Henderson Asian Growth Trust PLC : Final Results

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HENDERSON ASIAN GROWTH TRUST PLC

Annual Financial Report for the year ended 31 December 2012

This announcement contains regulated information

Henderson Asian Growth Trust plc announces its results for the year ended 31 December 2012.

Henderson Asian Growth Trust plc seeks a high rate of total return from companies operating primarily in the Asian region excluding Japan and Australasia.

# Excluding reinvested income.

*Defined here as borrowings, less cash balances and deposits, as a percentage of shareholders' funds.

Performance for 12 Months to 31 December 2012

(1) Source: Morningstar for the AICusing cum income net asset value for one and three years and capital net asset value plus income reinvested for all other periods.

(2) Source: Morningstar for the AIC. The performance of a group of leading investment trust competitors (weighted average).

(3) Source: Datastream (gross income reinvested).

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HENDERSON ASIAN GROWTH TRUST PLC

Annual Financial Report for the year ended 31 December 2012

Commenting on the results Chairman, David Robins, said:

Although your Company's portfolio performed well in the second half of last year when equity markets rallied and your portfolio manager's focus on mispriced growth stocks was particularly successful, your Board's concern about the poor long term record triggered a review and that review concluded that it was in the best interests of shareholders to change investment manager.

Performance

Following the relatively modest performance in the first half, the Company rallied strongly in the second half of 2012, generating a share price total return of 23.7% and a net asset value total return of 22.1% for the full year. This performance compared with a rise in the MSCI All Country Asia ex-Japan Index (sterling adjusted) of 17.3% and a peer group average Net Asset Value (NAV) total return of 19.0%.

Dividend

The level of income received by the Company declined from the relatively high levels generated from normal dividends and stock dividends in 2011. As it is possible to draw upon the Company's revenue reserves to pay dividends, the Board has decided to utilise some of those reserves to maintain the dividend at 3.25p per share, which will be payable on 22 March 2013.

Discount Control and Share Repurchases

In order to maintain the discount at a level of 10% or less, the Company bought back and cancelled 12,706,126 shares during the second half of the year. Notwithstanding this activity, by late in the year the average discount for the period had widened beyond 10%, as the share price failed to keep up with the rise in NAV per share in low volumes of trading. Since a tender offer became likely anyway as part of the selection of a new investment manager (see below) share repurchases were suspended. The discount subsequently narrowed as announcements of the Company's reorganisation were made public.

Fees and Expenses

Despite the improved performance during the course of 2012, the Company's performance over the rolling three year period, still lagged the Index by 4.9 percentage points. Accordingly, no top up or performance fee is due to be paid.

Total management fees for the year rose to £1.840m compared with £1.125m the year before, largely as a result of the clawback of £875,000 in 2011.

Ongoing Charges, the new definition of expenses as proposed by the Association of Investment Companies, exclude both financing costs (ie the costs of loans, debentures or CFD's used for gearing purposes), performance fees and non recurring expenses. The Company's Ongoing Charges in 2012 amounted to 0.9% of assets under management compared with an average for the peer group of 1.2%.

Long Term Performance

As has been noted in previous Annual Reports, your Board has been particularly concerned about the performance of the Company and the volatility of returns to shareholders. The intention of the Board has been for the Company to provide capital growth with a degree of capital protection and whilst there have been periods of outstanding performance, the overall record has not been good.

After a very poor year in 2011, the net asset value total return was well behind both the Index and the average of the peer group over one, three and five years. The share price total return was also behind the index and the peer group over one and five years, albeit in line with the index but still behind the peer group over three years. There was one mitigating factor in that the Company focuses on growth stocks, and markets over the last few years have been focused on income.

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HENDERSON ASIAN GROWTH TRUST PLC

Annual Financial Report for the year ended 31 December 2012

Chairman's statementcontinued

The Company's fee structure was specifically devised to incentivise capital protection in falling markets. Performance in 2011 meant that there was a significant claw back of management fees of £875,000. The Board was disappointed that the Company's investment manager, Henderson Global Investors, did not do more to address this underperformance. Accordingly, the Boarddecided to set a twelve month time horizon for an improvement in performance, and relayed this to the manager.

One of the other key considerations was that, whilst the Board was supportive of the portfolio manager's approach to investment, which differentiates the Company, the Board had been concerned for some time that the investment manager had too few analytical resources based either in London or the Asia region, to support the portfolio manager in assessing the prospects for potential investments, the outlook for companies held in the Company's portfolio or indeed the market and macro economic outlook.

By the middle of 2012, performance had improved somewhat compared with the index and the peer group, but still lagged over the one, three and five year time horizons, and the Board's concern at the manager's lack of action was increasing. As a result, the Board decided to undertake a strategic review of the Company's investment management arrangements, in conjunction with Winterflood, the Company's broker, and Mercer, the global investment consultant.

Strategic Review

The Company's strategic review was announced to the market on 22 October 2012. A thorough review of potential investment managers internationally was undertaken by Mercer, including highly rated managers in the US, Europe and Asia. Winterflood also issued an announcement requesting proposals from management houses to take over the investment management of your Company. A sub-committee of the Board, comprising Hugh Aldous, David Brief and myself, then considered the 26 proposals received. In combination with the extremely useful analysis from Mercer and input from Winterflood, these proposals were whittled down to a short list of potential investment managers, who were then interviewed. Finally, we reduced this number to three, plus Henderson, who were asked to present to the full Board.

