company's main third-party service providers is carried out by the Management Engagement Committee on an annual basis.
Governance and Regulatory Risk ·  The Company operates in a complex regulatory environment and faces a number of regulatory risks. Serious breaches of regulations, such as the tax rules for investment companies, the FCA's Listing Rules and the Companies Act. Risk Unchanged during the year	The Board receives updates on relevant changes in regulation from the Manager, industry bodies and external advisers and the Board and Audit & Risk Committee monitor compliance with regulations by review of internal control reports from the Manager. Directors are encouraged to attend relevant external training courses.
Major Events and Geopolitical Risk ·  The Company is exposed to supply chain risk, stock-market volatility or illiquidity as a result of a major market shock due to a national or global crisis.  The impact of such risks, associated with the portfolio or the Company itself, could result in disruption of the operations of the Company and losses. ·  The Company is exposed to the impact of Live Conflict, sanctions and instability in the region as well as the indirect impact of global conflicts ·  The Company is exposed to Pandemic Risk which could result in disruption to supply chains ·  The Company is exposed to the risk of a major environmental event as a result of the consequences of climate change Risk Unchanged during the year	Exogenous risks over which the Company has no control are always a risk. The Company does what it can to address these risks where possible, not least operationally and to try and meet the Company's investment objectives. As part of its investment processes, the Manager regularly assesses the Company's portfolio as a whole, and each constituent part, and, during the financial year, remained in close communication with the underlying investee companies in order to navigate and guide the Company through macroeconomic and geopolitical challenges. 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. The Board discusses issues affecting the region at each Board meeting and the Manager has an effective business continuity in place to ensure that material processes will continue to operate. The Audit & Risk Committee reviews controls reports from third party service providers. The Manager undertakes due diligence on investee companies prior to and post purchase and provides updates at each Board meeting.
Shareholder and Stakeholder Risk ·  The Company is exposed to the risk of Shareholder Dissatisfaction, Activism and Influence stemming from a failure to adapt to changes in the market and investor demand ·  Liquidity Risk to shareholders due to share price trading at a discount to its underlying NAV and reduced investor sentiment Risk Unchanged during the year	The Board regularly monitors the marketplace for changes in sentiment. The Board regularly reviews the performance of the Company against the benchmark and peer group. The Board monitors the discount level of the Company's shares against the peer group and has in place an active  buyback mechanism whereby the Manager is authorised to buy back shares within certain limits. The Board and Manager engage regularly with shareholders to understand their views on key topics including discount volatility and shareholder views are discussed at each Board meeting. The Manager conducts extensive PR and promotional activities during the year. Shareholders are given the opportunity to vote on continuation at every fifth AGM and there is a conditional performance-linked tender offer mechanism in place.

 

The principal risks associated with an investment in the Company's shares can be found in the pre-investment
disclosure document ("PIDD") published by the Manager, which is available from the Company's website: www.asiadragontrust.co.uk.

 

Performance

Key Performance Indicators

At each Board meeting, the Directors consider a number of performance measures to assess the Company's success in achieving its objectives. The key performance indicators ("KPIs") are established industry measures and are detailed below with further analysis provided in the Chairman's Statement.

KPI	Description
Net asset value and share price (total return)	The Board monitors the NAV and share price performance of the Company over different time periods.  Performance figures for one, three and five years are provided in the Results section on page 35 of the Annual Report and financial statements for the year ended 31 August 2023.
Performance against benchmark	Performance is measured against the Company's benchmark, the MSCI All Country Asia (ex Japan) Index (in sterling terms), on a total return basis.  Charts showing the Company's performance against benchmark by quarter during the financial year, and over one, three and five years, and are shown on page 36 of the Annual Report and financial statements for the year ended 31 August 2023. The Board also considers peer group comparative performance over a range of time periods, taking into consideration the differing investment policies and objectives employed by those companies.
Discount/Premium to net asset value	The discount/premium relative to the NAV represented by the share price is closely monitored by the Board. The objective is to avoid large fluctuations in the discount relative to similar investment companies investing in the region by the use of share buy backs subject to market conditions.  A graph showing the share price discount relative to the NAV is shown on page 37 of the Annual Report and financial statements for the year ended 31 August 2023.

Promoting the Success of the Company

The Board is required to report on how it has discharged its duties and responsibilities under section 172 of the Companies Act 2006 (the "s172 Statement").  Under section 172, the Directors have a duty to promote the success of the Company for the benefit of its members as a whole, taking into account the likely long-term consequences of decisions, the need to foster relationships with the Company's stakeholders and the impact of the Company's operations on the environment.

The Company consisted of five Directors at 31 August 2023 and has no employees or customers in the traditional sense. As the Company has no employees, the culture of the Company is embodied in the Board of Directors.  The Board seeks to promote a culture of strong governance, high standards of business conduct and to challenge, in a constructive and respectful way, the Company's third-party service providers and advisers, whilst considering the impact on the Company and other stakeholders.

The Board's principal concern has been, and continues to be, the interests of the Company's shareholders and potential investors and the need to act fairly between shareholders. The Manager undertakes an annual programme of meetings with the largest shareholders and investors and reports back to the Board on issues raised at these meetings.  The Investment Manager, who is based in Singapore, will attend such meetings, where possible. The Board encourages all shareholders to attend and participate in the Company's AGM and Pre-AGM Investor Event and shareholders can contact the Directors via the Company Secretary.  Shareholders and investors can obtain up-to-date information on the Company through its website and the Manager's information services and have direct access to the Company through the Manager's customer services team or the Company Secretary.

As an investment trust, a number of the Company's functions are outsourced to third parties.  The key outsourced function is the provision of investment management services to the Manager and other third-party providers support the Company by providing secretarial, administration, depositary, custodial, banking and audit services.

The Board undertakes a robust evaluation of the Manager, including investment performance and responsible ownership, to ensure that the Company's objective of providing capital growth for its investors is met, whilst taking ESG factors into account.  The Board typically visits the investment region on an annual basis and meets with the Manager's on the ground investment teams.  This enables the Board to conduct due diligence of the fund management and research teams. During the year the Board has met with the senior management team and the fund management team and attended investee company meetings alongside the Manager.

The portfolio activities undertaken by the Manager on behalf of the Company can be found in the Investment Manager's Review and details of the Board's relationship with the Manager and other third-party providers, including oversight, is provided in the Statement of Corporate Governance.

During the year, the Board continued to focus on the performance of the Manager in achieving the Company's investment objective within an appropriate risk framework. 

In addition a significant amount of time was absorbed in the process of agreeing Heads of Terms with the board of abrdn New Dawn which are expected to lead to the successful Combination of the Company with abrdn New Dawn effective on 8 November 2023 (subject to abrdn New Dawn shareholder approval). As part of the proposals the Board focused on the benefits that would accrue to the Company's shareholders including:

1.    the enhancement to the Company's profile resulting from the expected increase in market capitalisation and liquidity in the Company's shares;

2.    the agreement of a new lower management fee and expected lower ongoing charges; and

3.    the consolidation of a number of shareholders' holdings across the Company and New Dawn while also creating a more diversified shareholder base.

In addition to agreement of the Combination proposals a number of key decisions have been taken by the Board during the year, including:

·  The Board has declared a final dividend of 6.6p per Ordinary share (2022 - 6.5p) which, if approved by shareholders at the Annual General Meeting, will be paid on 15 December 2023.

·  The Board has continued to consider Board succession planning, as it recognises the benefits of regular Board refreshment, and looks forward to welcoming Donald Workman, Stephen Souchon and Nicole Yuen to the Board on 8 November 2023 subject to approval of the Combination proposals by the abrdn New Dawn shareholders.

·  To continue the Board's discount control policy through the buyback of shares which provides a degree of liquidity to the market at times when the discount widens.

·  The Board continues to believe that the sensible use of modest financial gearing should enhance returns to shareholders over the longer term. The Company has in place loan facilities totalling a commitment of £60 million with The Royal Bank of Scotland International Limited, London Branch.  The facilities, which are unsecured, consist of a two-year fixed facility of £25m, which is fully drawn, and a two year £35m multi-currency revolving credit facility which has also been fully drawn.

·  The Board continues to alternate the location of its AGM between Edinburgh and London to allow the Board to physically meet with shareholders in different locations.  In order to encourage as much interaction as possible with shareholders, the Board has agreed to host an Online Shareholder Presentation, in advance of the AGM, to allow as many shareholders as possible to engage with, and ask questions of, the Board.

In summary, the Directors are cognisant of their duties under section 172 and decisions made by the Board take into account the interests of all the Company's key stakeholders and reflect the Board's belief that the long-term sustainable success of the Company is linked directly to its key stakeholders.

Duration

The Company does not have a fixed life, but shareholders are given the opportunity to vote on the continuation of the Company at every fifth Annual General Meeting.  The last continuation vote was passed at the AGM on 15 December 2021.  The frequency of continuation votes was extended from triennial continuation votes to five-yearly continuation votes at the AGM in 2021 in order to align them with the assessment period for performance-related conditional tender offers approved by shareholders at the AGM in 2021.  The next performance related conditional tender offer will cover the period from 1 September 2021 to 31 August 2026 and the continuation vote is due to take place at the AGM in December 2026.  

Board Diversity

The Board's statement on diversity is set out in the Statement of Corporate Governance.  At 31 August 2023 there were three male Directors and two female Directors.  The Company does not currently meet the target that at least one Director is from a minority ethnic background as set out in LR 9.8.6R (9)(a)(iii). However, subject to the successful completion of the abrdn New Dawn Combination proposals, the Board expects to be compliant for the year ending 31 August 2024.

Environmental, Social and Human Rights Issues

The Company has no employees and therefore no disclosures are required to be made in respect of employees.

More information on socially responsible investment is set out on pages 26 to 34 of the Annual Report and financial statements for the year ended 31 August 2023.

Viability Statement

In accordance with the provisions of the Listing Rules and UK Corporate Governance Code the Board has assessed the viability of the Company. The Company is a long-term investor, and the Board believes it is appropriate to assess the Company's viability over a five year horizon which reflects the Investment Manager's long-term approach.  The Directors believe this period reflects a proper balance between the long-term horizon and the inherent uncertainties of looking to the future. This conclusion is consistent with the Going Concern Assessment on page 56 of the Annual Report and financial statements for the year ended 31 August 2023.

In assessing the viability of the Company, the Directors have carried out a robust assessment of the following factors:

·  the principal risks set out in the Strategic Report on pages 19 to 22 of the Annual Report and financial statements for the year ended 31 August 2023 and the steps available to mitigate these risks;

·  the liquidity and diversity (in both sector and geography) of the Company's investment portfolio.  The Company is invested in readily realisable listed securities in normal market conditions and there is a spread of investments held.  Stress testing has confirmed that shares can be easily liquidated, despite the more uncertain and volatile economic environment;

·  the level of revenue surplus generated by the Company;

·  the level of gearing is closely monitored by the Board. Covenants are actively monitored and there is adequate headroom in place. The Company has a fixed term loan facility of £25 million and has drawn down £15 million under the multi-currency revolving loan facility of up to £35 million.  Both facilities are due to mature in July 2024 and closer to the time the Board will review options for renewing the facilities. If market conditions are not favourable and acceptable terms are not available the Company has the ability to repay its gearing through proceeds from equity sales from the portfolio. Subject to the successful Combination with abrdn New Dawn, the Manager currently expects to maintain gearing broadly at the current level, subject to market conditions at the time.

·  the successful passing of the continuation vote at the Company's AGM in 2021, the change of frequency of continuation vote from every three years to every five years (with the next continuation vote due to take place at the AGM in 2026), and the introduction of the five-yearly performance-related conditional tender; and

·  the overwhelming support received from the Company's shareholders at the General Meeting held on 25 October 2025 (over 99.9% of votes received in favour, representing over 75% of the shares in issue).

Taking into account all of these factors, the Company's current position and the potential impact of the principal risks and uncertainties faced by the Company, the Board has concluded that it has a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the five year period of this assessment to 31 August 2028.

In making its assessment, the Board has considered that there are other matters that could have an impact on the Company's prospects or viability in the future, including the current rising inflation, recession risk, a further increase in geo-political tension in the Asian region, war in Ukraine, economic shocks or significant stock market volatility caused by other factors, and changes in regulation or investor sentiment.

 

The Strategic Report has been approved by the Board and signed on its behalf by:

James Will,
Chairman
2 November 2023

 

Our Manager's Approach to ESG

The Company aims to outperform whilst maintaining a better ESG profile and a lower carbon footprint than the benchmark. This section of the Annual Report aims to present more information on the Investment Manager's approach to integrating ESG into its investment decision-making and the implications for the Company.

ESG Highlights for Asia Dragon

·  abrdn believes that ESG factors are financially material and can meaningfully affect a company's performance.

·  abrdn has been actively integrating ESG into its investment decision-making process for 30 years.

·  Deep, on the ground ESG resources and expertise enables abrdn to glean insights from company visits and obtain an ESG information advantage.

·  The Company's portfolio is ESG BBB rated by MSCI, as is the Benchmark

·  The Company's carbon footprint as measured by Economic Emission Intensity is 61.4% lower than that of its benchmark

BBB	61.4%	99%	30.8%	100%
BBB-rated by MSCI ESG	Lower carbon intensity than the benchmark	of eligible AGMs / EGMs voted in last twelve months	of AGMs / EGMs with at least one vote cast against management	of abrdn researched companies include ESG analysis

What is ESG?

·  Environmental factors relate to how a company conducts itself with regard to environmental impact and sustainability. Types of environmental risks and opportunities may include a company's energy and water consumption, waste disposal, land use and development and its carbon footprint.

