Final Results

RNS Number : 8274D

Scottish Oriental Smlr Co Tst PLC

02 November 2020

 

THE SCOTTISH ORIENTAL SMALLER COMPANIES TRUST PLC

Annual Financial Report for the year ended 31 August 2020

Financial Highlights

Total Return Performance for the year ended 31 August 2020 (audited)
Net Asset Value	-13.2%	MSCI AC Asia ex Japan Index (£)	10.9%
Share Price	-14.2%	MSCI AC Asia ex Japan Small Cap Index (£)	7.1%
Dividend maintained at 11.50p per share		FTSE All-Share Index (£)	-12.7%

Summary Data at 31 August 2020 (audited)
Shares in issue	29,174,030	Shareholders' Funds	£289.4m
Net Asset Value per share	992.14p	Market Capitalisation	£249.7m
Share Price	856.00p	Share Price Discount to Net Asset Value	13.7%
Ongoing Charges*	1.03%	Active Share (MSCI AC Asia Ex Japan Index)	99.7%
Net Cash	7.6%	Active Share (MSCI AC Asia Ex Japan Small Cap Index)	97.5%
*No performance fee was payable during the year (2019: nil).

Chairman's Statement

Scottish Oriental had a poor year. The reasons for this are explained in detail in the Managers' Report. The Net Asset Value ("NAV") per share fell by 13.2 per cent in total return terms over the 12 months to 31 August 2020 while the 'comparative indices', the MSCI AC Asia ex Japan Index and the MSCI AC Asia ex Japan Small Cap Index, rose by 10.9 per cent and 7.1 per cent respectively. As usual, we would stress that the Company is not invested with regard to any particular benchmark and these indices are shown to provide some context. In the Financial Highlights on the previous page you will see figures for the portfolio's active share against the two indices. These figures illustrate the extent to which our portfolio differs from each index; 100 per cent would indicate that there is no overlap whatsoever. The share price total return was minus 14.2 per cent. A performance fee was not earned this year.

The income per share was 8.19p compared to 12.50p last year. The earnings figure was boosted by a special dividend from SKF India. We are proposing an unchanged dividend of 11.5p. The shortfall will be taken from the revenue reserve, set out below. Given the prevailing economic uncertainty and weakened earnings outlook for Asian companies, many have cut or suspended their dividends. As a result it is likely that the Company's dividend will be reduced next year.

During the year, the Company bought back 699,754 ordinary shares. 2,239,633 ordinary shares were held in Treasury at the year end. The Board continues to have no formal discount control mechanism but will be prepared to buy back shares opportunistically and to issue new shares at a small premium to NAV.

The duration and extent of recent underperformance is a disappointment and a concern to both the Board and to the Investment Manager. In view of these concerns, FSSA, in conjunction with the Board, has conducted a review of the portfolio construction process and the portfolio controls employed in the management of Scottish Oriental, and has made a number of proposals intended to enhance existing processes with a view to improving performance. Rather than a radical overhaul, these proposals represent a reemphasis of a process that has proven successful through market cycles over the last 30 years, whilst acknowledging the need to adapt to the increasing challenges of investing in smaller listed companies across Asia. Scottish Oriental is important to FSSA and they are determined to achieve a recovery in investment performance.

We have been considering the structure of the Board and our plans for succession. As you may recall from previous statements, we do not regard long service as a disadvantage and believe that experience is an advantage for an investment trust. The Board at present consists of three directors recruited from diverse financial backgrounds, most recently Michelle Paisley whose details are shown on page 24 of the Annual Report, and two with long experience of the trust. We are not considering any further changes at present, but I intend to retire within the next two years.

This year's Annual General Meeting will be held on Tuesday, 8 December 2020. In addition to the usual business of the AGM, this year there is a resolution to approve changes to the Company's Investment Policy. The changes, which are described in detail in the Directors' Report on pages 34 to 36 of the Annual Report, provide the Investment Manager with more flexibility to invest in Asian smaller companies that have greater market capitalisations, as well as expanding the investment remit to include Australasia and Japan. The Board believes these changes are in the best interests of shareholders.

Owing to the restrictions imposed by the UK Government because of Covid-19, this year's AGM will follow an unusual format, as Shareholders will not be permitted to be present. Attendance will be limited to the minimum number of Directors and officers sufficient to form a quorum. Shareholders are strongly encouraged to vote by proxy and to ask any questions in advance (by email to the Company Secretary at [e-mail]). The Company or its Investment Manager will then reply to each question as appropriate.

James Ferguson

Chairman

30 October 2020

Portfolio Manager's Report

The Market

During the year ending 31 August 2020, Asian equity markets' performance was strong. This strength is not fully reflected when measured in sterling, as a result of the appreciating pound. The US-China trade war had been the biggest driver of stock market performance for some time with the pattern continuing at the start of the period but the outbreak of Covid-19 in 2020 impacted stock markets significantly. Initially only Chinese markets suffered but a strong government response prompted a swift rebound. As it became apparent that the pandemic would not be contained, global stock markets then sold off sharply in March. This selloff led to significant fiscal stimulus and money printing from developed market governments and central bankers. The resulting easy monetary conditions then led to a sharp rally in global stock markets with Asian markets also rebounding, many ending the period at a similar level to that before the pandemic and some even higher.

Growth weakened notably over the period and a global recession in 2020 is almost inevitable. Earnings forecasts for Asian companies have been cut significantly, particularly in sectors exposed to domestic consumption. Asia's stock markets were mixed. The Chinese and Taiwanese markets rose sharply which was reflective of their respective governments' handling of the crisis and also the performance of a few behemoth technology companies. South East Asian stock markets performed very poorly. Indonesia, the Philippines, Singapore, Thailand and Vietnam all fell sharply. These countries' dependence on Chinese trade and tourism was highlighted by the pandemic. The Indian stock market also underperformed. Its economy had been slowing before the pandemic took hold. A hastily introduced lockdown then led to a massive contraction in economic activity.

Small companies performed in line with the broader Asian market over the year. Within individual countries, performance was much more varied. Smaller companies in China and Taiwan were weaker than their larger counterparts whereas smaller companies in Malaysia and Korea were very strong, predominantly as a result of exceptional share price performance from a number of smaller companies in the health care sector.

The Company's Performance

Scottish Oriental's investment performance over the year was poor. The biggest detractors from performance were the large weightings in India, Indonesia and the Philippines. It is mainly in these countries that we have found smaller companies we believe will be the winners in their respective markets with strong growth prospects in the long run. Unfortunately the Company's holdings in each of these countries performed in line with local stock markets which in all cases was disappointing, particularly so in Indonesia and the Philippines. We added to Scottish Oriental's positions in all of these markets during the year as share prices fell to very attractive levels. By contrast, Scottish Oriental owns relatively few companies in China which was one of the best performing stock markets.

The biggest contributor to performance was stock selection in Taiwan with the Company's Taiwanese holdings continuing to perform strongly. We significantly reduced Scottish Oriental's exposure to Taiwan during the period as this strong share price performance led to expensive valuations.

Country Allocation at 31 August (based on geographical area of activity)

Country/Region	Scottish Oriental 2020 %	Scottish Oriental 2019 %	MSCI¹ 2020 %	MSCI Small Cap² 2020 %	Stock Market Performance³ 2020 (Sterling) %
China	7.6	9.1	47.2	13.8	25.1
Hong Kong	7.8	6.4	8.3	8.1	(6.3)
Taiwan	3.9	10.1	13.7	25.4	26.4
Greater China	19.3	25.6	69.2	47.3
Indonesia	12.6	10.6	1.6	1.9	(23.7)
Malaysia	-	0.8	1.8	4.3	(10.7)
Philippines	12.5	9.8	0.8	0.8	(26.5)
Singapore	1.2	5.7	2.5	6.9	(20.5)
Thailand	-	-	2.2	3.7	(30.3)
Vietnam	2.5	2.3	-	-	(19.2)
South East Asia	28.8	29.2	8.9	17.6
Bangladesh	1.7	1.8	-	-	(16.7)
India	39.4	29.1	9.2	13.4	(6.2)
Pakistan	1.1	1.5	-	0.6	2.0
Sri Lanka	0.6	2.1	-	-	(21.8)
Indian Subcontinent	42.8	34.5	9.2	14.0
South Korea	1.5	1.1	12.7	21.1	12.7
Net Current Assets	7.6	9.6	-	-
Net Assets	100.0	100.0	100.0	100.0

¹Morgan Stanley Capital International AC Asia ex Japan Index

²Morgan Stanley Capital International AC Asia ex Japan Small Cap Index

³Stock Market Performance values are the Morgan Stanley Capital International total return indices in each country

Principal Contributors to and Detractors from Performance

Top Five Contributors

Company	Country	Sector	Absolute Return (Sterling) %	Contribution Performance %
Tata Consumer Products	India	Consumer Staples	70	1.0
Nissin Foods	Hong Kong	Consumer Staples	23	0.8
Emami Limited	India	Consumer Staples	45	0.8
Sinbon Electronics	Taiwan	Technology	32	0.6
Gujarat Gas	India	Utilities	19	0.6

Tata Consumer Products (formerly Tata Global Beverages) benefited from pantry stocking in its core tea business in India as well as in its Tetley operations globally. Its new chief executive's focus on gaining market share in its core Indian tea business, while also scaling up its operations across categories such as branded salt, pulses and beverages has borne fruit and the company has reported strong results during the year.

Nissin Foods' instant noodle sales also benefited from pantry stocking in both its major markets of China and Hong Kong and it raised prices for its products in China. Higher prices and strong volume growth led to an improvement in its profitability. The company has been using the tailwind of higher customer demand to launch several new products with an emphasis on premium products in China. It also improved its distribution in China, where Nissin's business is growing faster and earns higher margins than Hong Kong.

Emami Limited was impacted by the lockdown in India with its manufacturing plants and the bulk of its distribution channels closing. Its share price fell significantly as concerns over the coronavirus mounted. We had been looking closely at the company and purchased shares for Scottish Oriental after this fall. Management disclosed a sharp rebound in sales as India's lockdown eased and its share price subsequently recovered.

Sinbon Electronics reported strong operating performance with its profits rising on volume growth and an improvement in its product mix towards higher margin segments, with the company benefiting from increased demand for cables for ventilators and other medical equipment. The share price rose much more rapidly than profits, resulting in expensive valuations. Therefore we reduced the Company's exposure.

Gujarat Gas reported strong operating performance with profits boosted by growth in its industrial gas volumes. The introduction of a new regulation in its key operating region of Morbi has led to a shift among its industrial customers towards natural gas from more polluting fuel sources such as coal. However, the natural gas regulatory authority has stated its intention to introduce competition in major markets, which could affect Gujarat Gas' future profitability. Therefore, we sold the Company's position.

Top Five Detractors

Company	Country	Sector	Absolute Return (Sterling) %	Contribution Performance%
Max's Group	Philippines	Consumer Discretionary	(65)	(1.9)
Mahindra & Mahindra Financial Services	India	Financials	(56)	(1.6)
Concepcion Industrial	Philippines	Industrials	(41)	(1.3)
Sarimelati Kencana	Indonesia	Consumer Discretionary	(44)	(1.0)
Haw Par	Singapore	Consumer Staples	(33)	(0.9)

Max's Group was severely impacted by Covid-19 with all of its restaurants closed at one point. As activity gradually normalised, initial signs of customer demand were strong. Management are using this disruption to accelerate changes including consolidation of its restaurant formats by eliminating less profitable brands, increasing supply chain efficiencies, and encouraging a shift to a franchised model which we believe will lead to a significant improvement in profitability. We added to the Company's holding during the year. 

Mahindra & Mahindra Financial Services declined as a result of the expectation that the disruption caused to the Indian economy by Covid-19 would lead to an increase in credit losses across its vehicle and housing finance businesses. We were particularly concerned about a six month moratorium on loan repayments mandated by the Reserve bank of India. Customers may use this period of forbearance to divert their cash flows towards other uses leaving them unable to make loan repayments at the end of the loan moratorium. Therefore we sold Scottish Oriental's position.