The result of this process is that the Board has decided to transfer the investment management of the Company to Schroders. This team is highly rated by Mercer, has had an outstanding performance record over three and five years, and is one of the best of those considered in protecting capital in down markets.

The Company's assets will be managed by Robin Parbrook and King Fuei Lee, two of Schroders' senior portfolio managers who are based in Hong Kong and Singapore respectively. They currently jointly manage Schroder ISF Asia Total Return, an open-ended fund. It has US$1.9 billion of assets and has maintained a top quartile performance record since its inception in November 2007. From inception to 30 November 2012 Schroder ISF Asia Total Return generated an annualised 12.9% return for its investors (in US$) and low volatility of returns with annualised standard deviation of 21.1% (Source: Lipper, Schroders). The Schroder ISF Asia Total Return Strategy is currently closed to investment and has not been widely available to retail investors. The Board believes there is investor interest in the ATR strategy in a closed-end form.

The Board was very impressed both by the strength and depth of Schroders' research team in Asia and by the rigorous and innovative approach to portfolio construction and capital protection employed by the portfolio managers. The investment strategy employed by ISF Asia Total Return would be modified for the Company to accommodate a bias towards small and mid-cap companies, which is made practicable by the closed-end nature of the Company.

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HENDERSON ASIAN GROWTH TRUST PLC

Annual Financial Report for the year ended 31 December 2012

Proposals to Shareholders

Shareholders were sent a circular on 20 February 2013 which sets out the proposals on which they will have an opportunity to vote at a General Meeting to be convened on 15 March 2013. At the time of writing, the outcome of the vote is unknown, but the Board is proposing the following:

That Schroders be appointed as Manager of the Company and that approval be given to change the Company's investment policy to one which seeks a high rate of total return from companies operating primarily in Asia, including Australasia but excluding Japan. The investment strategy to be adopted by the Company will also provide downside protection. If shareholders approve the investment policy change summarised above, the Company would actively defend a discount to NAV on the Company's shares of no greater than 9%, in normal market conditions, through the use of the Company's share buyback authorities. Shareholders would have the opportunity to vote on the Company's continuation every three years, with the first opportunity being at the AGM in 2016.

Schroders has agreed to waive its proposed base management fee and any performance fee in respect of the first six months of its appointment. The new fee arrangements will then be a management fee of 0.65% and an absolute performance fee of 10% over an annual hurdle of 107% subject to a 2% cap and a high watermark.

In addition to proposing the changes described above, the Board will seek shareholder approval for a tender offer for up to 50% of the Company's shares in issue at Formula Asset Value (namely Net Asset Value less applicable costs of conducting the tender offer, including portfolio realisation costs).

The level of the tender may seem surprising, but, during the course of the Strategic Review, it became apparent that certain of the Company's larger shareholders were seeking to realise the value of their investment at close to NAV. In order to allow the Board to conclude the review process with the necessary shareholder support, the Board deemed it necessary to conduct a tender offer of the size proposed.

It has been heartening to see that many of the closed-end fund sector analysts have supported the move of the Company's investment management to Schroders. The Board hopes that shareholders' interest in the attractive and proven investment strategy to be implemented by Schroders, following their appointment, will result in the tender offer being undersubscribed.

The Board believes that the proposed tender offer combined with the appointment of Schroders and the proposed revisions to the Company's investment policy are all in the best interests of shareholders. Together they will provide shareholders with an opportunity to participate in a successful absolute return focused strategy which is differentiated from all other closed-end Asian investment companies while allowing shareholders wishing to realise their investment in the Company to do so.

Outlook

With fears over a break-up of the Euro zone having receded and the fiscal cliff in the USA having been avoided, at least for the time being, markets heaved a sigh of relief and rallied strongly at the beginning of 2013. There are still many uncertainties, but the economic outlook is looking somewhat more positive in the US, whilst growth in China seems to have turned a corner, Japan has adopted more expansionary fiscal and monetary policies and there continue to be expectations of a better growth outlook throughout the Asian region.

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HENDERSON ASIAN GROWTH TRUST PLC

Annual Financial Report for the year ended 31 December 2012

On the assumption that there will be a new Manager of the Company this year, there will be significant restructuring of the portfolio in line with the new investment policy, as well as tactical hedging of markets which the new portfolio managers feel may be overbought, along with strategic hedging of positions in countries where the portfolio managers have a negative economic outlook. Perhaps the greatest risks this coming year will be around potential overheating in some of the region's economies and the re-emergence of inflation, given the degree of monetary easing which has taken place globally over the last five years. However, there seems to be a sense that the bull market in bonds, particularly government issues, is running out of steam, and that the improving economic prospects generally are positive for equities, and particularly for companies exhibiting sound growth credentials. We believe, therefore, that the stock picking prowess of Robin Parbrook and King Fuei Lee, who we propose will takeover the Company's management, coupled with judicious downside protection, will generate for shareholders a superior performance over the medium to long term.

Principal risks and uncertainties

The Board has drawn up a matrix of risks facing the Company and has put in place a schedule of investment limits and restrictions, appropriate to the Company's investment objective and policy, in order to mitigate these risks as far as practicable. The principal risks which have been identified and the steps taken by the Board to mitigate these are as follows: