ABERDEEN STANDARD ASIA FOCUS PLC

Legal Entity Identifier (LEI): 5493000FBZP1J92OQY70

ANNOUNCEMENT OF UNAUDITED HALF YEARLY RESULTS

for the six months ended 31 January 2021

PERFORMANCE

INTERIM BOARD REPORT

CHAIRMAN'S STATEMENT

Background

Global stock markets enjoyed a remarkable rebound in the six months to 31 January 2021, following the Great Lockdown of 2020 which aimed to contain the Covid-19 outbreak. The prospect of a global economic recovery came with a greater risk appetite for Asian small caps, which began to rise faster than large caps during the review period. This reversed the trend of the past three years, when Asian small caps rose by 14%, trailing their larger counterparts which gained 27%.

Against this backdrop, your Company's net asset value ("NAV") total return rose 21.2% in sterling terms, compared to the MSCI AC Asia Pacific ex-Japan Small Cap Index's advance of 20.5% and the 19.7% return of the large cap MSCI AC Asia Pacific ex Japan Index. Meanwhile, the share price discount to NAV narrowed slightly, from 11.4% to 11.0%, with an increase in your Company's share price total return of 22.1%. At the time of writing the discount has narrowed further to 9.3%.

While the pandemic caused widespread hardship, the disruption gave governments opportunities to press for reforms. China pivoted from its focus on industry upgrading towards spurring consumption via more egalitarian wealth distribution. Not to be outdone, India championed agricultural reform to promote investment and place the sector on a better footing to compete globally, although this is being met with significant pushback from many small farmers who feel their livelihoods will be threatened with the reforms currently suspended pending a review. Investors also anticipated a pro-business fiscal budget, the extent of which exceeded expectations when announced in February. Elsewhere, Indonesia enacted an Omnibus Law that consolidated a raft of measures, including the Jobs Creation Bill. This more liberal regime could be a game-changer in funnelling foreign investments into a myriad of industries, ranging from communications and technology to energy and tourism. While I am heartened by the resolve shown by Asian leaders to push through these long-awaited reforms, investors showed their approval in more tangible terms: the Indonesian market gained by more than 40%, whereas India's rose by more than 30%.

At the company level, the environment for travel-related businesses remained difficult. Fortunately, your Company's exposure to this sector is limited. I am also encouraged by how many of your Company's holdings have weathered the storm well, thanks to their high-quality franchises and solid balance sheets, with many displaying resilient earnings into the final quarter of the calendar year. This underscores the importance of understanding the 'nuts and bolts' of a business and picking quality stocks. To this end, your Manager focuses on financially robust companies, usually leaders within their fields; and such businesses tend to stay resilient over the long term. The success of this strategy is evident in the Company's track record. Over the past decade, your Company's NAV has returned 9.2% on an annualised basis, compared to the returns of 5.5% and 8.7% of the MSCI AC Asia Pacific ex-Japan Small Cap Index and the large cap MSCI AC Asia Pacific ex Japan Index respectively.

Overview

Smaller Asian companies' shares rose sharply over the six months, with gains across all markets. Investors welcomed the rollout of vaccines in many countries, alongside improved prospects for the region's economic recovery. Adding to the cheer were hopes that the US$1.9 trillion pandemic relief bill proposed by US President Joe Biden's administration would boost demand for their exports.

Besides Indonesia and India, mentioned above, other markets that performed well include New Zealand, the Philippines, and South Korea. Share prices in New Zealand rose to record highs as its economy rebounded sharply in the third quarter amid its successful management of the pandemic. Meanwhile, Philippine stocks were buoyed by the aggressive easing of monetary policy. Elsewhere in South Korea, hopes of a post-pandemic pick-up in the installation of 5G networks boosted smaller companies in the semiconductor supply chain, along with their customers in technology hardware.

On the economic front, the region generally fared better than countries in the western hemisphere. Among markets that comprise a sizeable portion of your Company's holdings, Taiwan did particularly well. The island grew even faster than China, the only major economy to expand last year. Taiwan and South Korea have a dominant role in the semiconductor supply chain and benefited from accelerated demand for electronics during the pandemic. Among the other major economies, South Korea's economic contraction was one of the mildest, followed by Indonesia.

Portfolio Review

Your Company's holdings in technology, the portfolio's largest sector exposure, and communications services fared very well amid accelerating demand for digital solutions, as work-from-home emerged as a trend to stay, alongside longer-term ones, such as artificial intelligence and the Internet of Things.

Some of the Company's best-performing holdings gained from these structural shifts and many of these are a consequence of our refreshment of the portfolio a few years ago. Affle India's ability to handle vast amounts of data to deliver more targeted advertising on mobile devices underpinned its share price surge, given the massive potential for growth in digital advertising in India. Cyient was boosted by an improving demand outlook for engineering and technology services, with expectations that it is at the start of a multi-year upgrading cycle. In Thailand, contract manufacturer Hana Microelectronics was helped by the recovery of global smartphone shipments. In South Korea, Park Systems' advancement in microscopes was beneficial amid chipmakers' push towards greater miniaturisation. In Taiwan, leading TV and online retailer Momo.com posted robust earnings growth as people stayed at home, resulting in increased demand for online services.

