Annual Financial Report

RNS Number : 5160N
Aberdeen Asian Smaller Co's Inv Tst
01 October 2012
 



ABERDEEN ASIAN SMALLER COMPANIES INVESTMENT TRUST PLC

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 JULY 2012

 

 

1.  CHAIRMAN'S STATEMENT

 

Results

For the year ended 31 July 2012, I am very pleased to report an increase in Net Asset Value on a total return basis of 11.0% and in the share price of 12.5%. This excellent result, in a year of considerable economic difficulty, compares with a fall in the MSCI AC Asia Pacific ex Japan Small Cap Index of 16.2% and MSCI AC Asia ex Japan Index of 5.2% (currency adjusted with dividends reinvested). 

 

Since the Company's inception in 1995, the annualised return in terms of share price total return has been 15.0% compared to 5.8% for the currency adjusted MSCI AC Asia Pacific ex Japan Index.  £100 invested in the Company's shares in 1995 would have been worth £938 as at 31 July 2012 with dividends having been reinvested compared to £158 if invested in the index or £187 if invested in the FTSE All-share. The £938 figure includes the reinvestment of dividends amounting to 62.5p per Ordinary share that were paid over the period but excludes the dividends proposed below as well as any further benefit that accrued to the original subscribing shareholders who were also issued with one free Warrant to subscribe for Ordinary shares for every five Ordinary shares purchased at launch. In a recent Association of Investment Companies Olympic Press release, your Company was awarded the Silver Medal for the best performing member company over five years and the Gold Medal for ten years.

 

This strong performance is a testament to the investment philosophy pursued by Hugh Young and his team at Aberdeen investing only in companies with good management, strong balance sheets and excellent growth potential.  This long term approach, aided by fundamental research, has led to a very stable portfolio. It has been pleasing to see so many companies, in which we have an investment, flourish over a long period. 

 

Dividend

Subject to market conditions, it is your Company's aim to maintain or increase the Ordinary dividend.  Therefore, we are very pleased to recommend for this year the payment of a maintained final dividend of 9.5p per Ordinary share (2011: 9.5p) and the payment of a special dividend of 3.0p (2011: 2.8p) to reflect the level of special dividends that were received during the year. If approved by shareholders at the Annual General Meeting of the Company on 21 November 2012, the final and special dividends will be paid on 23 November 2012 to shareholders on the register on 19 October 2012.

 

Overview

As highlighted in the Manager's Review, Asian markets endured a difficult year. The fiscal problems of the developed nations, leading to America's first-ever credit rating downgrade and persistent speculation of a Eurozone breakup, weighed heavily on market sentiment. This, combined with slow economic growth, had an inevitable effect on Asia. China saw a reduction in economic activity and India has, once again, been hampered by the slow pace of reform. A lower inflationary outlook allowed most Asian Central Banks to loosen monetary policy and investors were cheered, albeit briefly, by interest rate cuts in Beijing and Delhi.

 

The Manager's detailed knowledge of the region and its companies helped overcome these travails. The broad range of stocks held in the portfolio, with their tilt towards the domestic consumer, assisted performance but as is discussed in the Manager's Review, while some benefited, others saw cost pressures. However, strong balance sheets should offer a measure of protection for those affected by the current climate. Asian economies are in a better position to weather these difficult times as the economic fundamentals are stronger than their Western counterparts. This will benefit and protect the stronger companies of the region over the medium term and with the constant emphasis Hugh Young and the team place on quality, we would expect to see our investments emerge from this period intact and hopefully stronger.

 

Smaller companies remain compelling investments

I would like, however, to point out that smaller companies face many of the same risks as their larger counterparts, and in times of heightened risk aversion, may sustain steeper falls in share prices. The falls in the MSCI AC Asia Pacific ex Japan Index and MSCI AC Asia Pacific ex Japan Small Cap Index during the review period are evidence of this. In the same vein, your Company will not be immune to periods of underperformance.

 

Nevertheless, small caps in Asia have fared better than large caps in eight of the past twelve years. The attractions of the asset class are undeniable. It is a proxy for domestic demand in economies that are still at early stages of development and often characterised by young populations with low debt levels and rising middle class aspirations. Opportunities for mergers and acquisitions are abundant as well-run local firms with market leading positions, such as those in the Company's portfolio, prove a draw for multinationals seeking a foothold. This is especially true of Southeast Asia, to which we are overweight, rather than the more export-reliant North Asia, where we have a relatively lighter exposure.

 

As I have said above, the key to long-term outperformance is rigorous stock selection. Here, your Manager continues to rely on a well-resourced team that conducts intensive research and frequent management visits that have buttressed the performance of your Company. In an asset class that still receives limited coverage, this approach in identifying winning companies, while avoiding market fads, has paid dividends. 

 

Gearing, Investment Policy and Share Capital

I wrote to you in April 2012 with details of a proposed Placing and Open Offer of up to £35 million of Convertible Unsecured Loan Stock 2019 ("CULS") and on 17 May 2012 shareholders approved the proposals resulting in the issue of the full £35 million of CULS on 18 May 2012.  The new CULS pays interest at the rate of 3.5% per annum and provides holders with the opportunity to convert semi-annually in the twenty-eight days preceding 30 November and 31 May into new Ordinary shares on the basis of one new Ordinary share for every 830p worth of nominal CULS held.  As part of this CULS issue the Company repaid its loan facility with the Royal Bank of Scotland plc.  Following the issue of CULS, the Company's year-end actual gearing stood at 10.0% of the net assets.  This represents an increase from previous years but is well within the limits set by the Board. The Directors monitor the Company's gearing on a regular basis in accordance with the Company's investment policy and under advice from the Manager.

 

As part of the CULS proposals shareholders also approved a minor adjustment to the Company's investment policy to allow the Company to invest in companies with market capitalisations of up to approximately US$1 billion at the time that an investment is made.  This will maximise the investment opportunities available to the Manager.

 

Subsequent to the period end the Company has started to sell shares from treasury that had originally been purchased back in 2007 and 2008 at discounts in excess of 14%.  It is very pleasing to be able to re-sell these shares at a premium to the inclusive of income net asset value per Ordinary share in order to satisfy the strong current demand.  To date 310,000 shares have been sold from treasury and a further 1,876,290 treasury shares remain available for sale in the future subject to demand.

 

Annual General Meeting

The Annual General Meeting is scheduled to be held on 21 November 2012 at 11.30 a.m.  In addition to the usual ordinary business, as special business the Board is seeking to renew its authority to issue new shares and sell treasury shares for cash at a premium without pre-emption rules applying and to renew its authority to buy back shares and either hold them in treasury for future resale (at a premium to the prevailing net asset value per share) or cancel them.  At the conclusion of the AGM there will be an opportunity for shareholders to meet the Board over a buffet lunch and your Board looks forward to seeing as many shareholders as possible.

 

Outlook

Global growth is likely to stay subdued in the year ahead. Fiscal challenges in the US and Europe will continue to hamper recovery for some time. In Asia, structural rebalancing towards domestic consumption continues apace, but exports have been hurt by slowing Western demand. Relying on China or India to pick up the slack from the advanced nations is still premature. The mainland has its own worries, foremost being the lingering threat of a property bubble, while India has the hard task of trying to restore investor confidence after a series of policy missteps by a government trapped in political difficulties. Meanwhile, droughts stretching from the US and Russia to China and Australia have renewed inflationary pressures, complicating the outlook for further monetary easing. 

 

The very uncertain outlook for the World economy will give both Asia and the companies in which we are invested some significant challenges in the year ahead. However, as we have seen during the last 17 years, the fundamental strengths of our portfolio have seen us through difficult times and, as the figures this year have demonstrated, with some pleasing results. It is impossible to make any short term predictions but we are confident that the policy that has been so successful in the past will prove resilient and rewarding in the future.

 

 

 

 

 

 

Nigel Cayzer

Chairman

28 September 2012

2.  MANAGER'S REPORT

 

Overview

Asian equities fell during the year under review, as sentiment vacillated between hopes of a resolution to Europe's debt crisis and disappointment over perceived inadequacy of policy responses. Other market stresses included economic frailty in the US and risks to growth in Asia. This resulted in a repeated cycle of steep falls followed by brief periods of recovery. Overall, a flight to quality was also evident as investors turned cautious and favoured the more defensive stocks and sectors within equities, as well as safe havens like bonds within asset classes.

