Annual Report and Accounts

RNS Number : 2717J

Scottish Oriental Smlr Co Tst PLC

01 December 2008

 



THE SCOTTISH ORIENTAL SMALLER COMPANIES TRUST PLC

('Scottish Oriental')

Annual Report and Accounts for the year ended 31st August 2008 and Proposed New Articles of Association 

Scottish Oriental is required under the UKLA's Disclosure and Transparency Rule 4.1 to make an announcement of the unedited full text of parts of its Annual Report and Accounts. The published Annual Report and Accounts were posted to shareholders on 6th November 2008. 
Copies of the Annual Report and Accounts for the year ended 31st August 2008 and the proposed new articles of association of Scottish Oriental have been submitted to the UK Listing Authority, and are available for inspection at the UK Listing Authority's Document Viewing Facility, which is situated at:

Financial Services Authority

25 The North Colonnade

Canary Wharf

London, E14 5HS

The Annual Report and Accounts for the year ended 31st August 2008 is also available on the Scottish Oriental website at: 

http://www.scottishoriental.co.uk/uploadedFiles/CFSGAM/PdfReports/2008%20Report%20%20Accounts%20FINAL.pdf

At the Annual General Meeting to be held on 23rd January 2009, the Company proposes to adopt new Articles of Association which reflect changes in UK company law brought about by the implementation of the Companies Act 2006. A summary of the material changes proposed to be brought about by the adoption of the new Articles of Association is set out in the Appendix to the Report and Accounts for the year ended 31st August 2008.  A copy of the new Articles of Association is available for inspection at Scottish Oriental's registered office, 23 St Andrew Square, Edinburgh EH2 1BB.

Financial Highlights 

Performance  for the year ended 31 August 2008 (audited)
Net Asset Value	-9.3%	MSCI AC Asia (ex Japan)
		Index (£) *	-8.8%
Share Price	-16.6%	Nomura Asia Small Cap
		Index (£) *	-22.7%
		FTSE All-Share Index (£) *	-8.7%
* Total return (capital return with dividends reinvested)

Summary Data at 31st August 2008 (audited)
Shares in issue	30,213,650	Shareholders' Funds	£94.50m
		Market Capitalisation	£79.16m
Net Asset Value per Share	312.78p	Share Price Discount to Net Asset
		Value	16.2%
Share Price	262.00p

  Investment Policy

• The Scottish Oriental Smaller Companies Trust PLC ('Scottish Oriental', 'the Company' or 'the Trust') aims to achieve long-term capital growth by investing in mainly smaller Asian quoted companies.

• The Trust invests mainly in the shares of smaller Asian quoted companies, that is companies with market capitalisations of below US$1,000m, or the equivalent thereof, at the time of first investment.

• The Trust may also invest in companies with market capitalisations of between US$1,000m and US$2,000m at the time of first investment, although not more than 20 per cent of the Trust's net assets at the time of investment will be invested in such companies.

• To enable the Trust to participate in new issues, it may invest in companies which are not quoted on any stock exchange, but only where the Investment Manager expects that the relevant securities will shortly become quoted.

• For investment purposes, the Investment Region includes China, India, Sri Lanka, Thailand, Malaysia, Singapore, Indonesia, Hong Kong, South Korea, Taiwan, Philippines, Pakistan and Vietnam. Countries in other parts of Asia may be considered with approval of the Board.

• With the objective of enhancing capital returns to shareholders, the Directors of the Trust will consider the use of long term borrowings up to a limit of 50 per cent of the net assets of the Trust at the time of borrowing. The Investment Manager can approve borrowing of up to 10 per cent of net assets without prior Board approval. This power is limited to borrowings in US dollars for a maximum term of 12 months. The choice of lender is at the Investment Manager's discretion.

• The Trust invests no more than 15 per cent of its gross assets in other listed investment companies (including listed investment trusts).

• The Trust invests no more than 20 per cent of its total assets in the securities of any one company or group of companies at the time of investment.

• The Trust reserves the right to invest in equity-related securities (such as convertible bonds and warrants) of companies meeting its investment criteria. In the event that the Investment Manager anticipates adverse equity market conditions, the Trust may invest in debt instruments in any country or currency.

• The majority of the Trust's assets are denominated in Asian currencies or US dollars. The Trust reserves the right to undertake foreign exchange hedging of its portfolio. 

Investment Statement

• We aim to maximise the rate of return with due regard to risk. Risk is principally contained by focusing on soundly managed and financially strong companies, and by ensuring that the portfolio is reasonably well diversified geographically and by sector at all times. Quantitative analysis demonstrating the diversification of the Trust's portfolio of investments is contained in the country allocation and sector allocation analysis within the Portfolio Review.

• While cultural, political, economic and sectoral influences play an important part in the decision-making process, the availability of attractively-priced, good quality companies with solid long-term growth prospects is the major determinant of investment policy.

• Our country weightings bear no relationship to regional stock market indices. We do not consider ourselves obliged to hold investments in any individual market, sector or company.

• Existing holdings are constantly scrutinised to ensure that our corporate performance expectations are likely to be met, and that market valuations are not excessive. Where otherwise, disposals are made.

• Strong emphasis is placed on frequent visits to countries of the Region and on meeting the management of those companies in which the Trust is invested, or might invest.

Chairman's Statement

This has been a difficult year for Scottish Oriental. Smaller companies underperformed larger companies as is shown by the Nomura Asia Small Cap Index which fell substantially more than the MSCI AC Asia (ex-Japan). In the twelve months to 31st August 2008, net asset value per share fell by 9.3 per cent from 344.67p to 312.78p compared with the MSCI AC Asia (ex Japan) which fell by 8.8 per cent. The share price ended the year at 262p, 16.6 per cent lower than at the end of the previous year, as the discount to net asset value widened. Despite the disappointments of the last two years longer term performance remains satisfactory with the net asset value ahead of the Index over five years.

Earnings per share have again increased, being 6.64p compared to 6.35p last year. We are proposing a dividend of 5p net, an increase of 8.7 per cent (2007, 4.6p net). The undistributed balance of £497,000 will be added to the revenue reserve, as set out on page 19 of the full Report and Accounts. It is our intention to at least maintain the proposed level of dividend, if necessary using reserves to smooth fluctuations in income.

