Annual Financial Report Annou

RNS Number : 9813T

Aberdeen Asian Smaller Co's Inv Tst

06 October 2010

 



ABERDEEN ASIAN SMALLER COMPANIES INVESTMENT TRUST PLC

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 JULY 2010

1.  CHAIRMAN'S STATEMENT

Results

In last year's statement, I laid out the reasons why this Company is worthy of your continued support and so it is with great pleasure that I am able to report to you a set of exceptional results. In the year to 31 July 2010, the Company's diluted net asset value ("NAV") and share price rose by 58.0% and 64.7% respectively, compared with rises of 19.4% and 26.8% in the MSCI AC Asia Pacific ex-Japan Index and the MSCI AC Asia Pacific ex-Japan Small Cap Index (in sterling terms). Your Manager's strategy of investing in good quality companies with superior growth prospects, steady cash flow and solid balance sheets was handsomely rewarded in a year which saw many companies continue to struggle.

Dividend

During the year, we saw a marked increase in dividend receipts from the companies in the portfolio. Many of them have domestically focused businesses in high-growth industries. They were less impacted by the global economic crisis and grew strongly during the period under review. Therefore, we are very pleased to recommend the payment of a final dividend of 8.2p per Ordinary share (2009: 5p) representing an increase of 64% on last year's dividend. Furthermore, the Board is recommending the payment of a special dividend of 1.9p (2009: nil) this year as a result of the treatment of gains on the Company's holding in CDL Hospitality which are required to be taxable in the UK as offshore income gains. If approved by shareholders at the Annual General Meeting of the Company on 30 November 2010, the final and special dividends will both be paid on 2 December 2010 to shareholders on the register on 22 October 2010. 

Overview

Both Asia's stockmarkets and economies had a very good year, adding to a growing body of evidence that the region's economic fortunes are becoming less tightly bound to those of the West. Importantly, final private demand - particularly consumption - has been buttressing Asia's expansion as healthy household and corporate balance sheets have enabled increases in spending. 

Governments have also been encouraging such expenditure. Indian authorities, for example, have made revitalising the rural sector a priority, while Chinese policymakers are increasing focus on the quality of growth. On a related note, minimum wage hikes in China (following widely publicised labour disputes) and Beijing's decision to increase the flexibility of its exchange rate (arguably still largely symbolic) could provide the boost to imports that many in the West are hoping for. To be sure, it may be some time before Asia declares itself independent from the West, but the region's shift to better balanced growth is nonetheless heartening.

A swelling middle class and accelerating urbanisation throughout the region are also providing a stronger market for Asian companies, and with GDP per capita in large populous countries like China, India and Indonesia still low, the growth potential is considerable. At the same time, Asian government reserves remain strong and domestic banking systems are generally stable. Business culture has become increasingly shareholder-friendly, while financial positions are sound. Nowhere is this more evident than in the smaller companies in which this Company invests. Their balance sheets are, in aggregate, in a net cash position and earnings growth has been impressive, as you will see from the accompanying Manager's Report.

Share Capital and Gearing

The Board, in conjunction with the Manager, monitors the discount at which the Company's Ordinary shares trade to their net asset value and uses the buyback powers authorised by shareholders when it is deemed appropriate to do so.  During the year, 502,069 Ordinary shares were purchased by the Company for treasury.  The discount to NAV at which the shares trade has reduced during the year moving from 15.6% at 31 July 2009 to 12.0% at 31 July 2010 and at the time of writing is approximately 1.8%.

The Company remained geared throughout the year with average net gearing of approximately 1.7% culminating in the Company being virtually ungeared at the year end.  The Board monitors the Company's gearing on a regular basis under advice from the Manager.

442,698 Warrants to subscribe for Ordinary shares were exercised during the year resulting in the issue of 442,698 new Ordinary shares in December 2009.  I would like to take this opportunity to remind Warrantholders that the final exercise date of the Company's Warrants will be 30 November 2010.  A final reminder including details of how to exercise will shortly be sent to all Warrantholders.

Annual General Meeting

The Annual General Meeting is scheduled to be held on 30 November 2010 at 11.30 a.m.  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.  At the conclusion of the AGM there will be an opportunity for shareholders to meet the Board and the Manager over a buffet lunch and your Board looks forward to seeing as many shareholders as possible.

Outlook

I cautioned at the outset that Asia's economies have not fully decoupled from the West, though they have taken some promising strides towards greater autonomy. Their stockmarkets, on the other hand, are still very dependent on Western portfolio capital flows and remain susceptible to negative developments in the US and Europe. It is not clear when Asian equity markets will start to mirror their many solid fundamentals but when they do, there is still potential for substantial upside from current levels.

Comparatively, Asia's economic outlook is brighter. There are challenges, however. Some countries are facing intensifying policy dilemmas as asset price inflation returns. Still, your Board believes that Asia's long-term prospects are extremely sound and continues to be optimistic about the performance of smaller businesses in Asia. Notwithstanding the fact that they have outperformed their larger peers, smaller companies still stand on a cheaper valuation and offer higher dividend yields.

Also, there remain scores of smaller listed companies across the region which are under-researched and potentially attractive. Identifying and investing in these companies, as well as monitoring existing holdings, are key functions of your experienced and highly regarded Manager, whose consistent and disciplined process has produced reliable long-term outperformance.

Nigel Cayzer

Chairman

6 October 2010

2.  MANAGER'S REPORT

Overview

Asian equities rose strongly over the year as economies recovered sharply, aided by low interest rates and extensive fiscal stimulus. In addition to policy initiatives, large domestic populations ensured Asian demand remained robust throughout the review period. However, Asia's shift towards self-reliance is far from complete, with the region remaining vulnerable to external consumption. Fears of a faltering recovery in the developed economies thus weighed on sentiment, paring market gains. Exogenous factors, such as the escalating sovereign debt crisis in Europe, also sparked periods of panic selling across stockmarkets worldwide, including Asia's.