 

The biggest sell-off was in September, when the US lost its triple-A sovereign credit rating, the Eurozone crisis escalated, and China's initial tightening raised worries of a hard landing. Another weak stretch was from March to May, when a spike in Spanish bond yields and uncertainty over Greece's Eurozone status reignited contagion fears. Policy support was most evident between October and February, with a slew of confidence-boosting attempts that included liquidity injections into the global financial system by major central banks, the provision of cheap, long-term loans to Eurozone banks, and the commitment to near-zero interest rates by the US Federal Reserve.

 

Asian economies continued to decelerate. Persistent weakness in developed markets hurt exports and manufacturing output, which stung the more open economies. China's slowdown was disconcerting, given the importance of mainland demand in the region. GDP growth cooled significantly in Korea, Hong Kong, Singapore and Taiwan. But domestically-oriented economies proved resilient. Malaysia and Indonesia were buttressed by higher investment and consumption. Philippine exports and remittances remained healthy. Consumer spending was solid in Thailand. But India proved an exception, the victim of its own foibles. The incessant infighting within the ruling coalition reduced policymaking to a farce.

 

On a more positive note, inflation, which had intensified because of rising food costs, eased as oil and commodity prices retreated in line with slowing growth. Policy focus changed accordingly from tightening to loosening, given the added impetus to shield economies from stiff global headwinds. Significantly, China cut interest rates for the first time in four years.

 

Portfolio review

The portfolio delivered another year of solid outperformance amid difficult times, which underscored the quality, depth and defensiveness of our holdings. This excellent result was driven by our heavy exposure to South-east Asia and to the consumer sector. Our overweight position is based on our conviction that the expanding middle class and its growing affluence will underpin the structural growth of domestic consumption.

 

The lack of exposure to China boosted performance, given a spate of scandals amongst China's smaller companies amid the weakening economic backdrop. While China appears attractive from a top-down perspective, it is a different story at the corporate level. Thus, we prefer to gain exposure to China via well-established Hong Kong-domiciled companies with growing mainland businesses. Hong Kong is also better regulated and administered, and has higher disclosure requirements for its listed companies.

 

Our consumer holdings in South-east Asia stood out. In Malaysia, retailer Aeon Co was boosted by healthy sales. Brewer Guinness Anchor extended its market leadership through effective advertising and promotions. United Plantations, one of Asia's most efficient oil palm plantation companies, benefited from expansion into Indonesia. Shangri-La Hotels performed well on expectations of a recovery in occupancy after renovating a major resort near Kota Kinabalu in Malaysia. Elsewhere, Jollibee Foods, which runs the Philippines' biggest fast-food chain, gained from a bigger and more loyal customer base. Thailand's Siam Makro, a leading cash-and-carry wholesaler, delivered steady profits. In Indonesia, dominant beer-maker Multi Bintang was buoyed by decent results. Outside of South-east Asia, India's Godrej Consumer Products posted better-than-expected earnings while retailer Aeon Stores Hong Kong was bolstered by its China business.

 

Other non-consumer stocks that did well included Indonesian cement-maker Holcim, whose earnings were underpinned by healthy demand from the property sector. The company also expanded capacity to capitalise on housing growth and infrastructure spending in the country. Philippine property developer Cebu Holdings saw significant re-rating owing to its attractive valuations as well as broader optimism over the country's prospects, given increasing political stability and the government's strengthening fiscal position. Thai utility group Eastern Water Resources posted higher sales and kept a tight rein on costs.

 

However, the tougher operating environment proved more challenging for some holdings. Cost pressures hurt publisher Hong Kong Economic Times and Hung Hing Printing, but their balance sheets remained healthy. Elsewhere, India's Gujarat Gas was affected by uncertainty over a possible divestment by its British parent, BG Group, and regulatory proposals that could squeeze profit margins.  A rapid slowdown in IT spending weighed on niche technology company CMC, although its latest results indicated that its project pipeline was gaining traction. Commercial Bank of Ceylon's weaker quarterly earnings were compounded by a significant devaluation of the Sri Lankan rupee. Korean regional lender DGB Financial Group grappled with a sluggish domestic economy, although loans grew and net interest margins stabilised.

 

Portfolio activity

As mentioned in the interim report, we added one new holding in Singapore-listed Eu Yan Sang, a well-regarded name in the traditional Chinese medicine sector, in the first half of the year. Thereafter, we initiated positions in two other companies. We introduced Aeon Credit Service Malaysia, part of the Aeon Group. The company has grown steadily from humble beginnings and focuses on offering personal loans and vehicle financing to the mass market, where penetration remains low. Another new holding was Dah Sing Financial, a conservative financial group with good exposure to both Hong Kong and China, given its appealing valuation and asset quality. Smaller Hong Kong lenders like Dah Sing are attractive acquisition targets for foreign banks that are keen to capitalise on the growing internationalisation of the yuan.

 

After holding the stock for more than a decade, we sold Philippine liquor-maker Ginebra San Miguel because of its deteriorating prospects and stretched balance sheet.

 

In significant portfolio news, we voted against Hong Kong-based Asia Satellite's privatisation scheme, which was eventually rejected by minority shareholders. We view this outcome as positive because we felt that management's offer undervalued the company, particularly in light of its ability to continue to capture growth in the sector.

 

Outlook

Tougher times lie ahead. As in the year past, external demand is likely to remain anaemic, given that economic conditions have remained fundamentally unchanged in Europe and the US. There is limited capacity for policy responses to boost economies in developed markets in view of the low interest rate environment, although policymakers appear committed to undertaking extraordinary measures to shore up liquidity. While these measures have brought about some stability, significant implementation risks remain particularly because the long-drawn crisis has sapped governments' ability to pursue expansionary fiscal policies. Meanwhile, growth across most of Asia is slowing at the macroeconomic and corporate levels. We certainly expect further pressure on costs and margins, with earnings growth to be in single-digits or even flatten in the quarters ahead. Our companies are sensibly building up cash and boosting capital to strengthen their balance sheets. Coupled with competent management and steady cashflow, we are confident that they are well positioned to withstand the headwinds that are likely to intensify in the year ahead.

 

 

 

Aberdeen Asset Management Asia Limited

28 September 2012

3.  RESULTS

 

31 July 2012

31 July 2011

% change

Total assets

£294,157,000

£245,326,000

+19.9

Total equity shareholders' funds (net assets)

£260,994,000

£239,965,000

+8.8

Share price (mid market)

742.00p

673.25p

+10.2

Net Asset Value per share

746.55p

686.39p

+8.8

Discount to Net Asset Value

0.6%

1.9%


MSCI AC Asia Pacific ex Japan Index (currency adjusted, capital gains basis)

503.14

548.75

-8.3

MSCI AC Asia Pacific ex Japan Small Cap Index (currency adjusted, capital gains basis)

1,032.84

1,272.19

-18.8

Actual gearing

10.0%

0.7%


Potential gearing

12.7%

2.2%






Dividends and earnings




Total return per share {A}

68.56p

137.91p


Revenue return per share

13.18p

15.42p

-14.5

Dividends per share{B}

12.50p

12.30p

+1.6

Dividend cover

1.05

1.25

-16.0

Revenue reserves{C}

£8,513,000

£8,206,000

+3.7





Operating costs




Ongoing Charges Ratio{D}

1.51%

1.28%


{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.

{D}      Ongoing charges ratio calculated in accordance with guidance issued by the AIC as the total of the investment management fee and administrative expenses divided by the average cum income net asset value throughout the year.  The figures for 2011 have been restated.  Management fees are charged on the basis of the average net asset value of the Company over a rolling 24 month period. 

 

Performance (total return)

 

1 year

3 year

5 year

Since


% return

% return

% return

inception

Share price

+12.5

+159.6

+154.2

+938.3

Net Asset Value per Ordinary share

+11.0

+120.1

+122.7

+860.9

MSCI AC Asia Pacific ex Japan Index (currency adjusted)

-5.2

+34.8

+32.4

+157.9

MSCI AC Asia Pacific ex Japan Small Cap Index (currency adjusted)

-16.2

+28.3

+10.5

N/A


Source: Aberdeen Asset Management PLC, Fundamental Data, Factset & Russell Mellon

 

Dividends

 

Rate

xd date

Record date

Payment date

Proposed final 2012

9.50p

17 October 2012

19 October 2012

23 November 2012

Proposed special 2012

3.00p

17 October 2012

19 October 2012

23 November 2012


12.50p









Final 2011

9.50p

26 October 2011

28 October 2011

2 December 2011

Special 2011

2.80p

26 October 2011

28 October 2011

2 December 2011


12.30p




 

 

4.  BUSINESS REVIEW

The business of the Company is that of an investment trust investing in the economies of Asia and Australasia excluding Japan. The major risks associated with the Company are detailed below and in note 19 to the financial statements. Further details of the risk management objectives and policies are provided in the Statement of Corporate Governance contained in the Annual Report. The Key Performance Indicators for the Company are NAV performance and share price performance and are detailed under Results above.

 

Principal Activity

The business of the Company is that of an investment trust.  The objective of the Company is set out below. The Directors do not envisage any change in this activity in the foreseeable future.

 

The investment objective of the Company, approved by shareholders at the General Meeting held on 17 May 2012, 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$1 billion at the time of investment) in the economies of Asia and Australasia, excluding Japan. 

 

The Company does not have a benchmark. The Manager utilises two general regional indices, the MSCI AC Asia Pacific ex Japan Index (currency adjusted) and the MSCI AC Asia Pacific ex Japan Small Cap Index (currency adjusted), as well as peer group comparisons for Board reporting. It is likely that performance will diverge, possibly quite dramatically in either direction, from these or any other indices. The Manager seeks to minimise risk by using in depth research and does not see divergence from an index as risk.

 

Status

The Company is registered as a public limited company in England & Wales with registered number 03106339 and is an investment company as defined by Section 833 of the Companies Act 2006. The Company is also a member of the Association of Investment Companies.

 

The Company has been approved by HM Revenue & Customs as an investment trust for the purposes of Section 1158 of the Corporation Tax Act 2010 (formerly Section 842 ICTA) for the year ended 31 July 2011. The Directors are of the opinion that the Company has conducted its affairs for the year ended 31 July 2012 so as to be able to continue to obtain approval as an investment trust under Section 1158 of the Corporation Tax Act 2010 for that year, although approval for that year would be subject to review were there to be an enquiry under the Corporate Tax Self Assessment regime.

 

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

 

The Company does not have a fixed life.

 

Principal Risk Factors

 

1. General Market Risks

1.1     Securities issued by the Company are designed to be held over the long-term and may not be suitable as short-term investments. There can be no guarantee that any appreciation in the value of the Company's investments will occur and the value of securities issued by the Company may go down as well as up. Accordingly, investors may not get back the full value of their original investment in any such securities.

 

1.2     The past performance of the Company is not, and should not be relied upon as, a guide to the future performance of the Company and there can be no guarantee that the Company will achieve its investment objective.

 

1.3     There can be no guarantee that a liquid market will exist in securities issued by the Company and it may be difficult to realise an investment in such securities at their quoted market price.

 

1.4     An investment in the Company should constitute part of a diversified investment portfolio and is only suitable for investors capable of evaluating the risks (including the potential risk of capital loss) and merits of such investment and who have sufficient resources to bear any loss which may result from such investment.

 

2. CULS

2.1     The market price of the CULS will be influenced by a number of factors, including the supply of, and demand for, CULS, the price, NAV and dividend yield of the Ordinary Shares, prevailing interest rates, market conditions and investor sentiment, either general or specific to the Company and there can be no guarantee that the market price of the CULS will fully reflect any value inherent in their convertibility into Ordinary Shares. Accordingly, the value of an investment in the CULS may go down as well as up and CULS Holders may not be able to realise the amount of their original investment.

 

2.2     If, at any time after 31 May 2014, the middle market price of the Ordinary Shares is 20 per cent. or more above the Conversion Price for at least 20 dealing days during a period of 30 consecutive dealing days, the Company will be able to require CULS Holders to redeem their CULS at par. In such event, CULS Holders would be given a final opportunity to convert their CULS into Ordinary Shares. Following conversion of 80 per cent. or more of the CULS originally issued, the Company will be entitled to require remaining CULS Holders to convert their outstanding CULS into Ordinary Shares after they have been given an opportunity to have their CULS redeemed. If at any time after 31 May 2014 the nominal value of the outstanding CULS represents 30 per cent. or more of the Company's net assets, the Company shall be entitled to redeem all outstanding CULS at its nominal amount together with accrued interest up to (but excluding) the date of redemption. If any of these situations were to occur, CULS Holders would not be able to hold their CULS until the final maturity date of the CULS of 31 May 2019 and to have their CULS redeemed for cash on that date.

 

2.3     The CULS Trust Deed does not contain any restriction on borrowings (including borrowings ranking ahead of the CULS), the disposal of assets or the creation of charges by, or changes in, the nature of the business of the Company. Any material increase in the Company's borrowings, material disposal of assets or creation of charges by, or material changes in, the nature of the Company's business could adversely affect the rights of the CULS Holders and the value of the CULS and/or the Ordinary Shares.

 

2.4     On a winding-up of the Company, the nominal amount of the CULS will rank ahead of the Ordinary Shares but will be subordinated to the Company's other borrowings and creditors. Therefore, the rights and remedies available to the CULS Trustee and CULS Holders may be limited by applicable winding-up, insolvency, re-organisation, moratorium or similar provisions relating to or affecting creditors' rights generally.

 

3. Ordinary Shares

3.1     The Company will only pay dividends on the Ordinary Shares to the extent that it has profits available for that purpose, which will largely depend on the amount of income that the Company receives on its investments and the timing of such receipt. Accordingly, the amount of dividends payable by the Company may fluctuate.

 

3.2     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 the NAV per Ordinary Share and may fall when the underlying NAV per Ordinary Share is rising, or vice versa. Accordingly, the value of an investment in the Ordinary Shares may go down as well as up and Shareholders may not be able to realise the amount of their original investment.

 

3.3     The Company does not have a fixed winding-up date and Shareholders have no right to have their Ordinary Shares repurchased by the Company. Accordingly, unless Shareholders vote to wind up the Company, Shareholders wishing to realise their investment in the Company will be required to dispose of their Ordinary Shares through the market and they may be unable to realise their Ordinary Shares at their quoted market price.

 

3.4     In the event of a winding-up of the Company, the Ordinary Shares will rank behind any creditors or prior ranking capital of the Company, including the CULS.

 

4. The Company's Investments

4.1     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.

 

4.2     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.

 

4.3     There are many factors, including changes in economic or industry conditions (including, for example, interest rates, recession, inflation, deflation, foreign exchange rates, demand for or production of commodities and competition), changes in environmental, tax or other laws or regulations, natural disasters, social or political instability, events or trends, acts of terrorism or war and general investor sentiment which could have a material adverse effect on the value of the Company's investments or materially restrict the investment opportunities available to the Company and, therefore, could substantially and adversely affect the Company's performance and prospects.

 

4.4     The Company invests in smaller capitalisation companies. As smaller companies may not have the financial strength, diversity and resources of larger companies, they may find it more difficult to operate in periods of economic slowdown or recession. In addition, the relatively small capitalisation of such companies could make the market in their shares less liquid and, as a consequence, their share price more volatile than investments in larger companies.

 

4.5     The Company may invest in securities that are not readily tradable or may accumulate investment positions that represent a significant multiple of the normal trading volumes of an investment, which may make it difficult for the Company to sell its investments and may lead to volatility in the market price of the Ordinary Shares. Accordingly, the Company will not necessarily be able to realise, within a short period of time, an illiquid investment and any such realisation that may be achieved may be at considerably lower prices than the Company's valuation of that investment for the purpose of calculating the NAV per Ordinary Share.