It is tempting in times of extreme financial turbulence, such as those that prevail at present, to allow oneself to be overwhelmed by the succession of extraordinary events and its unsettling implications. It is important to remind ourselves that these conditions produce unusual opportunities for investment. With this in mind, we should ask whether smaller companies in Asia are providing such an opportunity. Our answer is that it is likely to be the case; of course we can be accused of talking our own book but there are a number of persuasive reasons for believing this view to be realistic, including:

• Economic circumstances in the East are very different from conditions in the USA and Europe.
• In general, the finances of governments are healthy, companies have low borrowings, economies are likely to continue to grow and Asian consumer stocks, about 30 per cent of our portfolio, should do well compared to their Western counterparts.
• There will be reductions in earnings forecasts for many companies, particularly those that export to the West, but others, for example those concerned with the development of infrastructure, should continue to prosper. This should provide favourable conditions for nimble smaller companies that can react rapidly.
• It should be easier for smaller companies to grow faster than larger ones (but the risks are less predictable), and this is the reason why portfolios should have some exposure to this sector of the market and particularly so in the East, where the ratings of these companies are not expensive.
• Many of the companies in our portfolio learnt valuable lessons from the Asian Financial Crisis in 1997 and 1998, which will stand them in good stead as events unfold during the coming months.
• The statistics for our portfolio at the end of September were as follows: prospective price earnings ratio 9x dividend yield 4.1 per cent, and price to book ratio 1.3x.

Since the end of the Trust's financial year, Asian stockmarkets have fallen sharply. Scottish Oriental's net asset value has also declined, however, we have a broadly spread portfolio with no holding larger than 2.1 per cent, which is reassuring because the results of smaller companies can be unpredictable both upwards and downwards. Our present intention is not only to seek opportunities to invest our cash, but also to reintroduce some longer term borrowing provided that this can be achieved on sensible terms.

Stanley Rowan is retiring from the Board and as Chairman of the Audit Committee on 31st October 2008. The Company has benefited from his great experience as a long term investor and his considerable knowledge of Asia; we are grateful for all that he has done for the Company.

James Ferguson 

Chairman

15th October 2008

Portfolio Manager's Report 

REVIEW

The performance of Asian equity markets was volatile for the year ending 31st August 2008. Substantial gains were achieved in September and October 2007 as a result of lower US interest rates. However, tight credit markets combined with a higher oil price caused markets to fall in the following months. The situation was exacerbated by an increase in soft commodity prices which caused inflation to rise significantly throughout the Region. This limited the ability of Central Banks to lower interest rates despite evidence of a slowdown in economic growth.

Indonesia was the best performing market over the year owing to its exposure to commodity related companies. Singapore also performed well, supported by a strong currency and exposure to oil related industries. South Korea was particularly weak as a result of a rapid loss of confidence in the new President and his domestic policies, combined with a deteriorating outlook for exports due to a slowdown in global demand.

Scottish Oriental's performance was disappointing both in absolute terms and relative to its benchmark. This was attributed to the underperformance of smaller companies as seen from the larger decline in the Nomura Asia Small Cap Index. Two of the Trust's holdings, Datacraft Asia and Unisteel Technology have received bids. Cash proceeds for Unisteel Technology were received on 23rd September 2008, and it is likely that the cash proceeds for Datacraft Asia will be received over the next few months.

Greater China

China experienced very strong returns in late 2007, supported by buying from a large number of new retail investors. The rally ended earlier this year when the authorities tightened monetary policy in response to sharply rising inflation. Economic growth has remained high despite expectations of a slowdown in external demand. The property market weakened as a result of Government measures to curb prices.

The performance of Hong Kong listed companies during the year was mixed. China related shares fell sharply in line with their mainland counterparts. However, domestic related companies particularly utilities outperformed. A number of smaller manufacturing companies suffered significant declines as rising costs and weakening demand had a negative impact on earnings.

Taiwan's listed companies have suffered from both poor domestic sentiment as well as expectations of lower corporate profits as a result of the slowing global economy. The stockmarket enjoyed a brief rally in February and March in anticipation of improved relations with China following the KMT's victory in the Presidential election.

South East Asia

Singapore was one of the best performing markets over the year, assisted by the strength of its currency. The economy benefited from sensible Government policies as well as its exposure to oil related investment, via its well positioned shipyards and marine support industry. Smaller companies, particularly those exposed to China, fell sharply owing to concerns over valuations and quality of earnings.

Malaysia also performed relatively well mainly due to its exposure to oil and soft commodities. Domestic demand suffered from rising inflation despite the Government subsidising food and fuel prices. The political environment became more uncertain following the General Election in March as the coalition Government lost a significant number of parliamentary seats.

Thailand continued to suffer from an uncertain political environment despite the election of a new coalition Government. The sharp rise in food and oil prices resulted in high inflation and a fall in consumer spending. The deteriorating trade balance, as a result of the high cost of imported oil, was partially offset by higher agricultural exports. However, the stockmarket held up reasonably well owing to inexpensive valuations and limited selling by foreign investors.

Indonesia benefited from the country's significant exposure to hard as well as soft commodities. Positive sentiment towards the country was supported by strong GDP growth and a trade surplus, which offset the negative impact of higher inflation and interest rates.

The Philippines underperformed as investors avoided the market owing to its relatively high valuations and poor liquidity. Inflation rose significantly in line with higher food and oil prices. However, the currency benefited from strong remittances from overseas workers, exceeding US$1bn a month.

A significant tightening of monetary policy has resulted in a slowdown in Vietnam's economy and a correction in its stockmarket. Inflation remains a problem having risen to more than 20 per cent this year and the trade deficit has risen to above 10 per cent of GDP. The impact of the economy on corporate earnings is still uncertain.

Indian Subcontinent

The rally in Indian shares continued until late 2007 as investors remained positive about the economic outlook and growth in corporate profits. A correction was prompted by the Central Bank's tightening of monetary policy as a result of a sharp increase in inflation. The correction was exacerbated by the high valuations of many companies at a time when forecasts for corporate earnings were being reduced.

The Sri Lankan market continued to perform poorly as concerns regarding politics undermined the confidence of investors. The economy also suffered from a weak currency and rising inflation. However, corporate earnings have been remarkably resilient and valuations are still very attractive.

South Korea

South Korea fell sharply as investors anticipated a significant slowdown in economic growth as a result of poor domestic policies combined with slowing global demand. Consumer sentiment suffered not only from the lack of confidence in the new Government but also from high inflation. The rising cost of food and fuel was exacerbated by a weak currency.

OUTLOOK

The longer term outlook for the Region remains positive from an absolute and, even more so, relative perspective. Economic growth is expected to exceed that of the developed world supported by expanding domestic consumption. Asia remains a competitive location for manufacturing as well as an attractive destination for outsourcing of service industries. Having suffered through the Asian Financial Crisis of 1997/98, the consumer is generally not stretched. High savings rates usually prevail and companies have focused on paying down debt. A dividend culture has emerged in many parts of the Region. As elsewhere, controlling families and other major stakeholders of listed entities do not always treat minorities with respect, but corporate governance and stockmarket regulation have undoubtedly improved over the last ten years.

Unfortunately the more immediate outlook for the Region is less certain. Domestic demand remains vulnerable to the high rate of inflation with the positive impact of the falling prices of food and oil partly offset by weak local currencies. Political risk has increased for countries such as India, Malaysia and Thailand where Governments are more likely to focus on retaining power than addressing the more urgent problems facing their economies. Export growth is expected to slow in line with global demand.

