Final Results

RNS Number : 4310F

Aberdeen Asian Smaller Co's Inv Tst

08 October 2008

 



ABERDEEN ASIAN SMALLER COMPANIES INVESTMENT TRUST PLC

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 JULY 2008

1.  CHAIRMAN'S STATEMENT

Results and Dividend

During the year to 31 July 2008, the Company's share price and diluted net asset value fell 16.7% and 13.2% respectively, which compares with declines of 24.1% and 11.6% in the MSCI AC Asia Pacific ex Japan Small Cap index and the MSCI Asia Pacific ex Japan index respectively. Although the smaller companies index significantly under-performed the large companies index during the review period, your Company significantly outperformed the smaller cap index, a reflection of the quality and strength of the companies in which it invests. Since our year end until the end of September the share price and net asset value have fallen further, by 11.1% and 6.8%, but have done much better than the indices which were down 17.8% and 13.0%.

When I reported to you in October 2007 I cautioned that the future level of any special dividend payable by the Company would depend upon the receipt of special dividends from the companies in the portfolio. During the year we have seen a marked reduction in special dividend receipts although this has been tempered by a general increase in the ordinary dividends received. As a result, the Company has today declared a first and final dividend of 4.0p together with a special dividend of 1.0p, representing an increase in the level of the final dividend of 15.9%. The 18.7% reduction in the total dividend paid reflects the sharp reduction in special dividends received in the year. If approved by shareholders at the Annual General Meeting of the Company, the dividends will be paid on 28 November 2008 to shareholders on the register on 17 October 2008.

Overview

It was clearly a very difficult year for your Company. During Autumn last year, it appeared that Asian markets would be spared the effects of the mortgage-led credit implosion that had begun towards the end of July. However, reality soon caught up and from November onwards, regional markets tumbled. Rapidly rising commodity prices, particularly that of oil, lead to inflation fears, since many Asian economies are importers of resources, and were thus seeing significant deteriorations in their terms of trade. Political uncertainties, notably in Malaysia and Thailand, where incumbent governments were besieged with no-confidence votes, also weighed on sentiment. 

Your Manager Hugh Young and his team at Aberdeen Asset Management Asia in Singapore, however, steered the Company well during the past year's uncertainties. This was due to their well-entrenched philosophy of investing in companies that offer margins of safety, good long-term growth prospects, and have sound management teams and strong balance sheets. 

Your portfolio trades on an average price-to-earnings multiple of 12x based on 2008 earnings, very reasonable in the context of Asia's excellent long-term growth prospects and the strength of the balance sheets of the companies.

Your Manager continues to be cautious about Chinese companies, preferring to gain exposure to the growth of the Chinese economy through Hong Kong companies, where transparency and accounting standards are more stringent than those of the stock exchanges in Shanghai and Shenzhen and, even more importantly, where managements have long experience of managing publicly listed companies through economic cycles. 

The Company has no presence in Australian companies as your Manager believes Australian smaller companies to be vulnerable to earnings disappointments given their balance sheets, which are generally more leveraged than elsewhere in Asia. The Company is also absent Taiwan having found no companies of sufficient quality.

Benchmark

I advised shareholders in the Half Yearly Report that the Board, in conjunction with the Manager, was reviewing a new index, the MSCI Asia Pac Free ex. Japan Small Cap Index (currency adjusted) (the "Small Cap Index"), with a view to deciding whether to adopt it as a Benchmark. Following this review, the Board and Manager remain of the opinion that there is no suitable index to use as a Benchmark for the Company. However, the performance of the new Small Cap Index will be included for information only in future Annual Reports and will also be used for Board reporting along with the MSCI AC Asia Pacific Free ex Japan Index (currency adjusted) which is a general regional index. Shareholders should remember that, due to the management style, it is likely that there will be periods when the Company's performance will be quite unlike that of either index.

Share Capital and Gearing

During the year, your Company purchased in the market for treasury 1,022,011 Ordinary shares. We also took the opportunity to purchase for cancellation 282,000 Warrants in order to reduce future dilution.  

The Company has continued to use gearing during the year and was approximately 2.6% geared at the year end (on a net basis) compared with 1.2% at the start of the year. During the year the Company repaid its facility with AIB and drew down the equivalent of £4.2 million under a new multi currency committed facility with Barclays Bank. Subsequent to the year end a further £5.4 million was drawn down under the facility. The Board will continue to monitor the Company's gearing on a regular basis under advice from the Manager. 

Annual General Meeting

The Annual General Meeting is scheduled to be held on 26 November 2008 at 12.00 noon. In addition to the usual ordinary business, as special business the Board is seeking to renew its existing authority to issue new shares for cash without pre-emption rules applying and to renew its authority to buy back shares and either hold them in treasury for future resale (at asset value or above) or cancel them. The Directors are also proposing to adopt new articles of association which will take account of further changes as a result of the implementation of the Companies Act 2006. Amongst other things, these changes will enable the Board to approve at its discretion potential conflicts that may arise between the Directors and the Company on a case by case basis. 

Outlook

The outlook for the next twelve months is very uncertain. Asian stock markets have fallen sharply and economic growth forecasts have been trimmed, albeit Asia will remain the world's fastest growing region.

At the time of writing, the US financial industry bailout package had just been passed although it was far from clear that this would prevent further contagion. 

That said, the recent falls in the oil price and those of other commodities have taken the pressure off many Asian central banks, at least in the short term, to tighten monetary conditions. Balance sheets at both a company and country level are strong, providing a stable backdrop for good economic growth in the next 3-5 years.

As for your portfolio, where balance sheets are especially strong your Manager believes that the current downturn will provide the companies in which your Company invests with opportunities to strengthen their competitive positions. The long term Asian growth story remains fundamentally very much in place.

Nigel Cayzer

Chairman

8 October 2008

2.  MANAGER'S REVIEW

The year under review proved a very challenging one for Asian stock markets, as the financial crisis that began in the US spread to all parts of the world. Although the problems in the mortgage-backed securities markets surfaced in late July, it took a further three months for Asian markets to be impacted. Hopes that Asian economies could 'decouple' from their Western counterparts had underpinned markets but as the year progressed, it became increasingly clear that regional markets and economies were still sensitive to events in the West. Concerns over weakening global economic prospects heightened investors' nervousness which, combined with fears of a resurgence of inflation, led to a widespread sell-off. Interventions by US and European central banks staved off a total loss of confidence in credit markets, allowing many major global financial institutions to raise much-needed capital. In Asia, China and India lead the falls in equity markets, these having been the ones which had run up the most in 2006 and 2007.

Few Asian companies, small or otherwise, had exposure to collateralised debt obligations, having invested in the safer sovereign bond markets. But this did not stop the turmoil from causing a sharp sell off in Asian equities, particularly the less liquid counters. Consequently, smaller companies, which had out-performed their larger peers in the latter stages of the bull market, under-performed significantly during the review period. The MSCI AC Asia Pacific ex Japan Small Cap Index lost almost 22% in sterling terms, compared to the MSCI AC Asia Pacific ex Japan Index's decline of around 9%. 

Economic growth held up well for the most part, with most Asian economies expanding steadily. But momentum has eased considerably in recent months as rising input costs squeezed profit margins, while higher food and fuel costs dampened private consumption. Export-reliant economies, such as China, Hong Kong, Singapore and Taiwan have downgraded their 2008 economic forecasts. More domestically driven economies such as India, Korea and the Philippines followed suit, signalling a deeper slowdown in the region. 

Decelerating economic growth, coupled with the return of inflation, has complicated fiscal and monetary policy, especially in Asia, where food and fuel account for a higher proportion of spending. So far, policy responses have been mixed. Some countries chose to maintain expensive subsidies; others, such as India and the Philippines tightened monetary conditions; while Singapore allowed its currency to appreciate to counter price increases. But real interest rates across Asia remain negative in aggregate.

Portfolio review

Historically, your Company has used the MSCI AC Asia Pacific ex Japan index for performance comparison. During the review period, on a total return basis the Company lagged this index by 4% in sterling terms. But measured against the MSCI AC Asia Pacific ex Japan Small Cap Index, the Company outperformed by more than 9% (total return basis). The underperformance compared with the AC Asia Pacific ex Japan index was due to negative contributions from stock selection and currency, which nullified a positive gain from asset allocation.  

