Half Yearly Report

RNS Number : 4325D

Scottish Oriental Smlr Co Tst PLC

22 March 2011

 



THE SCOTTISH ORIENTAL SMALLER COMPANIES TRUST PLC

Interim results for the six months to 28th February 2011

(Extracted from the Interim Report)

The Board of The Scottish Oriental Smaller Companies Trust plc is pleased to announce the results for the six months to 28^th February 2011.

Financial Highlights

Performance for the six months to 28th February 2011 (unaudited)
Net Asset Value	6.0%	MSCI AC Asia ex Japan Index (£) †	6.9%
Share Price	11.7%	MSCI AC Asia ex Japan Small Cap	5.0%
		Index (£) †
		FTSE All-Share Index (£) †	16.5%
Summary Data at 28th February 2011 (Unaudited)
Shares in issue	30,213,650	Shareholders' Funds	£177.8m
Net Asset Value per share	588.6p	Market Capitalisation	£163.2m
Share Price	540.0p	Share Price Discount to Net Asset Value	8.3%

† Total return (capital return with dividends reinvested)

Corporate Objective

The investment objective of The Scottish Oriental Smaller Companies Trust plc ("Scottish Oriental", "the Company" or "the Trust") is to achieve long-term capital growth by investing in mainly smaller Asian quoted companies with market capitalisations of below US$1,000m, or the equivalent thereof, at the time of investment. For investment purposes, the Region includes the Indian sub-continent but excludes Japan and Australasia.

This is an abridged version of Scottish Oriental's investment policy and objective. A full statement of Scottish Oriental's investment policy can be found on page 3 of the annual report and accounts for the year ending 31^st August 2010 (the "Annual Report and Accounts").

Principal Risks and Uncertainties

Given the nature of its investment activities, the principal risks that Scottish Oriental faces from its financial instruments are market prices (comprising interest rate, currency and share price risks) and credit risk.  The principal risks and uncertainties have not changed since the publication of the Annual Report and Accounts for the year ended 31^st August 2010.  A detailed explanation of these risks and how they are managed is set out in Note 15 on pages 43-45 of the Annual Report and Accounts.  As Scottish Oriental's assets mainly comprise readily realisable securities, other than in exceptional circumstances there should be no significant liquidity risk.  Scottish Oriental's investment portfolio is exposed to market price fluctuations and currency fluctuations which are monitored by First State Investment Management (UK) Limited (the "Investment Manager").  Scottish Oriental does not invest in either fixed or floating rate securities and interest rate risk exposure is restricted to interest receivable on bank deposits or payable on bank overdraft positions which will be affected by fluctuations in interest rates.

Directors' Responsibility Statement

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

(a)      the condensed set of financial statements within the half-yearly financial report, prepared in accordance with the Accounting Standards Board's statement 'Half-Yearly Financial Reports' gives a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

(b)      the Interim Management Report includes a fair review of the information required by 4.2.7R of the Financial Services Authority's Disclosure and Transparency Rules (the important events that have occurred in the first six months of the Company's financial year, together with their effect on the half yearly financial statements to 28^th February 2011 and a description of the principal risks and uncertainities for the remaining six months of the financial year) and 4.2.8R (related party transactions that have taken place during the first six months of the financial year and that have materialy affected the financial position of the Company during that period and any changes in the related party transactions described in the last annual report that could do so).

The half-yearly report, for the six months to 28^th February 2011, comprises the Interim Management Report, the Directors' Responsibility Statement and a condensed set of financial statements and has not been audited or reviewed by auditors pursuant to the Auditing Practices Board guidance on Review of Interim Financial Information.

By order of the Board

James Ferguson

Chairman

22^nd March 2011

Interim Management Report

Investment Performance

In the six months ending 28^th February 2011, Scottish Oriental's net asset value per share rose by 6.0 per cent to 588.6p.  This compares with a sterling-adjusted increase of 6.9 per cent in the MSCI AC Asia ex Japan Index and a rise of 5.0 per cent in the MSCI AC Asia ex Japan Small Cap Index.  The Trust's share price also increased by 11.7 per cent over the period and the discount to net asset value was 8.3 per cent on 28^th February 2011.  The Trust underperformed the FTSE All-Share Index, which rose by 16.5 per cent over the six months.

Scottish Oriental had no borrowings during the six month period and held cash equivalent to 4.7 per cent of net assets on 28^th February 2011.

Review

Asian stockmarkets continued to outperform in the four months ending 31^st December 2010, supported by expectations of further monetary stimulus, particularly in the US, and high levels of foreign funds allocated to the Region.  Economic growth in Asia remained robust which, combined with rising commodity prices, particularly food, resulted in higher than expected inflation.  In January, the prospect of a tightening in monetary policy in the Region combined with relatively expensive valuations prompted a reversal in the flow of funds towards more developed stockmarkets.  This movement picked up momentum in February as a result of the political unrest in North Africa and the Middle East. 