Although Asian stockmarkets may fall further from current levels, valuations for certain well managed companies are very attractive from a longer term perspective. The anticipated downward adjustment to analysts' earnings forecasts and price targets are now underway.

Susie Rippingall

Scott McNab

Angus Tulloch

First State Investment Management (UK) Limited, Investment Manager

15th October 2008

Portfolio Review 

Scottish Oriental's portfolio of investments is well diversified not only by country but also by sector. The largest country exposure is Singapore with a 16.8 per cent position. Financials accounted for 28.5 per cent of the portfolio, the largest sector weighting. As at 31st August 2008, Scottish Oriental was invested in 87 different companies with the largest holding, Home Product Center, accounting for 1.8 per cent of the Portfolio. The aggregate of the Trust's ten largest holdings was 17 per cent.

Country Allocation at 31st August 2008

Country/Region	Scottish Oriental	MSCI*	NASCI†	Country/Region	Scottish Oriental	MSCI*	NASCI†
	%	%	%		%	%	%
Hong Kong	9.7	13.1	18.3	Pakistan	-	0.2	-
China	9.9	23.7	1.4	India	2.9	10.7	22.2
Taiwan	10.9	16.7	17.5	Sri Lanka	3.6	-	-
Greater China	30.5	53.5	37.2	Indian sub-continent	6.5	10.9	22.2
Vietnam	0.9	-	-	South Korea	8.4	19.2	10.7
Indonesia	6.6	2.7	4.3
Philippines Thailand	7.6 9.4	0.7 2.1	3.0 5.3	Net current assets	3.1	-	-
Malaysia	10.2	3.7	8.4
Singapore	16.8	7.2	8.9	Net assets	100.0	100.0	100.0
ASEAN countries	51.5	16.4	29.9
* Morgan Stanley Capital International AC Asia (ex Japan) Index
† Nomura Asia Small Cap Index

Greater China

Scottish Oriental continued to have an underweight position in China-related companies owing to high valuations and a deteriorating outlook for corporate earnings. More onerous labour laws combined with rising costs of production have forced a number of factories to close, particularly in the more expensive areas such as Guangdong Province. Valuations have improved following the correction in the Country's stockmarkets but are not yet compelling.

Hong Kong's economic growth remains robust although a number of local companies are suffering from rising costs, particularly rents, which have had a negative impact on earnings. The Trust acquired several new companies, such as Next Media and Public Financial Holdings, which should benefit from their strong financial position and exposure to the relatively resilient domestic economy. Dividend yields amongst the smaller Hong Kong listed companies remain high.

Although relations between Taiwan and China are expected to improve following the KMT's return to power, corporate earnings remain heavily exposed to the global economy. Following sharp declines in share prices, valuations are attractive - particularly for a number of smaller technology related companies, such as ITEQ and New Era Electronics. 

ASEAN Countries

Scottish Oriental continued to hold a large position in Thailand despite the recent political uncertainties. The resilience of the domestic economy has supported earnings for those companies exposed to developing sectors of the domestic economy, such as Home Product Center. 

The Trust benefited from its overweight position in Singapore listed companies, particularly its holdings in Datacraft Asia and Unisteel Technology which have received bids. There are a number of well-managed companies trading on attractive valuations.

The Trust's position in Malaysia was reduced following the sale of a number of holdings. IOI Corp was sold because of its expensive valuations and Evergreen Fibreboard was sold due to its uncertain earnings outlook. Unfortunately the political environment has deteriorated following the General Election earlier this year with the risk that members of the coalition Government leave to join the Opposition.

Scottish Oriental's exposure to Indonesia was increased over the period with the acquisition of a number of companies with exposure to the domestic economy. These new holdings include Ace Hardware, a home improvement retailer, and Jaya Real Property, a leading residential property developer.

The Trust's holdings in the Philippines remain focused on the domestic economy. Aboitiz Power Corp, a holding company which invests in power generation and distribution assets, is a well-managed company with strong growth potential.

Exposure to Vietnam was reduced as valuations became expensive. A significant tightening of monetary policy has resulted in a slowdown in the country's economy and a correction in its stockmarket. The Trust's position in Vietnam is held via the Vietnam Enterprise Fund.

Indian Sub-Continent

Scottish Oriental continued to have a low exposure to India. Many of the companies remain relatively expensive and corporate earnings' growth are likely to slow. In addition, the high fiscal deficit and instability of the coalition government remain concerns over the longer term.

The Trust has retained its exposure in Sri Lanka. The most attractive aspect of the market is the presence of well-managed, profitable companies trading on low valuations; these include Aitken Spence and Commercial Bank of Ceylon.

South Korea

Scottish Oriental added to its holdings in South Korea following the correction in share prices and currency. A number of small innovative companies are well positioned to compete in the global market and are now trading on very attractive valuations.

Sector Allocation at 31st August 2008

Sector	%
Consumer: discretionary	23.1
Consumer: staple	5.8
	28.9
Financial	28.5
Information Technology	16.8
Industrial	8.9
Healthcare	5.4
Materials	3.5
Utilities	2.5
Energy	1.3
Telecommunication Services	1.1
	96.9
Net current assets	3.1
Net Assets	100.0

The Trust's exposure to the Financials sectors is high. Included in this sector are property companies as well as banks and consumer finance companies. The outlook for property markets, particularly in South East Asia, remains positive over the longer term and valuations are now attractive.

Scottish Oriental continues to have a very high exposure to both the Consumer Discretionary and Consumer Staples sectors. Companies in these sectors should continue to benefit from the relative strength of domestic consumption within the Region and are less exposed than exporters to a slowdown in global growth.

Several holdings in the Information Technology sector fell sharply resulting in a lower overall exposure. Although earnings may be vulnerable to slowing demand over the short term, this is more than adequately reflected in the attractive valuations. Exposure to the Healthcare sector was reduced as a number of companies reached their target valuations.

Scottish Oriental continues to have a very limited exposure to stocks in the cyclical Energy and Materials sectors which, as price-takers rather than price-setters, are vulnerable to a slowdown in the global economy. It also has a very low weighting in the Telecoms and Utilities sector owing to the limited number of small but reasonably valued companies.