·  Social factors pertain to a company's relationship with its employees, vendors, and a broad set of societal stakeholders. Risks and opportunities include conditions and rates of pay, the company's initiatives on employee attraction and retention, gender discrimination and how a company is managing its supply chain, including for example the risk of forced and child labour.

·  Corporate Governance factors may include the corporate decision-making structure, the independence of board members, treatment of minority shareholders, executive compensation and political contributions, capital allocation and the risk of bribery and corruption.

abrdn is a signatory to the UN supported Principles for Responsible Investment (PRI) and has aligned its approach to that advocated by the PRI agenda. This aims to promote responsible investment as a way of enhancing returns and better managing risk.

PRI provides an intellectual framework to steer the massive transition of financial capital towards low-carbon opportunities. It also encourages fund managers to demonstrate climate action across four areas: investments; corporate engagement; investor disclosure; and policy advocacy.

ESG at abrdn in Asia

abrdn is a pioneer in Asia Pacific markets and has a large, dedicated and highly experienced investment team consisting of over 40 equity investment professionals with a strong team culture. The team has been investing across the region since 1985, and is based in Singapore, Bangkok, Kuala Lumpur, Tokyo, Hong Kong and Shanghai, allowing the team to be close to the companies the Trust owns and markets it invests in.

On-desk regional ESG specialists, supported by the Investment Manager's central ESG team, work with the Asia Pacific equity team to provide insight on ESG themes and sectors in local markets

Furthermore, the abrdn Sustainability Institute was launched in September 2021. Bringing together sustainability experts from across the firm, the Institute's objectives are to deliver Asia Pacific-centric sustainability solutions and insights, build an Asia Pacific sustainable investing knowledge community and contribute to progress in regional sustainable investing.

abrdn's Investment Process

Environmental, social and corporate governance factors (ESG) are central to the approach to active equity investing at abrdn. abrdn believes that ESG factors are financially material and can impact a company's performance, either positively or negatively. abrdn also believes that companies that are well managed, and consider long-term risks and opportunities around ESG issues, should outperform over the long term.  It follows, then, that abrdn believes that ESG integration leads to better risk-adjusted returns for clients, and that having a better understanding of financially material issues allows abrdn to make better investments, and hence provide better outcomes, for clients. abrdn also uses its
ESG approach to encourage higher standards and support companies that work towards a more sustainable and equitable world.

Understanding ESG risks and opportunities, alongside other financial metrics, is therefore an intrinsic part of abrdn's investment process. 

abrdn's investment process considers both macro and micro ESG issues.

·  Macro ESG factors are broad thematic issues that impact companies and the products and services they provide. These include issues like climate change, access to finance or access to healthcare. These are secular, industry-impacting trends that may present a clear risk or opportunity for a company.

·  Micro ESG factors are company/industry specific issues that relate to how a company's products or services are made or delivered.

abrdn's five stages of ESG integration:

·  Idea generation: Understanding themes and dynamics inherent in sectors, countries, and companies, we are able to use ESG as a lens to generate new investment ideas for the portfolio. This could include companies that are well placed to help in climate transition or companies that are managing their supply chain in a way that makes them more attractive to global clients.

·  Research: ESG disclosure by companies in Asia tends to be lower quality than might be observed in Europe or North America but while such disclosure means it may be challenging to collect information, it also means that extensive company due diligence by us can create investment opportunities.

·  Buy / sell: At this stage we must weigh the decision to buy (or sell) a company.  We have a quality threshold for investment and ESG is a fundamental and non-negotiable part of this.

·  Portfolio Construction: Whilst a simplification, the better quality a company, and the more conviction we have in the company, the more of that company we might elect to buy (whilst being sensitive to valuations). ESG is a key part of the discussion around 'position sizing', or just how much of a company to buy.

·  Engagement: We continue discussing ESG issues with senior management over the course of the investment, both to protect and to enhance the value of investments through constructive challenge and debate around strategy and execution, with the mutual aim of fostering sustainable shareholder returns.

The Importance of Engagement

Engagement is an important part of the investment process: abrdn sees engagement not only as a right but as an obligation of investors. In its role as a responsible owner, abrdn engages actively and regularly with companies in which it is or may become an investor. abrdn believes that informed and constructive engagement helps to foster better companies, enhancing the value of our investments. There are generally two core reasons for engagement: to understand more about a company's strategy and performance, or encourage best practice and drive change.

Active engagement involves regular, candid communication with management teams (or boards of directors) of portfolio companies to discuss a broad range of ESG issues that are material to sustainable long-term returns, either positively or negatively, including both risks and opportunities. abrdn's focus is on the factors which it believes to have the greatest potential to enhance or undermine an investment case. Sometimes abrdn seeks more information, exchanges views on specific issues, encourages better disclosure; and at other times, abrdn encourages change (including either corporate strategy, capital allocation, or climate change strategy). abrdn's engagements cover a range of ESG issues, including but not limited to board composition, remuneration, audit, climate change, labour issues, human rights, bribery and corruption. 

Moreover, and since ESG disclosure by Asian companies is often poor, these engagements give abrdn an opportunity to source additional information and potentially to:

·  Exploit an information gap: if a company does not disclose ESG information and the market is unable to form a robust view of its quality, its shares may be priced inefficiently. Using abrdn's research capabilities including on-site, face to face visits, we are able to develop an informed view of every company and to exploit any pricing inefficiency that we judge may exist; and

·  Close the information gap: if abrdn owns a company that is misunderstood by the market, abrdn can work constructively with the company's management team to encourage improved and enhanced disclosure, allowing the market to better understand, and hence better price, the company's securities.

In every engagement, abrdn has a wide pool of resources on which to draw. There is ESG expertise embedded within the active equity investment teams, and this is complemented through collaboration across asset classes, sharing research, experiences and understanding. abrdn's on-desk equity investment analysts are supported by on-desk ESG analysts, who bring specialist knowledge and capabilities to the process. In addition, abrdn also draws on the insights of abrdn's Research Institute.

In all cases the approach is to draw on experience as owners of companies, globally. As a large investor, and with
a long history of investing in public market across multiple geographies and asset classes, abrdn is able to draw on
the experience of its investment teams and constructively challenge management teams accordingly. This is an
area of expertise that many of the portfolio companies are appreciative of; the ability to draw on insights garnered across industries and regions, and across company growth stages, is enabled by abrdn's global footprint of
investment professionals.

ESG engagements are conducted with consideration of the 10 principles of the United Nations Global Compact and companies are expected to meet fundamental responsibilities in the areas of human rights, labour, the environment
and anti-corruption.

Engagement is not limited to a company's management team. It can include many other stakeholders such as non-government agencies, industry and regulatory bodies, as well as activists and the company's customers and clients.  During the period under review the breadth of issues covered in ESG specific company engagements for the Company covered Climate Change (including air quality and energy management), Environment (including waste and waste management, and supply chain management), Labour Management (including health and safety), Human Risk & Stakeholders, Corporate Behaviour (including Practices and Processes) and Corporate Governance.

A good example of this engagement in action is that of Shenzhen Mindray Bio-Medical Electronics Co. Ltd, China's largest medical equipment maker, listed on China's 'A Share' market, and a holding in the Company's portfolio. abrdn has been regularly engaging with Mindray since 2021 and was pleased to see that the company recently received a triple rating upgrade from MSCI from 'BB' to 'AA'. This upgrade was driven by improved disclosure by the company, a focus for our ongoing engagement with the company. More information on Mindray can be found in the case study on page 49 of the Annual Report and financial statements for the year ended 31 August 2023.

ESG Engagements

abrdn regularly engages with companies it is invested in. The table below shows the engagements that have included ESG topics.

·  In 2H22 abrdn met with 31 portfolio companies on ESG topics and had 72 engagements with them.

·  In 1H23 abrdn met with 35 portfolio companies on ESG topics and had 72 engagements with them.

This does not include positions abrdn has moved out of or are considering. Below are the themes engaged on:

Voting Activity

The Investment Manager draws on expertise across desks and throughout the firm to vote consistently in line with the abrdn voting policy. Time period referenced is preceding 12 months (i.e. 2H22 and 1H23):

Voting Summary	Total
How many meetings were you eligible to vote at?	105
How many meetings did you vote at?	104
How many resolutions were you eligible to vote on?	909
What % of resolutions did you vote on for which you were eligible?	98.7%
Of the resolutions on which you voted, what % did you vote with management?	93.1%
Of the resolutions on which you voted, what % did you vote against management?	6.5%
Of the resolutions on which you voted, what % did you abstain from voting?	0.5%
In what % of meetings, for which you did vote, did you vote at least once against management?	30.8%

abrdn is a strong believer in investing in, supporting, and incentivising entrepreneurial management teams. Alignment of interests is an important driver of sustainable shareholder returns. To that end, the Investment Manager ordinarily encourages the adoption of thoughtfully constructed share-based reward plans, given that these can serve to align and incentivise management teams. However, the Investment Manager scrutinises such proposals carefully; performance conditions that would lead to the release of shares must be sufficiently but appropriately stretching (the Investment Manager is wary of encouraging excessive risk taking), performance periods must be similarly appropriate, and the pool of eligible recipients must be designed so as to achieve alignment without undie dilution of the Company's interests.

It was in this context that the Investment Manager considered a proposal in November 2022 to approve a series of share reward plan-related resolutions at FSN E-Commerce Ventures Ltd (more commonly known as Nykaa). The company sought to introduce a stock option plan, but included a number of provisions that troubled the Investment Manager's analysts. First, the scheme permitted options to be issued at a discount to market price. Second, performance conditions were not disclosed. Third, options could be granted not only to the company's employees but also to employees of its associate companies. And fourth, the respective board committee could permit options to vest even if performance conditions had not been met.

Given the design of the scheme, the lack of information available, and the broad potential pool of recipients, the Investment Manager did not support the proposals, voting against the resolutions. Moreover given there had been a number of corporate governance developments that had provided cause for concern, the Investment Manager subsequently sold the Company's shares in the company, and exited the position.

Measurement of ESG, including our Proprietary ESG Scoring System

Some ESG issues can be quantified, for example the diversity of a board, the carbon footprint of a company, and the level of employee turnover. But not everything that matters can be measured. While diversity can be monitored, measuring inclusion is more of a challenge. Although it is possible to measure the level of staff turnover, it is more challenging to quantify corporate culture. Nevertheless, after researching and analysing a company, and after meeting senior management, abrdn allocates a company an ESG score of between one and five. This score of one to five is applied across every stock covered globally. Examples of each category and a small sample of the criteria used are detailed below:

1. Best in class	2. Leader	3. Average	4. Below average	5. Laggard
ESG considerations are material part of the company's core business strategy Excellent disclosure Makes opportunities from strong ESG risk management	ESG considerations not market leading Disclosure is good, but not best in class Governance is generally very good	ESG risks are considered as a part of principal business Disclosure in line with regulatory requirements Governance is generally good but some minor concerns	Evidence of some financially material controversies Poor governance or limited oversight of key ESG issues Some issues in treating minority shareholders poorly	Many financially material controversies Severe governance concerns Poor treatment of minority shareholders

We also make use of third party ESG data for two primary reasons:

·  To help build a view of a company: third party ESG data provides insights into a company based on that company's disclosure. Whilst that disclosure may have limits there is still merit in reading research from a speciality researcher. We buy in research as a "sense check" against internal analysis to ensure that issues or developments are not missed or weighted incorrectly.

·  To provide a proxy for market perspective: abrdn uses third party data and scoring as a proxy for market perception and make use of these scores to compare with internal assessments. If the market views a company as low quality and abrdn sees the company as not only higher quality but also on a positive trajectory, it may be appropriate to exploit this information asymmetry. The market may react and change perceptions over time as performance and disclosure on ESG issues improves, but abrdn is interested in the journey as much as arrival.

Taking an independent view on ESG allows abrdn to anticipate upgrades and drive change through engagement. External research agencies primarily use backward looking data to create ESG ratings and in doing so form the market view of a company's ESG credentials. Through fundamental research abrdn forms a forward-looking view of company's ESG credentials and anticipates changes, attempting to take advantage of this inefficiency.