Concepcion Industrial was badly impacted by the lockdown in the Philippines which significantly impacted sales of its refrigerators and air conditioners during its busiest quarter of the year. We remain positive about the company's prospects and believe that the disruption to the sector will likely favour Concepcion in the long run as the impact on weaker competitors will have been even more severe. Recent months have witnessed an encouraging improvement in demand in both its consumer and commercial segments.

Sarimelati Kencana saw its Pizza Hut restaurants suffer as a result of the impact of Covid-19. However, its delivery operations have thrived. The company has renegotiated terms with its landlords and Yum! Brands, owner of Pizza Hut, has accepted a reduction in royalty payments all of which has mitigated the impact of Covid-19 for the company. We have been very impressed at management's handling of this crisis. We added to Scottish Oriental's position during the year.

Haw Par owns a large stake in Singapore's UOB Group, the value of which fell in the market selloff. In addition, sales of Haw Par's Tiger Balm fell sharply during the period as travel outlets such as duty free retailers represent one of its largest distribution channels. We reduced the Company's holding in Haw Par during the period as we concluded that management are less dynamic than we believed them to be given Tiger's dependence on traditional distribution channels.

Portfolio activity

Purchases

During the year we invested £154m, adding 18 new companies to the portfolio.

ACC Limited is one of the leading cement companies in India with a presence across all regional markets. It is majority owned by Ambuja Cements. The company benefits from the industry's low penetration and long term growth potential. Its new management team appointed over the last three years has focused on reducing costs. This is expected to continue, as ACC invests in setting up new waste heat recovery plants to reduce its power consumption and optimise its logistics network. It is also expected to benefit from higher synergies with its parent, Ambuja Cement. These initiatives should lead to a significant improvement in its profitability. ACC's market value at the time of purchase was only 40% of the replacement cost of its cement capacity, a level we have not witnessed in 20 years.

Ace Hardware Indonesia operates the leading chain of home improvement stores in Indonesia. The business was set up in 1996, after the founding Wibowo family signed a licensing agreement with Ace Hardware in the United States. The founding family continues to own a majority stake and is actively involved in its management. The company has a strong track record, as sales and profit growth has been uninterrupted since it listed in 2007. The company has built a dominant position in the home improvement industry in Indonesia. Most of its competitors operate in the informal sector and lack purchasing scale. Several of these competitors depend on avoiding taxes to compete with Ace on pricing. As tougher tax compliance regulations have been introduced in recent years, these small operators have found it difficult to compete. This gradual shift from low quality retailers to the formal sector led by Ace should continue in the coming years. Its management also expects to further improve its profitability by introducing private label products, which enjoy higher margins.

Ambuja Cements is the 2nd largest cement company in India with a presence across all regional markets. It is majority-owned by Lafarge-Holcim, which is among the leading cement manufacturers globally. The industry is underpenetrated and has the potential for attractive long term growth. Capacity addition across its regional markets is limited, which should lead to stable pricing. It has recently appointed a new chief executive, Neeraj Akhoury, who has a strong track record of improving the profitability of Ambuja's subsidiary, ACC Limited. The new chief executive's focus on driving higher cost efficiency and synergies between Ambuja and ACC Limited should lead to an improvement in the company's profitability. The company's upcoming expansion is also likely to lead to consistent volume growth in the years ahead. Ambuja Cements' market value at the time of purchase was near to half the replacement cost of its cement capacity which, as with ACC Limited, is a level we have not witnessed in 20 years.

BASF India is the listed Indian subsidiary of BASF SE, the world's largest speciality chemical manufacturer. Its chemicals are used across several industries including agriculture, automotive, construction and textiles. The company has doubled its manufacturing capacity over the last seven years. However, weak industrial growth in India led to weak customer demand and resulted in low utilisation of its plants. Therefore, its operating profitability has been poor in recent years. The company has appointed a new chief executive, Narayan Krishnamohan, who has spent over twenty years across different roles in the BASF Group. His focus is on raising the company's profitability by cutting costs, improving production yields and introducing new products from the parent's large global portfolio to increase capacity utilisation across its plants. The recent completion of its large capital expenditure programme is also expected to result in consistent free cash flow generation in the coming years. At the time of purchase BASF India was valued at approximately 0.6 times its revenues, half the level of its parent company. This is despite the Indian business having better growth prospects. A meeting with the chief executive only added to our conviction.

Bosch Limited is the largest auto-component supplier in India. It is the only listed subsidiary of Robert Bosch GmbH. The company has a dominant position in supplying engine components to all major automotive original equipment manufacturers, including a monopoly in some segments such as tractors. Its parent has leading technology capabilities globally, as it spends 10 per cent of its annual sales on research and development resulting in a large active patent portfolio. The access to this technology allows Bosch India to enter new market segments. The company has suffered due to the significant downturn in the Indian automotive industry over the last three years which has led to lower profitability. The company has initiated a 'zero based budgeting' program which should lead to lower costs in the coming periods. The upcoming shift towards more stringent environmental and safety norms across vehicle categories should also lead to an increase in content per vehicle for Bosch.  

Castrol India is the leading automotive lubricant brand in India, majority owned by British Petroleum. The company has operated in the country for over a century. It has built a strong consumer brand due to its superior product quality and consistent investment in advertising. Castrol's growth in recent years was affected by lower consumer demand and an increase in competitive intensity. For years its management had focused on margin expansion and not volume growth and had let its market share fall. A new managing director is taking several initiatives to improve growth. The company has formed a partnership with the Indian joint-venture between Reliance and British Petroleum, which will allow Castrol to exclusively sell its lubricants in over 5,000 fuel stations. The company is also increasing its distribution reach significantly by setting up automotive workshops. The upcoming change in emission regulations for Indian vehicles should also lead to a shift towards higher priced lubricants, thereby improving Castrol's profitability. We expect management to deliver volume growth and win back market share which would result in a re-rating of the share price.