 

4.6     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 affected investments. Any reduction in the income received by the Company may lead to a reduction in the dividends paid on the Ordinary Shares.

 

4.7     A proportion of the Company's portfolio may be held in cash or cash-equivalent investments from time to time. Such proportion of the Company's assets will be out of the market and will not benefit from positive stockmarket movements, but may give some protection against negative stockmarket movements.

 

5. Gearing

5.1     The CULS provides gearing for the Company. All gearing used by the Company must be in accordance with its investment policy. Whilst the use of gearing should enhance the total return on the Ordinary Shares where the return on the Company's underlying assets is rising and exceeds the costs associated with the gearing, 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.

 

5.2     The use of borrowings by the Company may increase the volatility of the NAV and market price of the Ordinary Shares and, as a result, the market price of the CULS.

 

6. Foreign Exchange

The Company accounts for its activities, reports its results and the NAV per Ordinary Share and declares and pays dividends in sterling while its 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, favourable or unfavourable, on the returns otherwise experienced on the investments made by the Company.

 

7. Taxation

7.1     The Company seeks to conduct its business so as to satisfy the conditions for approval as an investment trust under Chapter 4 of Part 24 of the CTA 2010. Breach of the tests that the Company must meet to obtain approval as an investment trust could lead to the Company being subject to tax on capital gains and, if that were to occur, would reduce the returns to Shareholders.

 

7.2     Any change in the Company's tax status, tax treaty rates, tax laws (or their interpretation) or in the tax treatment of interest, dividends or other investment income received by the Company could affect the value of the investments held by the Company, affect the Company's ability to provide returns to its Shareholders or alter the post-tax returns to its Shareholders.

 

7.3     The Company may purchase investments that may be subject to exchange controls or withholding taxes in various jurisdictions (see item 4.6 above).

 

8. Accounting Practices and Policies

8.1     Any change in financial reporting standards or accounting practices applicable to the Company could affect the reported value of investments held by the Company or the level of profits available for the payment of dividends and, accordingly, could reduce the returns to Shareholders.

 

8.2     The interest expense on the CULS is calculated according to the effective interest rate method by assuming the coupon rate of an equivalent non-convertible obligation of the Company. The interest expenses on the CULS is charged to the revenue account in accordance with the Company's existing policy of charging all expenses to the revenue account. This could reduce the level of profit available for the payment of dividend and could reduce the returns to Ordinary Shareholders.

 

9. The Manager

9.1     The success of the Company and the achievement of its investment objective are largely dependent on the Aberdeen investment team's expertise in acquiring, managing and disposing of assets in accordance with the Company's investment policy. There can be no guarantee that any individual referred to in this Annual Report will remain with the Manager and the personnel employed by the Investment Manager may change from time to time. The departure of a key fund manager may have an adverse effect on the performance of the Company.

 

9.2     Although the Manager has been successful in identifying suitable investments for the Company in the past, it may not be able to do so in the future. Any failure to find a sufficient number of attractive investment opportunities for the Company could have a material adverse effect on the Company's performance and prospects.

 

9.3     The Manager may be involved in other financial, investment or professional activities that may on occasion give rise to conflicts of interest with the Company. In particular, it currently does, and will continue to, provide investment management, investment advice or other services in relation to a number of other clients that may have similar investment objectives and/or policies to that of the Company and may receive ad valorem and/or performance-related fees for doing so. The Investment Manager may give advice or take action with respect to such other clients that differs from the advice given or actions taken with respect to the Company.

 

10. Legal and Regulatory

The EU Alternative Investment Fund Managers Directive (the "Directive") is due to be implemented on 1 January 2013. Investment Companies, including investment trusts, will constitute alternative investment funds for the purposes of the Directive, which will regulate, inter alia, the management of the Company by the Manager and marketing of the Company's securities. Requirements of the Directive include increased disclosure obligations on the Company, ensuring that the Company has an appropriately authorised institution acting as its "depository", the requirement to have independent portfolio valuations and ensuring that any delegate of the Investment Manager is agreed to by the FSA. Whilst certain provisions of the Directive may benefit the Company (such as the increased ability to market the Company's securities to professional investors throughout the EU), some of these changes may have significant consequences for the Company (and all similar investment companies) and might materially increase compliance and regulatory costs.

 

 

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;

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

•      prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

 

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 including Business Review, 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.

 

We confirm that to the best of our knowledge that:

 

•      the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company;

•      the Chairman's Statement, Manager's Review and Business Review contained within the Report of the Directors (together constituting the Management Report) include 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 it faces; and

•      the financial statements and the Directors' Report and Business Review include details on related party transactions.

 

For Aberdeen Asian Smaller Companies Investment Trust PLC

 

 

 

Nigel Cayzer

Chairman

28 September 2012

 

 

6. INVESTMENT PORTFOLIO

 

Ten Largest Investments

As at 31 July 2012

 



Valuation

Total

Valuation




2012

assets

2011

Company

Sector

Country

£'000

%

£'000

Multi Bintang Indonesia






A subsidiary of Asia Pacific Breweries and an affiliate of Heineken in Indonesia.

Beverages

Indonesia

13,237

4.5

11,362

AEON Co (M)






Operator of general merchandise stores, supermarkets and convenience stores.

Multiline Retail

Malaysia

11,494

3.9

8,366

Siam Makro






A subsidiary of SHV Netherlands, a cash and carry wholesaler with a network of outlets in Thailand.

Food & Staples Retailing

Thailand

10,643

3.6

10,090

Bukit Sembawang Estates






Singapore-based residential property developer with a large land bank.

Real Estate Management & Development

Singapore

9,362

3.2

8,389

LPI Capital






Malaysia-based insurance company involved in underwriting fire, motor, marine, aviation, transit and miscellaneous insurance.

Insurance

Malaysia

8,693

3.0

8,946

Godrej Consumer Products






A leading FMCG company in India with strong market-leading brands in soaps and hair colour.

Personal Products

India

8,615

2.9

7,253

Bank OCBC NISP






Majority owned by Singapore's OCBC, it specialises in lending to the small and medium-sized business segment.

Commercial Banks

Indonesia

8,166

2.8

8,440

United Plantations






With plantations in Malaysia and Indonesia, the company is in the cultivation and processing of palm oil business.

Food Products

Malaysia

7,968

2.7

6,360

Giordano International






A Hong Kong based fashion and clothing retailer with a presence across Asia.

Specialty Retail

Hong Kong

7,682

2.6

8,008

WBL Corporation






Investment holding company with listed technology subsidiaries, property development, automotive sales, and engineering & distribution in Singapore, Malaysia, Australia and China.

Electronic Equipment, Instruments & Components

Singapore

7,400

2.5

4,986

Top ten investments



93,260

31.7




 

 

Investment Portfolio - Other Investments

As at 31 July 2012

 



Valuation

Total

Valuation




2012

assets

2011

Company

Sector

Country

£'000

%

 £'000

M.P. Evans Group

Food Products

Other Asia

7,190

2.5

       4,732

Asian Terminals

Transportation Infrastructure

Philippines

6,956

2.4

       6,081

Cebu Holdings

Real Estate Management & Development

Philippines

6,753

2.3

       3,213

Guinness Anchor

Beverages

Malaysia

6,379

2.2

       4,849

Tisco Financial Group

Commercial Banks

Thailand

6,209

2.1

       4,755

AEON Stores Hong Kong

Multiline Retail

Hong Kong

6,067

2.1

       4,865

Hana Microelectronics

Electronic Equipment, Instruments & Components

Thailand

6,006

2.0

       5,775

Shangri-La Hotels Malaysia

Hotels, Restaurants & Leisure

Malaysia

5,972

2.0

       4,018

Eastern Water Resources Development and Management

Water Utilities

Thailand

5,733

1.9

       3,656

Castrol India

Chemicals

India

5,087

1.8

       5,983

Top twenty investments



155,612

53.0


CMC

IT Services

India

5,003

1.8

       2,546

Holcim Indonesia

Construction Materials

Indonesia

4,734

1.6

       3,966

Wheelock Properties (S)

