Half Yearly Report

RNS Number : 4389F

Scottish Oriental Smlr Co Tst PLC

24 April 2014

 

THE SCOTTISH ORIENTAL SMALLER COMPANIES TRUST PLC

Interim results for the six months to 28 February 2014

(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 February 2014.

Financial Highlights

Performance for the six months to 28 February 2014 (Unaudited)
Net Asset Value	(2.0%)	MSCI AC Asia ex Japan Index (£) †	(1.0%)
Share Price	2.2%	MSCI AC Asia ex Japan Small Cap	1.9%
		Index (£) †
		FTSE All-Share Index (£) †	8.8%
Summary Data at 28 February 2014 (Unaudited)
Shares in issue	31,643,650	Shareholders' Funds	£248.66m
Net Asset Value per share	785.82p	Market Capitalisation	£237.33m
Share Price	750.00p	Share Price Discount to Net Asset Value	4.6%

† 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$1,500m, or the equivalent thereof, at the time of investment. For investment purposes, this 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 August 2013 (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. A detailed explanation of these risks and how they are managed is set out in Note 16 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 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 overdrafts 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 Conduct Authority's Disclosure and Transparency Rules (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 February 2014 and a description of the principal risks and uncertainities for the remaining six months of the financial year). Rule 4.2.8R requires information on related party transactions. No related party transactions have taken place during the first six months of the financial year that have materialy affected the financial position of the Company during that period and there have been no 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 February 2014 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

24 April 2014

Interim Management Report

Investment performance

In the six months ending 28 February 2014, Scottish Oriental's net asset value per share declined 2.0 per cent to 785.8p. This compares with the MSCI AC Asia ex Japan Index recording a sterling adjusted decline of 1.0 per cent, and the MSCI AC Asia ex Japan Small Cap Index falling 1.9 per cent. The Trust's share price increased by 2.2 per cent over the period. The Trust's shares traded at a discount to net asset value of 4.6 per cent on 28 February 2014. The Trust underperformed the FTSE All-Share Index, which rose by 8.8 per cent over the six month period.

Scottish Oriental has borrowings of £19.4 million, equivalent to 7.8 per cent of net asset value, as of 28 February 2014. No new shares were issued during the six months under review. The Trust's cash level rose to £36.1m at the end of the period. Its cash position represented 14.5 per cent of net assets. The Manager will continue to invest this money gradually once suitable long term investment opportunities have been identified.

Review

Asian stock markets were weak in the six months ending 28 February 2014. Investor sentiment continued to be influenced by the outlook for the global economy, and specifically by monetary policies in China, the West, and Japan. Stock markets were more volatile as a result.  Asian stock markets experienced significant fund outflows, in part because of the perceived cyclical attractiveness of the US and Europe.

India was the best performing Asian stock market. Investors reacted positively to news that the country's current account deficit had narrowed to a four year low. There was also an expectation that the opposition BJP candidate, Narendra Modi, who is perceived to be pro-business, will be successful in this year's general election. Thailand was the worst performing market; the political standoff in Bangkok showed little sign of ending.

Asian smaller companies generally outperformed their larger counterparts with a particularly strong return achieved in India.

 Outlook

The near term performance of Asian equities will continue to be influenced by monetary policies globally. Easy money policies may well lead to a sudden inflationary spike. However, at present, deflation, rather than inflation, prevails. The stimulus programme being undertaken is unprecedented and the long term consequences remain unknown. For this reason we are cautious.

The valuations of locally focused consumer companies have become stretched. We are also wary of potential asset bubbles emerging for small companies in certain sectors and countries. Only a small number of companies in the Trust's investment universe offer significant upside over the longer term.

Dividend

A dividend of 11.5p per share was paid on 31 January 2014 for the year ending 31 August 2013 (31 August 2012: 11.0p per share). It is too early to make a forecast of the distribution for the current financial year.