Against this backdrop, the portfolio did extremely well. Its fully diluted net asset value rose by 58.0%, far outpacing both the MSCI AC Asia Pacific ex Japan Index and the MSCI AC Asia Pacific ex Japan Small Cap Index, which gained 19.4% and 26.8% respectively. The outperformance reflected the quality of the portfolio's holdings as their growth potential and strong balance sheets proved beneficial in the current deleveraging environment.

On the economic front, export-dependent countries, such as Singapore, Korea and Taiwan, started expanding again, after severe contractions. Others, such as India, China and Indonesia, skirted recession and grew unabated, supported by big domestic economies in the early stages of development. The region's recovery can be attributed in part to the concerted push by policymakers to stimulate domestic consumption in the face of deteriorating Western demand. China, arguably, has been the catalyst for greater intra-regional trade. In its quest for growth, it is lifting other economies, with its seemingly insatiable appetite for raw materials, semi-finished goods and end-products.

However, the combination of stimulus and rapid recovery has given rise to concerns of overheating. During the year, Australia led other central banks, including those in India, Malaysia and Taiwan, in raising interest rates in a normalisation of monetary conditions. China and India also hiked lenders' reserve requirements. Meanwhile, the spike in property prices in Singapore, Hong Kong and China prompted the authorities to target the sector directly with cooling measures. A number of Asian economies saw a slowdown in manufacturing output and GDP growth towards the period-end, partly engineered by governments to ease expansion to sustainable levels.

Portfolio Review

The portfolio's outperformance was driven by its investments in India, Thailand, Malaysia, Indonesia and Sri Lanka. Specifically, it was the exposure to consumer-related small caps in these markets that contributed to the outperformance. These companies have businesses which are on the whole purely domestic and thus beneficiaries of the secular Asian growth story, rather than ones which are sensitive to more cyclical Western export demand. Conversely, the underweight position in Australia hurt relative performance because of the strong Australian dollar, but this was more than compensated for by good stock selection in other countries.

India's domestic-focused economy was relatively insulated from the global slowdown. As a result, our holdings, such as Kansai Nerolac Paints, Castrol India and Godrej Consumer Products, were among the review period's top contributors to performance, being beneficiaries of robust local demand. Godrej's performance also impressed as it embarked on a string of acquisitions that helped consolidate its leading position in the fast-moving consumer goods sector. During the year, it acquired Indonesia's Megasari, Nigeria's Tura and the 51% stake in India-based Godrej Sara Lee it did not already own.

Despite political uncertainty, which flared into brief periods of violence, Thailand's stockmarket defied expectations by rallying strongly. Recovering domestic spending and higher sales lifted the earnings for Siam Makro, an operator of a chain of discount stores, and Hana Microelectronics benefited from resurgent demand from the technology sector. Holdings that have lagged for some time, such as Goodyear, also performed well; profits for the maker of vehicle tyres and tubes were boosted by better sales and greater production efficiency.

In Indonesia, Bank OCBC NISP's net profits grew strongly on the back of higher net interest income and lower provisions. The market was also encouraged by Singapore's Oversea-Chinese Banking Corporation raising its stake in the Indonesian lender, as this should further imbue the latter with higher standards of corporate governance and transparency, while the retention of local management will ensure the needs of the domestic market are understood and met. The same holds true for Multi Bintang Indonesia, whose parent, Asia Pacific Breweries, increased its stake. The position in Holcim Indonesia also contributed positively; its Swiss parent Holcim is planning to tap growing infrastructural needs in Indonesia by expanding capacity with a new plant.

Sri Lanka performed well as sentiment improved after the end of the 25-year-long civil war. The portfolio's holdings here all contributed positively. Your Manager views the market as still having enormous potential, providing the country remains politically stable, as there are many well-run companies with decades-long track records.

Other positive contributors included Malaysia's LPI Capital and Shangri-La Hotels, both of which saw earnings improve, the latter aided by its Kuala Lumpur and Sabah operations. Guinness Anchor gained from robust demand, especially during the World Cup season.

In Hong Kong, previous laggard Giordano added to relative return as its share price was boosted by good full-year results on the back of lower production costs, reduced discounts and a shift towards higher margin merchandise. Conversely, the position in Aeon Stores hurt as its share price consolidated from the previous year, while Pacific Basin Shipping detracted as it weakened in line with the Baltic Dry Index, which was weighed down by increased vessel supply rather than weak demand. Nevertheless, we are comfortable with our holdings in Hong Kong, which offer diversified, regional businesses with an exposure to China, but with better standards of accounting and corporate transparency.

In portfolio activity, your Manager introduced ARB, an Australian car accessories producer with regional operations. We first visited the company in 2002 and were impressed with its well-run operation. The company was founded by Tony Brown, whose passion for customising four-wheelers to suit Australia's tough outback terrain inspired him to set up the business. After valuations became more attractive, we initiated a position in the company in March 2010 and later increased our exposure, firmly believing in the commitment of its founder towards ensuring the growth of the business in a niche sector that is benefiting from rising disposable incomes and discretionary spending in the region.

We also added to a number of holdings following share price weakness. These included Multi Bintang Indonesia; UK-listed Indonesian plantation MP Evans; Aventis Pharma in India; Tisco Financial in Thailand; Public Financial, Asia Satellite and Giordano in Hong Kong; and the Philippines' Cebu Holdings. Against this, we pared Holcim Indonesia; CDL Hospitality Trusts in Singapore; and India's Castrol, Kansai Nerolac Paints and Godrej Consumer Products on the back of strong share price performance.

Outlook

The outlook for the global recovery remains uncertain. Although fears of a double dip have eased somewhat, housing and jobs data in the West continue to disappoint. In the US, unemployment remains high, house prices are still depressed and mortgage defaults are rising. All this point to a feeble global recovery at best. Complicating the picture is a seeming lack of policy coordination between the developed economies. While Europe's calls for trimming burgeoning budget deficits have resulted in plans to reduce public spending and hold off tax cuts, the US Federal Reserve has decided to delay tightening, and further easing might be on the cards if the US economy continues to struggle.