At the stock level, the main disappointments were from the Company's holdings in Indonesia, Thailand and Korea. In Indonesia, consumer-related companies Dynaplast and Mustika Ratu, and Bank NISP were the main laggards, with each declining over 25%. Dynaplast (-28.1%) was dragged down by its weak first-half earnings despite signs of recovery in the second quarter. Higher material costs squeezed margins, as the higher oil price had driven up the price of plastics, the main input for the company's packaging products. Doubts about Mustika Ratu's expansion plans through mergers and acquisitions undermined the stock (-25.8%) during the review period, while a weakening domestic banking environment pushed Bank NISP's share price down 26.3%. The bank's management has adopted a more conservative tone and is likely to moderate its pace of expansion. 

In Thailand, transhipment operator Regional Container Lines slumped 58.1%. We have trimmed the position in the stock, given the general weakness in shipping stocks and profits that were affected by higher bunker charges and softer freight rates. Tisco Bank (-43.7%) fell despite reporting decent second quarter results, as fears that the company's bid for loss-making, thinly-capitalised Bank Thai would succeed weighed on the stock. Although Tisco subsequently withdrew from the bid, worries remain over narrowing loan margins. Aeon Thana Sinsap (-38.5%), a holding which we introduced during the second-half of the reporting period, faced concerns over rising bad loans and thinner margins amid lacklustre economic growth. We had initiated a position in the consumer finance company to leverage our good understanding of Aeon Group companies (Hong Kong's Aeon Credit Service operates similarly to the Thai business) and attractive growth opportunities, particularly outside the capital Bangkok. 

In Korea, the Company's bank holdings, Jeonbuk (-33.6%) and Daegu (-32.7%), faced an increasingly challenging operating environment, but their first-half results were in line with expectations. Jeonbuk benefited from one-off gains, while Daegu was boosted by an improvement in loan growth. 

The underperformance of the holdings in India was largely attributable to Aventis Pharma (-40.0%) and Jammu and Kashmir Bank (-27.3%). Aventis was affected by weak export demand and some minor production issues, while poor sentiment relating to slowing economic growth and higher interest rates affected Jammu and Kashmir Bank.

On the positive side, strong performances from the Company's holdings in Singapore and Hong Kong contributed to relative returns. Retail group Robinson & Company, and Straits Trading, an investment holding company with operations in property, hospitality and mining, surged 73.5% and 64.3% respectively, on the back of bids for the companies. We sold Robinson & Co after the Al-Futtain Group improved its offer, and completed the sale of Straits Trading after accepting the tender offer from the families of the late Tan Chin Nam.

Aeon Credit (+26.3%), Aeon Stores (+15.6%) and Hong Kong Economic Times (+10.8%), all of which we topped up during the review period, were among the Company's best performers in Hong Kong. Aeon Credit's business remains solid; Aeon Stores is benefiting from its successful expansion into China; while Hong Kong Economic Times continues to grow its market share and improve circulation numbers by introducing niche products, despite operating in a saturated market. 

Other holdings that did well included Chevron Lubricants (+52.8%), the market leader in Sri Lanka which saw sustained strength in its business; brewer Multi Bintang Indonesia (+41.9%), a defensive stock that provides an attractive yield of 7.5%; Malaysian plantation company United Malacca (+40.1%), a beneficiary of strong crude oil prices; Holcim Indonesia (+19.4%), which performed well owing to robust cement sales; and LPI Capital (+17.4%), which gained from healthy results and a strong balance sheet.

On the asset allocation front, the Company's relative performance was helped by the overweight in Indonesia and the underweight in Korea. Indonesia was the only market that bucked the regional downtrend, with shares there benefiting from the spike in commodity prices. Korean equities struggled, due in part to renewed credit market woes and economic uncertainty, but also to the political protests sparked by President Lee Myung-Bak's decision to resume US beef imports. 

The overweight positions in Hong Kong and Singapore also boosted relative returns. Hong Kong stocks, which had had a feverish run-up at the start of the reporting period when China announced moves to widen mainland investment into the territory, were subsequently pulled lower by the sharp falls in Chinese shares. In Singapore, easing demand for exports and the impact of the turmoil in the financial and real estate sectors undermined market sentiment. We have, however, maintained overweight positions for some time now, as the two markets offer high-quality, well-run companies with superior earnings track records and standards of corporate governance.

The Company's lack of exposure to weak markets such as Australia and China had a positive impact on relative performance, but the strength of the Australian dollar and renminbi ate into relative gains.

In portfolio activity, the more significant transactions for the review period included the introduction of Holcim Indonesia, YNH Property and Shangri-La Hotels Malaysia. Holcim Indonesia, a subsidiary of Swiss cement-producer Holcim, offers exposure to domestic infrastructure spending; Malaysian-listed property developer YNH Property, which evolved from a plantation company, has successfully expanded into Ipoh and Kuala Lumpur and continues to benefit from cheap land acquisitions; and hotel chain Shangri-La, which continues to see improvements in its business prospects. We also reinitiated a position in Hong Kong satellite service provider Asia Satellite, which has a strong balance sheet and offers steady earnings growth.

In addition to the purchases mentioned above, we also added to holdings in India's Godrej Consumer Products and Philippine fast-food operator Jollibee Foods, both of which have successfully created niche positions and solid brand names in their respective domestic markets, despite facing intense competition from international companies. We also increased our exposure to Hong Kong-based apparel retailer Giordano International, having seen an improvement in its operations in several key markets. Other less prominent transactions included top-slicing Eastern Water Resources, given the change in its business model, as well as the trimming of positions in Indonesian plantation company MP Evans and conglomerate Distilleries Company of Sri Lanka after their strong runs.

Outlook

General market volatility is expected for some time, as the fallout from the credit crisis and deteriorating economic conditions continues to weigh on sentiment. With signs of slowing global growth spreading across Asia, the region's pace of expansion will likely ease, while inflation will remain elevated despite the recent fall in commodity prices. Political risks have risen too, as the strain of increasing living costs feed a growing discontent.

With markets broadly at levels seen a year ago, consolidation, which had been anticipated for some time, is underway. Although we expect corporate earnings to deteriorate further this year and next owing to declining demand and margin pressure, the Company's holdings should weather these difficulties, given their strong balance sheets and competitive positions. 

As ever, we remain committed to investing in companies with robust business models, sound finances, and management teams that have a high regard for minority shareholders. We are confident that our predisposition towards such companies will continue to deliver steady results over the long term. 

Note: All figures mentioned above are based on one-year total return in sterling terms.

Aberdeen Asset Management Asia Limited

8 October 2008

  3.  RESULTS

		31 July 2008		31 July 2007	% change
Total Assets		£114,039,000		£139,129,000	-18.0
Total Equity Shareholders' funds (Net Assets)		£109,829,000		£131,679,000	-16.6
Share price (mid market)		266.50p		320.00p	-16.7
Warrant price (mid market)		165.50p		218.50p	-24.3
Net Asset Value per share (basic)		347.24p		404.18p	-14.1
Net Asset Value per share (diluted)		316.46p		364.77p	-13.2
Discount to diluted Net Asset Value		15.8%		12.3%
Actual gearing		2.6%		1.2%
Potential gearing		3.8%		5.7%
Dividends and earnings
Total return per share (basic){A}		(50.80)p		108.38p
Revenue return per share (undiluted)		5.88p		6.98p	-15.8
Dividends per share {B}		5.00p		6.15p	-18.7
Dividend cover		1.18		1.13	+3.6
Revenue reserves{C}		£3,151,000		£3,265,000	-3.5
Operating costs
Total expense ratio		1.69%		1.55%
{A} Measures the total earnings for the year divided by the weighted average number of Ordinary shares in issue (see note 15). {B} The figures for dividends per share reflect the dividends for the year in which they were earned and includes a special dividend payable of 1.00p (2007 - 2.70p) per share. {C} Prior to payment of final and special dividends.
Dividends per share{B}	5.00p		6.15p		-18.7

Performance (total return)

	1 year	3 year	5 year
	% return	% return	% return
Share price	-15.0	+10.7	+98.9
Net Asset Value (basic) per Ordinary share	-12.8	+26.2	+114.9
Net Asset Value (diluted) per Ordinary share	-11.8	+32.5	+116.7
MSCI AC Asia Pacific ex Japan Index (currency adjusted)	-8.8	+41.7	+119.8
MSCI AC Asia Pacific ex Japan Small Cap Index (currency adjusted)	-21.9	+40.0	+118.5
Source: Aberdeen Asset Management PLC, Fundamental Data, Factset & Russell Mellon

Dividends

	Rate	xd date	Record date	Payment date
Proposed Final 2008	4.00p	15 October 2008	17 October 2008	28 November 2008
Proposed Special 2008	1.00p	15 October 2008	17 October 2008	28 November 2008
Final 2007	3.45p	24 October 2007	26 October 2007	30 November 2007
Special 2007	2.70p	24 October 2007	26 October 2007	30 November 2007

  4.  BUSINESS REVIEW

Status

The Company is registered as a public limited company, is an investment company as defined by Section 833 of the Companies Act 2006, and is a member of the Association of Investment Companies.