Ten Largest Equity Holdings at 31st August 2008

Company	Market	Value	% of Shareholders' Funds
Home Product Center	Thailand	£1.7m	1.8%
Home Product Center, part of the Land & Houses Group, operates a network of stores selling a wide range of home improvement products. These include electrical items, light fittings, construction materials, tools and furniture. The company has about 10% of the home improvement market in Thailand, significantly larger than the competition which tends to be 'mom and pop' stores. Home Product Center has an aggressive store expansion plan which will increase the total number of stores to 40 by the end of 2009 with most of the new stores outside Greater Bangkok. Management is experienced and well incentivised, currently owning about 10% of the company. Valuations are attractive given the strong earnings outlook.
Unisteel Technology	Singapore	£1.7m	1.8%
Founded in 1988, Unisteel is one of the largest global producers of electronic polished fasteners. The company supplies about 50% of the hard disc drive ('HDD') global requirement compared to 30% for Textron, its main competitor. Prices for existing products have been falling but margins have been stable owing to the launch of new products as well economies of scale. Last year, Unisteel launched the new Unilube coated screws which sell for 30% more than standard product. More HDD companies are switching to Unilube as it substantially reduces the particle problem, a main factor for product recalls. A private equity firm has made a takeover bid for Unisteel at S$ 1.95 per share
Aboitiz Power Corp ('AP')	Philippines	£1.7m	1.8%
AP is a holding company which invests in power generation and distribution assets throughout the Philippines. The company was listed in July 2007 and the major shareholder is Aboitiz Equity Venture with 76% ownership. The generating assets are well diversified in terms of fuel with more than 50% of AP's capacity coming from hydro plants and the rest from diesel and coal. The company's generating capacity increased by nearly 200% in 2007 mainly due to acquisitions. Management is well regarded and has substantial experience in the Philippine power industry.
IJM Corp	Malaysia	£1.6m	1.7%
Formed in 1982, IJM is one of the leading construction companies in Malaysia. In the mid 1990s the company made a strategic decision to participate in foreign infrastructure related projects, both construction and investment, owing to a lack of political connections and concerns over the domestic economy. Currently, 50% of the order book is in Malaysia and 50% overseas, of which 30% is in India. IJM also undertakes residential property development and owns 55% of IJM Plantations, a listed palm oil producer. Valuations are attractive.
CSE Global	Singapore	£1.6m	1.7%
CSE Global provides control, automation and communication IT services for a range of industries, including oil/gas, power, water and mining. Since listing in 1999, the company has transformed itself from a traditional systems integration company in Singapore to a global IT services company with about 70% of its revenues coming from the oil/gas industry. CSE Global has experienced a significant increase in orders, having won a number of large contracts in Iran, the Persian Gulf and Nigeria. Management attribute their success to the provision of 'one-stop' solutions and strong relationships with clients. Recurring income has risen as clients need to upgrade their facilities after a number of years of under investment.
ITEQ Corp	Taiwan	£1.6m	1.7%
Founded in 1997, ITEQ manufactures copper clad laminates ('CCL') and also provides mass lamination services for the printed circuit board industry. The company also produces lead-free and halogen-free CCL and is now one of the main suppliers of these restrictions on hazardous substances ('RoHS') compliant materials. Although RoHS compliant CCL accounts for only 10% of total global demand, the leading brands such as Apple and Sony are only using RoHS compliant CCL. Management have a strong focus on research and development and continue to develop new products. Valuations are attractive given the medium term earnings outlook.
Datacraft Asia	Singapore	£1.6m	1.7%
Datacraft Asia designs, develops and markets data communications systems for clients in Asia with a particular focus on network development. It has offices located in 13 different countries throughout Asia and is the largest client of Cisco Systems in Asia. Datacraft Asia sources revenues from four main verticals - financial services, media & communications, manufacturing and travel & transport. It undertakes the Asian business for a number of multi-nationals, such as HSBC, Citibank and State Bank of India. A number of these clients will result directly from existing relationships with Datacraft's parent, Dimension Data which own 55% of the company. Earnings growth will be driven by demand from existing clients as well as from new products. Dimension Data has made an offer to buy out the minority shareholders at S$ 1.33 per share.
Bumrungrad Hospital	Thailand	£1.5m	1.6%
Bumrungrad Hospital owns and manages the Bumrungrad Hospital in Bangkok which has capacity to handle 550 in-patients and 3,500 out patients. The company also owns 32% of BIL which has the hospital management contract for the Asian Hospital in Manila, Bumrungrad Hospital Dubai and Asia Renal Care. Medical tourism has developed rapidly in SE Asia with an increasing number of patients prepared to travel for surgery. Foreign patients account for more than 55% of revenues and 40% of visitor volume at the Hospital in Bangkok. Bumrungrad Hospital opened a new outpatient facility in May 2007 which resulted in a 40% increase outpatient capacity. Management are impressive with a clear strategy for both the local and international businesses.
Nera Telecommunications ('Nera Telecom')	Singapore	£1.5m	1.6%
Nera Telecom provides wireless transmission equipment for the telecommunications industry. The company's microwave radio network and satellite communication systems are well suited to Asia's needs because of the Region's difficult terrain and congested cities, ease of installation and reasonable cost. The company's main markets are Indonesia, Malaysia, Philippines and Thailand. Nera Telecom also enjoys a strong presence in the local networking and POS (point of sales) systems business, particularly for banks and finance companies where it enjoys more than 70% market share.
Hi-P International	Singapore	£1.5m	1.6%
Hi-P International is an integrated contract manufacturer which specialises in precision plastic injection molding, mold design and fabrication as well as precision metal stamping. The company has grown at a dramatic pace since opening its first factory in Shanghai in 1993. The company has factories in China, Mexico and Singapore. Hi-P's clients include RIM, Nokia, Gillette and Braun. Earnings fell in 2006 owing to delays associated with the execution of new projects. Strong demand combined with higher margins should ensure the resumption of strong earnings growth over the medium term.

List of Quoted Equity Investments at 31st August 2008 (percentage of shareholders’ funds)

