Abrdn Asia Focus : Annual Report to 31 July 2023

abrdn Asia Focus plc

A fundamental, high conviction portfolio of well-researched Asian small caps

Annual Report 31 July 2023

asia-focus.co.uk

"Over the long term, the value of investing in hand- picked smaller companies in Asia has proved their worth. £1,000 invested in 1995 is now worth £22,580 with dividends reinvested"

Krishna Shanmuganathan,

Chair

"We continue to favour quality Asian small-cap companies with solid balance sheets and sustainable earnings prospects that can emerge stronger and position the portfolio well in tough times"

Gabriel Sacks and Flavia Cheong, abrdn Asia Limited

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abrdn Asia Focus plc

1

Performance Highlights

Net asset value total return (diluted)AB

+7.6%

	2022		-2.0%

Net asset value total return since inception (diluted)AB

+2283.6%

	2022		+2115.6%

Share price total returnA

+7.3%

	2022		-1.7%

MSCI AC Asia ex Japan Small Cap Index total returnC

+8.0%

2022	-5.1%

Ongoing charges ratioA

0.92%

2022	0.88%

Net asset value per share (diluted)

308.9p

2022	295.3p

Annualised Net asset value total return sinceinception (diluted)AB

+12.1%

2022	+12.3%

Share price

264.0p

2022	254.0p

Discount to net asset valueAB

14.5%

2022	14.0%

Dividends per shareD

8.66p

2022	8.00p

1. Alternative Performance Measure (see pages 99 to 100).
2. Presented on a diluted basis as the Convertible Unsecured Loan Stock ("CULS") is "in the money" (2022 - same).
3. Currency adjusted, capital gains basis.
4. Dividends include special dividends of 2.25p for 2023 (2022 - 1.6p).

Net asset value per share		Total dividends per share		Mid-market price per share
At 31 July - pence				At 31 July - pence			At 31 July - pence
309.0	295.3	308.9				8.0	8.66	266.0	254.0	264.0
						230.0
260.1
221.3								196.0
			3.8	3.8	3.2

19	20	21	22	23		19	20	21	22	23		19	20	21	22	23
*Diluted values used for					Final	Sp ecial
2021 to 2023

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Contents

"I am confident that with extensive on-the- ground coverage and a highly experienced management team, your Manager is well positioned to keep finding quality companies among the hugely varied Asian small cap universe"

Krishna Shanmuganathan,

Chair

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt about the action you should take, you are recommended to seek your own independent financial advice from your stockbroker, bank manager, solicitor, accountant or other independent financial adviser authorised under the Financial Services and Markets Act 2000 if you are in the United Kingdom or, if not, from another appropriately authorised

financial adviser.

If you have sold or otherwise transferred all your Ordinary shares in abrdn Asia Focus plc, please forward this document, together with the accompanying documents immediately to the purchaser or transferee, or to the stockbroker, bank or agent through whom the sale or transfer was effected for transmission to the purchaser or transferee or transferee, or to the stockbroker, bank or agent through whom the sale or transfer was effected for transmission to the purchaser or transferee

Overview
Financial Calendar, Dividends and Highlights	4
Strategic Report
Chair's Statement	8
Investment Managers' Review	13
Overview of Strategy	16
Results	24
Performance	25
Portfolio
Ten Largest Investments	30
Portfolio	31
Sector/Geographical Analysis	34
Currency/Market Performance	36
Investment and ESG Case Studies	37
Governance
Board of Directors	42
Directors' Report	45
Directors' Remuneration Report	55
Statement of Directors' Responsibilities	58
Report of the Audit Committee	59