 

Results

Year's Highs/Lows

​	High	Low
Share price (p)	453.5	338.3
Net asset value (p)	514.8	410.1
Discount (%)A	-17.5	-9.3
A Considered to be an Alternative Performance Measure.  ​ ​

Performance (total return)

​	1 year return	3 year return	5 year return	Since 1/9/21C
​	%	%	%	%
Share priceA	-19.5	-11.8	+1.6	-24.0
Net asset valueAB	-16.7	-8.0	+5.7	-23.7
MSCI AC Asia (ex Japan) Index (in sterling terms)	-8.4	-2.4	+8.6	-14.9
A Considered to be an Alternative Performance Measure. Further details can be found below.  ​ ​ ​ ​
B 1 year, 3 year and returns since 1 September 2021 are presented on an undiluted basis; 5 year return presented on a diluted basis as CULS in issue during those periods were "in the money" ​ ​ ​ ​
C Introduction of  performance-related conditional tender offer, which provides that, in the event that the NAV total return per share fails to equal or exceed the MSCI All Country Asia ex Japan Index (sterling adjusted) over a five year assessment period commencing 1 September 2021, the Board will put forward proposals to shareholders to undertake a tender offer.  ​ ​ ​ ​

Ten Year Financial Record

​	​	Net asset	Revenue	​	​	Dividend	Expenses
​	Equity	value per	return per	Ordinary	Share	per	as a
​	shareholders'	Ordinary	Ordinary	share	price	Ordinary	% of average
​	interest	share	share	price	discount	share	shareholders'
Year ended 31 August	£'000	p	p	p	%	p	funds
2014	603,077	307.10	3.43	272.50	11.3	2.20	1.23
2015	518,635	267.22	4.13	235.75	11.8	3.00	1.15
2016	664,159	348.62	4.50	302.00	13.4	3.20	1.14
2017	807,330	423.26	4.68	361.00	13.1	3.30	1.03
2018	788,019	421.54	5.03	370.00	12.2	4.00	0.80
2019	589,708	458.03	4.87	402.50	12.1	4.75	0.83
2020	599,431	474.39	5.01	416.00	12.3	4.75	0.89
2021	706,929	566.60	7.36	512.00	9.6	6.50	0.83
2022	614,369	513.32	6.38	446.00	13.1	6.50	0.84
2023	479,169	421.26	7.06	353.00	16.2	6.60	0.91

 

Ten Largest Investments

 

As at 31 August 2023

Taiwan Semiconductor Manufacturing Company	​	Samsung Electronics (Pref)
As the world's largest pure-play semiconductor manufacturer, TSMC provides a full range of integrated foundry services, along with a robust balance sheet and good cash generation that enables it to keep investing in cutting-edge technology and innovation.	​	One of the global leaders in the memory chips segment, and a major player in smartphones and display panels as well. It has a vertically integrated business model and robust balance sheet, alongside good free cash flow generation.
​	​	​
Tencent Holdings	​	AIA Group
The internet giant continues to strengthen its ecosystem and we see great potential in its ability to balance its multiple revenue streams and monetise its social media and payment platforms whilst navigating the regulatory landscape.	​	A leading pan-Asian life insurance company, it is poised to take advantage of Asia's growing affluence, backed by an effective agency force and a strong balance sheet.
​	​	​
Alibaba Group	​	HDFC Bank
The Chinese internet group is a leading global e-commerce company with many impressive businesses, including the Taobao and Tmall online platforms in China. It also has interests in logistics, media as well as cloud computing platforms and payments.	​	HDFC Bank is known to have the best retail banking franchise in India, with a high quality wholesale portfolio, solid underwriting standards and a progressive digital stance further strengthening its competitive edge.
​	​	​
Kweichow Moutai 'A'	​	SBI Life Insurance
Kweichow Moutai is a leading hard liquor (baijiu) producer that boasts a dominant brand and a cash generative business. Its brand value stems from a long history and its rich heritage, which account for its wide Chinese business moat.	​	Among the leading Indian life insurers, SBI Life's competitive edge comes from a wide reach of SBI branches, highly productive agents, a low cost ratio and a reputable SBI brand.
​	​	​
Oversea-Chinese Banking Corporation	​	Bank Central Asia
A well-managed Singapore bank with a solid capital base and good cost-to-income ratio. It is diversified by both geography and service offerings, with interests spanning Southeast Asia, North Asia, wealth management and life assurance as well as its core banking activities.	​	Among the largest non state owned banks in Indonesia, it is well capitalised and has a big and stable base of low-cost deposits that funds its lending, while asset quality has remained solid.

 

Investment Portfolio

 

At 31 August 2023 ​ ​ ​ ​ ​
​	​	​	Valuation	Total	Valuation
​	​	​	2023	assets	2022
Company	Industry	Country	£'000	%	£'000
Taiwan Semiconductor Manufacturing Company	Semiconductors & Semiconductor Equipment	Taiwan	54,535	10.5	59,819
Samsung Electronics (Pref)	Technology Hardware Storage & Peripherals	South Korea	38,960	7.5	40,687
Tencent	Interactive Media & Services	China	36,024	6.9	32,211
AIA	Insurance	Hong Kong	29,370	5.6	31,254
Alibaba Group Holding	Broadline Retail	China	23,374	4.5	19,547
HDFC Bank	Banks	India	19,754	3.8	-
Kweichow Moutai 'A'	Beverages	China	13,811	2.6	16,405
SBI Life Insurance	Insurance	India	12,761	2.5	12,894
Oversea-Chinese Banking Corporation	Banks	Singapore	11,717	2.2	15,832
Bank Central Asia	Banks	Indonesia	10,953	2.1	23,282
Top ten investments	​	​	251,259	48.2	​
DBS	Banks	Singapore	9,697	1.9	18,721
LG Chem	Chemicals	South Korea	9,384	1.8	8,293
Maruti Suzuki India	Automobiles	India	8,916	1.7	8,119
Power Grid Corp of India	Electric Utilities	India	8,910	1.7	11,274
Meituan-Dianping Class B	Hotels, Restaurants & Leisure	China	8,869	1.7	6,180
Hon Hai Precision Industry	Electronic Equipment, Instruments & Components	Taiwan	8,823	1.7	11,387
Budweiser Brewing Co APAC	Beverages	Hong Kong	8,743	1.7	9,188
Hong Kong Exchanges & Clearing	Capital Markets	Hong Kong	8,478	1.6	11,605
FPT Corp	IT Services	Vietnam	8,212	1.6	-
Hindustan Unilever	Personal Care Products	India	7,845	1.5	9,429
Twenty largest investments	​	​	339,136	65.1	​
Sands China	Hotels, Restaurants & Leisure	Hong Kong	7,366	1.4	-
Ultratech Cement	Construction Materials	India	7,233	1.4	6,591
China Tourism Group Duty Free CorpA	Speciality Retail	China	6,898	1.3	12,816
Contemporary Amperex Technology - A	Electrical Equipment	China	6,868	1.3	7,623
Aier Eye Hospital Group - A	Health Care Providers & Services	China	6,854	1.3	-
Bank of Philippine Islands	Banks	Philippines	6,628	1.3	6,918
Ayala Land	Real Estate Management & Development	Philippines	6,526	1.2	10,392
ShenZhen Mindray Bio-Medical Electronics - A	Health Care Equipment & Supplies	China	6,526	1.2	7,963
Tata Consultancy Services	IT Services	India	6,193	1.2	9,832
China Resources Land	Real Estate Management & Development	China	6,005	1.2	8,779
Thirty largest investments	​	​	406,233	77.9	​
Larsen and Toubro	Construction & Engineering	India	5,985	1.2	-
Delta Electronics	Electronic Equipment, Instruments & Components	Taiwan	5,847	1.1	8,183
Info Edge (India)	Interactive Media & Services	India	5,725	1.1	6,495
Samsung Biologics	Life Sciences Tools & Services	South Korea	5,550	1.1	6,766
PB Fintech	Insurance	India	5,325	1.0	3,237
Tongcheng Travel Holdings	Hotels, Restaurants & Leisure	China	5,254	1.0	5,255
ASM International	Semiconductors & Semiconductor Equipment	Netherlands	5,184	1.0	-
Mobile World Investment Corporation	Speciality Retail	Vietnam	5,095	1.0	6,236
Kotak Mahindra Bank	Banks	India	4,877	0.9	9,895
JD.com - Class A	Broadline Retail	China	4,828	0.9	14,640
Forty largest investments	​	​	459,903	88.2	​
Wuxi Biologics (Cayman)	Health Care Providers & Services	China	4,825	0.9	10,429
Sungrow Power Supply Co - A	Electrical Equipment	China	4,649	0.9	6,056
Nari Technology - A	Electrical Equipment	China	4,427	0.9	7,939
Kakao Corp	Interactive Media & Services	South Korea	4,107	0.8	7,931
Chacha Food - A	Food Products	China	4,013	0.8	6,607
Glodon Co - A	Software	China	3,951	0.8	3,779
Silergy Corp	Semiconductors & Semiconductor Equipment	Taiwan	3,912	0.8	6,080
Andes Technology	Semiconductors & Semiconductor Equipment	Taiwan	3,872	0.7	4,657
Shenzhen Inovance Technology - A	Machinery	China	3,827	0.7	3,860
Autohome - ADR	Interactive Media & Services	China	3,701	0.7	-
Fifty largest investments	​	​	501,187	96.2	​
Zhongsheng Group Holdings	Speciality Retail	China	3,163	0.6	5,356
GDS Holdings - Class A	IT Services	China	2,851	0.5	4,610
Hangzhou Tigermed Consulting CoA	Life Sciences Tools & Services	China	2,018	0.4	3,796
​	​	​	509,219	97.7	​
Net current assetsB	​	​	12,016	2.3	​
Total assets less current liabilitiesB	​	​	521,235	100.0	​
A Holding includes investment in both 'A' and 'H' shares. ​ ​ ​ ​ ​
B Excluding bank loan of £39,992,000. ​ ​ ​ ​ ​
​	​	​	​	​	​
Note: Unless otherwise stated, foreign stock is held and all investments are equity holdings. Values for 2023 and 2022 may not be directly comparable due to purchases and sales made during the year. ​ ​ ​ ​ ​

 

Changes in Asset Distribution

For the year ended 31 August 2023 ​ ​ ​ ​ ​
​	Value at	​	Sales	Gains/	Value at
​	1 September 2022	Purchases	proceeds	(losses)	31 August 2023
Country	£'000	£'000	£'000	£'000	£'000
China	223,048	53,472	48,851	(64,933)	162,736
Hong Kong	58,956	15,172	9,949	(10,222)	53,957
India	119,143	11,297	27,018	(9,898)	93,524
Indonesia	32,155	-	20,023	(1,179)	10,953
Netherlands	-	3,995	-	1,189	5,184
Philippines	17,311	-	3,822	(335)	13,154
Singapore	41,014	-	19,026	(574)	21,414
South Korea	63,678	12,533	9,254	(8,956)	58,001
Taiwan	90,125	2,735	9,290	(6,581)	76,989
Thailand	15,457	-	12,967	(2,490)	-
Vietnam	11,492	8,406	4,518	(2,073)	13,307
Total investments	672,379	107,610	164,718	(106,052)	509,219
Net current assets	4,374	-	-	7,642	12,016
Total assets less current liabilities	676,753	107,610	164,718	(98,410)	521,235

 

Investment Case Studies

ASM International

What does the company do?

ASM International (ASMI) is the global leader in a key technology used in producing semiconductor chips that are found in the everyday electronics products that we use, such as mobile phones, digital cameras, televisions, washing machines and refrigerators.

Why do we like the investment?

Globally, about 1.1 trillion semiconductor chips are sold every year. It takes about three to four months to make one chip, and more than 2,000 chips are needed for one electric vehicle.

In all this, ASMI's atomic layer deposition (ALD) technology plays a key role in semiconductor chip making. The ALD technology is a high-precision process that helps mass produce patterns on silicon wafers through depositing layers on layers of smooth and ultra-thin films accurately and uniformly onto them. At the final stage of the chipmaking process, the wafers are diced into individual chips that are placed in protective casing and ready for use in digital devices.

We see this as a strong competitive advantage of ASMI, which we introduced to the portfolio in April 2023, because its technology helps make semiconductor chips smaller, faster and more powerful. As semiconductor chips get increasingly smaller, demand for more sophisticated deposition technology like ALD is rising across the logic, foundry and memory segments and, in turn, expanding the addressable market for ASMI, which derives most of its revenues from Asia.There is also a significant "green" aspect to ASMI's technology, which enables more energy-efficient chips, with transistors and memory elements that consume less power per operation and interconnect with lower power losses. The precision in its technology also allows the development of 3D structures vital to the future of electronics, including saving space while delivering chips with higher performance that consume less power. Hence, we view ASMI as an enabler in reducing the carbon footprint of its customers and end-customers.

Beyond that, we are impressed with ASMI's efforts on the broader ESG front, especially with regard to its disclosure around key material risks, including financial health, protecting and using intellectual property, ethics code of conduct, talent, worker health and safety, product safety and environmental compliance and IT security, as well as actionable targets and impact. The company also scores well on corporate governance, such as a fully independent supervisory board. Rating agency MSCI has given ASMI an ESG rating of AA, which we view as well deserved.

More broadly, the semiconductor industry is poised for a cyclical recovery in the short term while longer term, demand potential has only strengthened on the back of structural growth from generative AI which may mean a multi-year demand boost for data centre content and infrastructure upgrade which is positive for the advanced semiconductor sector, and companies in its supply chain such as ASMI.

 

Shenzhen Mindray

What does the company do?

Mindray is China's largest medical equipment maker. It has a diversified product portfolio targeting essential healthcare services, such as life-support, in-vitro diagnostics and medical imaging.

Why do we like the investment?

The company is positioned as a leading player with high-quality products reflecting its heavy focus on research and development but priced significantly cheaper than global peers. This has enabled the company to successfully take substantial market share in the US, EU and elsewhere, with overseas sales now contributing more than 40% of total sales.

We also see Mindray as among those best positioned to ride China's localisation or domestic substitution drive as it offers cutting-edge technology that can compete with global leaders while pricing its products within an accessible range, in-line with its commitment of "healthcare within reach".

What is our key area of engagement?

We have been regularly engaging Mindray, China's largest medical equipment maker, since 2021 to understand its ESG management framework, and to encourage better disclosures in human capital management, product quality and the positive impact the company has on society. We encouraged the company to disclose on how often it engages with its employees through various feedback and communication channels, and to highlight examples of how it uses results from its employee engagement surveys to implement changes. We also asked Mindray to place more emphasis on improving product quality and reducing product recalls.

More recently in August 2023, the company's share price was volatile owing to weak sentiment around an anti-corruption investigation into the mainland health-care sector. The company was quick to respond to market concerns, and we spoke with the management to get more clarity on any potential impact of the anti-corruption drive. They guided for delays, instead of cancellations, in tenders from public hospitals, but they expect to offset this with market share gains and have maintained their full-year earnings growth guidance at 20%, which is in line with the target. We have reduced our position, as a mitigatory measure given sentiment headwinds, but we remain confident of the fundamentals and prospects of Mindray over the long term.

What is the result?

Mindray recently received a triple rating upgrade from MSCI from 'BB' to 'AA', driven by new disclosures across human capital development, product safety and quality as well as business ethics policy and carbon emissions. These are areas where we have engaged Mindray to improve disclosures to the market, and we are pleased with the MSCI upgrade which reflects Mindray's good ESG management. We will continue to provide feedback and keep the discussions with Mindray ongoing.