% of Shareholders’ Funds   CHINA (9.9%)		% of Shareholders’ Funds INDIA (2.9%)		% of Shareholders’ Funds MALAYSIA (10.2%) (continued)
Consumer Discretionary (5.9%) Asia Satellite	1.3			Information Technology (0.6%) UCHI Technologies	0.6
		Consumer Staple (1.5%)Tata Tea	1.5
Glorious Sun Enterprises	1.3
				Materials (1.3%)Lafarge Malayan Cement	1.3
Integrated Distribution Services Group Minth	1.0 0.9	Financial (1.4%)Housing Development Finance	1.4
Sun Hing Vision	1.4
		INDONESIA (6.6%)		PHILIPPINES (7.6%)
Energy (0.5%)
Enric Energy Equipment	0.5	Consumer		Consumer
		Discretionary (1.9%)		Discretionary (1.1%)
Industrial (1.8%)
		Ace Hardware	0.9	Pancake House	1.1
Lung Kee Holdings	1.1	Pembangunan Jaya Ancol	1.0
Sino Environment	0.7			Financial (3.9%)
		Consumer Staple (0.3%)
				Security Bank	1.5
Materials (1.0%)
		Multi Bintang	0.3	SM Development	0.9
Hung Hing Printing	1.0			SM Prime	1.5
		Financial (3.2%)
Utilities (0.7%)
		Bank NISP	1.0	Industrial (0.8%)
Towngas China	0.7	BFI Finance	1.1	Paxys Inc.	0.8
		Jaya Real Property	1.1	Utilities (1.8%)
HONG KONG (9.7%)		Materials (1.2%)		Aboitiz Power	1.8
Consumer		Holcim Indonesia	1.2
Discretionary (2.3%)				SINGAPORE (16.8%)
Moiselle International	0.4	MALAYSIA (10.2%)
Next Media	1.2			Consumer
		Consumer
Tai Ping Carpets	0.7			Discretionary (1.3%)
		Discretionary (2.6%)		Tan Chong International	1.3
Consumer Staple (2.1%)		Aeon Company	1.3
Four Seas Mercantile	0.9	Media Prima	1.3	Consumer Staple (1.1%)
Vitasoy International	1.2			Petra Foods	1.1
		Consumer Staple (0.8%)
Financial (5.3%)
		Asiatic Development	0.8	Energy (0.8%)
Aeon Credit Service	1.4			Ezion Holdings	0.8
Dah Sing Financial	0.7	Financial (3.2%)
Keck Seng Investment	0.8	Hong Leong Financial	1.1	Financial (1.9%)
Public Financial	1.0	Quill Capita Trust	0.9	Allgreen Properties	0.7
Tai Cheung Holdings	1.4	Sunrise	1.2	Bukit Sembawang	1.2
				Healthcare (1.4%)
		Industrial (1.7%)
		IJM Corporation	1.7	Raffles Medical	1.4

List of Quoted Equity Investments at 31st August 2008 (percentage of shareholders' funds)

	% of Shareholders’ Funds			% of Shareholders Funds			% of Shareholders’ Funds
SINGAPORE (16.8%) (continued)			SOUTH KOREA (8.4%)(continued)			THAILAND (9.4%)
Industrial (1.6%) Hi-P International	1.6		Information Technology (1.2%)			Consumer Discretionary (3.0%)
Information Technology (7.6%) CSE Global	1.7		Intelligent Digital Integrated Security	1.2		Amarin Printing Home Product Center	1.2 1.8
Datacraft Asia Global Voice Nera Telecommunications Unisteel Technology	1.7 0.8   1.6 1.8		SRI LANKA (3.6%) Consumer Discretionary (1.3%) Aitken Spence	1.3		Financial (3.1%) CPN Retail Growth Lalin Property Tisco Bank	0.9 0.8 1.4
Telecommunication Services (1.1%) Mobileone	1.1		Financial (1.5%) Commercial Bank of Ceylon	1.5		Healthcare (1.6%) Bumrungrad Hospital	1.6
SOUTH KOREA (8.4%)			Industrial (0.8%) John Keells Holdings	0.8		Industrial (0.3%) Dynasty Ceramic	0.3
Consumer Discretionary (0.8%) Hana Tour Service	0.8		TAIWAN (10.9%)			Information Technology (1.4%) Hana Microelectronics	1.4
Financial (2.1%) Daegu Bank Daishin Securities	1.2 0.9		Consumer Discretionary (2.9%)			VIETNAM (0.9%)
Healthcare (2.4%)			E-life Mall Familymart	1.0 1.1		Financial (0.9%)
JVM LG Life Sciences	1.2 1.2		Fine Blanking & Tool	0.8		Vietnam Enterprise Investments	0.9
Industrial (1.9%)			Financial (2.0%)
Cosmax S1 Corporation	0.9 1.0		Sinyi Realty Ta Chong Bank	0.6 1.4
			Information Technology (6.0%)
			Everlight Electronics	1.1
			ITEQ	1.7
			New Era Electronics	1.0
			Powertech Technology	0.9
			Wah Lee Industrial	1.3

Susie Rippingall

Scott McNab

Angus Tulloch

First State Investment Management (UK) Limited, Investment Manager

15th October 2008

  Ten Year Record 

Capital

Year ended 31st August	Market Capitalisation  £m	Shareholders' Funds £m	NAV		Price		Share (Discount)/Premium
			Diluted  (p)	Undiluted (p)	Ordinary (p)	Warrant (p)	Diluted  %	Undiluted %
1999	19.35	24.66	102.89	96.83	76.00	23.50	(26.1)	(21.5)
2000	21.52	28.27	114.96	111.03	84.50	24.25	(26.5)	(23.9)
2001	23.43	28.20	112.55	110.72	92.00	30.00	(18.3)	(16.9)
2002	31.51	35.29	133.77	138.56	123.75	49.50	(7.5)	(10.7)
2003	39.73	44.55	163.94	174.91	156.00	67.50	(4.8)	(10.8)
2004	39.94	46.00	169.14	180.50	156.75	69.50	(7.3)	(13.2)
2005	54.23	61.57	219.95	241.56	212.75	112.50	(3.3)	(11.9)
2006	64.41	73.26	256.22	279.24	245.50	144.00	(4.2)	(12.1)
2007	94.87	104.14	344.67	344.67	314.00	-	(8.9)	(8.9)
2008	79.16	94.50	312.78	312.78	262.00	-	(16.2)	(16.2)

Revenue 

Year ended 31st August	Gross Revenue £000	Available for ordinary shareholders £000	Earnings per share* p	Dividend per share(net) p	Total expense ratio %	Actual gearing †	Potential gearing ‡
1999	725	275	1.08	0.85	1.46	109	112
2000	1,180	498	1.96	1.29	1.58	107	112
2001	1,387	654	2.56	1.81	1.43	100	112
2002	1,211	445	1.75	1.50	1.51	105	109
2003	1,314	496	1.95	1.50	1.28	100	109
2004	1,567	547	2.14	1.575	1.54	102	108
2005	2,262	960	3.77	2.60	1.48	93	105
2006	2,416	1,239	4.78	3.60	0.88	94	101
2007	3,379	1,812	6.35	4.60	0.83	94	101
2008	3,643	2,008	6.64	5.00	0.78	98	101

* The calculation of earnings per share is based on the revenue from ordinary activities after taxation and the weighted average number of ordinary shares in issue. 

† Total assets (including all debt used for investment purposes) less all cash and fixed interest securities (excluding convertibles) divided by shareholders' funds. 

‡ Total assets (including all debt used for investment purposes) divided by shareholders' funds.

Cumulative Performance (taking 1998 as 100) 

Year ended 31st August	NAV per share	Price per share	Price per warrant	MSCI AC Asia (ex Japan) Index	FTSE All Share Index	Earnings per share	Dividend per share
1998	100	100	100	100	100	100	100
1999	190	245	229	223	123	86	100
2000	212	273	237	231	138	157	152
2001	208	297	293	160	114	205	213
2002	247	399	483	162	93	140	176
2003	302	503	659	189	97	156	176
2004	312	506	678	191	107	171	185
2005	406	686	1,098	245	133	302	306
2006	473	792	1,405	291	156	382	424
2007	636	1,013	-	408	174	508	541
2008	577	845	-	372	159	531	588

Principal Risks and Uncertainties

In the Directors' view, the description of the Company's development over the year and the identification of its key performance indicators are contained in the Financial Highlights, Ten Year Record, Chairman's Statement and Portfolio Manager's Report. The principal risks facing the Company relate to its investment activities and include market price risk and foreign currency risk. Further details of these risks are disclosed in note 16 of the full Report and Accounts and the Chairman's Statement. Information on the Company's internal controls is set out below.