The Company has been approved by HM Revenue & Customs as an investment trust for the purposes of Section 842 of the Income and Corporation Taxes Act 1988 for the year ended 31 July 2007. The Directors are of the opinion that the Company has conducted its affairs for the year ended 31 July 2008 so as to be able to continue to obtain approval as an investment trust under Section 842 of the Income and Corporation Taxes Act 1988 for that year, although approval for that year would be subject to review were there to be an enquiry under the Corporate Tax Self Assessment regime.

The Company intends to manage its affairs so as to be a qualifying investment for inclusion in the stocks and shares component of an Individual Savings Account ("ISA") and it is the Directors' intention that the Company should continue to be a qualifying trust.

A review of the Company's activities is given below and in the Chairman's Statement and the Manager's Review. This includes a review of the business of the Company and its principal activities, likely future developments of the business, recommended dividends and details of the issue of new shares during the year by the Company. The major risks associated with the Company are detailed below and in Note 19 to the Financial Statements. Further details of the risk management objectives and policies are provided in the Annual Report. The Key Performance Indicators for the Company, including NAV performance and share price performance, are detailed under Results above.

The current Directors, Messrs N K Cayzer, A S Kemp, M J Gilbert (alternate H Young), C S Maude and Miss H Fukuda were the only Directors who served during the year.  

The Company does not make political donations and has not made any donations for charitable purposes during the year and in common with most investment trusts, the Company has no employees. Directors' & Officers' liability insurance cover has been maintained throughout the year at the expense of the Company.

Investment Objective

The investment objective of the Company is to maximise total return to Shareholders over the long term from a portfolio of smaller quoted companies (with a market capitalisation of up to approximately US$750m at the time of investment) in the economies of Asia and Australasia, excluding Japan.  

Investment Policy

The Company's assets are invested in a diversified portfolio of securities in quoted smaller companies spread across a range of industries and economies in the investment region including Australia, Bangladesh, China, Hong Kong, India, Indonesia, Korea, Malaysia, New Zealand, Pakistan, The Philippines, Singapore, Sri Lanka, Taiwan and Thailand together with such other countries in Asia as the Directors may from time to time determine, (collectively, the "Investment Region").

The Company's portfolio comprises securities (substantially in the form of equities or equity related securities such as convertible securities and warrants) of companies with market capitalisations of up to approximately US$750 million at the time that the investment is made.

Investments may also be made through collective investment schemes and in companies traded on stock markets outside the Investment Region provided that over 75 per cent. of their consolidated revenue is earned from trading in the Investment Region or they hold more than 75 per cent. of their consolidated net assets in the Investment Region.

Achieving the Investment Policy

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 AAM Asia. The Manager invests in a diversified range of companies throughout the Investment Region in accordance with the investment policy. The Manager follows a bottom-up investment process based on a disciplined evaluation of companies through direct visits by its fund managers. Stock selection is the major source of added value. No stock is bought without the fund managers having first met management. The Manager estimates 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 calculated by reference to key financial ratios, the market, the peer group and business prospects. Top-down investment factors are secondary in the Manager's portfolio construction, with diversification rather than formal controls guiding stock and sector weights. Except for the maximum market capitalisation limit little regard is paid to market capitalisation. The Manager is authorised to invest up to 10% of the Company's gross assets in any single stock although circumstances may occasionally arise when it may be in shareholders' interests to make an investment that exceeds this level.

A detailed description of the investment process and risk controls employed by the Manager is disclosed in the Annual Report. At the year end the Company's portfolio consisted of 65 holdings.

The Board is responsible for determining the gearing strategy for the Company. Gearing is used selectively to leverage the Company's portfolio in order to enhance returns where and to the extent this is considered appropriate to do so. At the year end there was gearing of 2.6% which compares with a maximum limit of 25% although in the last 10 years gearing has been within the approximate range of 0% to 16%. Borrowings are short term and particular care is taken to ensure that any bank covenants permit maximum flexibility of investment policy.

In addition, it is the investment policy of the Company to invest no more than 15% of its gross assets in other listed investment companies (including listed investment trusts). The Company currently does not have any investments in other investment companies.

Benchmark

There is no meaningful smaller companies index against which to compare the performance of the Company. Accordingly, the Manager utilises two general regional indices, the MSCI AC Asia Pacific ex Japan (currency adjusted) and the MSCI AC Asia Pacific Small Cap ex Japan (currency adjusted), as well as peer group comparisons for Board reporting. It is likely that performance will diverge, possibly quite dramatically in either direction, from these or any other indices.

The Manager undertakes substantial due diligence before initiating any investment, including company visits, to assure the quality of any prospective investment. The Manager seeks to minimise risk by using in depth research and does not see divergence from a benchmark as risk.

Capital Structure

At 31 July 2008 the Company had a capital structure comprising 32,651,144 Ordinary shares (of which 31,629,133 Ordinary shares are in issue and 1,022,011 Ordinary shares are held in treasury) and 4,495,356 Warrants to subscribe for Ordinary shares at 100p. The Company also had bank borrowings in US Dollars amounting to the equivalent of £4.2 million which rank for repayment ahead of any capital repayment to Shareholders.

Total Assets and Net Asset Value

The Company had total assets of £114.0 million and a basic net asset value of 347.24p per share at 31 July 2008.

Duration

The Company does not have a fixed life.

Principal Risk Factors

Investment in Far East equities or those of companies that derive significant revenue or profit from the Far East involves a greater degree of risk than that usually associated with investment in the securities in major securities markets. The securities that the Company owns may be considered speculative because of this higher degree of risk. Further details of the risks attaching to the Company's shares are provided in note 19 to the financial statements. These risks include:

Ordinary Shares

The market price and the realisable value of the Ordinary shares, as well as being affected by their underlying net asset value, also take into account supply and demand, market conditions and general investor sentiment. As such, the market value and the realisable value of the Ordinary shares may fluctuate and vary considerably from their net asset value and investors may not be able to realise the full value of their original investment. 

Dividends

The Company will only pay dividends on the Ordinary shares to the extent that it has profits available for that purpose. The ability of the Company to pay any dividends in respect of the Ordinary shares will depend primarily on the level of income received from its investments. Accordingly, the amount of the dividends paid to Shareholders may fluctuate.

Borrowings

Whilst the use of borrowings should enhance the total return on the Ordinary shares where the return on the Company's underlying assets is rising and exceeds the cost of borrowing, it will have the opposite effect where the underlying return is less than the cost of borrowing, further reducing the total return on the Ordinary shares. The Company currently utilises gearing in the form of bank borrowings (see 'Capital Structure' above and note 11).

Market Risks

The Company's investments are subject to normal market fluctuations and the risks inherent in the purchase, holding or selling of securities, and there can be no assurance that appreciation in the value of those investments will occur. Investment in emerging securities markets in the Asia Pacific region involves a greater degree of risk than that usually associated with investment in more developed securities markets; including the risk of social, economic and political instability which may have an adverse effect on economic reforms or restrict investment opportunities.

Foreign Exchange Risks

The Company accounts for its activities and reports its results in sterling while investments are made and realised in other currencies. It is not the Company's present intention to engage in currency hedging, although it reserves the right to do so. Accordingly, the movement of exchange rates between sterling and the other currencies in which the Company's investments are denominated or its borrowings are drawn down may have a material effect, unfavourable as well as favourable, on the returns otherwise experienced on the investments made by the Company.