Eicher Motors is the leading premium two-wheeler manufacturer in India, 49 per cent owned by the Lal Family. Siddhartha Lal, from the second generation of the family, has been the chief executive since the early 2000s. He is credited for turning around the performance of the Royal Enfield motorcycle brand. Royal Enfield has a dominant market share in the premium two wheeler category (over 250 cc) in India having enjoyed significant growth over the last decade. More recently, it has been hurt by high regulatory price increases and a slowdown in demand. The company subsequently appointed a professional chief executive for Royal Enfield, Vinod Dasari, who has a strong track record at other automotive businesses. His focus is on increasing distribution, building new revenue streams and strengthening the product portfolio. This should allow the company to improve its growth prospects. Higher volumes would also lead to better profitability. The company's commercial vehicle joint-venture with Volvo has also suffered due to a severe cyclical downturn in the commercial vehicle market. Its performance should improve as demand normalises.  

Emami Limited is a leading fast moving consumer goods company in India. The founding Agarwal and Goenka families own 54 per cent of the company's shares, with its management team comprising family members as well as reputed professionals. The company has dominant market shares in several niche product categories, such as balms, antiseptic creams, hair oils and men's skincare products. It has focused on creating new product categories since an early stage in its development, investing significantly in advertising and promotion which typically accounts for 15 to 20 per cent of the company's sales. The result is strong brands with a loyal following. In recent years, the company's sales growth was relatively weak resulting from a consumer slowdown in India as well as some issues related to its distribution and brand management which the management team have now addressed.

Hisense Home Appliances is the market leader in China's central air conditioning industry and also produces other air conditioning products, refrigerators and washing machines. It was founded in 1984 and majority control was acquired by the state-owned Hisense Group in 2006. Subsequently, it became the white goods arm of its parent. In 2020, ownership reforms were introduced, following which Hisense is likely to cease being a state-controlled company. This should have a positive impact for its management and governance structure. Central air conditioning is its key segment contributing over half of profits. It operates through a joint-venture with Johnson Controls-Hitachi and United Trading. The central air conditioning market is growing steadily in China, driven by the purchase of more expensive apartments. This trend for higher penetration of central air conditioning is likely to continue and Hisense has been gaining market share from global competitors. The company's valuation is exceptionally attractive given the growth opportunity with the shares valued at seven times forecast earnings and paying a dividend yield of four per cent.

Kansai Nerolac Paints is the third largest paint company in India. Its parent, Kansai Paint of Japan owns 75 per cent of the company's shares, while management is controlled by its longstanding professional team. 60 per cent of the company's sales come from decorative paints. This is an underpenetrated industry in India which has consistently grown at a steady pace, led by demand from Indian consumers to repaint houses. Unlike other markets, decorative paint demand in India is not cyclical, as it is dominated by repainting activities whereas cyclical new housing construction comprises only a small share of total demand. Kansai Nerolac has gained market share from the informal sector, by launching new products such as the Soldier brand of economy paints. Decorative paint has strong pricing power in India, which has allowed the company to improve its profitability consistently. Kansai Nerolac is also the market leader in industrial and automotive paints. In these segments, it has the advantage of Kansai Japan's technology, as its parent is a global leader in automotive paints. In recent years, the significant downturn in the Indian automotive industry hurt Kansai's automotive paint volumes. Auto penetration rates remains low in India. As demand improves, the growth for its industrial and automotive segment is likely to improve in the coming years.

Leeno Industrial produces pins and sockets used for testing printed circuit boards and integrated circuits respectively. Founded in 1978 by Chae-Yoon Lee, who is still chief executive, the company has consistently moved up the value chain by reinvesting profits in research and development and vertical integration and generates very attractive margins as a result of this investment. The company has a leading position in the test pin and socket categories. Its market share has been increasing, given its technological advantages and research and development capabilities. It also has strong customer relationships, as its engineers are placed within clients' offices, working together on the development of new products. As test pins and sockets are used in research and development, demand is less cyclical than components used for capital expenditure or production. Its sales growth and profitability are likely to improve in the coming years. The trend of miniaturisation of components has led to an increase in the selling prices of its pins and sockets. The introduction of 5G telecom services will also lead to an acceleration of demand for its key products. The company has also invested in building new businesses, such as probe heads for medical equipment. It has signed high quality global customers such as Siemens, which should underpin its growth in this segment.

Metropolis Healthcare is among the leading diagnostics companies in India. Its current chief executive is Ameera Shah, from the second generation of the founder family. The chief executive has ensured that Metropolis maintains industry leading quality standards. The Indian diagnostics industry is highly fragmented, and dominated by 'mom and pop' laboratories where testing and safety practices are poor. As patients are becoming more aware of the need for higher quality testing services, these small laboratories are gradually losing market share to larger companies. Metropolis has also used its strong balance sheet to acquire smaller laboratory chains, and improve their processes and systems. It is leading the industry's consolidation. The disruption due to Covid-19 is likely to put a significant strain on these small operators, as customer footfall has fallen substantially. This is likely to be an inflection point to accelerate the consolidation in favour of larger groups such as Metropolis.

NHN KCP provides payment gateway and value added network (VAN) services for digital transactions in the Korean market. For every online payment processed via NHN KCP's gateway the company takes a percentage of the transaction value and NHN KCP is the market leader with approximately 25 per cent market share. Its online VAN sends and receives payment information between the payment gateway and credit card issuer and is fee based. NHN KCP is the market leader in this segment also with approximately 50 per cent market share. The VAN business is extremely profitable, as it has negligible marginal costs. Customers have very little incentive to switch, and therefore competition is limited. The company also cooperates with global payment companies, which reduces the risk of future competition from these global companies in the Korean market. E-commerce is growing rapidly in Korea, especially following the Covid-19 disruption. The company has benefited in recent years from its high quality reputation amongst online merchants. This has facilitated a number of contract wins with overseas companies entering Korea such as Apple & Tesla. With the increasing contribution from these global companies, NHN KCP expects to continue to outpace Korean ecommerce market growth.

Poya International is among the leading retail chains in Taiwan, with a focus on categories such as cosmetics, ladies' accessories and fast moving consumer goods. Its founding family owns a majority stake in the company. Tony Chen, from the second generation of the family, has been the chief executive for the last decade. Poya has successfully built a dominant franchise in the discount store format in Taiwan by offering a large selection of products at low prices and with better service than the traditional markets it competes against. Its management has also improved the company's profitability consistently. Its profit margins have steadily increased over the years as its sales mix has shifted towards higher margin products and operating efficiency at its stores has improved. In 2019, the company piloted the Poya Home format, focusing on hardware products. This format has increased the addressable market for the company significantly. Management expects to gain significant scale in this segment over the next five years.