Asia, however, is in much better shape. Although rising inflationary pressures in some countries could result in tighter policy in the near term, which in turn could affect companies' underlying performance, the region's solid fundamentals remain in place to foster greater growth in the long term. Strong fiscal positions give governments more options to pump prime further should the global economy relapse into recession, though that possibility appears unlikely for now. More importantly, much of the region is still in the early stages of development, with room for domestic consumption and intra-regional trade only to head higher. In this environment, the prospects for properly managed smaller companies, such as those in the portfolio, are excellent as they grow together with the region.

Aberdeen Asset Management Asia Limited

6 October 2010

3.  RESULTS

	31 July 2010	31 July 2009	% change
Total assets	£198,678,000	£130,106,000
Total equity shareholders' funds (net assets)	£192,851,000	£121,963,000	+58.1
Share price (mid market)	495.00p	300.50p	+64.7
Warrant price (mid market)	395.25p	196.50p	+101.1
Net Asset Value per share (basic)	619.37p	390.96p	+58.4
Net Asset Value per share (diluted)	562.57p	355.95p	+58.0
Discount to diluted Net Asset Value	12.0%	15.6%
MSCI AC Asia Pacific ex Japan Index (currency adjusted, capital gains basis)	488.72	409.34	+19.4
MSCI AC Asia Pacific ex Japan Small Cap Index (currency adjusted, capital gains basis)	1111.62	876.79	+26.8
Actual gearing	0.2%	4.5%
Potential gearing	3.0%	6.7%
Dividends and earnings
Total return per share (basic){A}	236.82p	48.21p
Revenue return per share (undiluted)	12.85p	6.75p	+90.4
Dividends per share{B}	10.10p	5.00p	+102.0
Dividend cover	1.27	1.35	-5.9
Revenue reserves{C}	£6,159,000	£3,700,000	+66.5
Operating costs
Total expense ratio	1.40%	1.91%
{A} Measures the total earnings for the year divided by the weighted average number of Ordinary shares in issue (see note 8).
{B} The figures for dividends per share reflect the dividends for the year in which they were earned.
{C} Prior to payment of final and special dividends.

Performance (total return)

	1 year	3 year	5 year	since
	% return	% return	% return	inception
Share price	+66.9	+63.5	+113.0	+567.7
Net Asset Value (basic) per Ordinary share	+60.2	+60.1	+131.7	+658.5
Net Asset Value (diluted) per Ordinary share	+60.0	+61.9	+143.1	+598.4
MSCI AC Asia Pacific ex Japan Index (currency adjusted)	+22.9	+20.7	+87.5	+135.1
MSCI AC Asia Pacific ex Japan Small Cap Index (currency adjusted)	+30.2	+12.2	+101.1	N/A
Source: Aberdeen Asset Management PLC, Fundamental Data, Factset & Russell Mellon

Dividends

	Rate	xd date	Record date	Payment date
Proposed final 2010	8.20p	20 October 2010	22 October 2010	2 December 2010
Proposed special 2010	1.90p	20 October 2010	22 October 2010	2 December 2010
	10.10p
Final 2009	5.00p	21 October 2009	23 October 2009	27 November 2009

4. BUSINESS REVIEW

The business of the Company is that of an investment trust investing in the economies of Asia and Australasia excluding Japan. A review of the Company's activities is given 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 in below and in Note 19 to the Financial Statements. 

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 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 sections 1158 of the Corporation Tax Act 2010 (formerly section 842 of the Income and Corporation Tax 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.

5. STATEMENT OF DIRCTORS' RESPONSIBILITIES

The Directors are responsible for preparing the Annual Report and 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 United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law).

Under Company law the directors must not approve the financial statements unless they are satisfied that they 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 are sufficient to show and explain the Company's transactions and which 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 2006. They are also responsible 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

6 October 2010

6. INVESTMENT PORTFOLIO

Ten Largest Investments

As at 31 July 2010

			Valuation	Total	Valuation
			2010	assets	2009
Company	Sector	Country	£'000	%	£'000
Bukit Sembawang Estates
Singapore-based residential property developer with a large land bank.	Real Estate Management & Development	Singapore	8,445	4.3	5,959
Bank OCBC NISP
72 per cent-owned by Singapore's OCBC, it specialises in lending to the small and medium-sized business segment.	Commercial Banks	Indonesia	8,114	4.1	4,443
LPI Capital
Malaysia-based insurance company involved in underwriting fire, motor, marine, aviation, transit and miscellaneous insurance.	Insurance	Malaysia	7,138	3.6	3,870
Giordano International
A Hong Kong-based fashion and clothing retailer with a presence across Asia.	Specialty Retail	Hong Kong	5,688	2.9	3,124
Godrej Consumer Products
A leading FMCG company in India with strong market-leading brands in soaps and hair colour.	Personal Products	India	5,657	2.8	4,155
Multi Bintang Indonesia
A subsidiary of Asia Pacific Breweries and an affiliate of Heineken in Indonesia.	Beverages	Indonesia	5,496	2.8	2,597
Hana Microelectronics
An integrated circuit packaging and contract manufacturer with operations in Thailand and China.	Electronic Equipment, Instruments & Components	Thailand	5,373	2.7	3,308
Castrol India
The Indian subsidiary of Castrol Ltd., which manufactures and distributes automotive and industrial lubricants and specialty products.	Chemicals	India	5,090	2.6	3,426
AEON Co (M)
Operator of general merchandise stores, supermarkets and convenience stores.	Multi-line Retail	Malaysia	4,866	2.4	3,581
Siam Makro
A subsidiary of SHV Netherlands, a cash and carry wholesaler with a network of outlets in Thailand.	Food & Staples Retailing	Thailand	4,844	2.4	2,687
Top ten investments			60,711	30.6