In addition, our engagement around the anti-corruption drive also highlights how our ESG engagement efforts help our fundamental analysis and investment. For Mindray, anti-corruption measures are among the areas of material risks discussed in our regular engagement with the company. We view the company as having a sound footing here. The company has a detailed and manageable policy to curb corruption and bribery, anti-corruption and bribery agreements with and training for all its distributors, and annual business ethics audits supervised by its chairman and supported by a whistleblower system.

More broadly, by owning high quality companies and engaging with our holdings on ESG, we are funda-mentally better positioned in policy campaigns triggered by ESG risks.

 

Directors' Report

Capital Structure

At 31 August 2023, the Company had 113,745,386 fully paid Ordinary shares of 20p each in issue (2022: 119,686,001) with a further 45,866,291 Ordinary shares of 20p held in treasury (2022: 39,925,676).  During the year to 31 August 2023 5,940,615 Ordinary Shares were bought back and held in treasury (2022: 5,080,349).  Further details on the changes to the capital structure during the year ended 31 August 2023 are provided in note 14. Subsequent to the period end a further 973,136 Ordinary shares have been purchased in the market for treasury. 

The Ordinary shares carry a right to receive dividends which are declared from time to time by an ordinary resolution of the Company (up to the amount recommended by the Board) and to receive any interim dividends which the Directors may resolve the Company should pay. On a winding-up, after meeting the liabilities of the Company, the surplus assets will be paid to Ordinary shareholders in proportion to their shareholdings. On a show of hands, every Ordinary shareholder present in person, or by proxy, has one vote and, on a poll, every Ordinary shareholder present in person has one vote for each share held and a proxy has one vote for every share represented. 

There are no restrictions concerning the holding or transfer of the Ordinary shares and there are no special rights attached to any of the shares. The Company is not aware of any agreements between shareholders which may result in any restriction on the transfer of shares or the voting rights.

In the event of a winding-up of the Company, the Ordinary shares will rank behind any creditors or prior ranking capital of the Company.

Directors

The Directors of the Company who were in office during the year and up to the date of signing the financial statements were James Will, Gaynor Coley, Matthew Dobbs, Susan Sternglass Noble and Charlie Ricketts.  Biographies of the Directors of the Company are shown on pages 52 to 54 of the Annual Report and financial statements for the year ended 31 August 2023. 

It is intended that, subject to the successful completion of the proposals for Combination with abrdn New Dawn, Donald Workman, Stephen Souchon and Nicole Yuen (each a New Dawn Director) will be appointed as non-executive Directors of the Company. As such, the Board will then, initially, consist of eight Directors, comprising the five current Directors of the Company and three New Dawn Directors. After a transition period that will end on the six month anniversary of completion, it is intended that the number of Directors on the Board will be reduced to five, with Donald Workman, Charlie Ricketts and Gaynor Coley expected to retire from the Board at that time

Directors' and Officers' Liability Insurance

The Company's articles of association indemnify each of the Directors out of the assets of the Company against any liabilities incurred by them as a Director of the Company in defending proceedings, or in connection with any application to the Court in which relief is granted. In addition, the Directors have been granted qualifying indemnity provisions by the Company which are currently in force. Directors' and Officers' liability insurance cover has been maintained throughout the year at the expense of the Company.

Dividends

The Directors recommend that a final dividend of 6.6p per Ordinary share (2022: 6.5p) be paid on 15 December 2023 to shareholders on the register on 27 October 2023. The ex-dividend date is 26 October 2023.

Management Agreement

The Company has appointed abrdn Fund Managers Limited, a wholly owned subsidiary of abrdn plc, as its alternative investment fund manager. By way of group delegation agreements within the abrdn Group the management of the Company's investment portfolio is delegated to abrdn (Asia) Limited and company secretarial services and administrative services are provided by Aberdeen Asset Managers Limited.

Details of the management agreement, including the notice period and fees paid to the abrdn Group companies during the year ended 31 August 2023, are shown in note 4 to the financial statements. 

Reduction in Management Fee

As detailed in the Company's circular to shareholders dated 22 September 2023, pursuant to an agreement dated 20 September  2023 and subject to the implementation of the Combination proposals with abrdn New Dawn, the Manager has agreed that, with effect from completion of the Combination, the management fee payable by the Company to AFML will be reduced to 0.75 per cent. per annum (currently 0.85 per cent. per annum) on the initial £350 million of the Company's NAV and 0.50 per cent. per annum on the Company's NAV in excess of £350 million. In addition,  the Manager has agreed to make a contribution to the costs of the Combination proposals by means of a reduction in the management fee payable by the enlarged Company to AFML. The fee reduction will constitute a waiver of the management fee that would otherwise be payable by the enlarged company to AFML in respect of the assets transferred by abrdn New Dawn. 

Borrowings

The Company has a £35 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 £15m of this facility had been drawn down at a rate of 6.184%. At the date of this Report the Company had drawn down £15m million at a rate of 6.188% and, subject to the completion of the Combination with abrdn New Dawn, the Manager expects to maintain broadly the same level of net gearing.  Under the terms of the revolving credit facility, the Company has the option to increase the level of the commitment from £35 million to £50 million at any time.

On 29 July 2022, the Company also entered into a new fixed loan facility agreement of £25 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 £7,500, which will be amortised over the life of the loan.

Corporate Governance

The Statement of Corporate Governance, which forms part of the Directors' Report, is contained on pages 59 to 64 of the Annual Report and financial statements for the year ended 31 August 2023.

Going Concern

The Directors have undertaken a rigorous review and believe that it is appropriate to continue to adopt the going concern basis in the preparation of the financial statements.  This conclusion is consistent with the longer term Viability Statement on page 25 of the Annual Report and financial statements for the year ended 31 August 2023.

The Company's assets consist substantially of equity shares in companies listed on recognised stock exchanges and in normal circumstances are realisable within a short timescale.  The Board has set limits for borrowing and regularly reviews the level of any gearing, cash flow projections and compliance with banking and loan covenants. 

The Directors are mindful of the principal risks and uncertainties disclosed on pages 19 to 22 of the Annual Report and financial statements for the year ended 31 August 2023 including the refinancing risk arising in July 2024, and have reviewed forecasts detailing revenues and liabilities and undertaken sensitivity analysis.  The Directors are satisfied that the Company has adequate resources to continue in operational existence for the foreseeable future and has the ability to meet its financial obligations as they fall due for a period of at least twelve months from the date of approval of this Report.  They have arrived at this conclusion having confirmed that the Company's diversified portfolio of realisable securities is sufficiently liquid and could be used to meet short-term funding requirements were they to arise in July 2024. The Directors have also reviewed the revenue and ongoing expenses forecasts for the coming year and considered the Company's Statement of Financial Position as at 31 August 2023 which shows net current liabilities of £27.9 million at that date.  The Directors believe that adopting a going concern basis of accounting remains appropriate.

Substantial Share Interests

At 31 August 2023 the Company had been notified or was aware of the following substantial interests in the Ordinary shares:

Shareholder	Number of Ordinary shares held	% held
City of London Investment Management	34,144,519	30.0
Allspring Global Investments	17,252,523	15.2
Lazard Asset Management	10,506,479	9.2
abrdn Retail Plans	4,311,140	3.8
Rathbones	3,791,711	3.3
Evelyn Partners	3,432,386	3.0

 

On 31 October 2023 Allspring Global Investments confirmed that their interest in the Company amounted to 16,844,505 Ordinary shares (14.93%). As at the date of this Report, no other changes to the above interests had been notified to the Company.

Independent Auditors

The respective responsibilities of the Directors and the independent auditors in connection with the financial statements appear on pages 71 and 79 of the Annual Report and financial statements for the year ended 31 August 2023.

The Directors who held office at the date of approval of this Directors' Report confirm that, so far as they are each aware, there is no relevant audit information of which the Company's auditors are unaware and each Director has taken all the steps that he or she ought to have taken as a Director to make himself or herself aware of any relevant audit information and to establish that the Company's auditors is aware of that information.

Annual General Meeting

Among the resolutions being put at the Annual General Meeting of the Company to be held on 7 December 2023, the following resolutions will be proposed:

(i)   Section 551 Authority to Allot Shares

Resolution 15, which will be proposed as an ordinary resolution, will, if approved, give the Directors a general authority to allot new shares up to 33.33% of the Company's issued Ordinary share capital (excluding Treasury shares) as at the date of the passing of this resolution (up to a maximum nominal amount of £7.52 million based on the Company's issued share capital as at the date of this Report). Such authority will expire on 28 February 2025 or, if earlier, at the conclusion of the next Annual General Meeting of the Company (unless previously revoked, varied or extended by the Company in general meeting).

(ii)  Disapplication of Pre-emption Rights

Resolution 16, which will be proposed as a special resolution, seeks to give the Directors power, conditional on Resolution 15 being passed, to allot Ordinary shares and to sell Ordinary shares held in treasury for cash, without first offering them to existing shareholders in proportion to their existing holdings, up to an aggregate nominal value representing 5% of the Company's issued Ordinary share capital (excluding Treasury shares) as at the date of passing of this resolution (up to a maximum nominal amount of £1.13 million based on the Company's issued share capital as at the date of this Report).  

This authority will expire on 28 February 2025 or, if earlier, at the conclusion of the next Annual General Meeting of the Company (unless previously revoked, varied or extended by the Company in general meeting).

Pursuant to this power, Ordinary shares would only be issued for cash and treasury shares would only be sold for cash at a premium to the net asset value per share (calculated after the deduction of prior charges at market value).

The Directors consider that the powers proposed to be granted by the above resolutions are necessary to provide flexibility to issue shares should they deem it to be in the best interests of shareholders as a whole.

(iii) Purchase of the Company's own Ordinary shares

Since the Company's last AGM the Company has undertaken share buybacks, the details of which are set out on page 56 of the Annual Report and financial statements for the year ended 31 August 2023.  Resolution 17, which will be proposed as a special resolution, will renew the Company's authority to make market purchases of its own shares. Shares so repurchased will be cancelled or held "in treasury". In respect of the Company's Ordinary shares which it buys back and does not immediately cancel but, instead, holds in treasury it may sell such shares (or any of them) for cash (or its equivalent); or ultimately cancel the shares (or any of them).

No dividends will be paid on treasury shares, and no voting rights attach to them.

The maximum number of Ordinary shares which may be purchased pursuant to this authority shall be 14.99% of the issued share capital of the Company (excluding Treasury shares) as at the date of the passing of the resolution (approximately 16.91 million Ordinary shares based on the Company's issued share capital as at the date of this Report). The minimum price which may be paid for an Ordinary share (exclusive of expenses) will be 20p (being an amount equal to the nominal value of an Ordinary share). The maximum price for an Ordinary share (again exclusive of expenses) shall be an amount being not more than the higher of (i) 105% of the average of the middle market quotations for the Company's Ordinary shares for the five business days immediately preceding the date of purchase and (ii) the higher of the price of the last independent trade and the highest current independent bid relating to an Ordinary share on the trading venue where the purchase is carried out.

This authority, if conferred, will only be exercised if to do so would enhance the net asset value per share and is in the best interests of shareholders generally. This authority will expire on 28 February 2025 or, if earlier, at the conclusion of the next Annual General Meeting of the Company (unless previously revoked, varied or extended by the Company in general meeting). 

(iv) Notice Period for General Meetings

Resolution 18, which will be proposed as a special resolution, seeks the authority from shareholders for the Company to be able to hold general meetings (other than AGMs) on 14 clear days' notice. The approval will be effective until the conclusion of the Company's next Annual General Meeting, when it is intended that a similar resolution will be proposed. The Company will also need to meet the requirements for electronic voting under the Companies Act 2006 (as amended by the Shareholders' Rights Regulations) before it can call a general meeting on 14 clear days' notice. The Directors confirm that the short notice provisions contained in Resolution 18 would only be used where it is merited by the purpose of the meeting.

Proposed Changes to the Board

It is intended that, following completion of the abrdn New Dawn Combination proposals, Donald Workman, Stephen Souchon and Nicole Yuen (each a New Dawn Director) (the "Prospective Directors") will be appointed as non executive Directors of the Company. As such, the Board will then, initially, consist of eight Directors, comprising the five current Directors of the Company and three New Dawn Directors. After a transition period that will end on the six month anniversary of completion of the Combination, it is intended that the number of Directors on the Board will be reduced to five, with Donald Workman, Charlie Ricketts and Gaynor Coley expected to retire from the Board at that time. Each of the Prospective Directors is independent of the AIFM and the Investment Manager.  It is intended that the resolutions to elect Mr Workman, Mr Suchon and Ms Yuen will be proposed at the forthcoming AGM of the Company on 7 December 2023.  However, shareholders should note that, in the event that the abrdn New Dawn Combination proposals does not become effective, it is intended that the resolutions to appoint the Prospective Directors (Resolutions 10 to 12 in the Notice of AGM) will be withdrawn.

Recommendation

The Directors believe that the resolutions to be proposed at the Annual General Meeting are in the best interests of the Company and its shareholders as a whole, and recommend that shareholders vote in favour of the resolutions, as the Directors intend to do in respect of their own beneficial shareholdings totalling, in aggregate, 41,614 Ordinary shares, and representing 0.04% of the existing issued Ordinary share capital of the Company.

Greenhouse Gas Emissions

The Company can report that it has no greenhouse gas emissions or other emissions producing sources from its operations. 