Real Estate Management & Development

Singapore

4,655

1.6

       4,707

ARB Corporation

Specialty Retail

Australia

4,646

1.6

       3,581

United Malacca

Food Products

Malaysia

4,601

1.6

       3,896

Dah Sing Financial Holdings

Commercial Banks

Hong Kong

4,482

1.5

             -  

Hong Kong Economic Times Holdings

Media

Hong Kong

4,449

1.5

       4,693

Convenience Retail Asia

Food & Staples Retailing

Hong Kong

4,413

1.5

       3,243

Unilever Pakistan

Food Products

Pakistan

4,370

1.5

       3,415

Asia Satellite Telecommunications Holding

Diversified Telecommunication Services

Hong Kong

4,218

1.4

       3,280

Top thirty investments



201,183

68.6


Public Financial Holdings

Diversified Financial Services

Hong Kong

4,195

1.4

       3,007

AEON Credit Service (Asia)

Consumer Finance

Hong Kong

4,132

1.4

       1,964

AEON Thana Sinsap (Thailand){A}

Consumer Finance

Thailand

4,086

1.4

       2,134

Jollibee Foods Corporation

Hotels, Restaurants & Leisure

Philippines

4,035

1.4

       3,771

AEON Credit Service (M)

Consumer Finance

Malaysia

3,912

1.3

             -  

Gujarat Gas Co

Gas Utilities

India

3,788

1.3

       6,141

Jammu & Kashmir Bank

Commercial Banks

India

3,551

1.2

       4,054

Tasek Corporation

Construction Materials

Malaysia

3,512

1.2

       1,642

Kansai Nerolac Paints 

Chemicals

India

3,274

1.1

       3,938

Pos Malaysia

Air Freight & Logistics

Malaysia

3,253

1.1

       3,590

Top forty investments



238,921

81.4


Eu Yan Sang International 

Pharmaceuticals

Singapore

3,230

1.1

             -  

Commercial Bank of Ceylon

Commercial Banks

Sri Lanka

3,085

1.0

       4,110

Sanofi India 

Pharmaceuticals

India

3,059

1.0

       3,536

Chevron Lubricants Lanka

Oil, Gas & Consumable Fuels

Sri Lanka

3,000

1.0

       3,109

The HongKong & Shanghai Hotels

Hotels, Restaurants & Leisure

Hong Kong

2,931

1.0

       3,436

YHN Property

Real Estate Management & Development

Malaysia

2,861

1.0

       1,739

Millennium & Copthorne Hotels New Zealand 

Hotels, Restaurants & Leisure

New Zealand

2,786

0.9

       2,436

John Keells Holdings

Industrial Conglomerates

Sri Lanka

2,695

0.9

       3,151

CDL Hospitality Trusts

Real Estate Investment Trusts

Singapore

2,576

0.9

       2,579

Cafe de Coral Holdings

Hotels, Restaurants & Leisure

Hong Kong

2,386

0.8

       1,993

Top fifty investments



267,530

91.0


Other investments (15)



20,107

6.8


Total investments



287,637

97.8


Net current assets



6,520

2.2


Total assets



294,157

100.0







{A}      Holding includes investment in both common and non-voting depositary receipt lines.


All investments are in equities. 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 2012

Year ended 31 July 2011



Revenue

Capital

Total

Revenue

Capital

Total


Notes

£'000

£'000

£'000

£'000

£'000

£'000

Gains on investments

9

- 

19,559

19,559

- 

41,022

41,022

Income

2

9,168

- 

9,168

8,380

- 

8,380

Exchange (losses)/gains


- 

(211)

(211)

- 

260

260

Investment management fees

3

(2,665)

- 

(2,665)

(2,065)

- 

(2,065)

Administrative expenses

4

(867)

- 

(867)

(790)

- 

(790)



_______

_______

_______

_______

_______

_______

Net return on ordinary activities before finance costs and taxation


5,636

19,348

24,984

5,525

41,282

46,807

Finance costs

5

(518)

- 

(518)

(71)

- 

(71)



_______

_______

_______

_______

_______

_______

Return on ordinary activities before taxation


5,118

19,348

24,466

5,454

41,282

46,736

Taxation

6

(511)

13

(498)

(262)

(39)

(301)



_______

_______

_______

_______

_______

_______

Return on ordinary activities after taxation


4,607

19,361

23,968

5,192

41,243

46,435



_______

_______

_______

_______

_______

_______

Return per share (pence):

8

13.18

55.38

68.56

15.42

122.49

137.91



_______

_______

_______

_______

_______

_______









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 2012

31 July 2011


Notes

£'000

£'000

Non-current assets




Investments at fair value through profit or loss

9

287,637

241,502



__________

__________

Current assets




Debtors and prepayments

10

627

641

Cash and short term deposits


7,042

3,580



__________

__________



7,669

4,221



__________

__________





Creditors: amounts falling due within one year

11



Bank loan


-

(5,361)

Other creditors


(1,149)

(397)



__________

__________



(1,149)

(5,758)



__________

__________

Net current assets/(liabilities)


6,520

(1,537)



__________

__________

Total assets less current liabilities


294,157

239,965





Non-current liabilities




3.5% Convertible Unsecured Loan Stock 2019

12

(33,163)

-



__________

__________

Net assets


260,994

239,965



__________

__________





Capital and reserves




Called-up share capital

13

9,287

9,287

Capital redemption reserve


2,062

2,062

Share premium account


14,512

14,512

Special reserve


8,372

8,372

Equity component of 3.5% Convertible Unsecured Loan Stock 2019

12

1,361

-

Capital reserve

14

216,887

197,526

Revenue reserve

14

8,513

8,206



__________

__________

Equity shareholders' funds


260,994

239,965



__________

__________

Net asset value per share (pence):

15

746.55

686.39



__________

__________


 

 

9.   RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

 

 

For the year ended
31 July 2012













Capital

Share


Equity






Share

redemption

premium

Special

Component

Capital

Revenue




capital

reserve

account

reserve

CULS 2019

reserve

reserve

Total


Note

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

Balance at 1 August 2011


9,287

2,062

14,512

8,372

-

197,526

8,206

239,965

Issue of 3.5% Convertible Unsecured Loan Stock 2019

12

-

-

-

-

1,361

-

-

1,361

Return on ordinary activities after taxation


-

-

-

-

-

19,361

4,607

23,968

Dividends paid

7

-

-

-

-

-

-

(4,300)

(4,300)



_______

_________

_______

_______

_______

_______

_______

_______

Balance at 31 July 2012


9,287

2,062

14,512

8,372

1,361

216,887

8,513

260,994



_______

_________

_______

_______

_______

_______

_______

_______











For the year ended
31 July 2011













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 1 August 2010


8,331

2,062

11,644

8,372

1,243

155,040

6,159

192,851

Exercise of warrants


956

-

2,868

-

(1,243)

1,243

-

3,824

Return on ordinary activities after taxation


-

-

-

-

-

41,243

5,192

46,435

Dividends paid

7

-

-

-

-

-

-

(3,145)

(3,145)



_______

_________

_______

_______

_______

_______

_______

_______

Balance at 31 July 2011


9,287

2,062

14,512

8,372

-

197,526

8,206

239,965



_______

_________

_______

_______

_______

_______

_______

_______











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 2012

31 July 2011


Notes

£'000

£'000

£'000

£'000

Net cash inflow from operating activities

16


5,176


5,016







Servicing of finance






Bank and loan interest paid



(208)


(76)







Taxation






Net taxation paid



-


-







Financial investment






Purchases of investments


(37,619)


(13,935)


Sales of investments


11,533


6,527




_______


_______


Net cash outflow from financial investment



(26,086)


(7,408)







Equity dividends paid

7


(4,300)


(3,145)




_______


_______

Net cash outflow before financing



(25,418)


(5,613)







Financing






Issue of 3.5% Convertible Unsecured Loan Stock 2019

12

34,452


-


Exercise of warrants


-


3,824


Drawdown of loan


14,062


-


Repayment of loan


(19,634)


-




_______


_______


Net cash inflow from financing activities



28,880


3,824




_______


_______

Increase/(decrease) in cash



3,462


(1,789)




_______


_______

Reconciliation of net cash flow to movements in net debt






Increase/(decrease) in cash as above



3,462


(1,789)

Drawdown of loan



(14,062)


-

Repayment of loan



19,634


-

Exchange movements



(211)


260




_______


_______

Movement in net debt in the year



8,823


(1,529)

Net debt at 1 August



(1,781)


(252)




_______


_______

Net funds/(debt) at 31 July

17


7,042


(1,781)




_______


_______


 

 

11.   NOTES TO THE FINANCIAL STATEMENTS

 

For the Year Ended 31 July 2012

 

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'.