Internal Controls

The Directors are ultimately responsible for the internal controls of the Company which aim to ensure that proper accounting records are maintained, the assets are safeguarded and the financial information used within the business and for publication is reliable. The Directors are required to review the effectiveness of the Company's system of internal control. The Code states that the review should cover all material controls, including financial, operational and compliance controls and risk management systems. Operational and reporting systems are in place to identify, evaluate and monitor the operational risks potentially faced by the Company and to ensure that effective internal controls have been maintained throughout the period under review and up to the date of approval of this Annual Report. The Board confirms that, in accordance with the guidance 'Internal Control: Guidance for Directors on the Combined Code', there is an ongoing process for identifying, evaluating and managing the significant risks faced by the Company. A full review of all internal controls is undertaken annually and the Board confirms that it has reviewed the effectiveness of the system of internal control. These controls include:

• reports at regular Board Meetings of all security and revenue transactions effected on the Company's behalf. These transactions can only be entered into following appropriate authorisation procedures determined by the Board and the Investment Manager;

• Custody of the Company's assets has been delegated to JP Morgan Chase. The records maintained by JP Morgan Chase permit the Company's holdings to be readily identified. The Investment Manager carries out regular reconciliations with the custodian's records of the Company's cash and holdings;

• The Investment Manager's compliance and risk department monitors compliance by individuals and the Investment Manager's operations with the rules of the Financial Services Authority and provides regular reports to the Board;

• A risk matrix is prepared which identifies the significant risks faced by the Company and the Investment Manager's controls in place to manage these risks effectively.

These systems are designed to manage rather than eliminate risk and can, however, only provide reasonable and not absolute assurance against material misstatement or loss.

Related Party Transactions

The Directors' fees for the year are detailed in the Directors' Remuneration Report on pages 27 and 28 of the full Report and Accounts. The Directors do not have a contract of service with the Company. During the year no Director was interested in any contract or other matter requiring disclosure under Section 232 of the Companies Act 1985.  

First State Investment Management (UK) Limited has been appointed as Investment Manager and Secretary under an agreement dated 20th March 1995 (as amended by supplemental agreements dated 23rd and 31st July 1998 and 28th October and 22nd November 2005 and 27th September 2006) ('the Agreement'). The terms of the Agreement provide for payment of a base fee of 0.5% per annum of the Company's net assets payable quarterly in arrears. In addition an annual performance fee may be payable to the Investment Manager. These fees are capped, in aggregate, at an amount not exceeding or equal to 5% of the lower of (1) the gross asset value of the Company and (2) its market capitalisation, in each case at the relevant 31st August year end.

The performance fee is based on the Company's Share Price Total Return ('SPTR'), taking the change in share price and dividend together, over a three year period. If the Company's SPTR exceeds the SPTR of the Company's benchmark index (the MSCI AC Asia (ex Japan) Index) over the three year period plus ten percentage points then a performance fee is payable to the Investment Manager. The objective of the performance fee is to give the Investment Manager ten per cent of the additional value generated for shareholders by such outperformance. If the Company's SPTR for the relevant period is not positive then the performance fee will be nil. The third period for calculation of the performance fee ended on 31st August 2008 with no performance fee being payable to the Investment Manager. Any performance fee payable would be charged to capital.

A secretarial fee, initially based on £35,000 per annum until 31st March 1996 and subsequently increased in line with the UK Retail Prices Index annually is also payable to the Investment Manager. The Investment Manager's appointment as investment manager is subject to termination on one year's notice. Its appointment as Secretary is subject to termination by not less than six months' notice. The Company is entitled to terminate the Investment Manager's appointment as investment manager and secretary on less than the specified notice period subject to compensation being paid to the Investment Manager for the period of notice not given. In this case the Agreement provides that the compensation, in the case of the Investment Manager's appointment as investment manager, is based on 0.5% of the value of the Company's net assets up to the date of termination on a pro rata basis. In addition a termination performance fee amount may be due to the Investment Manager based on the Company's three year performance up to the date of termination and paid on a pro rata basis. In the case of the Investment Manager's appointment as Secretary the compensation is based on the secretarial fee for the last full year prior to termination and paid on a pro rata basis.  Details of the investment management fee are set out in Note 2 of the Accounts. 

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Annual Report and the accounts 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. The financial statements are required by law to give a true and fair view of the state of affairs of the Company at the end of each financial year, and of the total return for that year. The Directors are also responsible for ensuring that adequate accounting records are maintained, for safeguarding the assets of the Company and for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors confirm that suitable accounting policies, applied consistently and supported by reasonable and prudent judgements and estimates, have been used in the preparation of the accounts and that applicable accounting standards have been followed.

The financial statements are published on the Company's website www.scottishoriental.com which is maintained by the Company's Investment Manager, First State Investment Management (UK) Limited. The maintenance and integrity of the corporate and financial information relating to the Company is the responsibility of the Investment Manager. The work carried out by the Auditors does not involve consideration of the maintenance and integrity of this website and, accordingly, the Auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. Visitors to the website need to be aware that legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The Directors confirm that to the best of their knowledge:

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

• the Directors' Report includes a fair view of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that the Company faces.

By order of the Board 

James Ferguson

Chairman

15th October 2008

Income Statement for the year ended 31 August 2008

                                                                                       2008                                                     2007

                                                                                (audited)                                              (audited) 

	Revenue* £'000	Capital £'000	Total £'000	Revenue* £'000	Capital £'000	Total £'000
(Losses)/gains on investments	-	(10,366)	(10,366)	-	26,257	26,257
Income from investments [Note 1]	3,480	-	3,480	3,187	-	3,187
Other income [Note 1]	163	-	163	192	-	192
Investment management fee [Note 2]	(512)	-	(512)	(481)	-	(481)
Currency gains/(losses) [Note 12]	-	111	111	-	(226)	(226)
Other administrative expenses [Note 3]	(310)	-	(310)	(308)	-	(308)
Net return before finance costs and taxation	2,821	(10,255)	(7,434)	2,590	26,031	28,621
Finance costs of borrowing [Note 4]	-	-	-	(1)	-	(1)
Return on ordinary activities before taxation	2,821	(10,255)	(7,434)	2,589	26,031	28,620
Tax on ordinary activities [Note 5]	(813)	-	(813)	(777)	-	(777)
Return attributable to equity shareholders	2,008	(10,255)	(8,247)	1,812	26,031	27,843
Return per ordinary share [Note 7]	6.64p	(33.94)p	(27.30)p	6.35p	91.19p	97.54p
Fully diluted return per ordinary share (in accordance with FRS 22) [Note 7]	6.64p	(33.94)p	(27.30)p	6.11p	87.80p	93.91p

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

All revenue and capital items derive from continuing operations.