Investment Portfolio - Other Investments

As at 31 July 2010

			Valuation	Total	Valuation
			2010	assets	2009
Company	Sector	Country	£'000	%	£'000
WBL	Electronic Equipment & Instruments	Singapore	4,681	2.4	3,672
Holcim Indonesia	Construction & Materials	Indonesia	4,528	2.3	3,793
Gujarat Gas	Gas Utilities	India	4,484	2.3	2,469
Wheelock Properties	Real Estate	Singapore	4,415	2.2	3,765
United Plantations	Food Products	Malaysia	4,374	2.2	3,010
M.P. Evans	Food Products	Other Asia	4,020	2.0	1,720
Asian Terminals	Transportation Infrastructure	Philippines	3,876	2.0	2,266
Guinness Anchor	Beverages	Malaysia	3,649	1.8	2,370
Shangri-La Hotels	Hotels, Restaurants & Leisure	Malaysia	3,638	1.8	2,135
Jammu & Kashmir Bank	Commercial Banks	India	3,605	1.8	1,951
Top twenty investments			101,981	51.4
Kansai Nerolac Paints	Chemicals	India	3,599	1.8	2,710
The Hong Kong & Shanghai Hotels	Hotels, Restaurants & Leisure	Hong Kong	3,593	1.8	2,436
United Malacca	Food Products	Malaysia	3,559	1.8	2,512
Hong Kong Economic Times	Media	Hong Kong	3,421	1.7	2,358
Pos Malaysia	Air Freight & Logistics	Malaysia	3,400	1.7	2,204
Chevron Lubricants	Oil & Gas	Sri Lanka	3,360	1.7	1,204
Tisco Financial Group	Consumer Finance	Thailand	3,339	1.7	1,697
Jollibee Foods	Hotels, Restaurants & Leisure	Philippines	3,247	1.6	1,882
Commercial Bank of Ceylon	Commercial Banks	Sri Lanka	3,199	1.6	1,518
Keells (J)	Industrial Conglomerates	Sri Lanka	3,181	1.6	1,622
Top thirty investments			135,879	68.4
AEON Stores	Multi-line Retail	Hong Kong	3,168	1.6	3,728
Aventis Pharmaceuticals	Pharmaceuticals	India	3,164	1.6	1,889
Public Financial Holdings	Consumer Finance	Hong Kong	3,015	1.5	2,152
Eastern Water Resources	Water Utilities	Thailand	2,867	1.4	1,833
IDS Group	Distributors	Hong Kong	2,616	1.3	1,908
Cebu Holdings	Real Estate	Philippines	2,526	1.3	1,726
Unilever Pakistan	Food Products	Pakistan	2,503	1.3	1,057
Daegu Bank	Commercial Banks	South Korea	2,469	1.2	2,063
Hong Leong Finance	Consumer Finance	Singapore	2,356	1.2	1,988
Regional Container Lines	Marine	Thailand	2,322	1.2	1,056
Top forty investments			162,885	82.0
CDL Hospitality Trusts	Real Estate	Singapore	2,301	1.2	2,505
AEON Credit Service	Consumer Finance	Hong Kong	2,193	1.1	1,747
Asia Satellite Communications	Telecommunications	Hong Kong	2,072	1.0	1,296
Goodyear	Automobiles & Parts	Thailand	2,065	1.0	880
Cafe de Coral	Hotels, Restaurants & Leisure	Hong Kong	1,995	1.0	1,655
ARB Corp	Auto Components	Australia	1,966	1.0	-
Millennium & Copthorne Hotels	Hotels, Restaurants & Leisure	New Zealand	1,920	1.0	1,521
SBS Transit	Road and Rail	Singapore	1,854	1.0	1,579
Hung Hing Printing	Containers and Packaging	Hong Kong	1,765	0.9	540
WBL 2.5% 10/06/14	Electronic Equipment & Instruments	Singapore	1,681	0.8	1,309
Top fifty investments			182,697	92.0
Other investments (13)			10,353	5.2
Total investments			193,050	97.2
Net current assets{A}			5,628	2.8
Total assets			198,678	100.0
{A} excludes bank loans of £5,619,000.
All investments are in equities or warrants to convert to equities with the exception of a holding in WBL 2.5% 10/6/14 Convertible Bonds. For a full portfolio listing for Aberdeen Asian Smaller Companies Investment Trust PLC, please go to www.asian-smaller.co.uk.

7.   INCOME STATEMENT

		Year ended 31 July 2010			Year ended 31 July 2009
		Revenue	Capital	Total	Revenue	Capital	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000
Gains on investments	9		71,158	71,158	-	14,420	14,420
Income	2	6,103	-	6,103	4,954	-	4,954
Exchange losses		-	(365)	(365)	-	(1,475)	(1,475)
Investment management fees	3	(1,521)	-	(1,521)	(1,494)	-	(1,494)
Administrative expenses	4	(726)	-	(726)	(623)	-	(623)
		_______	_______	_______	_______	_______	_______
Net return on ordinary activities before finance costs and taxation		3,856	70,793	74,649	2,837	12,945	15,782
Finance costs	5	(54)	-	(54)	(167)	-	(167)
		_______	_______	_______	_______	_______	_______
Return on ordinary activities before taxation		3,802	70,793	74,595	2,670	12,945	15,615
Taxation	6	214	(793)	(579)	(563)	-	(563)
		_______	_______	_______	_______	_______	_______
Return on ordinary activities after taxation		4,016	70,000	74,016	2,107	12,945	15,052
		_______	_______	_______	_______	_______	_______
Return per share (pence):	8
Basic		12.85	223.97	236.82	6.75	41.46	48.21
		_______	_______	_______	_______	_______	_______
Diluted		11.73	204.50	216.23	6.24	38.32	44.56
		_______	_______	_______	_______	_______	_______
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 2010	31 July 2009
	Notes	£'000	£'000
Non current assets
Investments at fair value through profit or loss	9	193,050	127,612
		__________	__________
Current assets
Debtors and prepayments	10	639	374
Cash and short term deposits		5,367	2,642
		__________	__________
		6,006	3,016
		__________	__________
Creditors: amounts falling due within one year	11
Bank loan		(5,619)	(8,143)
Other creditors		(378)	(522)
		__________	__________
		(5,997)	(8,665)
		__________	__________
Net current assets/(liabilities)		9	(5,649)
		__________	__________
Total assets less current liabilities		193,059	121,963
Provisions for liabilities and charges	12	(208)	-
		__________	__________
Net assets		192,851	121,963
		__________	__________
Capital and reserves
Called-up share capital	13	8,331	8,220
Capital redemption reserve		2,062	2,062
Share premium account		11,644	11,312
Special reserve		8,372	10,386
Warrant reserve		1,243	1,387
Capital reserve	14	155,040	84,896
Revenue reserve	14	6,159	3,700
		__________	__________
Equity shareholders' funds		192,851	121,963
		__________	__________
Net asset value per share (pence):	15
Basic		619.37	390.96
		__________	__________
Diluted		562.57	355.95
		__________	__________