United Breweries is India's dominant beer company with 52% market share. Heineken owns a controlling stake in the company. Annual per capita beer consumption is only four litres in India which is a fraction of other emerging markets. Beer consumption should grow rapidly, as more than 250 million Indians will reach the legal drinking age over the next decade. United Breweries has built an attractive portfolio across different segments. Its Kingfisher beer brand is the leader in India. It also has several regional brands and Heineken has introduced its own premium products into the company's range of beers. This should help United Breweries grow significantly in the coming years. Complex tax regulations which require capacity creation in each state, government control over distribution of alcohol, and prohibition on advertising create large barriers to entry for new players. The company is expensive when compared against its earnings but its market value represents only $3 per capita compared to $10-$15 for the leading Chinese brewers which have much lower market share. We expect United Breweries' margins to increase as the Indian market increasingly shifts to premium brands.

Universal Robina is one of the Philippines' leading consumer staples companies, with leading market positions in snacks, candies, chocolate, instant coffee and ready to drink tea. It is majority owned by the Gokongwei family. In 2018 the company appointed Irwin Lee as its chief executive. With decades of experience in senior roles at Procter & Gamble, Irwin has led significant changes at Universal Robina, including higher brand investment, faster introduction of new products and increasing the direct distribution reach. This has led to an improvement in the company's market share across various categories over the last year. These market share gains should continue. Irwin has also targeted savings from higher efficiency in the company's supply chain and improving the profitability of acquired businesses in Australia and New Zealand. Universal Robina also has the opportunity to introduce new products in categories such as instant noodles and beverages through its joint ventures with leading brands including Nissin Foods and Vitasoy.

Voltas is the leading air conditioning brand in India. It is majority owned by the Tata group. The Indian air conditioner industry has a penetration rate of only five per cent, compared to over 70 per cent in China. The industry has been growing rapidly in recent years, led by higher disposable incomes and better availability of electricity in semi-urban and rural areas. Voltas has consistently strengthened its market position. Its market share has increased from 10 per cent in 2003 to over 24 per cent currently. Its larger scale gives it advantages in procurement, distribution and brand investment. This has led to the company having significantly higher profitability than its peers. It has recently introduced a range of consumer durable products including washing machines, refrigerators and dishwashers through a partnership with Arcelik Group of Turkey which operates the Beko brand. The company has significant long term potential to build a bigger presence in these categories.

Zhejiang Weixing New Building Materials is among the leading plastic pipe manufacturers in China. Its parent is a well reputed local conglomerate owned by management and employees and owns 70 per cent of the company's shares. The plastic pipe industry in China is highly fragmented. Most companies in the industry focus on selling low-end products in large quantities to real estate developers. Since its inception, Zhejiang Weixing has instead focused on building a strong relationship with retailers. Therefore, the majority of its sales come from purchases made directly by end customers. The company has consistently invested in brand building and upgrading its product portfolio. As a result, its profitability is industry leading. Its strong brand has also led to consistent market share gains.

Significant additions to existing positions

We added to Scottish Oriental's holdings in a number of companies as share price weakness resulted in more attractive valuations. These companies included Indian conglomerate Godrej Industries; Indian auto components manufacturer Mahindra CIE Automotive; Philippine casual dining restaurant operator Max's Group; Indonesia's Mitra Adiperkasa, an operator of franchises in food & beverage, department stores, sportswear and fashion apparel; Indian real estate developer Oberoi Realty; Indonesian Pizza Hut franchisee Sarimelati Kencana; Indonesian auto components manufacturer Selamat Sempurna; noodle and beverage manufacturer Uni-President China; and Hong Kong-based non-alcoholic beverage producer Vitasoy.

We continued to build up positions for the Company in Hong Kong-based premium noodle manufacturer Nissin Foods; convenience store operator Philippine Seven; and Indian food and beverage producer Tata Consumer Products. We added to Scottish Oriental's position in Philippine branded food producer Century Pacific Food on our increased conviction in the investment case.

Sales

During the year we disposed of 17 holdings for the Company.

Hong Kong-based manufacturer of semiconductor production equipment ASM Pacific Technology was sold following rapid share price appreciation. The management of Philippine China Banking Corporation have shown a lack of urgency in improving returns. Sri Lankan Telecom operator Dialog Axiata has been operating in an increasingly uncertain regulatory environment. Indian city gas distributor Gujarat Gas has performed strongly for Scottish Oriental but as its share price rose, its valuation became more expensive despite increasing regulatory risks. Indian Cancer specialist centre group Healthcare Global Enterprise over-expanded, diversifying away from its core specialism which led to poor returns. Indian fast moving consumer goods company, Jyothy Laboratories disappointed us by appointing the daughter of the Chairman as its chief executive rather than professionalising management as we had expected. Hong Kong bus operator Kwoon Chung Bus did not divest non-core assets which they had led us to believe they would do. Taiwanese window blind manufacturer Nien Made is highly exposed to discretionary spending in the United States which is likely to be challenged in the coming periods. We sold Pak Suzuki Motor preferring to focus on Indus Motors which we believe to be the stronger of the Pakistani auto manufacturers. We expect further earnings downgrades for Singapore hospital operator Raffles Medical which has seen its Singapore revenues fall because of Covid-19 at the same time as it is incurring start-up losses in China. The company has a large exposure to healthcare tourism, which is likely to be hurt significantly in the coming periods. Taiwanese analogue integrated circuit designer Silergy's share price rose more quickly than its profits leading to expensive valuations. We concluded that Indian children's garment manufacturer SP Apparels did not have pricing power given its reliance on UK-based retailers who have had their own troubles. Indian mechanical automotive cable manufacturer Suprajit Engineering was sold because of the risks associated with businesses it acquired in Europe and the United States. Convenience store operator Taiwan Familymart's share price was strong over the period leading to expensive valuations. Traditional Chinese medicine company Tong Ren Tang Technologies has not seen the strength of its brand matched by strength of execution by management. Taiwanese networking equipment manufacturer Wistron NeWeb has had difficulty passing on increases in component prices to its customers and, at the same time, is facing the threat of larger companies entering its market. Korean image solution provider Vieworks will likely see even fiercer competition from Chinese competitors in the future.