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 contained 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)

Borrowings



Interest-bearing bank loans and overdrafts are initially recognised at cost, being the fair value of the consideration received, net of any issue expenses. Subsequently, they continue be valued at fair value, which is determined by aggregating the expected future cash flows for that loan or overdraft at a rate comprising the borrower's margin plus an average of market rates applicable to loans or overdrafts of a similar period of time and currency. Finance charges are accounted for on an accruals basis using the effective interest rate method and are charged 100% to revenue.





(d)

Income



Dividends (other than special dividends), including taxes deducted at source, are included in revenue by reference to the date on which the investment is quoted ex-dividend. Special dividends are reviewed on a case-by-case basis and may be credited to capital, if circumstances dictate. Dividends receivable on equity shares where no ex-dividend date is quoted are brought into account when the Company's right to receive payment is established. Fixed returns on non-equity shares are recognised on a time apportioned basis so as to reflect the effective yield on the shares. Other returns on non-equity shares are recognised when the right to return is established. The fixed return on a debt security, if material, is recognised on a time apportioned basis so as to reflect the effective yield on each security. Where the Company has elected to receive its dividends in the form of additional shares rather than cash, the amount of the cash dividend is recognised as revenue. Any excess in the value of the shares received over the amount of the cash dividend is recognised in capital reserves. Interest receivable on bank balances is dealt with on an accruals basis.





(e)

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 on investments.





(f)

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.





(g)

Capital reserve



The capital reserve reflects the following:



-        gains and losses on the sale of investments and changes in fair values of investments held are transferred to the capital reserve;



-        transfers from the warrant reserve on the exercise of warrants; and



-        applicable capital tax charges.





(h)

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.





(i)

3.5% Convertible Unsecured Loan Stock 2019



Convertible Unsecured Loan Stock ("CULS") issued by the Company is regarded as a compound instrument, comprising of a liability component and an equity component.  At the date of issue, the fair value of the liability component was estimated by assuming that an equivalent non-convertible obligation of the Company would have a coupon rate of 4.37%.  The fair value of the equity component, representing the option to convert liability into equity, is derived from the difference between the issue proceeds of the CULS and the fair value assigned to the liability.  The accounting treatment of the CULS resulted in an uplift in the NAV of just under 1%.  The liability component is subsequently measured at amortised cost using the effective interest rate and the equity component remains unchanged.






Direct expenses associated with the CULS issue are allocated to the liability and equity components in proportion to the split of the proceeds of the issue.  Expenses allocated to the liability component are amortised over the life of the instrument using the effective interest rate.






The interest expense on the CULS is calculated according to the effective interest rate method by applying the assumed rate of 4.37% at initial recognition to the liability component of the instrument.






On conversion of CULS, equity is issued and the liability component is derecognised.  The original equity component recognised at inception remains in equity.  No gain or loss is recognised on conversion.






When CULS is repurchased for cancellation, the fair value of the liability at the redemption date is compared to its carrying amount, giving rise to a gain or loss on redemption that is recognised through profit or loss.  The amount of consideration allocated to equity is recognised in equity with no gain or loss being recognised.

 


2012

2011

2.

Income

£'000

£'000


Income from investments




UK dividend income

106

83


Overseas dividends

9,021

8,272


Stock dividends

30

22


Fixed interest

- 

(3)



_______

_______



9,157

8,374



_______

_______


Other income




Deposit interest

11

6



_______

_______


Total income

9,168

8,380



_______

_______

 


2012

2011



Revenue

Capital

Total

Revenue

Capital

Total

3.

Investment management fees

£'000

£'000

£'000

£'000

£'000

£'000


Investment management fees

2,665

- 

2,665

2,065

- 

2,065



_______

______

_______

_______

_______

_______










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 £239,000 (2011 - £200,000).

 


2012

2011



Revenue

Capital

Total

Revenue

Capital

Total

4.

Administrative expenses

£'000

£'000

£'000

£'000

£'000

£'000


Administration fees

80

 -

80

75

 -

75


Directors' fees

125

 -

125

108

 -

108


Share Plan marketing contribution

172

 -

172

149

 -

149


Auditor's remuneration:








-    fees payable to the auditor for the audit of the annual accounts

23

 -

23

23

 -

23


-    fees payable to the auditor and its associates for other services:








-    interim review

6

 -

6

6

 -

6


-    other services

4

 -

4

 -

 -

 -


Custodian charges

212

 -

212

201

 -

201


Other expenses

245

 -

245

228

 -

228



_______

______

_______

_______

_______

_______



867

 -

867

790

 -

790



_______

______

_______

_______

_______

_______










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 £80,000 (2011 - £75,000) and there was an accrual of £20,000 (2011 - £19,000 prepayment) 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 £172,000 (2011 - £149,000) and there was a £58,000 (2011 - £55,000) balance due to AAM the year end.




No pension contributions were made in respect of any of the Directors.

 


2012

2011



Revenue

Capital

Total

Revenue

Capital

Total

5.

Finance costs

£'000

£'000

£'000

£'000

£'000

£'000










Loans repayable in less than 1 year

198

- 

198

71

- 

71


Interest on 3.5% Convertible Unsecured Loan Stock 2019

248

- 

248

- 

- 

- 


Notional interest on 3.5% Convertible Unsecured Loan Stock 2019

36

- 

36

- 

- 

- 


Amortisation of 3.5% Convertible Unsecured Loan Stock 2019 issue expenses

15

- 

15

- 

- 

- 


Issue expenses on 3.5% Convertible Unsecured Loan Stock 2019

21

- 

21

- 

- 

- 



_______

______

______

______

______

______



518

- 

518

71

- 

71



_______

______

______

______

______

______

 



2012

2011




Revenue

Capital

Total

Revenue

Capital

Total

6.


Taxation

£'000

£'000

£'000

£'000

£'000

£'000


(a)

Analysis of charge for the year









Overseas taxation

498

-

498

509

-

509



Tax relief to revenue

-

-

-

-

-

-



Current taxation

498

-

498

509

-

509



Movement on deferred taxation

13

(13)

-

237

(445)

(208)



Deferred taxation

-

-

-

(484)

484

-




_______

______

_______

_______

_______

_______



Total tax

511

(13)

498

262

39

301




_______

______

_______

_______

_______

_______












No provision for deferred taxation has been made in respect of the holding in CDL Hospitality Trust. This is due to the Company having sufficient excess management expenses available to cover the potential liability and the Company is not expected to generate taxable income in the future in excess of deductible expenses.  CDL is a Singapore based real estate investment trust without distributor or reporting fund status and therefore the realised gains on disposal of its units are subject to corporation tax in the hands of this Company.





(b)

Factors affecting the tax charge for the year



The tax assessed for the year is lower than the effective rate of corporation tax in the UK for a large company of 25.33% (2011 - 27.33%). The differences are explained below:







2012

2011




Revenue

Capital

Total

Revenue

Capital

Total




£'000

£'000

£'000

£'000

£'000

£'000



Return on ordinary activities before taxation

5,118

19,348

24,466

5,454

41,282

46,736












Return on ordinary activities multiplied by the effective UK standard tax rate of corporation tax of 25.33% (2011 - 27.33%)

1,296

4,901

6,197

1,491

11,282

12,773



Effects of:









Gains on investments not taxable

-

(4,954)

(4,954)

-

(11,211)

(11,211)



Exchange losses/(gains)

-

53

53

-

(71)

(71)



Franked dividend receipts not chargeable to corporation tax

(27)

-

(27)

(23)

-

(23)



Overseas tax

498

-

498

509

-

509



Movement on taxable accrued income

-

-

-

13

-

13



Non-taxable dividend income

(2,260)

-

(2,260)

(2,248)

-

(2,248)



Movement in unutilised management expenses

863

-

863

748

-

748



Movement in unutilised loan relationship deficits

128

-

128

19

-

19




_______

______

_______

_______

_______

_______



Current tax charge for the year

498

-

498

509

-

509




_______

______

_______

_______

_______

_______

 


2012

2011

7.