Other Information

The rules concerning the appointment and replacement of Directors, amendments to the articles of association and powers to issue or buy back the Company's shares are contained in the articles of association of the Company and the Companies Act 2006. There are no agreements which the Company is party to that might affect its control following a takeover bid; and there are no agreements between the Company and its Directors concerning compensation for loss of office. Other than the management agreement with the Manager, further details of which are set out on page 55 of the Annual Report and financial statements for the year ended 31 August 2023 the Company is not aware of any contractual or other agreements which are essential to its business which ought to be disclosed in the Directors' Report.

The financial risk management objectives and policies arising from its financial instruments and the exposure of the Company to risk are disclosed in note 18 to the Financial Statements.

By order of the Board,
abrdn Holdings Limited
Secretary
Edinburgh
2 November 2023

Registered office:
1 George Street
Edinburgh EH2 2LL
Company Registration Number: SC106049

 

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Annual Report and financial statements in accordance with applicable law and regulations. 

Company law requires the Directors to prepare financial statements for each financial year.  Under that law they are required to prepare the financial statements in accordance with UK accounting standards, including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland. 

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of its profit or loss for that period.  In preparing these financial statements, the Directors are required to: 

·  select suitable accounting policies and then apply them consistently; 

·  make judgements and estimates that are reasonable and prudent; 

·  state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; 

·  assess the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and 

·  use the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so. 

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its financial statements comply with the Companies Act 2006.  They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities. 

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations. 

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website.  Legislation in the
UK governing the preparation and dissemination of financial statements may differ from legislation in
other jurisdictions.

Responsibility statement of the Directors in respect of the annual financial report.

We confirm that to the best of our knowledge: 

·  the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and 

·  the Strategic report /Director's report include a fair review of the development and performance of the business and the position of the issuer, together with a description of the principal risks and uncertainties that they face.

We consider the annual report and financial statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy. 

 

For Asia Dragon Trust plc
James Will,
Chairman
2 November 2023

 

Statement of Comprehensive Income

​	​	Year ended 31 August 2023 ​ ​			Year ended 31 August 2022 ​ ​
​	​	Revenue	Capital	Total	Revenue	Capital	Total
​	Notes	£'000	£'000	£'000	£'000	£'000	£'000
Losses on investments held at fair value through profit or loss	10	-	(106,052)	(106,052)	-	(65,385)	(65,385)
Currency (losses)/gains	​	-	(1,140)	(1,140)	-	455	455
Income	3	11,829	-	11,829	11,127	-	11,127
Investment management fee	4	(960)	(2,879)	(3,839)	(1,097)	(3,290)	(4,387)
Administrative expenses	5	(1,054)	(2)	(1,056)	(1,007)	-	(1,007)
Net return/(loss) before finance costs and taxation	​	9,815	(110,073)	(100,258)	9,023	(68,220)	(59,197)
​	​	​	​	​	​	​	​
Interest payable and similar charges	6	(534)	(1,602)	(2,136)	(266)	(798)	(1,064)
Return/(loss) before taxation	​	9,281	(111,675)	(102,394)	8,757	(69,018)	(60,261)
​	​	​	​	​	​	​	​
Taxation	7	(1,015)	(334)	(1,349)	(967)	707	(260)
Return/(loss) after taxation	​	8,266	(112,009)	(103,743)	7,790	(68,311)	(60,521)
​	​	​	​	​	​	​	​
Return per share (pence)	9	7.06	(95.72)	(88.66)	6.38	(55.91)	(49.53)
​	​	​	​	​	​	​	​
The total column of this statement represents the profit and loss account of the Company.  ​ ​ ​ ​ ​ ​ ​
All revenue and capital items in the above statement derive from continuing operations.  ​ ​ ​ ​ ​ ​ ​
The accompanying notes are an integral part of the financial statements. ​ ​ ​ ​ ​ ​ ​

 

Statement of Financial Position

​	​	As at	As at
​	​	31 August 2023	31 August 2022
​	Notes	£'000	£'000
Non-current assets	​	​	​
Investments at fair value through profit or loss	10	509,219	672,379
​	​	​	​
Current assets	​	​	​
Debtors and prepayments	11	3,114	2,693
Cash and cash equivalents	12	10,942	5,094
​	​	14,056	7,787
​	​	​	​
Creditors: amounts falling due within one year	​	​	​
Bank loan	13(a)	(39,992)	(35,000)
Other creditors	13(b)	(2,040)	(3,413)
​	​	(42,032)	(38,413)
Net current liabilities	​	(27,976)	(30,626)
​	​	​	​
Creditors: amounts falling due after more than one year	​	​	​
Bank loan	13(a)	-	(24,983)
Deferred tax liability on Indian capital gains	13(c)	(2,074)	(2,401)
​	​	(2,074)	(27,384)
​	​	​	​
Net assets	​	479,169	614,369
​	​	​	​
Share capital and reserves	​	​	​
Called-up share capital	14	31,922	31,922
Share premium account	​	60,416	60,416
Capital redemption reserve	​	28,154	28,154
Capital reserve	15	317,532	453,273
Revenue reserve	​	41,145	40,604
Total shareholders' funds	​	479,169	614,369
​	​	​	​
Net asset value per Ordinary share (pence)	16	421.26	513.32
​	​	​	​
The financial statements were approved by the Board of Directors and authorised for issue on 2 November 2023 and were signed on its behalf by: ​ ​ ​
James Will	​	​	​
Chairman	​	​	​
The accompanying notes are an integral part of the financial statements. ​ ​ ​

 

Statement of Changes in Equity

For the year ended 31 August 2023 ​ ​ ​ ​ ​ ​ ​
​	​	​	Share	Capital	​	​	​
​	​	Share	premium	redemption	Capital	Revenue	​
​	​	capital	account	reserve	reserve	reserve	Total
​	Notes	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 September 2022	​	31,922	60,416	28,154	453,273	40,604	614,369
Return after taxation	​	-	-	-	(112,009)	8,266	(103,743)
Buyback of Ordinary shares for treasury	14	-	-	-	(23,732)	-	(23,732)
Dividend paid	8	-	-	-	-	(7,725)	(7,725)
Balance at 31 August 2023	​	31,922	60,416	28,154	317,532	41,145	479,169
​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​
For the year ended 31 August 2022 ​ ​ ​ ​ ​ ​ ​
​	​	​	Share	Capital	​	​	​
​	​	Share	premium	redemption	Capital	Revenue	​
​	​	capital	account	reserve	reserve	reserve	Total
​	Notes	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 September 2021	​	31,922	60,416	28,154	545,582	40,855	706,929
Return after taxation	​	-	-	-	(68,311)	7,790	(60,521)
Buyback of Ordinary shares for treasury	14	-	-	-	(23,998)	-	(23,998)
Dividend paid	8	-	-	-	-	(8,041)	(8,041)
Balance at 31 August 2022	​	31,922	60,416	28,154	453,273	40,604	614,369
​	​	​	​	​	​	​	​
The capital reserve includes investment holding gains amounting to £32,413,000 (2022 - £144,902,000), as disclosed in note 10. ​ ​ ​ ​ ​ ​ ​
The Revenue reserve and the part of the Capital reserve represented by realised capital gains represent the amount of the Company's reserves distributable by way of dividend.  ​ ​ ​ ​ ​ ​ ​
The accompanying notes are an integral part of the financial statements. ​ ​ ​ ​ ​ ​ ​

 

Statement of Cash Flows

​	​	Year ended	Year ended
​	​	31 August 2023	31 August 2022
​	Notes	£'000	£'000
Operating activities	​	​	​
Net return before taxation	​	(102,394)	(60,261)
Adjustment for:	​	​	​
Losses on investments	​	106,052	65,385
Currency losses/(gains)	​	1,140	(455)
Increase in accrued dividend income	​	(125)	(232)
Decrease/(increase) in other debtors	​	801	(466)
(Decrease)/increase in other creditors	​	(1,262)	1,473
Interest payable and similar charges	6	2,136	1,064
Overseas withholding tax	​	(689)	(1,323)
Cash from operations	​	5,659	5,185
Interest paid	​	(2,128)	(1,013)
Net cash inflow from operating activities	​	3,531	4,172
​	​	​	​
Investing activities	​	​	​
Purchases of investments	​	(107,627)	(210,345)
Sales of investments	​	163,293	243,361
Capital gains tax on sales	​	(660)	(701)
Net cash inflow from investing activities	​	55,006	32,315
​	​	​	​
Financing activities	​	​	​
Equity dividends paid	8	(7,725)	(8,041)
Buyback of Ordinary shares	​	(23,824)	(23,807)
Repayment of bank loans	​	(20,000)	(65,000)
Drawdown of bank loans	​	-	60,000
Net cash used in financing activities	​	(51,549)	(36,848)
Increase/(decrease) in cash and cash equivalents	​	6,988	(361)
​	​	​	​
Analysis of changes in cash and cash equivalents during the year	​	​	​
Opening balance	​	5,094	5,000
Effect of exchange rate fluctuations on cash held	​	(1,140)	455
Increase/(decrease) in cash and cash equivalents as above	​	6,988	(361)
Closing cash and cash equivalents	​	10,942	5,094
​	​	​	​
Represented by:	​	​	​
Money market funds	​	5,001	1,000
Cash and short term deposits	​	5,941	4,094
​	​	10,942	5,094
​	​	​	​
The accompanying notes are an integral part of the financial statements. ​ ​ ​

 

Notes to the Financial Statements

For the year ended 31 August 2023

1.	Principal activity
​	The Company is a closed-end investment company, registered in Scotland No SC106049, with its Ordinary shares being listed on the London Stock Exchange.

 

2.	Accounting policies ​
​	(a)	Basis of preparation. The financial statements have been prepared in accordance with Financial Reporting Standard 102, the Companies Act 2006 and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued in July 2022. The financial statements are prepared in Sterling which is the functional currency of the Company and rounded to the nearest £'000. They have also been prepared on the assumption that approval as an investment trust will continue to be granted. The accounting policies applied are unchanged from the prior year and have been applied consistently.
​	​	The Company's investments and borrowings are made in a number of currencies, however the Board considers the Company's functional currency to be Sterling. In arriving at this conclusion, the Board considered that the shares of the Company are listed on the London Stock Exchange, it is regulated in the United Kingdom, principally having its shareholder base in the United Kingdom, pays dividends and expenses in Sterling. Consequently, the Board also considers the Company's presentational currency to be Sterling.
​	​	Going concern. The Directors have undertaken a rigorous review and believe that it is appropriate to continue to adopt the going concern basis in the preparation of the financial statements. This conclusion is consistent with the longer term Viability Statement on page 25 of the Annual Report and financial statements for the year ended 31 August 2023.
​	​	The Company's assets consist substantially of equity shares in companies listed on recognised stock exchanges and in normal circumstances are realisable within a short timescale.  The Board has set limits for borrowing and regularly reviews the level of any gearing, cash flow projections and compliance with banking and loan covenants.
​	​	The Directors are mindful of the principal risks and uncertainties disclosed on pages 19 to 22 of the Annual Report and financial statements for the year ended 31 August 2023 including the refinancing risk arising in July 2024, and have reviewed forecasts detailing revenues and liabilities and undertaken sensitivity analysis. The Directors are satisfied that the Company has adequate resources to continue in operational existence for the foreseeable future and has the ability to meet its financial obligations as they fall due for a period of at least twelve months from the date of approval of this Report. They have arrived at this conclusion having confirmed that the Company's diversified portfolio of realisable securities is sufficiently liquid and could be used to meet short-term funding requirements were they to arise in July 2024. The Directors have also reviewed the revenue and ongoing expenses forecasts for the coming year and considered the Company's Statement of Financial Position as at 31 August 2023 which shows net current liabilities of £28.0 million at that date.  The Directors believe that adopting a going concern basis of accounting remains appropriate.
​	​	Significant accounting judgements, estimates and assumptions. The preparation of financial statements requires the consideration of certain significant accounting judgements, estimates and assumptions when management may need to exercise its judgement in the process of applying the accounting policies and these are continually evaluated. The Directors do not consider there to be any significant estimates within the financial statements.

 

​	(b)	Investments. Listed investments have been designated upon initial recognition as held at fair value through profit or loss. Investments are recognised and de-recognised on the trade date at fair value, which is generally deemed to be the cost of the investment at that point. Subsequent to initial recognition, investments are valued at fair value, which for listed investments is deemed to be bid market prices or closing prices for SETS (London Stock Exchange's electronic trading service) stocks sourced from the London Stock Exchange. Gains and losses arising from changes in fair value are included as a capital item in the Income Statement and are ultimately recognised in the capital reserve.
​	(c)	Income. Dividends (other than special dividends), including taxes deducted at source, are included in revenue by reference to the date on which the investment is quoted ex-dividend. Special dividends are reviewed on a case-by-case basis and may be credited to capital, if circumstances dictate. Dividends receivable on equity shares where no ex-dividend date is quoted are brought into account when the Company's right to receive payment is established. Where the Company has elected to receive its dividends in the form of additional shares rather than cash, the amount of the foregone cash dividend is recognised as income. Any excess in the value of the shares received over the amount of cash dividend foregone is recognised in capital reserves. Interest receivable on bank balances is dealt with on an accruals basis.
​	(d)	Expenses. All expenses are accounted for on an accruals basis. Expenses are charged through the revenue column of the Statement of Comprehensive Income except as follows:
​	​	- expenses directly relating to the acquisition or disposal of an investment, which are charged to the capital column of the Statement of Comprehensive Income and are separately identified and disclosed in note 10; and
​	​	- the Company charges 75% of investment management fees and finance costs to the capital column and 25% to the revenue column of the Statement of Comprehensive Income, in accordance with the Board's expected long term return in the form of capital gains and income respectively from the investment portfolio of the Company.
​	(e)	Taxation. The tax expense represents the sum of the tax currently payable and deferred tax. Tax payable is based on the taxable profit for the year. Taxable profit differs from profit before tax as reported in the Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the Statement of Financial Position date.
​	​	Deferred tax is recognised in respect of all temporary differences at the Statement of Financial Position date, where transactions or events that result in an obligation to pay more tax in the future or right to pay less tax in the future have occurred at the Statement of Financial Position date. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the temporary differences can be deducted. Deferred tax assets and liabilities are measured at the rates applicable to the legal jurisdictions in which they arise, using enacted tax rates that are expected to apply at the date the deferred tax position is unwound.