Significant reductions from existing positions

We reduced Scottish Oriental's holdings in a number of companies following strong share price appreciation which saw their valuations rise. These companies included HeidelbergCement India; Indian information technology outsourcer Mphasis; Taiwanese cable and connector manufacturer Sinbon Electronics; and Taiwanese uninterruptible power supply maker Voltronic Power.

We reduced the Company's holdings in several companies following the emergence of Covid-19 as we believed the increased risks warranted smaller positions in the portfolio. The companies included Chinese online recruitment platform 51job; India's Great Eastern Shipping, an operator of offshore vessels, tankers and bulk carriers; Singapore conglomerate Haw Par Corporation; Chinese branded apparel retailer JNBY Design; and Indian information technology outsourcer Zensar Technologies.

We reduced Scottish Oriental's holdings in a number of companies where we have become less convinced at management's strategy. These companies included Malaysian auto component manufacturer APM Automotive; Sri Lanka's Hatton National Bank; and gas distributor Towngas China.

Purchased and subsequently sold

Five companies were purchased during the year and subsequently sold. All but one of these sales were as a result of the suddenly changed outlook following the rapid spread of Covid-19. Indian tractor manufacturer Escorts Limited was purchased on improving governance and operational improvements which have led to better profitability. The share price rose rapidly shortly thereafter and we sold Scottish Oriental's holding as its valuation had become expensive. Indian Hotels was purchased as a new management team sought to sell off non-core assets and improve profitability but the pandemic has impacted the company severely and will likely continue to do so for some time. IIFL Wealth Management was purchased for its leading position in India's growing wealth management industry. Unfortunately this is a sector that struggles in times of uncertainty. Jollibee Foods has a dominant position in the Philippine quick service restaurant sector but recent overseas acquisitions did not perform well, which created a buying opportunity. Unfortunately with business significantly down, it will find it very difficult to service the debt it took on to make these acquisitions. Indian finance company Mahindra & Mahindra Financial Services was purchased after a liquidity squeeze impacted a number of finance companies in India. We expected management to navigate that crisis with aplomb as its competition pulled back but Covid-19 has resulted in a much more difficult situation for the company.

Portfolio Quality

There has been a larger than usual amount of portfolio activity over the past year. In the main, companies that were purchased were larger and more liquid than those sold and these new additions typically generated higher returns on capital than those sold. The median market capitalisation of new holdings was US$2.1 billion compared to those sold at US$850 million. The median average value of shares traded in new holdings over the most recent six month period was US$6.3 million compared to US$1 million for those sold. And the median five year average return on capital employed of new holdings was 25 per cent compared to 12 per cent for those sold. We believe the end result is an even higher quality portfolio.

Ten Largest Equity Holdings at 31 August 2020

Company	Market	Sector	% of Shareholders' Funds
Godrej Industries	India	Materials	4.2
Godrej Industries is the listed holding company of the Godrej Group, one of India's most accomplished and diversified groups. The stake in Godrej Consumer Products, a leader in personal and home care, contributes the majority of its value. Godrej Consumer Products holds the number one positions in hair colour, household insecticides and liquid detergents and number two in soaps in India. The stake in Godrej Properties, the Group's listed real estate arm, is the next biggest contributor. Another investment is in the agricultural company, Godrej Agrovet, one of India's largest palm oil producers. Godrej Industries also operates a standalone chemicals business.
Colgate-Palmolive India	India	Consumer Staples	3.7
Colgate-Palmolive India is the listed subsidiary of Colgate Palmolive Company. It has operated in India since 1937, and its parent owns a 51 per cent stake in the company. Colgate has been the dominant market leader in the Indian oral care industry for decades. Its market share of toothpaste has increased from 49 per cent to 52 per cent over 10 years. Per capita consumption of toothpaste in India is less than half of the average of other developing countries. Colgate should benefit from higher per capita consumption and the shift towards premium oral care products. In recent years, the company has focused on gaining share in the fast growing "natural" segment of the industry. Its parent also has a large portfolio of personal care, home care and pet care products, which the company is likely to introduce in India as per capita incomes grow.
Century Pacific Foods	Philippines	Consumer Staples	3.7
Century Pacific Food is a leading branded producer of canned fish and meats in the Philippines and a significant manufacturer of canned tuna exports. It also has a small but growing dairy products division. The company listed in 2014, and was spun out of Century Canning Corporation, a privately-owned company founded by Ricardo S. Po in 1978. Christopher Po, son of the founder, joined as chief executive of Century Pacific after its listing (having starting his career outside of the family business) and took steps to revamp the company, with new business additions in coconut water, condiments and frozen meats. The family are heavily involved in the running of the company but their long term thinking is evident in terms of succession planning and in the desire to build a franchise that outlasts the family.
Selamat Sempurna	Indonesia	Consumer Discretionary	3.3
Selamat Sempurna grew from a small family run producer of automotive radiators to become a leading manufacturer of filter and radiator products based in Indonesia. It has an extensive product range, mainly under the flagship brands Sakura (filters) and ADR (radiators), and a majority of sales is derived from exports. As a testimony to its quality and expertise, the company has formed several joint ventures with well-known names such as Donaldson in the USA and POSCO in Korea. Growth will come from achieving further economies of scale and penetration into new export markets.
Philippine Seven	Philippines	Consumer Staples	3.2
Philippine Seven is the dominant convenience store operator in the Philippines, with the exclusive right to use the 7-Eleven brand. President Chain Store of Taiwan owns a majority stake. Management is led by its chief executive Victor Paterno who is from the second generation of the company's founding family and along with his family he owns a seven per cent stake in the company. Philippine Seven is the undisputed market leader in convenience stores resulting from its first mover advantage. It has approximately 3,000 stores which is a multiple of its next largest competitor. As the company has gained scale, its bargaining power with suppliers has increased. This has led to an improvement in its profitability and free cash flow generation. Increased cash generation is being used to fund an acceleration in its store network rollout, which should further strengthen its market position.
Nissin Foods	Hong Kong	Consumer Staples	3.1
Nissin Foods is the leading noodle brand in Hong Kong. It was founded in 1984 by its Japanese parent, Nissin Foods Holdings. It is led by its Chairman Kiyotoka Ando, from the third generation of the group's founding family. The company has a dominant franchise in Hong Kong, with over 60 per cent market share in noodles. Its operations in Hong Kong are growing modestly, as the company launches new products and increases its control over its distribution channels. It has a much larger growth opportunity in mainland China, where it has 20 per cent market share in the premium noodle segment. Nissin has built a strong brand in the mainland, based on its portfolio of healthier and higher quality products compared to its peers. Customer preferences are steadily shifting in favour of premium noodles and Nissin Foods is likely to be among the beneficiaries of this trend.
SKF India	India	Industrials	3.0
SKF India is the Indian subsidiary of the Sweden-based SKF Group, which is a global leader in bearings, seals, mechatronics and lubrication systems. The company is the largest bearing manufacturer in India, with a market share of more than 25 per cent. Its products are used in numerous segments, including the automotive industry, heavy industry, energy, industrial machinery, oil and gas, and food and beverage. SKF India's focus on quality and product innovation should see it continue to grow for the foreseeable future.