Taxation and Exchange Controls

Any change in the Company's tax status or in taxation legislation (including the tax treatment of dividends or other investment income received by the Company) or failure to satisfy the conditions of section 842 of the Income and Corporation Taxes Act 1988 could affect the value of the investments held by the Company, affect the Company's ability to provide returns to Shareholders or alter the post-tax returns to Shareholders.

The Company may purchase investments that may be subject to exchange controls or withholding taxes in various jurisdictions. In the event that exchange controls or withholding taxes are imposed with respect to any of the Company's investments, the effect will generally be to reduce the income received by the Company on its investments and the capital value of the affected investments.

Management Agreement

The Company has an agreement with AAM Asia for the provision of management services, details of which are shown in note 3 to the financial statements.

The Directors review the terms of the investment management agreement on a regular basis and have confirmed that, due to the long-term relative performance, investment skills, experience and commitment of the investment management team, in their opinion the continuing appointment of AAM Asia is in the interests of Shareholders as a whole.

5.  STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors are responsible for preparing the Annual Report and Accounts and the 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 the Directors have elected to prepare the financial statements in accordance with UK Accounting Standards.

The financial statements are required by law to give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.

In preparing these financial statements, the Directors are required to:

· select suitable accounting policies and then apply them consistently; 

· make judgments and estimates that are reasonable and prudent; and,

· state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements.

The Directors are responsible for keeping proper accounting records that 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 1985 and Companies Act 2006, where applicable. They 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 Directors' Report, Directors' Remuneration Report and Statement of Corporate Governance that comply with that law and those regulations.

The financial statements are published on www.asian-smaller.co.uk which is a website maintained by the Company's Manager. 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.

The Directors confirm that to the best of our knowledge:

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

· the Directors’ Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that the Company faces.

For Aberdeen Asian Smaller Companies Investment Trust PLC

Nigel Cayzer

Chairman

8 October 2008

  6.   INVESTMENT PORTFOLIO

Ten Largest Investments

As at 31 July 2008

Company	Sector	Country	Valuation 2008 £'000	Total assets %	Valuation 2007 £'000
Bukit Sembawang Estates
Singapore-based residential property developer with a large land bank.	Real Estate	Singapore	6,062	5.3	7,017
Bank NISP
72 per cent-owned by Singapore's OCBC, it specialises in lending to the small and medium-sized business segment.	Commercial Banks	Indonesia	4,753	4.2	6,265
WBL
Conglomerate with principal activities in technology, car distribution, property and engineering.	Electronic Equipment & Instruments	Singapore	4,606	4.0	3,468
LPI Capital
Malaysia-based investment company involved in underwriting fire, motor, marine, aviation, transit and miscellaneous insurance.	Financial Services	Malaysia	3,411	3.0	3,219
ICI India
Producer and marketer of auto and decorative paints, speciality chemicals, adhesives and starch.	Paints & Chemicals	India	3,391	3.0	3,214
AEON Co
Operator of general merchandise, supermarkets and convenience stores.	Multi-line Retail	Malaysia	3,223	2.8	3,761
AEON Stores
Operator of general merchandise, supermarkets, discount stores, home centres, convenience stores, department stores and speciality stores.	Multi-line Retail	Hong Kong	2,974	2.6	2,654
Hong Kong Economic Times
Publishing and multimedia company whose publications include the Hong Kong Economic Times newspaper, U Magazine and iMoney.	Media	Hong Kong	2,889	2.5	2,641
Wheelock Properties
Property investor and developer, with a focus on luxury residences.	Real Estate	Singapore	2,822	2.5	4,889
The Hong Kong & Shanghai Hotels
Holding company whose subsidiaries are engaged in the ownership and management of prestigious hotel, commercial and residential properties in key destinations in Asia and the USA.	Hotels, Restaurants & Leisure	Hong Kong	2,749	2.4	2,913
			__________	__________
Top ten investments			36,880	32.3

  Investment Portfolio - Other Investments

As at 31 July 2008

Company	Sector	Country	Valuation 2008 £'000	Total assets  %	Valuation 2007 £'000
Siam Makro	Food & Staples Retailing	Thailand	2,652	2.3	3,022
Godrej Consumer Products	Personal Products	India	2,643	2.3	2,744
Korean Reinsurance	Insurance	South Korea	2,625	2.3	3,795
Cafe de Coral	Hotels, Restaurants & Leisure	Hong Kong	2,586	2.3	2,526
United Plantations	Food Products	Malaysia	2,523	2.2	2,698
Giordano International	Speciality Retail	Hong Kong	2,469	2.2	1,018
Hana Microelectronic	Electronic Equipment & Instruments	Thailand	2,277	2.0	3,275
AEON Credit Service	Consumer Finance	Hong Kong	2,124	1.9	1,729
Kansai Nerolac Paints	Chemicals	India	2,087	1.8	1,832
Castrol	Chemicals	India	2,056	1.8	1,452
			________	________	________
Top twenty investments			60,922	53.4
			________	________	________
Jammu & Kashmir Bank	Commercial Banks	India	2,008	1.8	2,861
Jollibee Foods	Hotels, Restaurants & Leisure	Philippines	1,968	1.7	1,585
Hong Leong Finance	Consumer Finance	Singapore	1,926	1.7	1,975
Daegu Bank	Commercial Banks	South Korea	1,886	1.6	2,923
Guinness Anchor	Beverages	Malaysia	1,814	1.6	1,681
United Malacca	Food Products	Malaysia	1,811	1.6	-
Pacific Basin Shipping	Industrial Transportation	Hong Kong	1,792	1.6	4,289
Cebu Holdings	Real Estate	Philippines	1,782	1.6	1,974
Asian Terminals	Transportation Infrastructure	Philippines	1,778	1.6	2,499
Jeonbuk Bank	Commercial Banks	South Korea	1,769	1.5	2,961
			________	________	________
Top thirty investments			79,456	69.7
			________	________	________
Eastern Water Resources	Water Utilities	Thailand	1,756	1.5	1,938
SBS Transit	Road and Rail	Singapore	1,721	1.5	2,101
Shangri-La Hotels	Hotels, Restaurants & Leisure	Malaysia	1,678	1.5	-
M.P. Evans	Food Products	Other Asia	1,661	1.5	3,010
Pos Malaysia	Air Freight & Logistics	Malaysia	1,586	1.4	2,984
FJ Benjamin Holdings	Speciality Retail	Singapore	1,457	1.3	2,055
Gujarat Gas	Gas Utilities	India	1,446	1.3	1,859
Multi Bintang Indonesia	Beverages	Indonesia	1,445	1.3	1,063
Millenium & Copthorne Hotels	Hotels, Restaurants & Leisure	New Zealand	1,375	1.2	-
Tisco Bank	Consumer Finance	Thailand	1,373	1.2	2,287
			________	________	________
Top forty investments			94,954	83.3
			________	________	________
Region Container Lines	Marine	Thailand	1,350	1.2	3,015
Commercial Bank of Ceylon	Commercial Banks	Sri Lanka	1,160	1.0	1,158
Asia Satellite Communications	Telecommunications	Hong Kong	1,159	1.0	-
Keells (J)	Industrial Conglomerates	Sri Lanka	1,126	1.0	1,342
Unilever Pakistan	Food Products	Pakistan	1,069	0.9	1,194
Singapore Food Industries	Food & Staples Retailing	Singapore	1,001	0.9	-
YNH Property	Real Estate	Malaysia	980	0.9	-
Ginebra San Miguel	Beverages	Philippines	935	0.8	-
Aventis Pharmaceuticals	Pharmaceuticals	India	934	0.8	1,597
Chevron Lubricants	Oil & Gas	Sri Lanka	882	0.8	-
			________	________	________
Top fifty investments			105,550	92.6
			________	________	________
Other investments (15)			7,539	6.6
			________	________	________
Total investments			113,089	99.2
			________	________	________
Net current assets{A}			950	0.8
			________	________	________
Total assets{B}			114,039	100.0
			________	________	________
{A} excludes bank loans of £4,173,000.
All investments are in equities or warrants to convert to equities. For a full portfolio listing for Aberdeen Asian Smaller Companies Investment Trust, please go to www.asian-smaller.co.uk.