 

​	(f)	Nature and purpose of reserves
​	​	Called-up share capital. The Ordinary share capital on the Statement of Financial Position relates to the number of shares in issue and in treasury. Only when the shares are cancelled, either from treasury or directly, is a transfer made to the capital redemption reserve. This reserve is not distributable.
​	​	Share premium account. The balance classified as share premium includes the premium above nominal value from the proceeds on issue of any equity share capital comprising Ordinary shares of 20p. This reserve is not distributable.
​	​	Capital redemption reserve. The capital redemption reserve arose when Ordinary shares were redeemed, and subsequently cancelled by the Company, at which point an amount equal to the par value of the Ordinary share capital was transferred from the Ordinary share capital to the capital redemption reserve. This reserve is not distributable.
​	​	Capital reserve. This reserve reflects any gains or losses on investments realised in the period along with any increases and decreases in the fair value of investments held that have been recognised in the Statement of Comprehensive Income. The realised gains part of reserve is distributable for the purpose of funding share buybacks and dividends.
​	​	Revenue reserve. This reserve reflects all income and costs which are recognised in the revenue column of the Statement of Comprehensive Income. The revenue reserve represents the amount of the Company's reserves distributable by way of dividend. The amount of the revenue reserve as at 31 August 2023 may not be available at the time of any future distribution due to movements between 31 August 2023 and the date of distribution.
​	​	When making a distribution to shareholders, the Directors determine profits available for distribution by reference to Guidance on realised and distributable profits under the Companies Act 2006 issued by the Institute of Chartered Accountants in England and Wales and the Institute of Chartered Accountants of Scotland in April 2017. The availability of distributable reserves in the Company is dependent on those dividends meeting the definition of qualifying consideration within the guidance and on available cash resources of the Company and other accessible sources of funds. The distributable reserves are therefore subject to any future restrictions or limitations at the time such distribution is made.

 

​	(g)	Foreign currency. Monetary assets and liabilities in foreign currencies are translated at the rates of exchange ruling on the reporting date. Transactions involving foreign currencies are converted at the rate ruling on the date of the transaction. Gains and losses on the realisation of foreign currencies are recognised in the Statement of Comprehensive Income and are then transferred to the capital reserve. Unrealised and realised gains and losses on foreign currency movements on investments held through profit or loss are recognised in the capital column of the Statement of Comprehensive Income.
​	(h)	Dividends payable. Final dividends are recognised in the financial statements in the period in which Shareholders approve them.
​	(i)	Treasury shares. When the Company purchases its Ordinary shares to be held in treasury, the amount of the consideration paid, which includes directly attributable costs, is net of any tax effect, and is recognised as a deduction from the capital reserve. When these shares are sold subsequently, the amount received is recognised as an increase in equity, and any resulting surplus on the transaction is transferred to the share premium account and any resulting deficit is transferred from the capital reserve.
​	(j)	Cash and cash equivalents. Cash comprises cash at bank and in hand. Cash equivalents are short-term, comprising money market funds and highly-liquid investments that are readily convertible to known amounts of cash, which are subject to an insignificant risk of changes in value.
​	(k)	Borrowings. Bank loans are initially recognised at cost, being the fair value of the consideration received, net of any issue expenses. Subsequently, they are measured at amortised cost using the effective interest method. Finance charges are accounted for on an accruals basis using the effective interest rate method and are charged 25% to revenue and 75% to capital.

 

3.	Income	​	​
​	​	2023	2022
​	​	£'000	£'000
​	Income from investments	​	​
​	Overseas dividend income	11,618	11,098
​	​	11,618	11,098
​	​	​	​
​	Other income	​	​
​	Deposit interest	140	12
​	Interest from money market funds	71	17
​	​	211	29
​	Total income	11,829	11,127

 

4.	Investment management fee ​ ​ ​ ​ ​ ​
​	​	​ ​ 2023			​ ​ 2022
​	​	Revenue	Capital	Total	Revenue	Capital	Total
​	​	£'000	£'000	£'000	£'000	£'000	£'000
​	Investment management fee	960	2,879	3,839	1,097	3,290	4,387
​	​	​	​	​	​	​	​
​	Management fees paid to abrdn Fund Managers Limited ("aFML" or "the Manager") are calculated at 0.85% per annum on net assets up to £350 million and 0.50% per annum thereafter. Management fees are calculated and payable on a quarterly basis. ​ ​ ​ ​ ​ ​
​	Net assets, per the management agreement, and for the purposes of the management fee calculation exclude (i) the value of any investment funds managed by the Manager and (ii) 50% of the value of any investment funds managed or advised by investment managers other than the Manager. During the year and at the year end, the Company held £5,001,000 (2022 - £1,000,000) in Aberdeen Standard Liquidity Fund (Lux) - Sterling Fund which is managed and administered by abrdn. The Company pays a management fee on the value of these holdings but no fee is chargeable at the underlying fund level. ​ ​ ​ ​ ​ ​
​	The balance due to the Manager at the year end was £905,000 (2022 - £2,125,000).  ​ ​ ​ ​ ​ ​
​	The management agreement is terminable by the Company on three months' notice or in the event of a change of control in the ownership of the Manager. The notice period required to be given by the Manager is six months.  ​ ​ ​ ​ ​ ​

 

5.	Administrative expenses ​ ​
​	​	2023	2022
​	​	£'000	£'000
​	Promotional activities	240	214
​	Directors' fees	180	171
​	Custody fees	219	261
​	Depositary fees	53	61
​	Auditors remuneration: Fees payable to the Company's auditor for	​	​
​	- audit of the Company's annual report	45	35
​	Legal and professional fees	49	(6)
​	Other expensesA	270	271
​	​	1,056	1,007
​	A Includes £2,000 (2022 - £nil) paid in relation to costs associated with the combination with abrdn New Dawn Investment Trust PLC and charged to capital. ​ ​
​	The Company has an agreement with abrdn Fund Managers Limited for the provision of promotional activities. The total fees paid and payable under the agreement were £240,000 (2022 - £214,000) and the sum due to the Manager at the year end was £160,000 (2022 - £133,000). ​ ​
​	No pension contributions were made in respect of any of the Directors.  ​ ​
​	The Company does not have any employees.	​	​

 

6.	Interest payable and similar charges ​ ​ ​ ​ ​ ​
		​ ​ 2023			​ ​ 2022
​	​	Revenue	Capital	Total	Revenue	Capital	Total
​	​	£'000	£'000	£'000	£'000	£'000	£'000
​	Interest on bank loans	533	1,600	2,133	266	798	1,064
​	Bank interest paid	1	2	3	-	-	-
​	​	534	1,602	2,136	266	798	1,064

 

7.	Taxation ​ ​ ​ ​ ​ ​ ​
​	​	​	2023 ​ ​			2022 ​ ​
​	​	​	Revenue	Capital	Total	Revenue	Capital	Total
​	​	​	£'000	£'000	£'000	£'000	£'000	£'000
​	(a)	Analysis of charge for the year	​	​	​	​	​	​
​	​	Indian capital gains tax charge on sales	-	660	660	-	701	701
​	​	Overseas tax suffered	1,015	-	1,015	967	-	967
​	​	Total current tax charge for the year	1,015	660	1,675	967	701	1,668
​	​	Movement of deferred tax liability on Indian capital gains	​	(326)	(326)	-	(1,408)	(1,408)
​	​	Total tax charge for the year	1,015	334	1,349	967	(707)	260
​	​	​	​	​	​	​	​	​
​	​	On 1 April 2018, the Indian Government withdrew an exemption from capital gains tax on investments held for twelve months or longer. Accordingly, the Company has recognised a deferred tax liability of £2,074,000 (2022 - £2,401,000) on capital gains which may arise if Indian investments are sold. ​ ​ ​ ​ ​ ​
​	​	The Company has not recognised a deferred tax asset of £27,361,000 (2022 - £25,673,000) arising as a result of excess management expenses and non-trading loan relationship deficits. These expenses will only be utilised if the Company has profits chargeable to UK corporation tax in the future. The Finance Act 2021 received Royal Assent on 10 June 2021 and the rate of Corporation Tax of 25% effective from 1 April 2023 has been used to calculate the potential deferred tax asset.  ​ ​ ​ ​ ​ ​
​	(b)	Factors affecting the tax charge for the year. The tax assessed for the year is lower (2022 - lower) than the effective rate of corporation tax in the UK. ​ ​ ​ ​ ​ ​
​	​	​	​	​	​	​	​	​
​	​	​	​	2023	​	​	2022	​
​	​	​	Revenue	Capital	Total	Revenue	Capital	Total
​	​	​	£'000	£'000	£'000	£'000	£'000	£'000
​	​	Return before taxation	9,281	(111,675)	(102,394)	8,757	(69,018)	(60,261)
​	​	​	​	​	​	​	​	​
​	​	Effective rate of corporation tax at 21.5% (2022 - 19%)	1,996	(24,010)	(22,014)	1,664	(13,113)	(11,449)
​	​	Effects of:	​	​	​	​	​	​
​	​	Losses on investments not taxable	-	22,801	22,801	-	12,423	12,423
​	​	Currency losses/(gains) not taxable	-	245	245	-	(86)	(86)
​	​	Other non-taxable income	(2,498)	-	(2,498)	(2,109)	-	(2,109)
​	​	Expenses not deductible for tax purposes	14	-	14	4	-	4
​	​	Increase in excess expenses and loan relationship deficit	488	964	1,452	441	776	1,217
​	​	Indian capital gains tax charge on sales	-	660	660	-	701	701
​	​	Movement in deferred tax liability on Indian capital gains	-	(326)	(326)	-	(1,408)	(1,408)
​	​	Net overseas tax suffered	1,015	-	1,015	967	-	967
​	​	Total tax charge for year	1,015	334	1,349	967	(707)	260

 

8.	Dividends	​	​
​	In order to comply with the requirements of Sections 1158 - 1159 of the Corporation Tax Act 2010 and with company law, the Company is required to make a final dividend distribution. ​ ​
​	The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements. ​ ​
​	The table below sets out the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of Sections 1158 - 1159 are considered. The revenue available for distribution by way of dividend for the year is £8,266,000 (2022 - £7,790,000). ​ ​
​	​	​	​
​	​	2023	2022
​	​	£'000	£'000
​	Proposed final dividend for 2023 - 6.60p per Ordinary share (2022 - 6.50p)	7,443	7,725
​	​	​	​
​	The final dividend will be paid on 15 December 2023 to shareholders who were on the register at the close of business on 27 October 2023. ​ ​

 

9.	Return per share ​ ​ ​ ​
​	​	2023 ​		2022 ​
​	​	£'000	pence	£'000	pence
​	Revenue return	8,266	7.06	7,790	6.38
​	Capital return	(112,009)	(95.72)	(68,311)	(55.91)
​	Total return	(103,743)	(88.66)	(60,521)	(49.53)
​	​	​	​	​	​
​	Weighted average Ordinary shares in issue	​	117,009,550	​	122,191,909

 

10.	Investments at fair value through profit or loss	​	​
​	​	2023	2022
​	​	£'000	£'000
​	Opening book cost	527,477	524,806
​	Opening investment holding gains	144,902	241,988
​	Opening fair value	672,379	766,794
​	Analysis of transactions made during the year	​	​
​	Purchases at cost	107,610	210,181
​	Sales - proceeds	(164,718)	(239,211)
​	Losses on investments	(106,052)	(65,385)
​	Closing fair value	509,219	672,379
​	​	​	​
​	Closing book cost	476,806	527,477
​	Closing investment gains	32,413	144,902
​	Closing fair value	509,219	672,379
​	​	​	​
​	​	​	​
​	​	2023	2022
​	​	£'000	£'000
​	Investments listed on an overseas investment exchange	509,219	672,379
​	​	​	​
​	The Company received £164,718,000 (2022 - £239,211,000) from investments sold in the period. The book cost of these investments when they were purchased was £158,281,000 (2022 - £207,510,000). These investments have been revalued over time and until they were sold any unrealised (losses)/gains were included in the fair value of investments. ​ ​
​	Transaction costs. During the year expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within gains on investments in the Statement of Comprehensive Income. The total costs were as follows: ​ ​
​	​	​	​
​	​	2023	2022
​	​	£'000	£'000
​	Purchases	165	273
​	Sales	301	495
​	​	466	768
​	The above transaction costs are calculated in line with the AIC SORP. The transaction costs in the Company's Key Information Document are calculated on a different basis and in line with the PRIIPs regulations.  ​ ​

 

11.	Debtors and prepayments	​	​
​	​	2023	2022
​	​	£'000	£'000
​	Accrued income	443	339
​	Overseas withholding tax recoverable	1,148	1,455
​	Amounts due from brokers	1,425	-
​	Other debtors and prepayments	98	899
​	​	3,114	2,693

 

12.	Cash and cash equivalents	​	​
​	​	2023	2022
​	​	£'000	£'000
​	Cash at bank and in hand	5,941	4,094
​	Money market funds	5,001	1,000
​	​	10,942	5,094

 