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

recognised in the Income Statement.

Summary Balance Sheet as at 31 August 2008

	2008 (audited)			2007 (audited)
	£'000	£'000	£'000		£'000
Total investments [Note 8]		91,574			95,492
Current Assets:
Debtors [Note 9]	611		2,351
Cash and deposits	2,865		6,877
	3,476		9,228
Current Liabilities  (due within one year)
Creditors [Note 10]	(429)		(469)
	(429)		(469)
Net Current Assets		3,047			8,759
Total Assets less Current Liabilities		94,621			104,251
Provision for liabilities and charges
Deferred tax [Note 5]		(120)			(113)
Equity shareholders' funds		94,501			104,138
Represented by
Capital and reserves
Ordinary share capital [Note 11]		7,554			7,554
Share premium account [Note 12]		21,337			21,337
Warrant reserve [Note 12]
exercised		1,319			1,319
Capital Reserves
Realised [Note 12]		58,495			44,151
Unrealised [Note 12]		1,676			26,275
Revenue Reserve [Note 12]		4,120			3,502
		94,501			104,138
Net asset value per share [Note 14]		312.78p			344.67p

Reconciliation of Movements in Shareholders’ Funds (audited)
For the year ended 31 August 2008
	Share Capital	Share premium account	Warrant Reserve Exercised	Capital Reserve Realised	Capital Reserve Unrealised	Revenue Reserve	Total
	£000	£000	£000	£000	£000	£000	£000
Balance at 31 August 2007	7,554	21,337	1,319	44,151	26,275	3,502	104,138
Realised gains on investments	-	-	-	14,233	-	-	14,233
Currency gain	-	-	-	111	-	-	111
Unrealised depreciation on investments in the year	-	-	-	-	(24,599)	-	(24,599)
Income retained in the year	-	-	-	-	-	2,008	2,008
Dividend paid in the year	-	-	-	-	-	(1,390)	(1,390)
Balance at 31 August 2008	7,554	21,337	1,319	58,495	1,676	4,120	94,501

Reconciliation of Movements in Shareholders’ Funds (audited)
For the year ended 31 August 2007
	Share Capital	Share premium account	Warrant Reserve Unexercised	Warrant Reserve Exercised	Capital Reserve Realised	Capital Reserve Unrealised	Revenue Reserve	Total
	£000	£000	£000	£000	£000	£000	£000	£000
Balance at 31st August 2006	6,559	18,354	1,105	214	32,610	11,785	2,634	73,261
Realised gains on investments	-	-	-	-	11,767	-	-	11,767
Currency loss	-	-	-	-	(226)	-	-	(226)
Warrants exercised	995	2,983	(1,105)	1,105	-	-	-	3,978
Unrealised appreciation on investments in the year	-	-	-	-	-	14,490	-	14,490
Income retained in the year	-	-	-	-	-	-	1,812	1,812
Dividend paid in the year	-	-	-	-	-	-	(944)	(944)
Balance at 31 August 2007	7,554	21,337	-	1,319	44,151	26,275	3,502	104,138

Summary Cash Flow Statement for the year ended 31 August 2008 (audited)

 

 

	2008 £’000 (audited)	2007 £’000 (audited)
Net cash inflow from operating activities	2,767	2,455
Interest paid on borrowings	-	(1)
Taxation	(856)	(837)
Net cash outflow from capital expenditure and financial investment	(4,533)	(2,599)
Equity dividend paid	(1,390)	(944)
Financing	-	3,978
(Decrease)/increase in cash	(4,012)	2,052

Reconciliation of total income to net cash inflow from operating activities

	2008 £’000 (audited)	2007 £’000 (audited)
Income	3,643	3,379
Administration expenses	(823)	(789)
Decrease/(increase) in debtors	24	(10)
Increase in dividends accounted for but not yet received	(60)	(151)
(Decrease)/increase in creditors	(17)	26
Net cash inflow from operating activities	2,767	2,455

  Analysis of changes in cash and net debt during the year

	At the start of the Year £'000 (audited)	Cash  Flows £'000 (audited)	At the end of the Year £'000 (audited)
Cash	6,877	(4,012)	2,865

Accounting Policies

These accounts have been prepared in accordance with applicable accounting standards and under the historical cost convention modified to include the revaluation of investments, the Companies Act 1985 and the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies' (revised SORP 2005) except for certain illiquid stocks which have been valued at the last traded price, as has been the Company's practice. The directors consider the last traded price for such stocks to be the best estimate of fair value. They have also been prepared on the assumption that approval as an investment trust will continue to be granted.

The financial statements, and the net asset value per share figures, have been prepared in accordance with UK Generally Accepted Accounting Practice ('UK GAAP').

During the year the Company adopted FRS 29 'Financial Instrument Disclosures'. Accordingly the comparatives have been restated on a consistent basis but the standard does not require any changes to the recognition or measurements of financial assets.

The functional and reporting currency of the Company is pounds sterling as most investors in the Company are based in the United Kingdom.

(a) Dividends on securities are brought into account on the date on which the security is quoted 'ex dividend'' on the stock exchange in the country in which the security is listed. Interest on securities is accounted for on a time appointed basis. Foreign dividends include any withholding taxes payable to the tax authorities.

(b) Overseas income is recorded at rates of exchange ruling at the date of receipt.

(c) Bank interest receivable, interest payable and expenses of management are dealt with on an accruals basis.

(d) In accordance with FRS 19, 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 the future against which the deferred tax asset can be offset.

Due to the Company's status as an investment trust, and the intention to continue to meet the conditions required to obtain approval in the foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the revaluation of investments.

(e) Investment management and secretarial fees have been charged in full to the Income Account.

(f) Equities include ordinary shares and warrants.

(g) 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 which for listed investments is deemed to be bid market or last traded prices. Gains and losses arising from changes in fair value are included as a capital item in the Income Statement and are ultimately recognised in the capital reserve - unrealised.

(h) Gains and losses arising from the sale of investments are included in Capital Reserve - realised.

(i) Exchange rate differences on capital items are included in Capital Reserve, and on income items in Revenue Reserve.

(j) All assets and liabilities denominated in foreign currencies have been translated at year end exchange rates.

(k) Interest costs incurred on long-term borrowings are charged to income on a time
apportioned basis over the life of the liability. Breakage costs are charged to capital.

NOTES ON THE ACCOUNTS:

(1) Income

Income from investments relates to dividends from overseas listed companies.

Other income relates to bank deposit interest.