  7.   INCOME STATEMENT

		Year ended 31 July 2008			Year ended 31 July 2007
		Revenue	Capital	Total	Revenue	Capital	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000
(Losses)/gains on investments	9	-	(17,988)	(17,988)	-	32,355	32,355
Income	2	5,021	-	5,021	5,485	-	5,485
Exchange gains		-	48	48	-	536	536
Investment management fees	3	(1,493)	-	(1,493)	(1,243)	-	(1,243)
Administrative expenses	4	(640)	-	(640)	(612)	-	(612)
		_______	_______	_______	_______	_______	_______
Net return on ordinary activities before finance costs and taxation		2,888	(17,940)	(15,052)	3,630	32,891	36,521
Finance costs	5	(237)	-	(237)	(448)	-	(448)
		_______	_______	_______	_______	_______	_______
Return on ordinary activities before taxation		2,651	(17,940)	(15,289)	3,182	32,891	36,073
Taxation	6	(761)	(271)	(1,032)	(919)	-	(919)
		_______	_______	_______	_______	_______	_______
Return on ordinary activities after taxation		1,890	(18,211)	(16,321)	2,263	32,891	35,154
		_______	_______	_______	_______	_______	_______
Return per share (pence):	8
Basic		5.88	(56.68)	(50.80)	6.98	101.40	108.38
		_______	_______	_______	_______	_______	_______
Diluted		5.36	(51.68)	(46.32)	6.34	92.13	98.47
		_______	_______	_______	_______	_______	_______
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. No operations were acquired or discontinued in the year. A Statement of Total Recognised Gains and Losses has not been prepared as all gains and losses are recognised in the Income Statement. The accompanying notes are an integral part of the financial statements.

  8.  BALANCE SHEET

		As at	As at
		31 July 2008	31 July 2007
	Notes	£'000	£'000
Non current assets
Investments at fair value through profit or loss	9	113,089	133,792
		___________	___________
Current assets
Debtors and prepayments	10	523	432
Cash and short term deposits		1,387	5,884
		___________	___________
		1,910	6,316
		___________	___________
Creditors: amounts falling due within one year	11
Bank loan		(4,173)	(7,338)
Other creditors		(960)	(979)
		___________	___________
		(5,133)	(8,317)
		___________	___________
Net current liabilities		(3,223)	(2,001)
		___________	___________
Total assets less current liabilities		109,866	131,791
Provisions for liabilities and charges	12	(37)	(112)
		___________	___________
Net assets		109,829	131,679
		___________	___________
Capital and reserves
Called-up share capital	13	8,163	8,145
Capital redemption reserve		2,062	2,062
Share premium account		11,140	11,087
Special reserve		11,975	14,990
Warrant reserve		1,461	1,576
Capital reserve		71,877	90,554
Revenue reserve		3,151	3,265
		___________	___________
Equity Shareholders' funds		109,829	131,679
		___________	___________
Net asset value per share (pence):	15
Basic		347.24	404.18
		___________	___________
Diluted		316.46	364.77
		___________	___________

  9.   RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

For the year ended 31 July 2008
			Capital	Share
		Share	redemption	premium	Special	Warrant	Capital	Revenue
		capital	reserve	account	reserve	reserve	reserve	reserve	Total
	Note	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 July 2007		8,145	2,062	11,087	14,990	1,576	90,554	3,265	131,679
Purchase of own shares		-	-	-	(3,015)	-	-	-	(3,015)
Exercise of warrants		18	-	53	-	(23)	23	-	71
Buyback of warrants		-	-	-	-	(92)	(489)	-	(581)
Return on ordinary activities after taxation		-	-	-	-	-	(18,211)	1,890	(16,321)
Dividends paid	7	-	-	-	-	-	-	(2,004)	(2,004)
		______	________	______	______	______	______	______	______
Balance at 31 July 2008		8,163	2,062	11,140	11,975	1,461	71,877	3,151	109,829
		______	________	______	______	______	______	______	______
For the year ended 31 July 2007
			Capital	Share
		Share	redemption	premium	Special	Warrant	Capital	Revenue
		capital	reserve	account	reserve	reserve	reserve	reserve	Total
	Note	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 July 2006		8,047	2,062	10,259	14,990	1,785	58,545	2,981	98,669
Issue of shares		62	-	720	-	-	-	-	782
Exercise of warrants		36	-	108	-	(47)	47	-	144
Buyback of warrants		-	-	-	-	(162)	(929)	-	(1,091)
Return on ordinary activities after taxation		-	-	-	-	-	32,891	2,263	35,154
Dividends paid	7	-	-	-	-	-	-	(1,979)	(1,979)
		______	________	______	______	______	______	______	______
Balance at 31 July 2007		8,145	2,062	11,087	14,990	1,576	90,554	3,265	131,679
		______	________	______	______	______	______	______	______
The revenue reserve represents the amount of the Company's reserves distributable by way of dividend. The accompanying notes are an integral part of the financial statements.

10.   CASH FLOW STATEMENT

		Year ended		Year ended
		31 July 2008		31 July 2007
	Notes	£'000	£'000	£'000	£'000
Net cash inflow from operating activities	16		2,688		3,377
Servicing of finance
Bank and loan interest paid			(348)		(332)
Taxation
Net taxation paid			(748)		(728)
Financial investment
Purchases of investments		(17,185)		(15,665)
Sales of investments		19,742		17,544
		_______		_______
Net cash inflow from financial investment			2,557		1,879
Equity dividends paid			(2,004)		(1,979)
			_______		_______
Net cash inflow before financing			2,145		2,217
Financing
Issue of shares		-		782
Purchase of own shares		(3,015)		-
Exercise of warrants		71		144
Buyback of warrants		(581)		(1,091)
Repayment of loan		(3,389)		-
		_______		_______
Net cash outflow from financing activities			(6,914)		(165)
			_______		_______
(Decrease)/increase in cash	17		(4,769)		2,052
			_______		_______
Reconciliation of net cash flow to movements in net debt
(Decrease)/increase in cash as above			(4,769)		2,052
Repayment of loan			3,389		-
Exchange movements			48		536
			_______		_______
Movement in net debt in the year			(1,332)		2,588
Net debt at 1 August			(1,454)		(4,042)
			_______		_______
Net debt at 31 July	17		(2,786)		(1,454)
			_______		_______

  11.   NOTES TO THE FINANCIAL STATEMENTS

For the Year Ended 31 July 2008

1.	Accounting policies
	(a)	Basis of preparation and going concern
		The financial statements have been prepared on the going concern basis in accordance with applicable UK Accounting Standards and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies' (issued January 2003 and revised in December 2005). They have also been prepared on the assumption that approval as an investment trust will continue to be granted.
		The financial statements, and the net asset value per share figures, have been prepared in accordance with UK Generally Accepted Accounting Practice (UK GAAP).
		During the year the Company adopted FRS 29 'Financial Instruments: Disclosures'. This standard primarily concerns the disclosure of financial instruments and risks. These disclosures can be found primarily in note 19.
	(b)	Valuation of investments
		Listed investments have been designated upon initial recognition as fair value through profit or loss. Investments are recognised and de-recognised at trade date where a purchase or sale is under a contract whose terms require delivery within the time frame established by the market concerned, and are initially measured at cost. Subsequent to initial recognition, investments are valued at fair value. For listed investments, this is deemed to be bid market prices. Gains and losses arising from changes in fair value are included in net profit or loss for the period as a capital item in the Income Statement and are ultimately recognised in the capital reserve.
	(c)	Income
		Dividends receivable on equity shares are recognised on the ex-dividend date. Dividends receivable on equity shares where no ex-dividend date is quoted are recognised when the Company's right to receive payment is established. Fixed returns on debt securities are recognised on a time apportioned basis so as to reflect the effective yield on shares. Other returns on debt securities are recognised when the right to return is established. Where the Company has elected to receive its dividends in the form of additional shares rather than in cash, the amount of the cash dividend is recognised as income. Any excess in the value of the shares received over the amount of the cash dividend is recognised in capital reserves.
		Income is charged 100% through the revenue column of the Income Statement.
	(d)	Expenses
		All expenses are accounted for on an accruals basis. Expenses, including management fees and finance costs, are charged 100% through the revenue column of the Income Statement with the exception of transaction costs incurred on the purchase and disposal of investments which are recognised as a capital expense in the Income Statement.
	(e)	Taxation
		The charge for taxation is based on the revenue return for the year.
		Deferred tax
		The charge for taxation is based on the profit for the year and takes into account taxation deferred because of timing differences between the treatment of certain items for taxation and accounting purposes. Deferred taxation is provided using the liability method on all timing differences, calculated at the rate at which it is anticipated the timing differences will reverse. Deferred tax assets are recognised only when, on the basis of available evidence, it is more likely than not that there will be taxable profits in future against which the deferred tax asset can be offset.
	(f)	Capital reserves
		Gains and losses on the sale of investments and changes in fair values of investments held are transferred to the capital reserve.
	(g)	Foreign currency
		Overseas monetary assets are converted into Sterling at the rate of exchange ruling at the balance sheet date. Transactions during the year involving foreign currencies are converted at the rate of exchange ruling at the transaction date. Any gain or loss arising from a change in exchange rates subsequent to the date of the transaction is included as an exchange gain or loss in the capital reserve or in the revenue account depending on whether the gain or loss is of a capital or revenue nature respectively.