Singapore's Nanofilm Technologies, a recent introduction to the portfolio, also boosted performance. Its competitive edge lies in its proprietary technology in coatings for smartphones, laptops and tablets. The coating adds both functional and aesthetic characteristics, improving the parts by making them more resistant to wear and tear. Although its revenues are largely derived from the Apple supply chain, this also means its growth is hitched to the popularity of Apple's products. Your Manager is confident of its long-term prospects, as it is on the cusp of commercialising new products in existing markets while expanding into new ones. Nanofilm is one of several companies introduced during this period in interesting technological niches that are well-placed to be winners in the longer term.

Among holdings exposed to tourism, John Keells was a top contributor despite the sector still bearing the brunt of ongoing border closures. The leading conglomerate in Sri Lanka is one of the portfolio's many off-benchmark investments, and its performance speaks well of your Manager's quality-focused investment style. Its hospitality business in the Maldives began to recover when the country became one of the first to allow international travellers to enter without strict quarantines. Its other more domestic-oriented businesses, such as supermarkets and financial services, benefited from an improving outlook for policy reforms under a relatively new government in Sri Lanka. 

In the financial services sector, the Company's holdings proved resilient even though higher credit risk and a low-interest rate environment led to weak loan growth and falling profitability. Thai consumer credit company AEON Thana Sinsap, for instance, rallied on news that its earnings were much better than expected, while New Zealand's exchange operator NZX enjoyed robust trading volumes and healthy growth from its wealth management platform.

In contrast, the lack of exposure to some green energy companies in China proved costly. Some of these companies saw meteoric gains in their share prices, helped by Beijing's pledge to achieve net-zero carbon emissions by 2060. Solar power installations grew rapidly as the price of the new energy source became as low as that of traditional sources, such as coal. The Chinese market also enjoyed an electric vehicle boom, bolstered by government investments to build the necessary infrastructure, such as charging points. Green businesses are also likely to be boosted by the Biden administration's refocus on climate change. Your Manager is looking closely at opportunities that may arise from these developments.

Outlook

Swift responses to curb the spread of the coronavirus have set the stage for a sharp rebound in Asian economic activity, and consequently corporate earnings. In most of North Asia, life has largely returned to a new normal. Moreover, the rest of Asia is supported by resilience in China, given its importance as a key trading partner to many regional markets. There is also optimism around a wider economic recovery, given the vaccine rollouts and the prospect of greater US federal spending, following last year's loose monetary policy worldwide. With these in mind, I believe Asian smaller companies are well-positioned to outperform after a long period of underperformance relative to their larger counterparts.

More broadly, Asia remains the powerhouse of global growth, with huge potential for wealth creation over the coming decades. The portfolio offers exposure to sectors supplying hardware, software and platforms for the latest consumer electronics, artificial intelligence and the Internet of Things. Moreover, it is also positioned in more traditional sectors, addressing the region's increasing urbanisation and infrastructure needs, as well as rising demand for healthcare and more aspirational consumer goods. Your Manager's focus on quality businesses ensures that the portfolio is well-placed to benefit from these trends and the overall growth in the region.

Share Capital Management and Gearing

During the period 782,500 Ordinary shares were purchased in the market at a discount to the prevailing ex-income NAV and transferred to treasury. After the period end a further 147,500 Ordinary shares have been purchased into treasury.  Your Board continues to use share buy backs in periods of market uncertainty to both reduce the volatility of any discount and to modestly enhance the NAV for shareholders. Conversely, in times of market optimism, shares have been issued to the market at a premium to NAV. 

The Company's net gearing at 31 January 2021 was 10.9%. On 1 December 2020 the Board extended and secured the Company's long-term borrowings through the issuance of a £30 million 15 year Senior Unsecured Loan Note (the "Loan Note") to MetLife at an annualised interest rate of 3.05%. The Loan Note is unsecured, unlisted and denominated in sterling. The Loan Note ranks pari passu with the Company's other unsecured and unsubordinated financial indebtedness. The Company used the proceeds of the Loan Note to repay, and cancel in full, the Company's loan facility with The Royal Bank of Scotland International.  The new Loan Note has provided the Manager with greater flexibility and additional cash resources to take advantage of investment opportunities that are expected to arise over the coming period.  Under the terms of the Loan Note up to an additional £35 million will also be available for drawdown by the Company for a five-year period.  The Board's current intention would be to only draw this down to repay any of the Company's existing Convertible Unsecured Loan Stock, either at their redemption in 2025, or before. 

Gearing is also provided by the Convertible Unsecured Loan Stock redeemable in 2025, of which approximately £36.7m million remains outstanding.  At 14 April 2021, the latest practicable date, the net gearing stood at 13.3%.

Directorate

As indicated in the 2020 Annual Report, Phil Yea retired from the Company's Board at the AGM on 1 December 2020. I would like to take this opportunity to reiterate the Board's thanks to Phil for his significant contribution as a Director since his appointment in 2014 and latterly for his expert guidance as Audit Committee Chairman. With effect from the conclusion of the December 2020 AGM Debby Guthrie was appointed Chair of the Audit Committee.