 

Income Statement for the six months to 28 February 2014

	Six months to 28 February 2014 (unaudited)			Six months to 28 February 2013 (unaudited)
	Revenue £'000	Capital £'000	Total* £'000	Revenue £'000	Capital £'000	Total* £'000
(Losses)/gains on investments	-	(34)	(34)	-	65,798	65,798
Income from investments	1,763	-	1,763	1,949	-	1,949
Other income	29	-	29	37	-	37
Investment management fee	(961)	(373)	(1,334)	(932)	(1,505)	(2,437)
Currency (losses)/gains	-	(1,155)	(1,155)	-	132	132
Other administrative expenses	(339)	-	(339)	(247)	-	(247)
Net return before finance costs and taxation	492	(1,562)	(1,070)	807	64,425	65,232
Finance costs of borrowing	(221)	-	(221)	(225)	-	(225)
Net return on ordinary activities before taxation	271	(1,562)	(1,291)	582	64,425	65,007
Tax on ordinary activities	(39)	-	(39)	(62)	-	(62)
Net return attributable to equity shareholders	232	(1,562)	(1,330)	520	64,425	64,945
Net return per ordinary share (p)	0.73p	(4.93p)	(4.20p)	1.71p	211.87p	213.58p

	Year ended 31 August 2013 (audited)
	Revenue £'000	Capital £'000	Total* £'000
(Losses)/gains on investments	-	41,060	41,060
Income from investments	7,859	-	7,859
Other income	44	-	44
Investment management fee	(1,946)	(1,725)	(3,671)
Currency (losses)/gains	-	(460)	(460)
Other administrative expenses	(635)	-	(635)
Net return before finance costs and taxation	5,322	38,875	44,197
Finance costs of borrowing	(460)	-	(460)
Net return on ordinary activities before taxation	4,862	38,875	43,737
Tax on ordinary activities	(344)	-	(344)
Net return attributable to equity shareholders	4,518	38,875	43,393
Net return per ordinary share (p)	14.56p	125.31p	139.87p

* 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 February 2014

	At 28 February 2014	At 28 February 2013	At 31 August 2013
	£'000	£'000	£'000
	(unaudited)	(unaudited)	(audited)
EQUITY INVESTMENTS
China	41,269	45,784	39,552
Hong Kong	22,828	27,932	25,180
India	48,657	4,130	27,248
Indonesia	3,058	14,830	10,820
Malaysia	9,503	19,710	12,870
Philippines	2,349	9,285	4,744
Singapore	37,628	44,549	37,314
South Korea	10,532	28,067	17,920
Sri Lanka	8,743	6,013	6,097
Taiwan	39,728	31,102	32,862
Thailand	7,649	26,162	12,992
Vietnam	-	3,879	-
Total equities	231,944	261,443	227,599
Net current assets	16,720	32,437	26,034
Total Assets less current Liabilities	248,664	293,880	253,633
CREDITORS (due after one year) Loan	-	(21,438)	-
Equity Shareholders' Funds	248,664	272,442	253,633
CAPITAL AND RESERVES
Ordinary share capital	7,911	7,834	7,911
Share premium account	32,940	30,274	32,940
Warrant reserve exercised	1,319	1,319	1,319
Capital reserve	199,903	227,015	201,465
Revenue reserve	6,591	6,000	9,998
	248,664	272,442	253,633
Net asset value per share	785.82p	869.49p	801.53p

 