9.   RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

For the year ended 31 July 2010
			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 2009		8,220	2,062	11,312	10,386	1,387	84,896	3,700	121,963
Purchase of own shares		-	-	-	(2,014)	-	-	-	(2,014)
Exercise of warrants		111	-	332	-	(144)	144	-	443
Return on ordinary activities after taxation		-	-	-	-	-	70,000	4,016	74,016
Dividends paid	7	-	-	-	-	-	-	(1,557)	(1,557)
		_______	_________	_______	_______	_______	_______	_______	_______
Balance at 31 July 2010		8,331	2,062	11,644	8,372	1,243	155,040	6,159	192,851
		_______	_________	_______	_______	_______	_______	_______	_______
For the year ended 31 July 2009
			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 2008		8,163	2,062	11,140	11,975	1,461	71,877	3,151	109,829
Purchase of own shares		-	-	-	(1,589)	-	-	-	(1,589)
Exercise of warrants		57	-	172	-	(74)	74	-	229
Return on ordinary activities after taxation		-	-	-	-	-	12,945	2,107	15,052
Dividends paid	7	-	-	-	-	-	-	(1,558)	(1,558)
		_______	_________	_______	_______	_______	_______	_______	_______
Balance at 31 July 2009		8,220	2,062	11,312	10,386	1,387	84,896	3,700	121,963
		_______	_________	_______	_______	_______	_______	_______	_______
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 2010		31 July 2009
	Notes	£'000	£'000	£'000	£'000
Net cash inflow from operating activities	16		3,217		2,383
Servicing of finance
Bank and loan interest paid			(55)		(173)
Taxation
Net taxation paid			(177)		(658)
Financial investment
Purchases of investments		(8,171)		(15,602)
Sales of investments		13,928		15,728
		_______		_______
Net cash inflow from financial investment			5,757		126
Equity dividends paid	7		(1,557)		(1,558)
			_______		_______
Net cash inflow before financing			7,185		120
Financing
Purchase of own shares		(2,014)		(1,589)
Exercise of warrants		443		229
(Repayment)/drawdown of loan	17	(1,903)		2,069
		_______		_______
Net cash (outflow)/inflow from financing activities			(3,474)		709
			_______		_______
Increase in cash			3,711		829
			_______		_______
Reconciliation of net cash flow to movements in net debt
Increase in cash as above			3,711		829
Repayment/(drawdown) of loan			1,903		(2,069)
Exchange movements			(365)		(1,475)
			_______		_______
Movement in net debt in the year			5,249		(2,715)
Net debt at 1 August			(5,501)		(2,786)
			_______		_______
Net debt at 31 July	17		(252)		(5,501)
			_______		_______

11.   NOTES TO THE FINANCIAL STATEMENTS

For the Year Ended 31 July 2010

1.	Accounting policies
	(a)	Basis of preparation and going concern
		The financial statements have been prepared in accordance with the applicable UK Accounting Standards and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (issued in January 2009). The financial statements have also been prepared on the assumption that approval as an investment trust will continue to be granted. The financial statements have been prepared on a going concern basis. The Directors believe this is appropriate for the reasons outlined in the Directors' Report in the Annual Report.
		The financial statements, and the net asset value per share figures, have been prepared in accordance with UK Generally Accepted Accounting Practice (UK GAAP).
	(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 and disposals 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. 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.
	(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 charged to the capital column of the Income Statement and are separately identified and disclosed in note 9 within gains/(losses) on investments.
	(e)	Taxation
		The charge for taxation is based on the profit 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 reserve
		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.

		2010	2009
2.	Income	£'000	£'000
	Income from investments
	UK dividend income	54	36
	Overseas dividends	5,966	4,886
	Stock dividends	37	15
	Fixed interest	21	3
		________	________
		6,078	4,940
		________	________
	Other income
	Deposit interest	15	15
	Interest on tax refunded	-	(27)
	Underwriting commission	10	26
		________	________
		25	14
		________	________
	Total income	6,103	4,954
		________	________

		2010			2009
		Revenue	Capital	Total	Revenue	Capital	Total
3.	Investment management fees	£'000	£'000	£'000	£'000	£'000	£'000
	Investment management fees	1,521	-	1,521	1,494	-	1,494
		_______	_______	_______	_______	______	_____
	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 year's notice. The balance due to AAM Asia at the year end was £275,000 (2009 - £240,000).

		2010			2009
		Revenue	Capital	Total	Revenue	Capital	Total
4.	Administrative expenses	£'000	£'000	£'000	£'000	£'000	£'000
	Administration fees	73	-	73	72	-	72
	Directors' fees	108	-	108	92	-	92
	Share Plan marketing contribution	95	-	95	101	-	101
	Auditors' remuneration:
	- fees payable to the auditors for the audit of the annual accounts	23	-	23	22	-	22
	- fees payable to the auditors and its associates for other services:
	- interim review	6	-	6	6	-	6
	Custodian charges	265	-	265	176	-	176
	Other expenses	156	-	156	154	-	154
		_______	_______	_______	_______	______	_____
		726	-	726	623	-	623
		_______	_______	_______	_______	______	_____
	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 based on an index-linked annual amount of £73,000 (2009 - £72,000) and there was a prepayment of £18,000 (2009 - £nil prepaid) at the year end.  The agreement is terminable on six months' 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 £95,000 (2009 - £101,000) and there was a £22,000 (2009 - £7,000) balance due to AAM the year end.
	No pension contributions were made in respect of any of the Directors.