Dividends

£'000

£'000


Final dividend for 2011 - 9.50p (2010 - 8.20p)

3,321

2,553


Special dividend for 2011 - 2.80p (2010 - 1.90p)

979

592



_______

_______



4,300

3,145



_______

_______






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 Sections 1158 - 1159 of the Corporation Tax Act 2010 are considered. The revenue available for distribution by way of dividend for the current year is £4,607,000 (2011 - £5,192,000).







2012

2011



£'000

£'000


Proposed final dividend for 2012 - 9.50p (2011 - 9.50p)

3,351

3,321


Proposed special dividend for 2012 - 3.00p (2011 - 2.80p)

1,058

979



_______

_______


Total

4,409

4,300



_______

_______

 


2012

2011

8.

Return per Ordinary share

Revenue

Capital

Total

Revenue

Capital

Total










Return on ordinary activities after taxation (£'000)

4,607

19,361

23,968

5,192

41,243

46,435


Weighted average number of shares in issue (excluding shares held in treasury)



34,960,210



33,671,711


Return per Ordinary share (p)

13.18

55.38

68.56

15.42

122.49

137.91



______

_____

________

______

_____

________










The impact of the 3.5% Convertible Unsecured Loan Stock 2019 issued in May 2012 on both the revenue return per Ordinary share and total return per Ordinary share was anti-dilutive for the year ended 31 July 2012.

 

Listed

Listed



in UK

overseas

Total

9.

£'000

£'000

£'000






2,289

102,405

104,694


2,443

134,365

136,808


_______

_______

_______


4,732

236,770

241,502






1,086

37,023

38,109


-

(11,533)

(11,533)


-

8,497

8,497


1,372

9,690

11,062



_______

_______

_______


Closing fair value

7,190

280,447

287,637


_______

_______

_______






Listed

Listed



in UK

overseas

Total


£'000

£'000

£'000


3,375

136,392

139,767


3,815

144,055

147,870



_______

_______




7,190

280,447

287,637


_______

_______

_______






Listed

Listed



in UK

overseas

Total


£'000

£'000

£'000


-

8,497

8,497


1,372

9,690

11,062



_______

_______

_______



1,372

18,187

19,559


_______

_______

_______










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:



2012

2011



£'000

£'000


Purchases

102

28


Sales

49

18



_______

_______



151

46



_______

_______

 


2012

2011

10.

Debtors: amounts falling due within one year

£'000

£'000


Other debtors

15

12


Prepayments and accrued income

612

629



_______

_______



627

641



_______

_______

 


2012

2011

11.

Creditors: amounts falling due within one year

£'000

£'000


Bank loans

- 

5,361


Amounts due to brokers

460

- 


Other creditors

689

397



_______

_______



1,149

5,758



_______

_______






On 27 May 2011 the Company had entered into a £20 million 3 year multi currency revolving advance loan facility with Royal Bank of Scotland. The amount available under this facility was reduced to £2 million from 1 June 2012.  The agreement contains covenants requiring that the on-going gearing ratio (Gross Borrowings divided by Adjusted Assets) shall not exceed 25%. Adjusted Assets are calculated by deducting from the Company's assets (Portfolio Value plus cash) (1) the value of any unquoted investments; (2) the value of any bonds rated below investment grade or which are unrated; (3) the extent to which the value of any single security or asset exceeds 5% of Investment Portfolio Value; (4) the extent to which the aggregate value of the 20 largest securities or assets exceeds 65% of Investment Portfolio Value; (5) the extent to which the aggregate value of securities or assets in any one country exceeds 25% of Investment Portfolio Value; (6) the extent to which the aggregate value of securities or assets in countries with a S&P foreign sovereign debt rating lower than BBB- exceeds 30% of Investment Portfolio Value. The Company met these covenants throughout the year and up to the date that this report was signed.




On 22 May 2012 the Company repaid in full the loan with Royal Bank of Scotland plc.

 

12.

Non-current liabilities






Number of units

Liability component

Equity component


3.5% Convertible Loan Stock 2019

£'000

£'000

£'000


Balance at beginning of year

- 

- 

- 


Issue of 3.5% Convertible Unsecured Loan Stock 2019

35,000

33,639

1,361


Expenses of the issue

- 

(527)

(21)


Amortisation of discount and issue expenses

- 

51

- 


Issue costs expensed through revenue

- 

- 

21



_______

_______

_______


Balance at end of year

35,000

33,163

1,361



_______

_______

_______







On 18 May 2012, the Company issued a total of £35,000,000 nominal amount of 3.5% Convertible Unsecured Loan Stock 2019. The loan stock can be converted at the election of holders into Ordinary Shares during the months of May and November each year throughout their life, commencing 30 November 2012 to 31 May 2019 at a rate of 1 Ordinary Share for every 830.0p nominal of 3.5% Convertible Unsecured Loan Stock 2019. Interest is paid on the 3.5% Convertible Unsecured Loan Stock 2019 on 31 May and 30 November each year, commencing 30 November 2012. 100% of the interest is charged to revenue in line with the Board's expected long-term split of returns from the investment portfolio of the Company.




In the event of a winding-up of the Company the rights and claims of the Trustee and CULS holders would be subordinate to the claims of all creditors in respect of the Company's secured and unsecured borrowings, under the terms of the Trust Deed.




As at 31 July 2012, there was £35,000,000 nominal amount of 3.5% Convertible Unsecured Loan Stock 2019 in issue.

 


2012

2011

13.

Called up share capital

£'000

£'000


Authorised




42,000,000 (2011 - 42,000,000) Ordinary shares of 25p

10,500

10,500



_______

_______


Called-up, allotted and fully paid




37,146,500 (2011 - 37,146,500) Ordinary shares of 25p

9,287

9,287



_______

_______






During the year no Ordinary shares were repurchased by the Company (2011 - nil). At the year end 2,186,290 (2011 - 2,186,290) shares were held in treasury, which represents 5.89% (2011 - 5.89%) of the Company's total issued share capital at 31 July 2012. Following the year end a total of 310,000 Ordinary shares were sold from treasury at a total consideration excluding transaction costs of £2,467,000. Following these sales, there were 35,270,210 Ordinary shares and 1,876,290 Treasury shares in issue.




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$1bn at the time of investment) in the economies of Asia and Australasia, excluding Japan.




Capital management 


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.

 


2012

2011

14.

Retained earnings

£'000

£'000


Capital reserve




At 31 July

197,526

155,040


Movement in investment holdings fair value

11,062

37,426


Gains on realisation of investments at fair value

8,497

3,596


Foreign exchange movement

 (211)

260


Capital tax charge

13

(39)


Transfer from warrant reserve

-

1,243



_______

_______


At 31 July

216,887

197,526



_______

_______







2012

2011


Revenue reserve

£'000

£'000


At 31 July

8,206

6,159


Revenue

4,607

5,192


Dividends paid

(4,300)

(3,145)



_______

_______


At 31 July

8,513

8,206



_______

_______

 

15.

Net asset value per equity share

2012

2011


Net assets attributable

£260,994,000

£239,965,000


Number of Ordinary shares in issue (excluding shares held in treasury)

34,960,210

34,960,210


Net asset value per Ordinary share

746.55p

686.39p






The impact of the 3.5% Convertible Unsecured Loan Stock 2019 issued in May 2012 on both the revenue return per Ordinary share and total return per Ordinary share was anti-dilutive for the year ended 31 July 2012.

 

16.