(2) Investment Management Fee

 

	2008 £000	2007 £000
Investment Management Fee	512	477
Irrecoverable VAT	-	4
	512	481

 

(3) Other Administrative Expenses

 

Auditors’ remuneration	- audit	9	8
	- taxation services	1	1
Directors’ fees		71	78
Secretarial fees		49	47
Bank, custodial and other expenses		180	174
		310	308

Since 1st July 2008 Directors' fees have been as follows:

Chairman of the Board          £18,500 per annum

Each other Director                £13,500 per annum

Prior to 1st July 2008 Directors' fees were as follows:

Chairman of the Board          £17,500 per annum

Each other Director                £12,500 per annum

(4) Finance Costs of Borrowing

Bank overdraft interest

-

1

(5) Taxation

	2008			2007
	£'000	£'000	£'000		£'000
(a) Analysis of charge in period	Income	Total	Income		Total
Current tax:
Corporation tax	806	806	730		730
Double tax relief	(188)	(188)	(139)		(139)
Overseas tax	188	188	151		151
	806	806	742		742
Deferred tax:
Origination and reversal of timing differences	7	7	35		35
	813	813	777		777

(b) Factors affecting the tax charge for the period

The tax assessed for the period is different from that calculated when corporation tax is applied to the total return. The differences are explained below: 

	2008 £000	2007 £000
Net (losses)/gains on investments during the period	(10,366)	26,257
Other gains/(losses)	111	(226)
Net investment income before tax	2,821	2,589
Total return for the period before taxation	(7,434)	28,620
Total return for the period before taxation multiplied by the effective rate of corporation tax of 28% (2007: 30%)	(2,081)	8,586
Effect of:
Capital returns not subject to corporation tax	2,871	(7,809)
Prior year adjustment	1	-
Overseas tax	(1)	11
Income taxable in different periods	(16)	(46)
Adjustment due to tax rate change	32	-
Current tax charge for the period	806	742
(c) Provision for deferred tax
Income taxable in different periods	120	113
Provision at start of period	113	78
Deferred tax charge in period	7	35
Provision at end of period	120	113

(6) Dividends

Dividends paid in the period:	2008 £000	2007 £000
Dividend of 4.60p per share (2007 – 3.60p)
paid 25th January 2008	1,390	944

The proposed dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements.

We note below the proposed dividend in respect of the financial year, which is the basis upon which the requirements of Section 842 of the Income and Corporation Taxes Act 1988 are considered.

Income available for distribution	2,008	1,812
Proposed dividend for the year ended 31st August 2008 – 5.00p
(2007 – 4.60p) payable 28th January 2009	(1,511)	(1,390)
Retained Income for section 842 ICTA 1988 purposes	497	422

(7) Return per Ordinary Share

		2008			2007
	Income p	Capital p	Total p	Income p	Capital p	Total p
Basic return “per ordinary” share	6.64	(33.94)	(27.30)	6.35	91.19	97.54
Fully diluted return per ordinary share (in accordance with FRS 22)	6.64	(33.94)	(27.30)	6.11	87.80	93.91
					2008	2007
Revenue return					2,008,000	1,812,000
Capital return					(10,255,000)	26,031,000
Weighted average ordinary shares in issue					30,213,650	28,546,139
Diluted calculation:
Weighted average number of warrants during the year					-	1,667,511
Less number of shares that would have been issued at fair value using an average share price of 289.07p (2007: 294.33p) during the year					-	(566,545)
Shares that would have been issued for no consideration					-	1,100,966
Add weighted average number of shares in issue during the year					30,213,650	28,546,139
Number of shares used to determine diluted returns per share					30,213,650	29,647,105

(8) Equity Investments	Equities £000
Cost at 31st August 2007	69,217
Unrealised appreciation	26,275
Valuation at 31st August 2007	95,492
Purchases at cost *	39,210
Sales – proceeds *	(32,762)
Sales – realised gains on sales	14,233
Unrealised depreciation on investments in the year	(24,599)
Valuation at 31st August 2008	91,574
Cost at 31st August 2008	89,898
Closing unrealised appreciation	1,676
All investments are listed on recognized stock exchanges.
* These figures include the following charges.	£000
Stamp Duty	65
Brokerage	186
Other fees	14
	265

	2008	2007
(9) Debtors	£000	£000
Sales awaiting settlement	36	1,853
Accrued income	517	457
Overseas tax recoverable	56	15
VAT recoverable	2	26
	611	2,351

 

	2008	2007
(10) Creditors (amounts falling due within one year)	£000	£000
Purchases awaiting settlement	-	13
Corporation tax	309	319
Other creditors	120	137
	429	469

(11)     Share Capital

The authorised capital is £8,190,058 (2007: same) represented by 32,760,234 ordinary shares of 25p each (2007: same). The allotted capital is £7,553,412 (2007: £7,553,412) represented by 30,213,650 ordinary shares of 25p each (2007: 30,213,650).

The Board monitors and reviews the broad structure of the Company's capital on an ongoing basis. This will include:

• 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.

(12) Reserves	Share premium account	Warrant Reserve Exercised	Capital Reserve Realised	Capital Reserve Unrealised	Revenue Reserve
	£000	£000	£000	£000	£000
Balance at 31 August 2007	21,337	1,319	44,151	26,275	3,502
Realised gains on investments	-	-	14,233	-	-
Currency gain	-	-	111	-	-
Unrealised depreciation on investments in the year	-	-	-	(24,599)	-
Income retained in the year	-	-	-	-	2,008
Dividend paid in the year	-	-	-	-	(1,390)
Balance at 31 August 2008	21,337	1,319	58,495	1,676	4,120

(13) Contingent Liabilities 

As at 31st August 2008, there were 200,000 IJM warrants to subscribe for ordinary shares in the ratio of 1 for 1, exercisable on 11th September 2013 at an exercise price of £1.35 (2007: £Nil).

(14) Net Asset Value per Ordinary Share

Net assets per share are based on total net assets of £94,501,029 (2007: £104,137,645) divided by 30,213,650 (2007: 30,213,650) ordinary shares of 25p each in issue.

The financial information contained within this Announcement does not constitute statutory accounts as defined in Section 240 of the Companies Act 1985. The results for the years ended 31st August 2008 and 2007 are an abridged version of the statutory accounts for those years, which received unqualified audit reports and did not contain statements under sections 237(2) or (3) of the Companies Act 1985. Statutory accounts for 2007 have been filed with the Registrar of Companies and those for 2008 will be delivered in due course.

Copies of the 2008 Annual Report were posted to shareholders on 6 November 2008 and further copies may be obtained from the registered office at 23 St Andrew Square, Edinburgh, EH2 1BB.

Enquiries:	Gillian Davies / Bridgette McDonald First State Investments, Ph: 44 (0) 131 473 2200

1 December 2008

 

END

 

 

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