		2010			2009
		Revenue	Capital	Total	Revenue	Capital	Total
5.	Finance costs	£'000	£'000	£'000	£'000	£'000	£'000
	On bank loans and overdrafts	54	-	54	167	-	167
		_______	_______	_______	_______	______	_____

				2010			2009
			Revenue	Capital	Total	Revenue	Capital	Total
6.	Taxation		£'000	£'000	£'000	£'000	£'000	£'000
	(a)	Analysis of charge for the year
		Corporation tax	-	-	-	577	-	577
		Overseas taxation	371	-	371	255	-	255
		Relief for overseas taxation	-	-	-	(245)	-	(245)
		Tax relief to revenue	(348)	348	-	-	-	-
		Prior year adjustment	-	-	-	13	-	13
			_______	_______	_______	_______	______	_____
		Current taxation	23	348	371	600	-	600
		Deferred taxation	(237)	445	208	(37)	-	(37)
			_______	_______	_______	_______	______	_____
		Total tax	(214)	793	579	563	-	563
			_______	_______	_______	_______	______	_____
		The Company has a potential deferred tax liability of £208,000 (2009 - nil) in respect of investment holdings revaluation gains credited to the capital reserve which are subject to corporation tax. This reflects the investment holding gain at the year end on the Company's holding in CDL Hospitality Trusts. As a Singapore based real estate investment trust without distributor status, realised gains arising on disposal of this investment are taxable.
	(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 (28%). The differences are explained below:
			2010			2009
			Revenue	Capital	Total	Revenue	Capital	Total
			£'000	£'000	£'000	£'000	£'000	£'000
		Return on ordinary activities before taxation	3,802	70,793	74,595	2,670	12,945	15,615
		Return on ordinary activities multiplied by the UK standard tax rate of corporation tax of 28% (2009 - 28%)	1,065	19,822	20,887	748	3,625	4,373
		Effects of:
		Gains on investments not taxable	-	(19,924)	(19,924)	-	(4,038)	(4,038)
		Offshore income gains realised	-	348	348	-	-	-
		Exchange losses/(gains)	-	102	102	-	413	413
		Franked dividend receipts not chargeable to corporation tax	(15)	-	(15)	(10)	-	(10)
		Overseas tax	371	-	371	255	-	255
		Double tax relief	-	-	-	(245)	-	(245)
		Non-taxable dividend income	(1,623)	-	(1,623)	(161)	-	(161)
		Non-taxable stock dividends	(10)	-	(10)	-	-	-
		Movement in unutilised management expenses	230	-	230	-	-	-
		Movement in unutilised loan relationship deficits	5	-	5	-	-	-
		Prior year adjustment	-	-	-	13	-	13
			_______	_______	_____	_______	______	_____
		Current tax charge for the year	23	348	371	600	-	600
			_______	_______	_____	_______	______	_____

		2010	2009
7.	Dividends	£'000	£'000
	Final dividend for 2009 - 5.00p (2008 - 4.00p)	1,557	1,246
	Special dividend for 2009 - nil (2008 - 1.00p)	-	312
		________	________
		1,557	1,558
		________	________
	Proposed final and special dividends are subject to approval by shareholders at the Annual General Meeting and are not included as a liability in the 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 1158 - 1159 of the Corporation Tax Act 2010 are considered. The revenue available for distribution by way of dividend for the year is £4,016,000 (2009 - £2,107,000).
		2010	2009
		£'000	£'000
	Proposed final dividend for 2010 - 8.2p (2009 - 5.0p)	2,553	1,557
	Proposed special dividend for 2010 - 1.9p (2009 - nil)	592	-
		________	________
	Total	3,145	1,557
		________	________

		2010			2009
8.	Return per Ordinary share	Revenue	Capital	Total	Revenue	Capital	Total
	Basic
	Return on ordinary activities after taxation (£'000)	4,016	70,000	74,016	2,107	12,945	15,052
	Weighted average number of shares in issue (excluding shares held in treasury)			31,254,783			31,223,576
	Basic return per Ordinary share (p)	12.85	223.97	236.82	6.75	41.46	48.21
		_______	_______	________	_______	______	_______
		2010			2009
		Revenue	Capital	Total	Revenue	Capital	Total
	Diluted
	Number of dilutive shares			2,975,169			2,560,696
	Diluted number of shares in issue (excluding shares held in treasury)			34,229,952			33,784,272
	Diluted return per Ordinary share (p)	11.73	204.50	216.23	6.24	38.32	44.56
		_______	_______	________	_______	______	_______
	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 2,975,169 (2009 - 2,560,696) to 34,229,952 (2009 - 33,784,272) Ordinary shares.

		Listed	Listed
		in UK	overseas	Total
9.	Investments	£'000	£'000	£'000
	Fair value through profit or loss:
	Opening book cost	362	92,216	92,578
	Opening fair value gains on investments held	1,358	33,676	35,034
		__________	__________	__________
	Opening fair value	1,720	125,892	127,612
	Movements in year:
	Purchases at cost	1,927	6,281	8,208
	Sales - proceeds	-	(13,928)	(13,928)
	- gains on sales	-	6,810	6,810
	Movement in fair value gains on investments held	373	63,975	64,348
		__________	__________	__________
	Closing fair value	4,020	189,030	193,050
		__________	__________	__________
		Listed	Listed
		in UK	overseas	Total
		£'000	£'000	£'000
	Closing book cost	2,289	91,379	93,668
	Closing fair value gains on investments held	1,731	97,651	99,382
		__________	__________	__________
		4,020	189,030	193,050
		__________	__________	__________
		Listed	Listed
		in UK	overseas	Total
	Gains on investments	£'000	£'000	£'000
	Gains on sales	-	6,810	6,810
	Movement in fair value gains on investments held	373	63,975	64,348
		__________	__________	__________
		373	70,785	71,158
		__________	__________	__________
	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:
			2010	2009
			£'000	£'000
	Purchases		27	33
	Sales		55	52
			__________	__________
			82	85
			__________	__________