		2008	2007
2.	Income	£'000	£'000
	Income from investments
	UK dividend income	42	73
	Overseas dividends	4,730	5,194
	Stock dividends	56	66
		_______	_______
		4,828	5,333
		_______	_______
	Other income
	Deposit interest	193	152
		_______	_______
	Total income	5,021	5,485

		2008			2007
		Revenue	Capital	Total	Revenue	Capital	Total
3.	Investment management fees	£'000	£'000	£'000	£'000	£'000	£'000
	Investment management fees	1,493	-	1,493	1,243	-	1,243
		_______	_______	_______	_______	_______	_______

The Company has an agreement with Aberdeen Asset Management Asia Limited ('AAM Asia') for the provision of management services. During the period the management fee was payable monthly in arrears and is based on an annual amount of 1.2%, calculated on the average net asset value of the Company over a 24 month period, valued monthly. The agreement is terminable on one years' notice. The balance due to AAM Asia at the year end was £257,000 (2007 - £341,000).

		2008			2007
		Revenue	Capital	Total	Revenue	Capital	Total
4.	Administrative expenses	£'000	£'000	£'000	£'000	£'000	£'000
	Administration fees	69	-	69	66	-	66
	Directors' fees	92	-	92	82	-	82
	Share Plan marketing contribution	98	-	98	85	-	85
	Auditors' remuneration:
	- fees payable to the auditors for the audit of the annual accounts	21	-	21	21	-	21
	- fees payable to the auditors and its associates for other services:
	- interim review	6	-	6	5	-	5
	- tax services	1	-	1	2	-	2
	Custodian charges	195	-	195	198	-	198
	Other expenses	158	-	158	153	-	153
		_______	_______	_______	_______	_______	_______
		640	-	640	612	-	612
		_______	_______	_______	_______	_______	_______

	The Company has an agreement with Aberdeen Asset Managers Limited ("AAM") for the provision of administration services. The administration fee is payable quarterly in advance and was based on an annual amount of £69,000 (2007 - £66,000) and there was £17,000 (2007 - £17,000) prepaid to AAM at the year end. The agreement is terminable on six month's notice.
	The Company also has an agreement with AAM for the provision of marketing services in relation to the Company's participation in the Aberdeen Investment Trust Share Plan and ISA. The total fee paid and payable under the agreement was £98,000 (2007 - £85,000) and there was £17,000 (2007 - £15,000 accrual) prepaid to AAM at the year end.
	No pension contributions were made in respect of any of the Directors.

		2008			2007
		Revenue	Capital	Total	Revenue	Capital	Total
5.	Finance costs	£'000	£'000	£'000	£'000	£'000	£'000
	On bank loans and overdrafts	237	-	237	448	-	448

				2008			2007
			Revenue	Capital	Total	Revenue	Capital	Total
6.	Taxation		£'000	£'000	£'000	£'000	£'000	£'000
	(a)	Analysis of charge for the year
		Corporation tax	836	271	1,107	855	-	855
		Overseas taxation	209	-	209	221	-	221
		Relief for overseas taxation	(209)	-	(209)	(211)	-	(211)
		Prior year adjustment	-	-	-	(4)	-	(4)
			_______	______	_______	_______	______	_______
		Current taxation	836	271	1,107	861	-	861
		Deferred taxation	(75)	-	(75)	58	-	58
			_______	______	_______	_______	______	_______
		Total tax	761	271	1,032	919	-	919
			_______	______	_______	_______	______	_______
	(b)	Factors affecting the tax charge for the year
		The tax assessed for the year is lower than the standard rate of corporation tax in the UK for a large company (29.3%). The differences are explained below
							2008	2007
							£'000	£'000
		Revenue return on ordinary activities before taxation					2,651	3,182
							______	_______
		Return on ordinary activities multiplied by the UK standard tax rate of corporation tax of 29.3% (2007 - 30%)					777	955
		Effects of:
		Franked dividend receipts not chargeable to corporation tax					(12)	(22)
		Overseas tax					204	221
		Double tax relief					(204)	(211)
		Movement in income taxable on receipt					71	(58)
		Non-taxable stock dividend					-	(20)
		Prior year adjustment					-	(4)
							______	_______
		Current tax charge					836	861

		2008	2007
7.	Dividends	£'000	£'000
	Final dividend for 2007 - 3.45p (2006 - 3.45p)	1,124	1,110
	Special dividend for 2007 - 2.70p (2006 - 2.70p)	880	869
		______	_______
		2,004	1,979
		______	_______
	The proposed final and special dividends are subject to approval by Shareholders at the Annual General Meeting and have not been included as a liability in these financial statements. We set out below the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of Section 842 of the Income and Corporation Taxes Act 1988 are considered. The revenue available for distribution by way of dividend for the year is £1,890,000 (2007 - £2,263,000).
		2008	2007
		£'000	£'000
	Proposed final dividend for 2008 - 4.00p (2007 - 3.45p)	1,254	1,124
	Proposed special dividend for 2008 - 1.00p (2007 - 2.70p)	314	880
		______	_______
		1,568	2,004
		______	_______
	Since the year end the Company has repurchased 435,725 shares, all of which have been placed in treasury. Therefore, the proposed final and special dividends for 2008 are based on 31,193,408 Ordinary shares in issue.

		2008			2007
8.	Return per Ordinary share	Revenue	Capital	Total	Revenue	Capital	Total
	Basic
	Return on ordinary activities after taxation (£'000)	1,890	(18,211)	(16,321)	2,263	32,891	35,154
	Weighted average number of shares in issue (excluding shares held in treasury)			32,128,649			32,435,487
	Basic return per Ordinary share (p)	5.88	(56.68)	(50.80)	6.98	101.40	108.38
		______	_______	_________	_____	______	_________
		2008			2007
		Revenue	Capital	Total	Revenue	Capital	Total
	Diluted
	Number of dilutive shares			3,109,607			3,264,294
		______	_______	_________	_____	______	_________
	Diluted number of shares in issue (excluding shares held in treasury)			35,238,256			35,699,781
		______	_______	_________	_____	______	_________
	Diluted return per Ordinary share (p)	5.36	(51.68)	(46.32)	6.34	92.13	98.47
		______	_______	_________	_____	______	_________

The calculation of the diluted total, revenue and capital returns per Ordinary share are carried out in accordance with Financial Reporting Standard No. 22, "Earnings per Share". For the purposes of calculating diluted total, revenue and capital returns per Ordinary share, the number of Ordinary shares is the weighted average used in the basic calculation plus the number of Ordinary shares deemed to be issued for no consideration on exercise of all Warrants by reference to the average share price of the Ordinary shares during the year. The calculations indicate that the exercise of Warrants would result in an increase in the weighted average number of Ordinary shares of 3,109,607 (2007 - 3,264,294) to 35,238,256 (2007 - 35,699,781) Ordinary shares.

