Introduction

Before setting out my usual statement on the Company’s annual results, I must draw your attention to an important announcement made by the Company since the year end. On 21 July 2023 the Board announced that it had agreed heads of terms with the board of Asia Dragon Trust plc (“Asia Dragon”) in respect of a proposed combination of the Company with Asia Dragon. The combination, if approved by each company's shareholders, will be effected by way of a scheme of reconstruction and winding up of the Company under section 110 of the Insolvency Act 1986 with the associated transfer of part of the assets and undertaking of the Company to Asia Dragon in exchange for the issue of new ordinary shares in Asia Dragon (the “Scheme”). Under the terms of the Scheme an up to 25% cash exit opportunity will be offered to the Company’s shareholders to realise part of their investment in the Company at a 2% discount to the formula asset value (“FAV") (less the costs of realigning the portfolio). abrdn Fund Managers Limited (“aFML”), will, following implementation of the Scheme, continue to manage the enlarged Asia Dragon.

The Asia Dragon board will propose certain amendments to Asia Dragon’s investment policy to its shareholders which will principally align Asia Dragon’s policy with the Company’s current investment policy in order to permit investment into Australasia and provide the Investment Manager with equivalent geographic flexibility. Asia Dragon’s existing benchmark comparative index (MSCI AC Asia (ex-Japan) Index) will be retained. The portfolio managers of the enlarged Asia Dragon will be James Thom and Pruksa Iamthongthong, part of the same team that currently manages the Company’s portfolio. aFML has agreed that the management fee payable by the enlarged Asia Dragon to aFML will be reduced to 0.75% (currently 0.85%) on the initial £350 million of Asia Dragon’s net assets and 0.5% on Asia Dragon's net assets in excess of £350 million. 

Asia Dragon offers a five-yearly performance-related conditional tender with the current performance period running from 1 September 2021 to 31 August 2026 (“2026 CTO”). It is proposed that, in the light of the proposals and conditional on the Scheme being implemented, the 2026 CTO will be amended such that, in the event Asia Dragon underperforms its benchmark over the performance period, Asia Dragon will offer shareholders the opportunity to tender up to a maximum of 15% of their shares; a reduction from the maximum of 25% previously proposed. This reflects the revised conditional tender being of broadly a similar size to that previously proposed for the 2026 CTO, given the greater scale of the enlarged Asia Dragon. In addition to this, Asia Dragon’s shareholders will have the opportunity to vote on the continuation of Asia Dragon at every fifth AGM with the next continuation vote to be put forward at the AGM in December 2026. 

Both the Company and Asia Dragon invest in the Asia Pacific (ex-Japan) region, and both are managed by aFML with a high level of commonality across their shareholder bases. In light of these similarities, the Board believes a combination of the companies will create an enlarged vehicle that offers similar investment exposure for each set of shareholders while offering shareholders in the enlarged Asia Dragon (and therefore to Shareholders who roll into Asia Dragon) benefits that include greater secondary liquidity in Asia Dragon shares and cost efficiencies, including as result of the reduction in the management fee as referred to above. 

Since the year end, the Board has announced that it has agreed heads of terms with the board of Asia Dragon Trust plc (“Asia Dragon”) in respect of a proposed combination of the Company with Asia Dragon. 

The Company and Asia Dragon have received irrevocable undertakings to support the proposals from shareholders representing 27.0% of the Company's issued share capital and 29.7% of Asia Dragon's issued share capital (as at 20 July 2023).

A circular to shareholders of the Company, providing details of the Scheme and convening general meetings to approve the Scheme, together with a prospectus published by Asia Dragon in respect of the issue of New Asia Dragon Shares in connection with the Scheme are expected to be published in September 2023. If approved, the proposals are anticipated to become effective in October 2023. The Board believes that the proposals are in the best interests of shareholders as a whole. In the event that the Scheme does not go ahead, then the Company will make a separate announcement to shareholders in respect of the future of the Company.

Overview of the Year

Over the 12 months to 30 April 2023, the performance of the Company reflected a challenging environment for both Asian and global equity markets. The net asset value (“NAV”) declined by 6.8% on a total return basis, compared to a fall of 5.2% in the benchmark, the MSCI All Countries Asia Pacific ex Japan Index (in Sterling terms). The share price fell by 7.3% on a total return basis, while the discount of the share price to the NAV was 12.8% at the year end.

Despite the underperformance for the year, it is worth noting that, over the longer term three and five year periods, as set out on page 16, both the NAV and share price total returns have outperformed the benchmark index. Globally, concerns over the impact of monetary tightening, the threat of recession and the ongoing conflict in Ukraine weighed heavily on markets. The Company was not immune to this. But, while the Company’s performance for the 12 months was challenging, it outperformed the more ‘growth-centric’ funds that were heavily impacted by the growth-to-value rotation, triggered by the abrupt shift in global monetary policy. This underlines the benefit of the Company’s focus on quality, investing in companies with real competitive advantages, sound financial management and good corporate governance. It is these sorts of companies that tend to be more resilient in a tougher environment. 

In the first half of the year, markets were unsettled by monetary tightening in response to high inflation, with several major central banks raising interest rates. Inflationary pressures in Asia have not been as acute as elsewhere, but investors are alert to the possibility of price increases in the region.

Market attention shifted to China in the second half of the year, with the country’s sudden decision to reverse its strict Covid-19 restrictions towards the end of 2022. This move prompted hopes that a re-opening economy would stimulate domestic consumer demand and benefit export-oriented markets such as Taiwan and South Korea. Many Chinese stocks, including consumer discretionary and information technology companies, benefited. Yet, despite the pent-up domestic consumer demand, the potential positive effects have not yet fully translated into earnings growth for many companies. Other factors, such as worries over the health of the property sector and the regulatory crackdown on technology companies, have made China a tricky market for investors to navigate. Geopolitical tensions between the US and China have added to share-price volatility, especially for several Chinese technology and biotech companies.

Against this backdrop, the Company’s performance in China lagged the benchmark over the period. However, the Board is confident in the approach adopted by the Investment Manager, focusing on the long-term benefits of quality companies in China and other countries in the region. Detailed information on performance and portfolio activity for the year is contained in the Investment Manager’s Review on pages 18 to 21.

Earnings and Dividend

Revenue earnings per share for the year were 4.82p (2022: 3.71p), an increase of 29.9% compared to the previous year. The Company benefited from a small number of special dividends from companies that had sustained strong earnings, as well as higher distributions from the large Australian miners, Rio Tinto and BHP following the spike in commodity prices.

The Board has declared a second interim dividend of 3.3p per share, making a total dividend for the year of 4.3p per share, unchanged from the previous year.

A first interim dividend of 1.0p per share was paid on 10 February 2023. As explained below, it is anticipated that the Company will convene an AGM to be held in October at the same time as the first general meeting in relation to the Scheme. Because of this, and in order to ensure that the Company’s normal dividend paying cycle is maintained, rather than proposing a final dividend as we have done in previous years, the Board decided to declare a second interim dividend. Accordingly, a second interim dividend of 3.3p per share was declared on 31 July 2023 (2022: final dividend of 3.3p), making a total dividend for the year of 4.3p per share, unchanged from the previous year. The second interim dividend will be paid on 8 September 2023 to shareholders on the register on 11 August 2023.

Gearing

At the end of the year, the Company’s borrowing facilities amounted to £40 million, comprising a fixed rate loan of £20 million, which matures in December 2023 (with an interest rate of 2.626%), and a £20 million multi-currency revolving loan facility maturing in June 2024. An aggregate Sterling equivalent of £28.6 million was drawn down at the year-end and gearing (net of cash) was 8.5%, compared to 7.7% at the beginning of the year. 

Share Buybacks

In common with other investment trusts, the Company has continued to buy back shares with the aim of providing a degree of liquidity to the market at times when the discount to the NAV has widened. It is the view of the Board that this policy is in the interests of all shareholders. The Board closely monitors the discount and reviews the operation of the share buy-back policy at each Board meeting. During the year, the Company bought back 1.7 million shares, representing 1.6% of the issued share capital. These shares were bought back at a discount to NAV and were accretive to the Company, and are held in treasury. The Company’s stated policy on treasury shares is that they can only be re-issued to the market at a premium to the NAV per share at that time. The Company has maintained a diverse portfolio of high-quality investments, well positioned to navigate turbulent market conditions and take advantage of the strong structural secular trends across Asia. Annual General Meeting (“AGM”) As a result of the proposal for the Company to merge with Asia Dragon, it is anticipated that the Company will convene an AGM to be held in October at the same time as the first general meeting in relation to the Scheme. The notice of the AGM will be contained in the Scheme circular. For those shareholders who roll their holdings into Asia Dragon, the Directors of abrdn New Dawn who join the Board of Asia Dragon very much look forward to meeting you at Asia Dragon’s AGM later this year. Outlook Growth forecasts in the Asia-Pacific region are ahead of many other parts of the world, as domestic demand has remained robust in a tighter global monetary environment. What lingers in investors’ minds is whether these forecasts will hold, in an environment that is becoming increasingly uncertain, with rising geopolitical tensions, recessionary fears and higher interest rates slowly making more of an impact. In times like these, where markets are volatile and unsettled, an investment process focused on quality can provide resilience. The benefits of an active investment approach can bring opportunities and enable investors to sidestep parts of the market that are most exposed to risks and uncertainties.

The Company has maintained a diverse portfolio of high-quality investments, well positioned to navigate turbulent market conditions and take advantage of the strong structural secular trends across Asia. 

These long-term regional drivers include the aspirations of a growing middle class, urbanisation, clean energy, and digitalisation, which are likely to reward patient investors in a region where individual countries typically have different outlooks. Despite short-term ebbs and flows, China and India, the two most populous nations worldwide, offer attractive long-term growth opportunities with the likelihood of positive effects on the other countries in Asia. Many of the challenges in the market over the past year undoubtedly remain, but the Board continues to believe that the Investment Manager’s focus on quality and seeking out companies with sound fundamentals is the best approach to ensure that the Company meets its stated investment objective, and that shareholders will continue to benefit from this approach under the merger proposals.

Important information

Risk factors you should consider prior to investing: 

Issued by abrdn Fund Managers Limited, registered in England and Wales (740118) at 280 Bishopsgate, London, EC2M 4AG. abrdn Investments Limited, registered in Scotland (No. 108419), 10 Queen’s Terrace, Aberdeen AB10 1XL. Both companies are authorised and regulated by the Financial Conduct Authority in the UK.