		2010	2009
10.	Debtors: amounts falling due within one year	£'000	£'000
	Other debtors	14	8
	Prepayments and accrued income	625	366
		__________	__________
		639	374
		__________	__________

		2010	2009
11.	Creditors: amounts falling due within one year	£'000	£'000
	Bank loans	5,619	8,143
	Other creditors	378	345
	Corporation tax payable	-	177
		__________	__________
		5,997	8,665
		__________	__________
	At the year end the Company had drawn down a US$8,800,000 loan from Barclays Bank at a rate of 0.76594% with repayment or rollover terms to 16 August 2010.
	On 16 August 2010, the US$8,800,000 loan from Barclays Bank was then rolled for one month to 16 September 2010 at a rate of 0.70094% and on 16 September 2010 the loan was rolled forward for three months at a rate of 0.71688%.
	The terms of the loan facility with Barclays Bank contain covenants requiring that the minimum number of investments held by the Company be thirty; that the minimum geographical spread be five countries; that the maximum investment in any one country be 25% of the portfolio value; that the maximum investment in MSCI financial services industry category be 40% of portfolio value; and that the maximum investment in other MSCI industry categories be 25% of portfolio value. The Company met these covenants throughout the year and up to the date that this report was signed.

		2010	2009
12.	Provisions for liabilities and charges	£'000	£'000
	Deferred tax on accrued income:
	At 1 August	-	37
	Deferred tax charged/(credited) to the Income Statement in the year	208	(37)
		__________	__________
	At 31 July	208	-
		__________	__________

		2010	2009
13.	Called up share capital	£'000	£'000
	Authorised
	42,000,000 (2009 - 42,000,000) Ordinary shares of 25p	10,500	10,500
		__________	__________
	Called-up, allotted and fully paid
	33,322,905 (2009 - 32,880,207) Ordinary shares of 25p	8,331	8,220
		__________	__________
	During the year 502,069 (2009 - 662,210) Ordinary shares of 25p were repurchased by the Company at a total cost of £2,014,000 (2009 - £1,589,000). All these shares were placed in treasury. At the year end 2,186,290 (2009 - 1,684,221) shares were held in treasury, which represents 6.56% (2009 - 5.12%) of the Company's total issued share capital at 31 July 2010.
	During the year an additional 442,698 Ordinary shares of 25p were issued after 442,698 Warrants were exercised at 100p each. The total consideration received was £442,698.
	At 31 July 2010 there were 3,823,595 (2009 - 4,266,293) 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 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.
	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 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.

		2010	2009
14.	Retained earnings	£'000	£'000
	Capital reserve
	At 31 July 2009	84,896	71,877
	Movement in investment holdings fair value	64,348	10,410
	Gains on realisation of investments at fair value	6,810	4,010
	Foreign exchange movement	(365)	(1,475)
	Capital tax charge	(793)	-
	Capitalised items	144	74
		__________	__________
	At 31 July 2010	155,040	84,896
		__________	__________
	Revenue reserve
	At 31 July 2009	3,700	3,151
	Revenue	4,016	2,107
	Dividends paid	(1,557)	(1,558)
		__________	__________
	At 31 July 2010	6,159	3,700
		__________	__________

15.	Net asset value per equity share	2010	2009
	Basic
	Net assets attributable	£192,851,000	£121,963,000
	Number of Ordinary shares in issue (excluding shares held in treasury)	31,136,615	31,195,986
	Net asset value per Ordinary share	619.37p	390.96p
	Diluted
	Net assets attributable	£196,675,000	£126,229,000
	Number of Ordinary shares if Warrants converted (excluding shares held in treasury)	34,960,210	35,462,279
	Net asset value per Ordinary share	562.57p	355.95p
	The diluted net asset value per Ordinary share has been calculated on the assumption that 3,823,595 (2009 - 4,266,293) Warrants in issue were exercised on the first day of the financial year at 100p per share, giving year end figures of 34,960,210 (2009 - 35,462,279) Ordinary shares.

16.	Reconciliation of net return before finance costs and	2010	2009
	taxation to net cash inflow from operating activities	£'000	£'000
	Net returns before finance costs and taxation	74,649	15,782
	Adjustments for:
	Gains on investments	(71,158)	(14,420)
	Effect of foreign exchange rate losses	365	1,475
	Increase in prepayments and accrued income	(259)	(185)
	(Increase)/decrease in other debtors	(6)	5
	Increase/(decrease) in other creditors	34	(4)
	Overseas withholding tax suffered	(371)	(255)
	Stock Dividends included in investment income	(37)	(15)
		__________	__________
	Net cash inflow from operating activities	3,217	2,383
		__________	__________

		1 August	Cash	Exchange	31 July
		2009	flow	movements	2010
17.	Analysis of changes in net debt	£'000	£'000	£'000	£'000
	Net cash:
	Cash at bank and overdrafts	2,642	3,711	(986)	5,367
	Debt:
	Debt falling due within one year	(8,143)	1,903	621	(5,619)
		_________	_________	_________	_________
		(5,501)	5,614	(365)	(252)
		_________	_________	_________	_________