Emami Limited	India	Consumer Staples	2.7
Emami Limited is a leading fast moving consumer goods company in India. The founding Agarwal and Goenka families own 54 per cent of the company's shares, with its management team comprising family members as well as reputed professionals. The company has dominant market shares in several niche product categories, such as balms, antiseptic creams, hair oils and men's skincare products. It has focused on creating new product categories since an early stage in its development, investing significantly in advertising and promotion which typically accounts for 15 to 20 per cent of the company's sales. The result is strong brands with a loyal following. In recent years, the company's sales growth was relatively weak resulting from a consumer slowdown in India as well as some issues related to its distribution and brand management which the management team have now addressed.
Blue Star	India	Industrials	2.5
Blue Star was founded in 1943 in India as an agency for international air conditioning and refrigeration brands of global companies. It has since established its own portfolio of air conditioning and refrigeration products as well as being the exclusive distributor for several multinational brands in India. It has also entered into large air conditioning engineering, procurement and construction (EPC) projects which will grow with the industrialisation of the country. Family owned but professionally run, the company is set to benefit from both growing consumer demand and a developing Indian economy.
Mphasis	India	Technology	2.5
Mphasis was formed in June 2000 by the merger of the US-based information technology consulting company Mphasis Corporation and the Indian information technology services company BFL Software Limited. Its former controlling shareholder, Hewlett-Packard (now DXC Technology), sold its stake to private equity firm Blackstone in 2016. Its new owner installed a new management team and since then growth has been strong and the company no longer relies on DXC Technology for the bulk of its work.

Sector Allocation at 31 August 2020

Sector	2020 %	2019 %
Consumer Staples	27.2	15.9
Consumer Discretionary	23.8	22.2
Materials	13.6	4.3
Industrials	10.9	14.5
Technology	6.0	10.3
Financials	4.5	5.9
Real Estate	3.5	3.3
Healthcare	1.4	6.0
Utilities	0.8	5.5
Communication Services	0.7	2.5
	92.4	90.4
Net current assets	7.6	9.6
Net assets	100.0	100.0

Investment Process

We are conviction-based, bottom-up stock selectors with a strong emphasis on high quality proprietary research. 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 Scottish Oriental's portfolio. Country weightings bear no relationship to regional stock market indices and we do not consider ourselves obliged to hold investments in any individual market, sector or company. As a result, the Company's asset allocation on a country and industry level is a residual of our stock selection process. 

Having spoken to almost all of the management teams of Scottish Oriental's holdings over the last six months we are pleased that most are in good shape despite the pandemic. In many cases the crisis provided us with an attractive opportunity to add to some of our favourite companies. The sell down also provided us with the opportunity to buy a large number of new companies at attractive prices although such opportunities were short-lived given the speed of the rebound. A number of these purchases were larger companies which briefly qualified for Scottish Oriental's investment remit. A larger number of companies than we would expect were sold during the year. The two main drivers of these sales were where a company's position had fundamentally changed as a result of Covid-19 and where our ongoing reviews of management and franchises led us to conclude the investment rationale had weakened. Some of these sales have been in process for an extended period of time with declining liquidity in very small companies making it challenging to exit. We have become increasingly cautious on liquidity as, often it can be relatively easy to build a position in a small company, but much more difficult to sell.

We tend to be careful when buying a new stock for Scottish Oriental, typically starting with a small holding. This holding can give us improved access to management and we will increase the Company's exposure as our conviction builds. If this improved access does not result in stronger conviction we will sell. This can result in increased transaction activity. Such levels of activity are much rarer in the Company's top ten holdings where we have our maximum conviction. Only one of last year's top ten largest positions is no longer owned by the Company being Gujarat Gas, which ended the period with a share price notably higher than it was at the beginning. And only one of this year's top ten positions is new to the Company being Emami Limited. This is because its share price has risen significantly since we bought it making it a large position quickly. Our increased conviction in Scottish Oriental's largest holdings can be evidenced by their total weighting. As at the end of the period, the top ten holdings represented 32 per cent of Scottish Oriental's net assets compared to 30 per cent for the top ten holdings one year ago and 25 per cent three years ago. The top 20 holdings show a similar pattern representing 53 per cent at the end of the period compared to 50 per cent one year ago and 44 per cent three years ago. The portfolio has become increasingly focused on companies where we have higher conviction with these companies generating higher returns on capital and having improved liquidity.

At the start of the year, a global pandemic was not a risk that we were considering. It has caught us, and the management teams of Scottish Oriental's holdings, by surprise. When we invest we always pay heed to balance sheet strength and a key part of our investment process is to ask what might go wrong as well as what might go right. We cannot think of everything that might go wrong and spend little time forecasting earnings as we have found it to be a fruitless exercise over the years. Instead we prefer to focus on identifying franchises that are strong enough to survive all eventualities and management teams who can skilfully navigate changing conditions. However, a number of Scottish Oriental's portfolio holdings have been put in a very difficult position by the pandemic. Some of these companies were purchased at what we believed to be attractive valuations while they dealt with other underlying issues such as too much debt or an existing economic slowdown. In some of these cases the additional stress placed on these businesses has been too much and regretfully we chose to sell in these situations. It is always painful to make mistakes and realise we have lost capital but it is often in such turnaround situations where outsized returns can be made.