Cash Flow Statement for the six months to 28 February 2014

	Six months to		Six months to		Year to
	28 February 2014 (uaudited)		28 February 2013 (unaudited)		31 August 2013 (audited)
		£'000		£'000		£'000
OPERATING ACTIVITIES
Dividends received from investments		2,257		2,368		7,805
Other income		147		108		193
		2,404		2,476		7,998
Investment management fee		(966)		(380)		(1,845)
Secretarial fee		(52)		(25)		(103)
Directors' fees		(42)		(40)		(79)
Other expenses paid		(300)		(169)		(394)
Net cash inflow from operating activities		1,044		1,862		5,577
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest paid on borrowings		(225)		(226)		(460)
Net cash outflow from investments and servicing of finance		(225)		(226)		(460)
TAXATION
Total tax paid		(53)		(64)		(343)
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Purchases of investments		(65,342)		(26,826)		(89,519)
Sales of investments		61,646		31,650		103,394
Currency (losses)/gains		(2,702)		1,084		10
Performance fee		(1,725)		(1,795)		(1,795)
Net cash (outflow)/ inflow from capital expenditure and financial investment		(8,123)		4,113		12,090
FINANCING ACTIVITIES
Equity dividends paid		(3,639)		(3,324)		(3,324)
Issue of ordinary shares		-		7,789		11,995
Cost of issue of ordinary shares		-		-		(35)
Net cash (outflow)/inflow from financing activities		(3,639)		4,465		8,636
(Decrease)/increase in cash		(10,996)		10,150		25,500

Reconciliation of Movements in Shareholders' Funds
For the six months ended 28 February 2014
	Share Capital	Share Premium Account	Warrant Reserve Exercised	Capital Reserve	Revenue Reserves	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 August 2013	7,911	32,940	1,319	201,465	9,998	253,633
Realised gain on investments	-	-	-	7,121	-	7,121
Currency loss	-	-	-	(1,155)	-	(1,155)
Unrealised loss on investments in the period	-	-	-	(7,155)	-	(7,155)
Performance fee	-	-	-	(373)	-	(373)
Income retained in the period	-	-	-	-	232	232
Dividend paid in the period	-	-	-	-	(3,639)	(3,639)
Balance at 28 February 2014	7,911	32,940	1,319	199,903	6,591	248,664

For the year ended 31 August 2013
	Share Capital	Share Premium Account	Warrant Reserve Exercised	Capital Reserve	Revenue Reserves	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 August 2012	7,554	21,337	1,319	162,590	8,804	201,604
Realised gain on investments	-	-	-	36,244	-	36,244
Currency loss	-	-	-	(460)	-	(460)
Unrealised gain on investments in the year	-	-	-	4,816	-	4,816
Performance fee	-	-	-	(1,725)	-	(1,725)
Issue of new ordinary shares	357	11,603	-	-	-	11,960
Income retained in the year	-	-	-	-	4,518	4,518
Dividend paid in the year	-	-	-	-	(3,324)	(3,324)
Balance at 31 August 2013	7,911	32,940	1,319	201,465	9,998	253,633

Notes to Accounts

(1) The position as at 31 August 2013 on page 8 of the Interim Report is an abridged version of that contained in the Annual Report and Accounts, 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 August 2013.

(2) The return per Ordinary share figure is based on the net loss for the six months of £1,330,000 (six months ended 28 February 2013: net profit of £64,945,000; year ended 31 August 2013: net profit of £43,393,000) and on 31,643,650 (six months ended 28 February 2013: 30,407,214; year ended 31 August 2013: 31,023,198 Ordinary shares, being the weighted average number of Ordinary shares in issue during the respective periods.

(3) At 28 February 2014 there were 31,643,650 Ordinary shares in issue (28 February 2013: 31,333,650; 31 August 2013: 31,643,650).

(4) Dividends

	At 28 February 2014 £'000	At 28 February 2013 £'000	At 31 August 2013 £'000
Amounts recognised as distributions in the period:
Dividend for the year ending 31 August 2013 of 11.5p (2012 - 11.0p), paid 31 January 2014	3,639	3,324	3,324

(5) 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. The total fee payable to the Investment Manager is capped at 1.5% per annum of the Company's net assets.

Assuming no change in share price, MSCI AC Asia Free ex Japan Index Total Return and shares in issue between 28 February and 31 August 2014, the estimated performance fee for the year ending 31 August 2014 would amount to £745,000. An amount of £372,500 has been accrued in the six months to 28 February 2014.

·           The terms of the interim report and this announcement were approved by the Board on 24 April 2014.

·           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]

24 April 2014

 

END

 

 

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