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 is followed. Stock selection procedures are in place based on the 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. The department reports to the Manager's performance review committee which is chaired by the Manager's chief investment officer. The department's responsibility is to review and monitor ex-ante (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;
	- interest payable on the Company's variable rate borrowings;
	- valuation of debt securities in the portfolio.
	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 rate 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 2010			Years			%			£'000	£'000
	Assets
	Singapore Dollar			3.42			2.50			1,681	-
	Sri Lankan Rupee			-			-			-	-
	Sterling			-			-			-	5,366
	Thailand Baht			-			-			-	1
				_________			_________			_________	_________
				n/a			n/a			1,681	5,367
				_________			_________			_________	_________
	Liabilities
	Bank loan - US Dollar			0.04			0.77			(5,619)	-
				Weighted average			Weighted
				period for which			average			Fixed	Floating
				rate is fixed			interest rate			rate	rate
	At 31 July 2009			Years			%			£'000	£'000
	Assets
	Indian Rupee			-			-			-	13
	Philippine Peso			-			-			-	66
	Singapore Dollar			4.42			2.50			1,309	19
	Sri Lankan Rupee			-			-			-	61
	Sterling			-			0.30			-	2,483
				_________			_________			_________	_________
				n/a			n/a			1,309	2,642
				_________			_________			_________	_________
	Liabilities
	Bank loan - US Dollar			0.03			0.73			(8,143)	-
				_________			_________			_________	_________
	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
										2010	2009
	Assets									£'000	£'000
	Floating rate
	Cash									5,367	2,642
										_________	_________
										Within	Within
										1 year	1 year
										2010	2009
	Liabilities									£'000	£'000
	Fixed rate									_________	_________
	Bank loans									(5,619)	(8,143)
										_________	_________
	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 overseas 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 2010					31 July 2009
						Total					Total
			Overseas	Net monetary		currency		Overseas	Net monetary		currency
			investments	assets/ (liabilities)		exposure		Investments	assets/ (liabilities)		exposure
			£'000	£'000		£'000		£'000	£'000		£'000
	Australia		1,966	-		1,966		-	-		-
	Hong Kong Dollar		32,117	-		32,117		23,076	-		23,076
	Indian Rupee		25,600	-		25,600		19,255	13		19,268
	Indonesian Rupiah		18,719	-		18,719		12,405	-		12,405
	Korean Won		2,469	-		2,469		2,063	-		2,063
	Malaysian Ringgit		32,080	-		32,080		20,956	-		20,956
	New Zealand Dollar		1,920	-		1,920		1,521	-		1,521
	Pakistan Rupee		2,658	-		2,658		1,294	-		1,294
	Philippine Peso		11,148	-		11,148		6,605	66		6,671
	Singapore Dollar		27,377	-		27,377		21,760	19		21,779
	Sri Lankan Rupee		11,563	-		11,563		5,296	61		5,357
	Thailand Baht		21,413	1		21,414		11,661	-		11,661
	US Dollar		-	(5,619)		(5,619)		-	(8,143)		(8,143)
			_________	_________		________		_________	_________		_________
			189,030	(5,618)		183,412		125,892	(7,984)		117,908
	Sterling		4,020	5,366		9,386		1,720	2,483		4,203
			_________	_________		________		_________	_________		_________
	Total		193,050	(252)		192,798		127,612	(5,501)		122,111
			_________	_________		________		_________	_________		_________
	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 in the Annual Report, 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% (2009 - 10%) higher or lower while all other variables remained constant, the return attributable to Ordinary shareholders for the year ended 31 July 2010 would have increased/(decreased) by £19,305,000 (2009 increased/(decreased) by £12,761,000) 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 25%. Details of borrowings at the 31 July 2010 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 a loan facility, details of which can be found in note 11. Under the terms of the loan facility, the 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 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 2010 the Company's bank loans, amounting to £5,619,000 (2009 - £8,143,000), were due for repayment or roll-over within 1 month (2009 - 1 month). The maximum exposure during the year was £8,441,000 and the minimum exposure during the year was £5,619,000.
	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 considered to be 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; and
	-	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:
					2010				2009
					Balance		Maximum		Balance		Maximum
					Sheet		exposure		Sheet		exposure
	Current assets				£'000		£'000		£'000		£'000
	Debtors and prepayments				639		639		374		374
	Cash and short term deposits				5,367		5,367		2,642		2,642
					_________		_________		________		_________
					6,006		6,006		3,016		3,016
					_________		_________		________		_________
	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 £5,620,000 as at 31 July 2010 (2009 - £8,144,000) compared to an accounts value in the financial statements of £5,619,000 (2009 - £8,143,000) (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.	Fair value hierarchy
	The Company adopted the amendments to FRS 29 'Financial Instruments: Disclosures' effective from 1 January 2009. These amendments require an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy shall have the following levels:
	- Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
	- Level 2: inputs other than quoted prices included within Level 1 that are observable for the assets or liability, either directly (ie as prices) or indirectly (ie derived from prices); and
	- Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
	The financial assets and liabilities measured at fair value in the statement of financial position are grouped into the fair value hierarchy at 31 July 2010 as follows:
			Level 1	Level 2	Level 3	Total
		Note	£'000	£'000	£'000	£'000
	Financial assets at fair value through profit or loss
	Quoted equities	a)	191,369	-	-	191,369
	Quoted bonds	b)	1,681	-	-	1,681
			_________	_________	________	_________
	Net fair value		193,050	-	-	193,050
			_________	_________	________	_________
	a) Quoted equities
	The fair value of the Company's investments in quoted equities have been determined by reference to their quoted bid prices at the reporting date. Quoted equities included in Fair Value Level 1 are actively traded on recognised stock exchanges.
	b) Quoted bonds
	The fair value of the Company's investments in quoted bonds has been determined by their quoted bid price at reporting date.

Notes Continued:

21.   The Annual General Meeting will be held 30 November 2010 at Bow Bells House, One Bread Street, London EC4M 9HH.

22.   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 2010 are an abridged version of the Company's full accounts, which have been approved and audited with an unqualified report. The 2009 and 2010 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.498(2) or 498(3) of the Companies Act 2006.  The financial information for 2009 is derived from the statutory accounts for 2009 which have been delivered to the Registrar of Companies. The 2010 accounts will be filed with the Registrar of Companies in due course.

The audited Annual Report and Accounts will be posted to shareholders shortly. Copies may be obtained during normal business hours from the Company's Registered Office, Bow Bells House, 1 Bread Street, London EC4M 9HH or from the Company's website, www.asian-smaller.co.uk

By Order of the Board

Aberdeen Asset Management PLC

Secretary

6 October 2010

 

END

 

 

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