Financial Statements

Independent auditors' report to the members of abrdn

Asia Focus plc	64
Statement of Comprehensive Income	71
Statement of Financial Position	72
Statement of Changes in Equity	73
Statement of Cash Flows	74
Notes to the Financial Statements	75
Alternative Performance Measures (Unaudited)	99
Corporate Information
Information about the Investment Manager	102
The Investment Process	103
ESG Engagement	106
Investor Information	111
Alternative Investment Fund Managers Directive
Disclosures (Unaudited)	114
General
Notice of Annual General Meeting	116
Glossary of Terms and Definitions	120
Your Company's Share Capital History	122
Corporate Information	125

abrdn Asia Focus plc

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Financial Calendar,

Dividends and Highlights

	Financial year end			31 July
	Announcement of results for year ended 31 July 2023	20 October 2023
	Online Shareholder Presentation (see page 11)		21 November 2023
	Annual General Meeting			5 December 2023
	CULS Conversion Date			30 November 2023
	Payment date of first interim for 2023/2024 and special	20 December 2023
	dividend for 2022/2023
	Payment date of second interim dividend for 2023/2024	21 March 2024
	CULS Conversion Date			31 May 2024
	Payment date of third interim dividend for 2023/2024	21 June 2024
	Payment date of fourth interim dividend for 2023/2024	20 September 2024
Dividends
		Rate	xd date	Record date	Payment date
	First interim 2023	1.60p	24 November 2022	25 November 2022	20 December 2022
	Second interim 2023	1.60p	23 February 2023	24 February 2023	21 March 2023
	Third interim 2023	1.60p	25 May 2023	26 May 2023	23 June 2023
	Fourth interim 2023	1.61p	24 August 2023	25 August 2023	20 September 2023
	Special 2023	2.25p	23 November 2023	24 November 2023	20 December 2023
		8.66p
	First interim 2022	3.20p	24 February 2022	25 February 2022	21 March 2022
	Second interim 2022	1.60p	26 May 2022	27 May 2022	17 June 2022
	Third interim 2022	1.60p	25 August 2022	26 August 2022	16 September 2022
	Special 2022	1.60p	24 November 2022	25 November 2022	20 December 2022
		8.00p

4	abrdn Asia Focus plc

Financial Highlights

	31/07/2023	31/07/2022	% change
Total assets (see definition on page 121)	£556,466,000	£532,912,000	+4.4
Total equity shareholders' funds (net assets)	£485,784,000	£464,396,000	+4.6
Net asset value per share (basic)	310.49p	295.88p	+4.9
Net asset value per share (diluted)	308.93p	295.25p
Share price (mid market)	264.00p	254.00p	+3.9
Market capitalisation	£413,049,000	£398,662,000	+3.6
Discount to net asset value (basic)A	15.0%	14.2%
Discount to net asset value (diluted)A	14.5%	14.0%
MSCI AC Asia ex Japan Small Cap Index	1,982.01	1,888.43	+5.0
(currency adjusted, capital gains basis)
Net gearingA	12.1%	12.1%
Dividends and earnings
Total return per share (basic)B	22.43p	(7.02)p
Revenue return per share (basic)	10.29p	9.34p	+10.5
Ordinary dividends per shareC	6.41p	6.40p	+0.2
Special dividend per shareC	2.25p	1.60p	+40.6
Dividend coverA	1.19	1.17
Revenue reservesD	£12,533,000	£9,942,000	+26.1
Revenue reserves per shareD	8.01p	6.33p	+26.5
Operating costs
Ongoing charges ratioA	0.92%	0.88%

1. Considered to be an Alternative Performance Measure. See pages 99 and 100.
2. Measures the total earnings for the year divided by the weighted average number of Ordinary shares in issue (see note 9).
3. The figures for dividends per share reflect the dividends for the year in which they were earned.
4. After payment of the fourth interim dividend of 1.61p (2022 - third interim dividend of 1.60p) per share amounting to £2,516,000 (2022 - £2,511,000) and the special dividend of 2.25p (2022 - 1.60p) per share amounting to £3,507,000 (2022 - £2,511,000).

Overview

Strategic Report

Portfolio

General Corporate Information Financial Statements Governance

abrdn Asia Focus plc

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Strategic

Report

6	abrdn Asia Focus plc

The Company aims to attract long term private and institutional investors wanting to benefit from the growth prospects of Asian smaller companies. It is an investment trust and its Ordinary shares and Convertible Unsecured Loan Stock are listed on the premium section of the London Stock Exchange.

abrdn Asia Focus plc

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Chair's Statement

This marks my first annual statement for the Company as Chair, following Nigel Cayzer's retirement as a Director of the Company at last year's Annual General Meeting. Once again, the Board and I would like to reiterate our thanks to him for the enormous contribution he made in steering this investment trust forward since its launch.

Overview

The state of flux in global markets continues. Inflation in Asian economies was more moderate over the review period than elsewhere, and central banks not as aggressive in their rate hikes. Even so, the threat of a possible global recession spilling into the region weighed heavily on investors' minds. As ever, markets have paid close attention to US Federal Reserve (Fed) policy, which has put up rates 11 times since March 2022 (with a combined rise of 525 basis points).

As I referenced in the Half Yearly Report, China easing Covid restrictions raised expectations that a reopening economy would lead to greater demand across several sectors. This recovery has proved to be patchier than anticipated. Struggles in the country's property sector continue and political tensions exacerbated market volatility (once again rising US-China rhetoric was a notable feature).

By contrast, India has shown signs of recovery in urban consumer demand, and has a buoyant housing market. The Reserve Bank of India (RBI) forecasts GDP growth of 6.5% for the 23/24 fiscal year, putting India among the fastest-growing economies. Indonesia's market has also been stronger, with domestic spending particularly resilient.

Meanwhile, the ASEAN region continues to look attractive. Your Manager sees the bloc emerging as a key beneficiary of the shifts in global supply chains amid the evolving geopolitical landscape, especially between China and the US. In particular, corporate initiatives to embark on a China plus 1 or China plus 2 strategy as part of a supply chain diversification move is fuelling investment across ASEAN, with notable beneficiaries such as Vietnam, given its niche in apparel and electronics; Thailand, which is drawing interest from the printed circuit board supply chain because of its developed infrastructure and industrial parks; and Malaysia, for its engineering talent in software design companies. The bloc's supportive policies, cost competitiveness, industrial development, linkages to existing manufacturing hubs and rising middle-income consumers are structural drivers that are not only attracting foreign direct investment but also spurring intra-Asian trade, and in turn, boosting economic growth.

Investment Performance

Although the weaker global economic environment has continued to be challenging for investors, over the last 12 months, on a total return basis, the Company's net asset value ("NAV") rose +7.6% in sterling terms for the 12 months to the end of July 2023, while the share price return was +7.3% having been impacted by the widening of the NAV discount to 14.5%. By comparison, the MSCI AC Asia ex Japan Small Cap (total return) index returned +8.0% and the MSCI AC Asia ex Japan rose 0.8%. The outperformance of smaller companies in Asia against their large cap peers now stretches several years, with the small cap index outperforming large cap by more than 10% annually over the past 3 years, testament to the benefits of investing in this overlooked segment of the equity market. In addition I am pleased to note that in the two-year period from 1 August 2021 (the date that we set the Company's new Benchmark against the new investment policy), the NAV total return has been 6.1%, the share price total return has been 5.5% and the Benchmark return was 2.5%.

It has been especially satisfying to see the high-quality,cash-generative small companies favoured by your Manager fare well. This was notably the case in countries like India and Indonesia, where structural growth, huge consumer markets and rising adoption of technology led to strong performance from businesses in a variety of sectors, including banking, industrials, IT, and branded consumer products. You can read more detail on company-level performance in the Investment Manager's Report starting on page 13.

While China has proved to be one of the weaker countries in terms of its performance, your Manager has taken advantage of volatility and attractive valuations of certain high-quality smaller companies to add exposure, from a relatively low base. This was aided by the change of mandate approved by shareholders last year (which saw the removal of the limit on company size at initiation), allowing your Manager greater flexibility in picking companies in larger markets such as China.

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