India was the worst performing market in the Region, owing to concerns over persistently high inflation as well as evidence that the political support for economic reforms had stalled.  South Korea and Taiwan outperformed as strong export data provided confirmation that both countries are benefiting from the recovery in US consumer spending, particularly for technology related products.

Asian smaller companies underperformed their larger counterparts with significant declines in India and Thailand. 

Outlook

The short term outlook for Asia remains uncertain ashigher oil prices put further upward pressure on inflation and the recent earthquake in Japan may disrupt some supplies of some specialised components and materials.  Those countries which subsidise fuel prices will also suffer from higher Government expenditure and possible deterioration in fiscal deficits, with India viewed as the most vulnerable. Central Banks are expected to tighten monetary policy further either via higher bank reserve requirements or interest rates.  Following the recent correction, corporate valuations are now more attractive but, given the expected slowdown in economic growth rates, earnings may disappoint and forecasts could see further downward revisions. 

There are, however, several reasons for being optimistic toward Asian equity markets over the longer term owing to the Region's promising economic growth prospects compared with those of the developed world, its relatively high savings rates and the evolution of economies increasingly driven by domestic consumption rather than exports. 

Scottish Oriental will continue to invest in those well managed, soundly financed companies that are able to grow at a sustainable rate over the medium term.

Dividend

A dividend of 8.5p per share net (equivalent to 9.4p gross) was paid on 28^th January 2011 for the year ending 31st August 2010 (31^st August 2009: 6.0p per share net).  It is too early to make a forecast of the distribution for the current financial year. 

Income Statement for the six months to 28^th February 2011

	Six months to 28th February  2011 (unaudited)			Six months to 28th February  2010 (unaudited)
	Revenue £'000	Capital £'000	Total* £'000	Revenue £'000	Capital £'000	Total* £'000
Gains on investments	-	12,450	12,450	-	28,339	28,339
Income from investments	1,086	-	1,086	990	-	990
Other income	20	-	20	-	-	-
Investment management fee	(723)	-	(723)	(515)	-	(515)
Currency gains	-	74	74	-	674	674
Other administrative expenses	(225)	-	(225)	(169)	-	(169)
Net return before finance costs and taxation	158	12,524	12,682	306	29,013	29,319
Finance costs of borrowing	(1)	-	(1)	-	-	-
Net return on ordinary activities before taxation	157	12,524	12,681	306	29,013	29,319
Tax on ordinary activities	(51)	-	(51)	(44)	(77)	(121)
Net return attributable to equity shareholders	106	12,524	12,630	262	28,936	29,198
Net return per ordinary share (p)	0.4	41.5	41.8	0.9	95.8	96.7

	Year ended 31st August 2010 (audited)
	Revenue £'000	Capital £'000	Total* £'000
Gains on investments	-	52,760	52,760
Income from investments	4,933	-	4,933
Other income	7	-	7
Investment management fee	(1,131)	(937)	(2,068)
Currency gains	-	825	825
Other administrative expenses	(323)	-	(323)
Net return before finance costs and Taxation	3,486	52,648	56,134
Finance costs of borrowing	-	-	-
Net return on ordinary activities before Taxation	3,486	52,648	56,134
Tax on ordinary activities	(289)	(129)	(418)
Net return attributable to equity Shareholders	3,197	52,519	55,716
Net return per ordinary share (p) †	10.6	173.8	184.4

* The total column of this statement is the Profit and Loss Account of the Company.

A Statement of Total Recognised Gains or Losses has not been prepared as any gains or losses are

recognised in the Income Statement.

All revenue and capital items derive from continuing operations.

Balance Sheet as at 28^th February 2011

	At 28th February 2011	At 28th February 2010	At 31st August 2010
	£'000	£'000	£'000
	(unaudited)	(unaudited)	(audited)
EQUITY INVESTMENTS
China	25,252	14,320	17,277
Hong Kong	19,135	14,524	17,715
India	2,198	3,063	2,542
Indonesia	13,365	8,702	11,532
Malaysia	15,986	11,533	12,815
Philippines	6,612	9,332	9,645
Singapore	23,626	19,171	20,397
South Korea	17,245	16,876	17,630
Sri Lanka	1,429	3,779	3,609
Taiwan	25,799	13,781	20,284
Thailand	16,700	16,648	20,036
Vietnam	2,103	1,674	2,226
Total equities	169,450	133,403	155,708
Net current assets	8,377	7,844	12,057
Shareholders' funds	177,827	141,247	167,765
Share capital and reserves
Ordinary share capital	7,554	7,554	7,554
Share premium account	21,337	21,337	21,337
Warrant reserve - exercised	1,319	1,319	1,319
Capital reserve	143,779	107,672	131,255
Revenue reserve	3,838	3,365	6,300
	177,827	141,247	167,765
Net asset value per share	588.6p	467.5p	555.3p