On 27 November 2020, after careful consideration and in light of his current and future commitments, Martin Gilbert decided to step down as a Director of the Company.  I would like to thank Martin personally for the outstanding guidance, counsel and commercial insight that he has provided to the Board, and to me as Chairman, since his appointment to the Company at its launch in 1995.  Martin was instrumental in setting up the Company and this foresight has been key to the success of the Company. Over his period of tenure as a Director of the Company, the net asset value of a £1,000 investment in the Company had risen to £18,295 coupled with a rise in the annual dividend from 1.2p in 1996 to 19.0p in 2020.

Principal Risks and Uncertainties

The principal risks and uncertainties affecting the Company are set out in detail on pages 14 to 16 of the Annual Report and Financial Statements for the year ended 31 July 2020 and these have not changed. They can be summarised under the following headings:

·  Investment Strategy and Objectives;

·  Investment Portfolio and Investment Management Risks;

·  Financial Obligations;

·  Financial and Regulatory;

·  Operational;

·  Investment in Unlisted Securities; and

·  Market and F/X Risks.

The Board notes that there are a number of contingent risks stemming from the Covid-19 pandemic that may impact the operation of the Company. These include investment risks surrounding the companies in the portfolio such as employee absence, reduced demand, reduced turnover and supply chain breakdowns. The Manager will continue to review carefully the composition of the Company's portfolio and to be pro-active in taking investment decisions where necessary. Operationally, Covid-19 is also impacting the suppliers of services to the Company including the Manager and other key third parties. To date these services have continued to be supplied seamlessly and the Board will continue to monitor arrangements.

The Board is also very conscious of the risks emanating from increased environmental, social and governance challenges. The recent scrutiny by western governments of human rights violations in Xinjiang is an example of the need for continued vigilance regarding the supply chain exposure of investee companies and the fair and humane treatment of workers. Likewise, as climate change pressures mount, the Board continues to monitor, through its Manager, the potential risk that investee companies may fail to keep pace with the appropriate rates of change and adaption. The Board will expand on these issues in greater detail in our full year report.  In all other respects, the Company's principal risks and uncertainties have not changed materially since the date of the 2020 Annual Report.

Investment Management Agreement

As part of its regular review of arrangements with the Company's service providers, the Board has agreed a reduction in the level of notice period for the investment management agreement from 12 months to three months which is effective from 1 January 2022.  This amendment brings the notice period into line with best practice seen across the funds sector.

Going Concern

The Directors have conducted a thorough review of the Company's ability to continue as a going concern with particular focus on the impact of the Covid-19 pandemic.  During the review period the Board has been regularly updated by the Manager on the resilience of the Manager's systems as well as those of the other key third party service providers.  The Board is satisfied that suitable business interruption plans are in place and working from home arrangements have proved effective throughout the course of the pandemic.

During the period the Board was able to repay the Company's loan facilities with The Royal Bank of Scotland International and introduce new long term gearing in the form of Senior Unsecured Loan Notes 2035 that were issued to MetLife. The Board monitors the Company's covenant compliance and gearing levels regularly and is satisfied that there is sufficient headroom in place and flexibility if required.

The Company's assets consist of a diverse portfolio of listed equities which in most circumstances are realisable within a short timescale. The Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for at least the next 12 months. Accordingly, the Board continues to adopt the going concern basis in preparing the financial statements. 

Directors' Responsibility Statement

The Directors are responsible for preparing this half-yearly financial report in accordance with applicable law and regulations. The Directors confirm that to the best of their knowledge:

·  the condensed set of financial statements contained within the half-yearly financial report has been prepared in accordance with Financial Reporting Standard 104 (Interim Financial Reporting);

·  the Interim Board Report (constituting the interim management report) includes a fair review of the information required by rule 4.2.7R of the UK Listing Authority Disclosure Guidance and Transparency Rules (being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements and a description of the principal risks and uncertainties for the remaining six months of the financial year) and 4.2.8R (being related-party transactions that have taken place during the first six months of the financial year and that have materially affected the financial position of the Company during that period; and any changes in the related party transactions described in the last Annual Report that could so do).

Nigel Cayzer,

Chairman
14 April 2021

FINANCIAL HIGHLIGHTS

CONDENSED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

CONDENSED STATEMENT OF FINANCIAL POSITION (UNAUDITED)

CONDENSED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)

Notes to the Financial Statements

For the period ended 31 January 2021

Copies of the Company's Half Yearly Report for the six months ended 31 January 2021 will be posted to shareholders in April 2021 and will be available thereafter on the Company's website:
asia-focus.co.uk*.

Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise and may be affected by exchange rate movements.  Investors may not get back the amount they originally invested.

* Neither the content of the Company's website nor the content of any website accessible from hyperlinks on the Company's website (or any other website) is (or is deemed to be) incorporated into, or forms (or is deemed to form) part of this announcement.

Aberdeen Asset Management PLC

Secretaries

14 April 2021