Reconciliation of net return before finance costs and

2012

2011


taxation to net cash inflow from operating activities

£'000

£'000


Net returns before finance costs and taxation

24,984

46,807


Adjustments for:




Gains on investments

(19,559)

(41,022)


Effect of foreign exchange rate losses/(gains)

211

(260)


Decrease in prepayments and accrued income

15

12


(Increase)/decrease in other debtors

(3)

2


Increase in other creditors

56

8


Overseas withholding tax suffered

(498)

(509)


Stock dividends included in investment income

(30)

(22)



_______

_______


Net cash inflow from operating activities

5,176

5,016



_______

_______

 


1 August

Cash

Exchange

31 July



2011

flow

movements

2012

17.

Analysis of changes in net funds/(debt)

£'000

£'000

£'000

£'000


Net cash:






Cash at bank and overdrafts

3,580

3,462

-

7,042


Debt:






Debt falling due within one year

(5,361)

5,571

(211)

-



_______

_______

_______

_______



(1,781)

9,034

(211)

7,042



_______

_______

_______

_______

 

18.

Related party transactions


Mr M J Gilbert and his alternate Director, Mr H Young are both directors 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.




The Directors of the Company received fees for their services. Further details are provided in the Directors' Remuneration Report in the Annual Report. The Directors' shareholdings are detailed in the Annual Report.

 

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.




The 3.5% Convertible Unsecured Loan Stock 2019 was issued by the Company at a fixed cost until its conversion.  It is carried in the Company's balance sheet at amortised cost rather than at fair value.




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 2012

Years

%

£'000

£'000


Assets






Sterling

-

-

-

7,042



_______

_______

_______

_______


Liabilities






Bank loan - US Dollar

-

-

-

-



_______

_______

_______

_______









Weighted average

Weighted





period for which

average

Fixed

Floating



rate is fixed

interest rate

rate

rate


At 31 July 2011

Years

%

£'000

£'000


Assets






Sterling

-

-

-

3,580



_______

_______

_______

_______


Liabilities






Bank loan - US Dollar

0.25

1.60

(5,361)

-



_______

_______

_______

_______








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



2012

2011


Assets

£'000

£'000


Floating rate




Cash

7,042

 3,580



_______

_______







Within

Within



1 year

1 year



2011

2010


Liabilities

£'000

£'000


Fixed rate




Bank loans - US Dollar

-

5,361



_______

_______






All the other financial assets and liabilities do not have a maturity date.




The full contractual liability for the CULS assuming no further conversion is £43,575,000 (2011 - £nil).




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 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 2012

31 July 2011




Net monetary

Total


Net monetary

Total



Overseas
investments

assets/

(liabilities)

currency
exposure

Overseas
Investments

assets/

(liabilities)

currency
exposure



£'000

£'000

£'000

£'000

£'000

£'000


Australian Dollar

4,646

-

4,646

3,580

-

3,580


Hong Kong Dollar

49,067

-

49,067

38,552

-

38,552


Indian Rupee

32,378

-

32,378

33,451

-

33,451


Indonesian Rupiah

26,856

-

26,856

24,560

-

24,560


Korean Won

2,193

-

2,193

2,878

-

2,878


Malaysian Ringgit

58,644

-

58,644

43,406

-

43,406


New Zealand Dollar

2,786

-

2,786

2,436

-

2,436


Pakistan Rupee

4,685

-

4,685

3,584

-

3,584


Philippine Peso

17,744

-

17,744

14,532

-

14,532


Singapore Dollar

33,001

-

33,001

26,896

-

26,896


Sri Lankan Rupee

10,921

-

10,921

12,345

-

12,345


Thailand Baht

37,526

-

37,526

30,550

-

30,550


US Dollar 

-

- 

-

-

(5,361)

(5,361)



_______

_______

_______

_______

_______

_______



280,447

-

280,447

236,770

(5,361)

231,409


Sterling 

7,190

7,042

14,232

4,732

3,580

8,312



_______

_______

_______

_______

_______

_______


Total

287,637

7,042

294,679

241,502

(1,781)

239,721



_______

_______

_______

_______

_______

_______










Foreign currency sensitivity


The following table details the Company's sensitivity to a 10% increase and decrease in sterling against the foreign currencies in which the Company has exposure via foreign currency denominated monetary items. The sensitivity analysis adjusts their translation at the period end for a 10% change in foreign currency rates.







2012

2011



£'000

£'000


US Dollar

-

536



_______

_______






There is no sensitivity analysis included for the foreign currency 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.




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. 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 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% (2011 - 10%) higher or lower while all other variables remained constant, the return attributable to Ordinary shareholders for the year ended 31 July 2012 would have increased/ (decreased) by £28,763,700 (2011 - increased/(decreased) by £24,150,000)) 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 its financial liabilities.




The Board imposes borrowing limits to ensure gearing levels are appropriate to market conditions and reviews these on a regular basis. 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 31 July 2012 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 investment policy section of the Annual Report.




Liquidity risk exposure


At 31 July 2012 the Company's bank loan had been repaid (2011 - £5,361,000 due for repayment or roll-over within 2 months). The maximum exposure during the year was £19,640,000 (2011 - £5,725,000) and the minimum exposure during the year was £Nil (2011 - £5,346,000).




At 31 July 2012 the Company had borrowings in the form of the £35,000,000 nominal of 3.5% Convertible Unsecured Loan Stock 2019 (2011 - £Nil).




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 third party administrator carries out a stock reconciliation to Custodian 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 are 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:





2012

2011



Balance

Maximum

Balance

Maximum



Sheet

exposure

Sheet

exposure


Current assets

£'000

£'000

£'000

£'000


Debtors

595

595

588

588


Cash and short term deposits

7,042

7,042

3,580

 3,580



_______

_______

_______

_______



7,637

7,637

4,168

 4,168



_______

_______

_______

_______








The maturity profile of the Company's financial liabilities at 31 July was as follows:





2012

2011



£'000

£'000


In less than one year

- 

5,361


In more than one year

33,163A

- 



_______

_______



33,163

5,361 



_______

_______


A The full contractual liability is disclosed as above.






None of the Company's financial assets are past due or impaired.




Fair values of financial assets and financial liabilities


For the US Dollar loan, the fair value of borrowings is £nil as at 31 July 2012 (2011 - £5,363,000) compared to an accounts value in the financial statements of £nil (2011 - £5,361,000) (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


FRS 29 'Financial Instruments: Disclosures' requires 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 has 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 Balance Sheet are grouped into the fair value hierarchy at 31 July 2012 as follows:






Level 1

Level 2

Level 3

Total


As at 31 July 2012

Note

£'000

£'000

£'000

£'000


Financial assets and liabilities at fair value through profit or loss







Quoted equities

a)

 287,637

         -  

         -  

287,637


CULS

b)

(36,925)

         -  

         -  

(36,925)




_______

_______

_______

_______


Net fair value


 250,712

         -  

         -  

 250,712




_______

_______

_______

_______











Level 1

Level 2

Level 3

Total


As at 31 July 2011

Note

£'000

£'000

£'000

£'000


Financial assets and liabilities at fair value through profit or loss







Quoted equities

a)

241,502

         -  

         -  

241,502


CULS

b)

-

         -  

         -  

-




_______

_______

_______

_______


Net fair value


241,502

         -  

         -  

 241,502




_______

_______

_______

_______









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) Convertible Unsecured Loan Stock ("CULS")


The Company's CULS are actively traded on a recognised stock exchange and have therefore been included in Fair Value Level 1.

 

The Annual General Meeting will be held at 11.30 a.m. on 21 November 2012 at Bow Bells House, 1 Bread Street, London EC4M 9HH.

 

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 2012 are an abridged version of the Company's full accounts, which have been approved and audited with an unqualified report. The 2011 and 2012 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 2010 is derived from the statutory accounts for 2011 which have been delivered to the Registrar of Companies. The 2012 accounts will be filed with the Registrar of Companies in due course.

 

The audited Annual Report and Accounts will be posted to in early October. 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*

 

* Neither the content of the Company's website nor the content of any website accessible from hyperlinks on the Company's website (or any other website) is (or is deemed to be) incorporated into, or forms (or is deemed to form) part of this announcement.

 

By Order of the Board

Aberdeen Asset Management PLC

Secretary

28 September 2012


This information is provided by RNS
The company news service from the London Stock Exchange
 
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