Cash Flow Statement for the six months to 28th February 2011

	Six months to		Six months to		Year to
	28th February 2011 (uaudited)		28th February 2010 (unaudited)		31st August 2010 (audited)
	£'000	£'000	£'000	£'000	£'000	£'000
OPERATING ACTIVITIES:
Dividends received from investments		1,589		1,112		4,667
Other income		10		-		7
		1,599		1,112		4,674
Investment management fee	(710)		(483)		(1,063)
Secretarial fee	(26)		(25)		(51)
Directors' fees	(46)		(36)		(71)
Other expenses paid	(196)		(27)		(173)
		(978)		(571)		(1,358)
Net cash inflow from operating activities		621		541		3,316
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest paid on borrowings		(1)		-		-
TAXATION:
Total tax paid		(44)		(283)		(583)
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT:
Purchases of investments	(26,383)		(20,178)		(39,746)
Sales of investments	24,899		20,152		42,558
Indian Capital Gains Tax	-		(77)		(129)
Currency gains	74		674		825
Net cash (outflow)/inflow from capital expenditure and financial investment		(1,410)		571		3,508
EQUITY DIVIDEND PAID		(2,568)		(1,813)		(1,813)
(Decrease)/Increase in cash		(3,402)		(984)		4,428

Reconciliation of Movements in Shareholders' Funds
For the period ended 28th February 2011
	Share Capital	Share Premium Account	Warrant Reserve Exercised	Capital Reserve	Revenue Reserve	Total
	£000	£000	£000	£000	£000	£000
Balance at 31st August 2010	7,554	21,337	1,319	131,255	6,300	167,765
Realised gains on investments	-	-	-	14,737	-	14,737
Currency gain	-	-	-	74	-	74
Unrealised depreciation on investments in the period	-	-	-	(2,287)	-	(2,287)
Income retained in the period	-	-	-	-	106	106
Dividend paid in the period	-	-	-	-	(2,568)	(2,568)
Balance at 28th February 2011	7,554	21,337	1,319	143,779	3,838	177,827

Reconciliation of Movements in Shareholders' Funds
For the year ended 31st August 2010
		Share Capital	Share Premium Account	Warrant Reserve Exercised	Capital Reserve	Revenue Reserve	Total
		£000	£000	£000	£000	£000	£000
Balance at 31st August 2009		7,554	21,337	1,319	78,736	4,916	113,862
Realised gains on investments		-	-	-	20,058	-	20,058
Currency gain		-	-	-	825	-	825
Unrealised appreciation on investments in the year		-	-	-	32,702	-	32,702
Performance fee		-	-	-	(937)	-	(937)
Indian Capital Gains Tax		-	-	-	(129)	-	(129)
Income retained in the year		-	-	-	-	3,197	3,197
Dividend paid in the year		-	-	-	-	(1,813)	(1,813)
Balance at 31st August 2010		7,554	21,337	1,319	131,255	6,300	167,765

Notes to Accounts

(1). The position as at 31^st August 2010 is an abridged version of that contained in the full accounts for that year, which received an unqualified audit report and which have been filed with the Registrar of Companies. This interim report has been prepared under the same accounting policies adopted for the year to 31^st August 2010.

(2). Dividends

	At 28th February 2011 £000	At 28th February 2010 £000	At 31st August 2010 £000
Amounts recognised as distributions in the period:
Dividend for the year ending 31st August 2010 of 8.5p (2009 - 6.0p) paid 28th January 2011	2,568	1,813	1,813

(3) Contingent liabilities

Under the terms of the Investment Management Agreement, an annual performance fee may be payable to the Investment Manager at the end of the year.  A detailed explanation of the performance fee computation is set out on page 21 of the Annual Report and Accounts for the year ending 31^st August 2010.

Assuming no change in share price and shares in issue between 28^th February and 31^st August 2011, the estimated performance fee would amount to £2,651,852.

·           The terms of the interim report and this announcement were approved by the Board on 22^nd March 2011.

·           Copies of the Interim Report will be posted to shareholders shortly and will be available thereafter on the Company's website: www.scottishoriental.com and from the registered office at 10 St Colme Street, Edinburgh EH3 6AA

Enquiries:

Personal Assets Trust Administration Company Limited, Edinburgh, [phone]

22^nd March 2011

 

END

 

 

IR DLLFLFXFFBBV