			Listed	Listed
			in UK	overseas	Total
9.	Investments		£'000	£'000	£'000
	Fair value through profit or loss:
	Opening book cost		564	79,695	80,259
	Opening appreciation on investments held		2,446	51,087	53,533
			________	________	_________
	Opening valuation		3,010	130,782	133,792
	Movements in year:
	Purchases at cost		-	17,356	17,356
	Sales	- proceeds	(1,200)	(18,871)	(20,071)
		- gains on sales	998	9,923	10,921
	Decrease in appreciation on investments held		(1,147)	(27,762)	(28,909)
			________	________	_________
	Closing valuation		1,661	111,428	113,089
			________	________	_________
			Listed	Listed
			in UK	overseas	Total
			£'000	£'000	£'000
	Closing book cost		362	88,103	88,465
	Closing appreciation on investments held		1,299	23,325	24,624
			________	________	_________
			1,661	111,428	113,089
			________	________	_________
	(Losses)/gains on investments
	Gains on sales		998	9,923	10,921
	Decrease in appreciation on investments held		(1,147)	(27,762)	(28,909)
			________	________	_________
			(149)	(17,839)	(17,988)
			________	________	_________
	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 Income Statement. The total costs were as follows:
				2008	2007
				£'000	£'000
	Purchases			43	48
	Sales			40	58
				________	_________
				83	106

		2008	2007
10.	Debtors: amounts falling due within one year	£'000	£'000
	Amounts due from brokers	329	-
	Other debtors	13	9
	Prepayments and accrued income	181	423
		________	_________
		523	432
		________	_________

		2008	2007
11.	Creditors: amounts falling due within one year	£'000	£'000
	Bank loans	4,173	7,338
	Amounts due to brokers	115	-
	Other creditors	356	644
	Corporation tax payable	489	335
		________	_________
		5,133	8,317
		________	_________
	At the year end the Company had drawn down US$8,267,226 from Barclays Bank at a rate of 3.205%. The loan is due to be repaid or rolled over on 7 October 2008.
	On 23 September 2008 a further US$9,700,000 was drawn down under the facility with Barclays Bank and both loans were rolled for one month on 7 October 2008 at a rate of 4.54%.

		2008	2007
12.	Provisions for liabilities and charges	£'000	£'000
	Deferred tax on accrued income:
	At 1 August	112	54
	Deferred tax (credited)/charged to the Income Statement in the year	(75)	58
		________	_________
	At 31 July	37	112

		2008	2007
13.	Called up share capital	£'000	£'000
	Authorised
	42,000,000 (2007 - 42,000,000) Ordinary shares of 25p	10,500	10,500
		________	_________
	Called-up, allotted and fully paid
	32,651,144 (2007 - 32,579,597) Ordinary shares of 25p	8,163	8,145
		________	_________

	During the year 1,022,011 Ordinary shares of 25p were repurchased by the Company at a total cost of £3,015,000 (2008 - £nil). All these shares were placed in treasury. At the year end 1,022,011 (2007 - nil) shares were held in treasury, which represents 3.13% of the Company's total issued share capital at 31 July 2008.
	During the year an additional 71,547 Ordinary shares of 25p were issued after 71,547 Warrants were exercised at 100p each. The total consideration received was £71,547.
	During the year an additional 282,000 Warrants were purchased for cancellation. The total net cost was £580,926.
	At 31 July 2008 there were 4,495,356 (2006 - 4,848,903) Warrants in issue. Each Warrant entitles a holder to subscribe for an Ordinary share of 25p at a price of 100p. Further details of exercise rights are included in the Annual Report.
	The investment objective of the Company is to provide Shareholders with a high level of capital growth through equity investment of smaller quoted companies in the economies of Asia and Australasia ex Japan.
	The Company manages its capital to ensure that it will be able to continue as a going concern while maximising the return to Shareholders through the optimisation of the debt and equity balance.
	The Board monitors and reviews the broad structure of the Company's capital on an ongoing basis. The review includes:
	- the planned level of gearing which takes account of the Investment Manager's views on the market;
	- the level of equity shares in issue;
	- the extent to which revenue in excess of that which is required to be distributed should be retained.
	The Company's objectives, policies and processes for managing capital are unchanged from the preceding accounting period.
	The Company does not have any externally imposed capital requirements.

		Capital	Investment	Total
		reserve -	holding	capital
		realised	gains	reserve
14.	Capital reserve	£'000	£'000	£'000
	Year ended 31 July 2008
	At 31 July 2007	37,021	53,533	90,554
	Movement in fair value gains	10,921	(28,909)	(17,988)
	Foreign exchange movement	48	-	48
	Capitalised expenses	(737)	-	(737)
		________	_________	________
	At 31 July 2008	47,253	24,624	71,877
		________	_________	________
	Year ended 31 July 2007
	At 31 July 2006	27,211	31,334	58,545
	Movement in fair value gains	10,156	22,199	32,355
	Foreign exchange movement	536	-	536
	Capitalised expenses	(882)	-	(882)
		________	_________	________
	At 31 July 2007	37,021	53,533	90,554

15.	Net asset value per equity share	2008	2007
	Basic
	Net assets attributable	£109,829,000	£131,679,000
	Number of Ordinary shares in issue (excluding shares held in treasury)	31,629,133	32,579,597
	Net asset value per Ordinary share	347.24p	404.18p
	Diluted
	Net assets attributable	£114,319,000	£136,528,000
	Number of Ordinary shares if Warrants converted (excluding shares held in treasury)	36,124,489	37,428,500
	Net asset value per Ordinary share	316.46p	364.77p
	The diluted net asset value per Ordinary share has been calculated on the assumption that 4,495,356 (2007 - 4,848,903) Warrants in issue were exercised on the first day of the financial year at 100p per share, giving year end figures of 36,124,489 (2007 - 37,428,500) Ordinary shares.

16.	Reconciliation of net return before finance costs and taxation to net cash inflow from operating activities	2008	2007
		£'000	£'000
	Net returns before finance costs and taxation	(15,052)	36,521
	Adjustments for:
	Losses/(gains) on investments	17,988	(32,355)
	Effect of foreign exchange rate gains	(48)	(536)
	Decrease/(increase) in prepayments and accrued income	242	(205)
	Increase in other debtors	(4)	(3)
	(Decrease)/increase in other creditors	(178)	236
	Overseas withholding tax suffered	(204)	(215)
	Stock Dividends included in investment income	(56)	(66)
		_________	________
	Net cash inflow from operating activities	2,688	3,377
		_________	________
	Net returns before finance costs and taxation	(15,052)	36,521

		1 August	Cash	Exchange	31 July
		2007	flow	movements	2008
17.	Analysis of changes in net debt	£'000	£'000	£'000	£'000
	Net cash:
	Cash at bank and overdrafts	5,884	(4,769)	272	1,387
	Debt:
	Debt falling due within one year	(7,338)	3,389	(224)	(4,173)
		_________	________	_________	________
		(1,454)	(1,380)	48	(2,786)

18.	Related party transactions
	Mr M J Gilbert is a director of AAM Asia, a subsidiary of Aberdeen Asset Management PLC. Mr Gilbert is also a director of AAM.
	AAM Asia has an agreement to provide management services to the Company, the terms of which are outlined in note 3. AAM has an agreement to provide both administration and marketing services to the Company, the terms of which are outlined in note 4.

19.	Financial instruments
	Risk management
	The Company's financial instruments comprise equities and other investments, cash balances, 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 Manager has a dedicated investment management process, which ensures that the investment policy explained in the Business Review above is followed. Stock selection procedures are in place based on active portfolio management and identification of stocks. The portfolio is reviewed on a periodic basis by a Senior Investment Manager and also by the Manager's Investment Committee.
	The Company's Manager has an independent Investment Risk department for reviewing the investment risk parameters of the Company's portfolio on a regular basis. This department reports to the Manager's Performance Review Committee which is chaired by the Manager's Chief Investment Officer. The Investment Risk department's responsibility is to review and monitor predicted portfolio risk and style characteristics using best practice, industry standard multi-factor models.
	Additionally, the Manager's Compliance department continually monitors the Company's investment and borrowing powers and reports to the Manager's Risk Management Committee.
	The main financial risks that the Company faces from its financial instruments are market price risk (comprising interest rate risk, currency risk and other price risk), liquidity risk and credit risk.
	The Board regularly reviews and agrees policies for managing each of these risks. The Manager's policies for managing these risks are summarised below and have been applied throughout the year. The numerical disclosures exclude short-term debtors and creditors.
	Market price 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.
	Interest rate risk
	Interest rate movements may affect:
	- the level of income receivable on cash deposits; and
	- interest payable on the Company's variable rate borrowings.
	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 Company's financial assets and liabilities, excluding equity holdings which are all non-interest bearing, at the Balance Sheet date was as follows:

		Weighted average	Weighted
		period for which	average	Fixed	Floating
		rate is fixed	interest rate	rate	rate
	At 31 July 2008	Years	%	£'000	£'000
	Assets
	Indian Rupee	-	-	-	13
	Malaysian Ringgit	-	-	-	1,023
	Philippine Peso	-	-	-	60
	Sterling	-	2.65	-	291
		_________	________	_________	________
		n/a	n/a	-	1,387
		_________	________	_________	________
	Liabilities
	Bank loan - US Dollar	0.19	3.21	(4,173)	-
		_________	________	_________	________
		Weighted average	Weighted
		period for which	average	Fixed	Floating
		rate is fixed	interest rate	rate	rate
	At 31 July 2007	Years	%	£'000	£'000
	Assets
	Indian Rupee	-	-	-	8
	Malaysian Ringgit	-	-	-	4,303
	Philippine Peso	-	-	-	57
	Sterling	-	5.72	-	1,516
		_________	________	_________	________
		n/a	n/a	-	5,884
		_________	________	_________	________
	Liabilities
	Bank loan - Hong Kong Dollar	0.16	5.06	(3,296)	-
	Bank loan - US Dollar	0.24	5.95	(4,042)	-
		_________	________	_________	________
		0.20	5.55	(7,338)	-
		_________	________	_________	________

	The weighted average interest rate is based on the current yield of each asset, weighted by its market value. The weighted average interest rate on bank loans is based on interest payable, weighted by the value of the loan. The maturity date of the Company's loan is shown in note 11 to the financial statements.
	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 (excluding bank loans) have been excluded from the above tables.
	Maturity profile
	The maturity profile of the Company's financial assets and liabilities at 31 July was as follows:

		Within	Within
		1 year	1 year
		2008	2007
	Assets	£'000	£'000
	Floating rate
	Cash	1,387	5,884
		_________	________
		Within	Within
		1 year	1 year
		2008	2007
	Liabilities	£'000	£'000
	Fixed rate	_________	________
	Bank loans	(4,173)	(7,338)
		_________	________

	All the other financial assets and liabilities do not have a maturity date.
	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
All of the Company's investment portfolio is invested in overseas securities and the Balance Sheet, therefore, can be significantly affected by movements in foreign exchange rates. 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 overseaes investment with foreign currency borrowings. The Company's borrowings, as detailed in note 11, are also in foreign currency.
The revenue account 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 denomination:
			31 July 2008							31 July 2007
							Total								Total
			Overseas		Net monetary		currency			Overseas		Net monetary			currency
			investments		assets/ (liabilities)		exposure			Investments		assets/ (liabilities)			exposure
			£'000		£'000		£'000			£'000		£'000			£'000
Hong Kong Dollar			21,553		(111)		21,442			22,412		(3,296)			19,116
Indian Rupee			14,565		13		14,578			15,559		8			15,567
Indonesian Ringgit			7,944		1,023		8,967			8,680		-			8,680
Korean Won			6,279		183		6,462			9,679		-			9,679
Malaysian Dollar			17,026		-		17,026			16,265		4,303			20,568
New Zealand Dollar			1,375		-		1,375			487		-			487
Pakistan Rupee			1,610		-		1,610			2,196		-			2,196
Philippine Peso			6,464		60		6,524			6,984		57			7,041
Singapore Dollar			19,594		-		19,594			28,638		-			28,638
Sri Lankan Rupee			4,269		142		4,411			5,077		-			5,077
Thailand Baht			10,749		-		10,749			14,805		-			14,805
US Dollar			-		(4,173)		(4,173)			-		(4,042)			(4,042)
			111,428		(2,863)		108,565			130,782		(2,970)			127,812
Sterling			1,661		291		1,952			3,010		1,516			4,526
Total			113,089		(2,572)		110,517			133,792		(1,454)			132,338

Foreign currency sensitivity
There is no sensitivity analysis included as the Company's significant foreign currency financial instruments are in the form of equity investments, which have been included within the other price risk sensitivity analysis so as to show the overall level of exposure.
Other price risk
Other price risks (ie changes in market prices other than those arising from interest rate or currency risk) may affect the value of the quoted investments.
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 page *, 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 Balance Sheet date had been 10% higher or lower while all other variables remained constant, the return attributable to Ordinary Shareholders for the year ended 31 July 2008 would have increased/(decreased) by £11,309,000 (2007 increased/(decreased) by £13,379,000) 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.
The Board imposes borrowing limits to ensure gearing levels are appropriate to market conditions and reviews these on a regular basis. Borrowings comprise a revolving multi-currency credit facility.The Board has imposed a maximum gearing level, measured on the most stringent basis of calculation after netting off cash equivalents, of 10%. Details of borrowings at the 31 July 2008 are shown in note 11.
Liquidity risk is not considered to be significant as the Company's assets comprise mainly readily realisable securities, which can be sold to meet funding commitments if necessary. Short-term flexibility is achieved through the use of loan and overdraft facilities, details of which can be found in note 11. Under the terms of the loan facility, the Investment Manager provides the lender with loan covenant reports on a monthly basis, to provide the lender with assurance that the terms of the facility are not being breached. The Investment Manager will also review the credit rating of a lender on a regular basis. Details of the Board's policy on gearing are shown in the interest rate risk section of this note.
Liquidity risk exposure
At 31 July 2008 and 31 July 2007 the Company's bank loans, amounting to £4,173,000 and £7,338,000, were due for repayment or roll-over within 2 months and 3 months respectively.
Credit risk
This is the risk of failure of the counterparty to a transaction to discharge its obligations under that transaction that could result in the Company suffering a loss.
The risk is not significant, and is managed as follows:
- investment transactions are carried out with a large number of brokers, whose credit-standing is reviewed periodically by the investment manager, and limits are set on the amount that may be due from any one broker;
- the risk of counterparty exposure due to failed trades causing a loss to the Company is mitigated by the review of failed trade reports on a monthly basis. In addition, the Custodian carries out a stock reconciliation to third party administrators' records on a monthly basis to ensure discrepancies are picked up on a timely basis. The Manager's Compliance department carries out periodic reviews of the Custodian'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 is secured by collateral or other credit enhancements.
Credit risk exposure
In summary, compared to the amounts in the Balance Sheet, the maximum exposure to credit risk at 31 July was as follows:

			2008		2007
			Balance	Maximum	Balance	Maximum
			Sheet	exposure	Sheet	exposure
Current assets			£'000	£'000	£'000	£'000
Loans and receivables			523	523	432	432
Cash at bank and in hand			1,387	1,387	5,884	5,884
			1,910	1,910	6,316	6,316
None of the Company's financial assets is past due or impaired.
Fair values of financial assets and financial liabilities
For the US Dollar loan, the fair value of borrowings has been calculated at £4,176,000 as at 31 July 2008 (2007 - £4,046,000) compared to an accounts value in the financial statements of £4,173,000 (2007 - £4,042,000) (note 11). 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. All other assets and liabilities of the Company are included in the Balance Sheet at fair value.

20.The Annual General Meeting will be held 26 November 2008 at One Bow Churchyard, Cheapside, London EC4M 9HH.

21.    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.

The Annual Financial Report Announcement is not the Company's statutory accounts. The above results for the year ended 31 July 2008 have been agreed with the auditors and are an abridged version of the Company's full accounts, which have been approved and audited with an unqualified report. The 2007 and 2008 statutory accounts received unqualified reports from the Company's auditors and did not include any reference to matters to which the auditors drew attention by way of emphasis without qualifying the reports, and did not contain a statement under s.237(2) or (3) of the Companies Act 1985. The financial information for 2007 is derived from the statutory accounts for 2007 which have been delivered to the Registrar of Companies. The 2008 accounts will be filed with the Registrar of Companies in due course.

The annual results will be circulated to shareholders in the form of an Annual Report, copies of which will be available at the Company's registered office, One Bow Churchyard, Cheapside, London EC4M 9HH and which will be filed with the Registrar of Companies.

By Order of the Board

ABERDEEN ASSET MANAGEMENT PLC

Secretary

8 October 2008

Copies of this announcement will be available to the public from the Company Secretary, Aberdeen Asset Management PLC, 40 Princes Street, Edinburgh EH2 2BY and from the company's website, www.asian-smaller.co.uk.

 

END

 

 

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