13.	Creditors ​ ​ ​
​	​	​	2023	2022
​	(a)	Bank loans	£'000	£'000
​	​	Falling due within one year	40,000	35,000
​	​	Falling due in more than one year	-	25,000
​	​	Unamortised expenses	(8)	(17)
​	​	​	39,992	59,983
​	​	​	​	​
​	​	The Company has a £50,000,000 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 £15,000,000 of this facility had been drawn down at a rate of 6.184% which matured on 25 September 2023. At the date of this Report the Company had drawn down £15,000,000 at a rate of 6.188%. ​ ​
​	​	On 29 July 2022, the Company entered into a new fixed loan facility agreement of £25,000,000 at an interest rate of 3.5575% with The Royal Bank of Scotland International Limited, London Branch, with a termination date of 29 July 2024. The facility has been drawn down in full. The agreement of this facility incurred an arrangement fee of £18,140, which 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 £375 million.  ​ ​
​	​	- consolidated gross borrowings expressed as a percentage of adjusted portfolio value shall not exceed 25% at any time. ​ ​
​	​	- the number of eligible investments shall not be less than 30 at any time. ​ ​
​	​	All covenants have been complied with throughout the year.  ​ ​
​	​	​	​	​
​	​	​	2023	2022
​	(b)	Other creditors - falling due within one year	£'000	£'000
​	​	Amounts due to brokers	-	17
​	​	Amounts due for the purchase of own shares to treasury	178	270
​	​	Other amounts due	1,862	3,126
​	​	​	2,040	3,413
​	​	​	​	​
​	​	​	​	​
​	​	​	2023	2022
​	​	​	£'000	£'000
​	(c)	Deferred tax liability on Indian capital gains	2,074	2,401

 

14.	Called-up share capital ​ ​ ​
​	​	​	2023	2022
​	​	​	£'000	£'000
​	Allotted, called-up and fully paid:	​	​	​
​	Ordinary shares of 20p (2022: 20p)	​	22,749	23,937
​	Treasury shares	​	9,173	7,985
​	​	​	31,922	31,922
​	​	​	​	​
​	​	​	​	​
​	​	Ordinary	Treasury	Total
​	​	shares	shares	shares
​	​	Number	Number	Number
​	At 31 August 2022	119,686,001	39,925,676	159,611,677
​	Buyback of own shares	(5,940,615)	5,940,615	-
​	At 31 August 2023	113,745,386	45,866,291	159,611,677
​	​	​	​	​
​	During the year 5,940,615 Ordinary shares of 20p each were purchased to be held in treasury by the Company (2022 - 5,080,349) at a total cost of £23,732,000 (2022 - £23,998,000). At the year end 45,866,291 (2022 - 39,925,676) Ordinary shares of 20p each were held in treasury, which represents 29% (2022 - 25%) of the Company's total issued share capital at 31 August 2023. ​ ​ ​
​	Since the year end a further 973,136 Ordinary shares of 20p each have been purchased by the Company at a total cost of £3,446,000 all of which were held in treasury.  ​ ​ ​

 

15.	Capital reserve	​	​
​	​	2023	2022
​	​	£'000	£'000
​	At 1 September 2022	453,273	545,582
​	Movement in fair value gains	(106,052)	(65,385)
​	Foreign exchange movement	(1,140)	455
​	Buyback of Ordinary shares for treasury	(23,732)	(23,998)
​	Expenses allocated to capital	(4,483)	(4,088)
​	Movement in capital gains tax charge	(334)	707
​	As at 31 August 2023	317,532	453,273
​	​	​	​
​	The capital reserve includes investment holding gains amounting to £32,413,000 (2022 - £144,902,000), as disclosed in note 10.  ​ ​

 

16.	Net asset value per share	​	​
​	The net asset value per share and the net asset values attributable to the Ordinary shareholders at the year end calculated in accordance with the Articles of Association were as follows:  ​ ​
​	​	​	​
​	​	2023	2022
​	Net assets attributable to the Ordinary shareholders (£'000)	479,169	614,369
​	Number of Ordinary shares in issueA	113,745,386	119,686,001
​	Net asset value per share (p)	421.26	513.32
​	A Excluding shares held in treasury.	​	​

 

17.	Analysis of changes in net debt ​ ​ ​ ​ ​
​	​	At	Currency	​	Non-cash	At
​	​	1 September 2022	differences	Cash flows	movements	31 August 2023
​	​	£'000	£'000	£'000	£'000	£'000
​	Cash and short term deposits	5,094	(1,140)	6,988	-	10,942
​	Debt due within one year	(35,000)	-	20,000	(24,992)	(39,992)
​	Debt due after one year	(24,983)	-	-	24,983	-
​	​	(54,889)	(1,140)	26,988	(9)	(29,050)
​	​	​	​	​	​	​
​	​	​	​	​	​	​
​	​	At	Currency	​	Non-cash	At
​	​	1 September 2021	differences	Cash flows	movements	31 August 2022
​	​	£'000	£'000	£'000	£'000	£'000
​	Cash and short term deposits	5,000	455	(361)	-	5,094
​	Debt due within one year	(64,998)	-	30,000	(2)	(35,000)
​	Debt due after one year	-	-	(25,000)	17	(24,983)
​	​	(59,998)	455	4,639	15	(54,889)
​	​	​	​	​	​	​
​	A statement reconciling the movement in net funds to the net cash flow has not been presented as there are no differences from the above analysis.  ​ ​ ​ ​ ​

 

18.	Financial instruments
​	Risk management. The Company's investment activities expose it to various types of financial risk associated with the financial instruments and markets in which it invests. The Company's financial instruments comprise securities and other investments, cash balances, bank loans and debtors and creditors that arise directly from its operations; for example, in respect of sales and purchases awaiting settlement, and debtors for accrued income.
​	The Board has delegated the risk management function to aFML under the terms of its management agreement with aFML (further details of which are included under note 4). The Board regularly reviews and agrees policies for managing each of the key financial risks identified with the Manager. The types of risk and the Manager's approach to the management of each type of risk, are summarised below. Such approach has been applied throughout the year and has not changed since the previous accounting period. The numerical disclosures exclude short-term debtors and creditors with the exception of short-term borrowings.
​	Risk management framework. The directors of aFML collectively assume responsibility for aFML's obligations under the AIFMD including reviewing investment performance and monitoring the Company's risk profile during the year.
​	aFML is a fully integrated member of the abrdn Group (the "Group"), which provides a variety of services and support to aFML in the conduct of its business activities, including in the oversight of the risk management framework for the Company. The AIFM has delegated the day to day administration of the investment policy to abrdn (Asia) Limited, which is responsible for ensuring that the Company is managed within the terms of its investment guidelines and the limits set out in its pre-investment disclosures to investors (details of which can be found on the Company's website). The AIFM has retained responsibility for monitoring and oversight of investment performance, product risk and regulatory and operational risk for the Company.
​	The Manager conducts its risk oversight function through the operation of the Group's risk management processes and systems which are embedded within the Group's operations. The Group's Risk Division supports management in the identification and mitigation of risks and provides independent monitoring of the business. The Division includes Compliance, Business Risk, Market Risk, Risk Management and Legal. The team is headed up by the Group's Chief Risk Officer, who reports to the Group's Chief Executive Officer. The Risk Division achieves its objective through embedding the Risk Management Framework throughout the organisation using the Group's operational risk management system ("SHIELD").
​	The Group's Internal Audit Department is independent of the Risk Division and reports directly to the Group's Chief Executive Officer and to the Audit and Risk Committee of the Group's Board of Directors. The Internal Audit Department is responsible for providing an independent assessment of the Group's control environment.
​	The Group's corporate governance structure is supported by several committees to assist the board of directors of abrdn Group, its subsidiaries and the Company to fulfil their roles and responsibilities. The Group's Risk Division is represented on all committees, with the exception of those committees that deal with investment recommendations. The specific goals and guidelines on the functioning of those committees are described on the committees' terms of reference.
​	Risk management. The main risks the Company faces from its financial instruments are (i) market risk (comprising interest rate risk, currency risk and price risk), (ii) liquidity risk and (iii) credit risk.
​	Market risk. The fair value of, or future cash flows from a financial instrument held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements - interest rate risk, currency risk and other price risk. The Company is exposed to gearing risk which has the effect of exacerbating market falls and gains. The level of net gearing is shown on page 5 of the Annual Report and financial statements for the year ended 31 August 2023. Details of the loan facilities the Company has in place can be found in note 13 on page 94 of the Annual Report and financial statements for the year ended 31 August 2023.

 

​	Interest rate risk. Interest rate movements may affect the level of income receivable on cash deposits.  ​ ​ ​ ​
​	Management of the risk. The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment and borrowing decisions.  ​ ​ ​ ​
​	Interest risk profile. The interest rate risk profile of the portfolio of the Company's financial assets and liabilities, excluding equity holdings which are all non-interest bearing, at the reporting date was as follows:  ​ ​ ​ ​
​	​	​	​	​	​
​	​	Weighted average	Weighted	​	​
​	​	period for which	average	Fixed	Floating
​	​	rate is fixed	interest rate	rate	rate
​	At 31 August 2023	Years	%	£'000	£'000
​	Assets	​	​	​	​
​	Sterling	-	2.27	-	10,809
​	US Dollar	-	-	-	8
​	Vietnamese Dong	-	-	-	125
​	Total assets	n/a	n/a	-	10,942
​	​	​	​	​	​
​	Liabilities	​	​	​	​
​	Short-term loan - £15,000,000	0.07	6.18	15,000	-
​	Short-term loan - £25,000,000	0.91	3.56	24,992	-
​	​	-	-	39,992	-
​	​	​	​	​	​
​	​	​	​	​	​
​	​	Weighted average	Weighted	​	​
​	​	period for which	average	Fixed	Floating
​	​	rate is fixed	interest rate	rate	rate
​	At 31 August 2022	Years	%	£'000	£'000
​	Assets	​	​	​	​
​	Sterling	-	0.40	-	3,852
​	Hong Kong Dollars	-	-	-	5
​	Indian Rupee	-	-	-	4
​	US Dollar	-	-	-	9
​	Vietnamese Dong	-	-	-	1,224
​	Total assets	n/a	n/a	-	5,094
​	​	​	​	​	​
​	Liabilities	​	​	​	​
​	Short-term loan - £35,000,000	0.07	2.69	35,000	-
​	Long-term loan - £25,000,000	1.91	3.56	24,983	-
​	​	-	-	59,983	-
​	​	​	​	​	​
​	The weighted average interest rate is based on the current yield of each asset, weighted by its market value.  ​ ​ ​ ​
​	The floating rate assets consist of cash deposits on call earning interest at prevailing market rates.  ​ ​ ​ ​
​	The Company's equity portfolio and short-term debtors and creditors, with the exception of short-term borrowings, have been excluded from the above tables. ​ ​ ​ ​
​	Interest rate sensitivity. Movements in interest rates would not significantly affect net assets attributable to the Company's shareholders and total profit.  ​ ​ ​ ​

 

​	Foreign currency risk. The majority of the Company's investment portfolio is invested in overseas securities and the Statement of Financial Position, therefore, can be significantly affected by movements in foreign exchange rates.  ​ ​ ​ ​ ​ ​
​	Management of the risk. It is not the Company's policy to hedge this risk on a continuing basis but the Company may, from time to time, match specific overseas investments with foreign currency borrowings.  ​ ​ ​ ​ ​ ​
​	The Statement of Comprehensive Income is subject to currency fluctuation arising on dividends paid in foreign currencies. The Company does not hedge this currency risk.  ​ ​ ​ ​ ​ ​
​	Foreign currency risk exposure by currency of listing of incorporation is as follows:  ​ ​ ​ ​ ​ ​
​	​	​	​	​	​	​	​
​	​	31 August 2023 ​ ​			31 August 2022 ​ ​
​	​	​	Net	Total	​	Net	Total
​	​	Overseas	monetary	currency	Overseas	monetary	currency
​	​	investments	assets	exposure	investments	assets	exposure
​	​	£'000	£'000	£'000	£'000	£'000	£'000
​	Chinese YuanA	162,736	-	162,736	223,048	-	223,048
​	Hong Kong DollarA	53,957	-	53,957	58,956	(12)	58,944
​	Indian Rupee	93,524	1,253	94,777	119,143	4	119,147
​	Indonesian Rupiah	10,953	-	10,953	32,155	-	32,155
​	Korean Won	58,001	-	58,001	63,678	-	63,678
​	Netherlands Euro	5,184	-	5,184	-	-	-
​	Philippine Peso	13,154	172	13,326	17,311	-	17,311
​	Singapore Dollar	21,414	-	21,414	41,014	-	41,014
​	Taiwanese Dollar	76,989	-	76,989	90,125	-	90,125
​	Thailand Baht	-	-	-	15,457	-	15,457
​	US DollarA	-	8	8	-	9	9
​	Vietnamese Dong	13,307	125	13,432	11,492	1,224	12,716
​	​	509,219	1,558	510,777	672,379	1,225	673,604
​	Sterling	-	10,631	10,631	-	3,582	3,582
​	Total	509,219	12,189	521,408	672,379	4,807	677,186
​	A If currency denomination of overseas investments is used then exposure for Chinese Yuan is £61,709,000 (2022 - £97,032,000), for Hong Kong Dollar £151,283,000 (2022 - £184,972,000) and for US Dollar £3,701,000 (2022 - nil). ​ ​ ​ ​ ​ ​
​	​	​	​	​	​	​	​
​	Foreign currency sensitivity. The following table details the Company's sensitivity to a 10% increase and decrease in sterling against the foreign currencies in which the Company has exposure as set out in the foreign currency risk table above.  ​ ​ ​ ​ ​ ​
​	​	​	​	​	​	​	​
​	​	​	​	​	​	2023	2022
​	​	​	​	​	​	£'000	£'000
​	Chinese Yuan	​	​	​	​	16,274	22,305
​	Hong Kong Dollar	​	​	​	​	5,396	5,894
​	Indian Rupee	​	​	​	​	9,478	11,915
​	Indonesian Rupiah	​	​	​	​	1,095	3,215
​	Korean Won	​	​	​	​	5,800	6,368
​	Netherlands Euro	​	​	​	​	518	-
​	Philippine Peso	​	​	​	​	1,333	1,731
​	Singapore Dollar	​	​	​	​	2,141	4,101
​	Taiwanese Dollar	​	​	​	​	7,699	9,012
​	Thailand Baht	​	​	​	​	-	1,546
​	US Dollar	​	​	​	​	1	1
​	Vietnamese Dong	​	​	​	​	1,343	1,272
​	​	​	​	​	​	51,078	67,360
​	​	​	​	​	​	​	​
​	Other price risk. Other price risks (i.e. changes in market prices other than those arising from interest rate or currency risk) may affect the value of the quoted investments. ​ ​ ​ ​ ​ ​
​	Management of the risk. It is the Board's policy to hold an appropriate spread of investments in the portfolio in order to reduce the risk arising from factors specific to a particular country or sector. Both the allocation of assets and the stock selection process, as detailed on pages 18 and 19 of the Annual Report and financial statements for the year ended 31 August 2023, act to reduce market risk. The Manager actively monitors market prices throughout the year and reports to the Board, which meets regularly in order to review investment strategy. The investments held by the Company are listed on various stock exchanges worldwide. ​ ​ ​ ​ ​ ​
​	Other price risk sensitivity. If market prices at the reporting date had been 10% higher or lower while all other variables remained constant, the return attributable to Ordinary shareholders for the year ended 31 August 2023 would have increased/decreased by £50,922,000 (2022 - increased/decreased by £67,238,000) and equity reserves would have increased/decreased by the same amount.  ​ ​ ​ ​ ​ ​

 

​	Liquidity risk. This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. ​ ​ ​ ​ ​ ​
​	Management of the risk. The Company's assets mainly comprise readily realisable securities which can be sold to meet funding requirements if necessary. In order to monitor the concentration of Dragon's investee companies with abrdn, the total percentage holdings of those securities owned by abrdn-managed funds is reviewed by the Board.  ​ ​ ​ ​ ​ ​
​	The Board imposes borrowing limits to ensure gearing levels are appropriate to market conditions, and reviews these on a regular basis. The Board has imposed a maximum gearing level, measured on the most stringent basis of calculation after netting off cash equivalents, of 20%. Short-term flexibility can be achieved through the use of loan and overdraft facilities.  ​ ​ ​ ​ ​ ​
​	Liquidity risk exposure. At 31 August 2023, the Company had drawn down £15,000,000 from a £50,000,000 Revolving Facility Agreement with The Royal Bank of Scotland International Limited, London Branch, which matured on 25 September 2023. At the date of this Report the Company had drawn down £15,000,000 at a rate of 6.188%. There was a further facility of £25,000,000 with The Royal Bank of Scotland International Limited, London Branch due for repayment on 29 July 2024, details of which are disclosed in note 13 on page 94 of the Annual Report and financial statements for the year ended 31 August 2023. ​ ​ ​ ​ ​ ​
​	Management of the risk	​		​	​	​	​	​
​	- investment transactions are carried out with a large number of brokers, whose credit-standing is reviewed periodically by the Manager, and limits are set on the amount that may be due from any one broker;  ​ ​ ​ ​ ​ ​
​	- the risk of counterparty, including the Depositary, exposure due to failed trades causing a loss to the Company is mitigated by the review of failed trade reports on a daily basis. In addition, the third party administrators' carries out a stock reconciliation to the Depositary's records on a daily basis to ensure discrepancies are picked up on a timely basis. The Manager's Compliance department carries out periodic reviews of the Depositary's operations and reports its finding to the Manager's Risk Management Committee. This review will also include checks on the maintenance and security of investments held;  ​ ​ ​ ​ ​ ​
​	- cash is held only with reputable banks with high quality external credit enhancements.  ​ ​ ​ ​ ​ ​
​	None of the Company's financial assets are secured by collateral or other credit enhancements.  ​ ​ ​ ​ ​ ​
​	Credit risk exposure. In summary, compared to the amounts in the Statement of Financial Position, the maximum exposure to credit risk at 31 August was as follows: ​ ​ ​ ​ ​ ​
​	​	​		​	​	​	​	​
​	​	​		​	2023 ​		2022 ​
​	​	​		​	Balance	Maximum	Balance	Maximum
​	​	​		​	Sheet	exposure	Sheet	exposure
​	Current assets	​		​	£'000	£'000	£'000	£'000
​	Loans and receivables	​		​	3,092	3,092	2,693	2,693
​	Cash and cash equivalents ​			​	10,942	10,942	5,094	5,094
​	​	​		​	14,034	14,034	7,787	7,787
​	​	​		​	​	​	​	​
​	None of the Company's financial assets is past due or impaired.  ​ ​ ​ ​ ​ ​
​	Maturity of financial liabilities. The maturity profile of the Company's financial liabilities at 31 August was as follows: ​ ​ ​ ​ ​ ​
​	​	​		​	​	​	​	​
​	​	​		​	​	​	2023	2022
​	​	​		​	​	​	£'000	£'000
​	In less than one year		​	​	​	​	42,032	38,413
​	In more than one year *		​	​	​	​	-	24,983
​	​		​	​	​	​	42,032	63,396
​	* Excludes Indian CGT liability.		​	​	​	​	​	​
​	Fair value of financial assets and liabilities. The fair value of the term loan is £25,000,000 as at 31 August 2023 (2022 - £25,942,000) compared to an accounts value in the financial statements of £24,992,000 (2022 - £24,983,000) (note 13). Due to the term loan now being short-term in nature, the fair value and the accounts value are deemed to be the same (excluding unamortised expenses). The fair value of each loan is determined by aggregating the expected future cash flows for that loan discounted at a rate comprising the borrower's margin plus an average of market rates applicable to loans of a similar period of time and currency. The carrying values of fixed asset investments are stated at their fair values, which have been determined with reference to quoted market prices. ​ ​ ​ ​ ​ ​

 

19.	Fair value hierarchy
​	FRS 102 requires an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy shall have the following classifications:
​	Level 1: unadjusted quoted prices in an active market for identical assets or liabilities that the entity can access at the measurement date.
​	Level 2: 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 (2022 - same) which are actively traded on recognised stock exchanges, with their fair value being determined by reference to their quoted bid prices at the reporting date. The total value of the investments as at 31 August 2023 of £509,219,000 (31 August 2022 - £672,379,000) has therefore been deemed as Level 1.

 

20.	Related party transactions and transactions with the Manager
​	Fees payable during the year to the Directors and their interests in shares of the Company are disclosed within the Directors' Remuneration Report on page 70 of the Annual Report and financial statements for the year ended 31 August 2023.
​	The Company has an agreement in place with aFML for the provision of management and administration services, promotional activities and secretarial services. Details of transactions during the year and balances outstanding at the year end disclosed in notes 4 and 5.
​	At the year end the Company had £5,001,000 (31 August 2022 - £1,000,000 ) invested in Aberdeen Standard Liquidity Fund (Lux) - Sterling Fund which is managed and administered by abrdn plc. The Company pays a management fee on the value of these holdings but no fee is chargeable at the underlying fund level.
​	On 22 September 2023 the Company published a Prospectus and Circular including proposals to combine with abrdn New Dawn Investment Trust plc ("New Dawn"), with an effective date of 8 November 2023. Under the terms of transaction aFML has agreed that, with effect from 8 November 2023, the management fee payable by the Company to aFML will be reduced to 0.75%. per annum on the initial £350 million of the Company's NAV and 0.50% per annum thereafter. aFML has also agreed to make a contribution to the costs of the combination by means of a reduction in the management fee payable by the enlarged Company to aFML. The fee reduction will constitute a waiver of the management fee that would otherwise be payable by the enlarged Company to aFML in respect of the assets transferred by New Dawn to the Company pursuant to the combination for the first six months following the effective date of 8 November 2023. This contribution is subject to the Company not terminating the management agreement (other than for cause as provided for under the management agreement) within three years from the effective date of 8 November 2023, failing which the enlarged Company will be obliged to repay all or part of this contribution (depending on the point of termination and reducing by one-third on each anniversary of the effective date of 8 November 2023).

 

21.	Capital management policies and procedures
​	The Company's capital management objectives are:
​	- to ensure that the Company will be able to continue as a going concern; and
​	- to maximise the capital return to its equity shareholders through an appropriate balance of equity capital and debt. The Board has imposed a maximum gearing level of 20% of net assets.
​	The Board monitors and reviews the broad structure of the Company's capital on an ongoing basis. This review includes the nature and planned level of gearing, which takes account of the Manager's views on the market, and the extent to which revenue in excess of that which is required to be distributed should be retained.
​	The Company has no externally imposed capital requirements.

 

22.	Subsequent events
​	On 21 July 2023 the Company announced that it had agreed terms with the board of abrdn New Dawn Investment Trust plc ("New Dawn") in respect of a proposed combination of the assets of the Company with those of New Dawn. Shareholders were sent documentation in September explaining that this is to be effected by way of a scheme of reconstruction and winding up of New Dawn under section 110 of the Insolvency Act 1986 (the "Scheme") and the associated transfer of the majority of the cash, assets and undertaking of New Dawn to the Company in exchange for the issue of new Ordinary shares in the Company to those New Dawn shareholders who so elect.
​	Shareholders approved the Scheme proposals at the Company's General Meeting held on 25 October 2023 and New Dawn's shareholders approved the Scheme proposals at their General Meeting held on 23 October 2023 paving the way for the Scheme to progress. On the basis of the current timetable, should the Scheme proceed, it is expected that the combination of the Company and New Dawn will take place on or around 8 November 2023.

Alternative Performance Measures (Unaudited)

Alternative Performance Measures ("APMs") are numerical measures of the Company's current, historical or future performance, financial position or cash flows, other than financial measures defined or specified in the applicable financial framework. The Company's applicable financial framework includes FRS 102 and the AIC SORP. The Directors assess the Company's performance against a range of criteria which are viewed as particularly relevant for closed-end investment companies.  ​ ​ ​
Discount to net asset value per Ordinary share ​ ​ ​
The difference between the share price and the net asset value per Ordinary share expressed as a percentage of the net asset value per Ordinary share. The highest and lowest discount during the year is shown on page 35 of the Annual Report and financial statements for the year ended 31 August 2023. ​ ​ ​
​	​	​	​
​	​	31 August 2023	31 August 2022
NAV per Ordinary share (p)	a	421.26	513.32
Share price (p)	b	353.00	446.00
Discount	(a-b)/a	16.2%	13.1%
​	​	​	​
Net gearing  ​ ​ ​
Net gearing measures the total borrowings less cash and cash equivalents divided by shareholders' funds, expressed as a percentage. Under AIC reporting guidance cash and cash equivalents includes net amounts due to and from brokers at the year end as well as cash and short term deposits.  ​ ​ ​
​	​	​	​
​	​	31 August 2023	31 August 2022
Borrowings (£'000)	a	39,992	59,983
Cash (£'000)	b	10,942	5,094
Amounts due to brokers (£'000)	c	-	287
Amounts due from brokers (£'000)	d	1,425	-
Shareholders' funds (£'000)	e	479,169	614,369
Net gearing	(a-b+c-d)/e	5.8%	9.0%
​	​	​	​
Ongoing charges  ​ ​ ​
The ongoing charges ratio has been calculated in accordance with guidance issued by the AIC as the total of investment management fees and administrative expenses and expressed as a percentage of the average published daily net asset values with debt at fair value published throughout the year.  ​ ​ ​
​	​	​	​
​	​	2023	2022
Investment management fees (£'000)	​	3,839	4,387
Administrative expenses (£'000)	​	1,056	1,007
Less: non-recurring chargesA (£'000)	​	(7)	(33)
Ongoing charges (£'000)	​	4,888	5,361
Average net assets (£'000)	​	538,331	640,938
Ongoing charges ratio	​	0.91%	0.84%
A Comprises legal and professional fees which are not expected to recur.  ​ ​ ​
​	​	​	​
The ongoing charges ratio provided in the Company's Key Information Document is calculated in line with the PRIIPs regulations which among other things, includes the cost of borrowings and transaction costs. ​ ​ ​
Total return	​	​	​
NAV and share price total returns show how the NAV and share price has performed over a period of time in percentage terms, taking into account both capital returns and dividends paid to shareholders. Share price and NAV total returns are monitored against open-ended and closed-ended competitors, and the Benchmark Index, respectively.  ​ ​ ​
​	​	​	​
​	​	​	Share
Year ended 31 August 2023	​	NAV	Price
Opening at 1 September 2022	a	513.32p	446.00p
Closing at 31 August 2023	b	421.26p	353.00p
Price movements	c=(b/a)-1	-17.9%	-20.9%
Dividend reinvestmentA	d	1.2%	1.4%
Total return	c+d	-16.7%	-19.5%
​	​	​	​
​	​	​	​
​	​	​	Share
Year ended 31 August 2022	​	NAV	Price
Opening at 1 September 2021	a	566.60p	512.00p
Closing at 31 August 2022	b	513.32p	446.00p
Price movements	c=(b/a)-1	-9.4%	-12.9%
Dividend reinvestmentA	d	1.0%	1.1%
Total return	c+d	-8.4%	-11.8%
A NAV total return involves investing the net dividend in the NAV of the Company with debt at fair value on the date on which that dividend goes ex-dividend. Share price total return involves reinvesting the net dividend in the share price of the Company on the date on which that dividend goes ex-dividend.  ​ ​ ​