An example of a company where we see significant improvements over the coming years is Emami Limited. The company has spent decades building its brands but in recent years lost its way with key errors in brand management and distribution. This may well have been because the controlling families had been distracted by their personal debt which was taken on to invest in other businesses such as real estate, cement and hospitals. The families were required to pledge the majority of their shares in Emami to secure funds which is a situation we are never happy with. But recently, the family has made significant efforts to reduce their personal debt and remove the lien on their shares. The sale of their cement business has reduced their pledge by half, and further asset sales are likely to remove the pledge completely. This both reduces the risk of a sale of shares by the family to meet their debt obligations and has allowed the family to refocus on Emami. In terms of brand management and distribution, management have made several changes in these areas, which we expect to lead to an improvement in growth and higher profitability. The controlling families have hired high quality professional managers, including a head of sales from Hershey's, and a head of the healthcare division from Dabur India. The distribution infrastructure has been overhauled by reducing its share of the wholesale segment, which has been under pressure, and investing to increase its share of the faster growing modern trade and e-commerce segments. Following the Covid-19 disruption, as consumer spending shifted towards the health and hygiene segments, the company has also launched several new products in these segments (sanitisers, soaps, hand-washes) and is planning to enter new categories such as homecare. There has also been a company-wide cost reduction exercise, with the help of a management consulting firm, which should improve profitability meaningfully. 

Understanding the intentions of a controlling family is very important for us. We wish to be aligned with a controlling shareholder as, if we are not, there is very limited potential for us to effect changes and we become hostages rather than partners. Therefore we are much more likely to invest Scottish Oriental's capital into a company where we have good access to management and the controlling shareholder and they are happy to share their thoughts with us as well as soliciting our views. One such company is Godrej Industries. It is the holding company for the Godrej family's interests in Godrej Consumer Products, Godrej Properties and Godrej Agrovet which are all separately listed. Normally we are very wary of holding companies as they tend to exist to perpetuate a controlling shareholder's interests, often at the expense of minority shareholders. This is not the case with the Godrej family. The structure is a legacy and is not something the family are committed to. They have looked at unwinding it but there are serious tax consequences. The situation isn't perfect but is understandable. The family have been very open in their thinking and frequently meet with us and other investors. They also make available senior managers within the group which gives us further conviction in both the quality of the family and their businesses. Godrej Consumer Products which represents about half of the value of Godrej Industries has not performed as well as it could have done over the last few years. However the openness of its chief executive Nisa Godrej and her management team and the changes they have made to address these disappointments gives us faith. The discount that Godrej Industries trades on compared to the value of its underlying holdings has increased in recent years and is now close to 60 per cent. This concerns the family but is an opportunity for Scottish Oriental to invest in a portfolio of strong businesses alongside the Godrej family at a very attractive valuation. And we trust the Godrej family to do the right thing.

Doing the right thing is important in business, even if it costs in the short term. Last year we purchased Philippine Seven for Scottish Oriental. We continued to build up the position this year and it is now a top ten holding. We have been very impressed as the company uses its leadership position to scale up new products such as fried chicken, premium fresh coffee and other takeaway food and beverage offerings as well as remittance and bill payment services. As the exclusive operator of 7-Eleven in the Philippines, the company was heavily impacted by the country's strict lockdown with many of its stores shut and others limited to restricted opening hours. Management responded quickly cutting costs where they could, increasing the company's available credit lines and seeking to renegotiate rents. The majority of Philippine Seven's stores operate as franchises and it is telling that management also helped renegotiate rents on behalf of its franchisees. In addition the company made available a memorable 711 million pesos in interest free loans to support its franchisees, many of whom have been struggling. Once a franchisee can afford to, they can make repayments monthly. If the franchisee decides they no longer wish to continue operating their 7-Eleven franchise then any outstanding loans will be waived. This is generous and will undoubtedly cost the company in the short term but should not be without long term gain. Management have ambitious store opening targets and want the bulk of new stores to be run as franchises. Offering such support now shows that franchisees are true partners of the company helping to build future success.

Outlook

It is no understatement to say that the outlook is cloudier than it has been at any time we can remember. The economic impact of the coronavirus pandemic has been acute. The numerous lockdowns that were introduced to try and contain it have stifled economies. Even without these lockdowns, consumers' behaviour would have changed. There has been a massive dislocation and there is no knowing how long this will last. Many Asian countries have largely contained the pandemic yet have still suffered severely. North Asia's wealthier, more industrialised economies have performed better than those in South and South East Asia, partly because of better containment of the virus, partly because their economies are more export focused with manufacturing less impacted than consumption, and partly because their wealthier governments have more tools at their disposal. The domestic focused economies of India, Indonesia and the Philippines where we have invested most of Scottish Oriental's capital have suffered much sharper contractions and this has been reflected in corporate earnings and share prices. Expectations are for equally sharp rebounds in these economies as normality returns but, even if this is the case, there may be some bad scarring. Asia's central bankers have followed their counterparts in the West and Japan in cutting interest rates with further cuts forecast. Should economies rebound there will be a large disconnect between interest rates and growth that would normally be expected to lead to inflation but there is a near universal consensus that inflation is not a worry. This worries us. Things that are not expected to happen tend to lead to bad outcomes if they do happen.

Despite the pandemic's impact, India, Indonesia and the Philippines continue to represent the bulk of Scottish Oriental's investment ideas. The countries' attractive demographics and burgeoning middle classes provide an opportunity to invest in small companies that are leaders in these respective markets which have decades of structural growth ahead of them. We cannot forecast when a rebound in demand will happen but we are confident that consumption will return and restaurants will again be busy in these countries. Max's Group has not been a successful investment for the Company so far. We built up the position as we were impressed at the controlling families' willingness to professionalise management with the appointment of Ariel Fermin as chief operating officer. There were a number of changes that needed to be made with too many formats and a lack of central sourcing leading to inefficiencies and it was easier for an outsider to identify these issues. On speaking to members of the controlling families and management it became apparent that despite his chief operating officer title, Ariel Fermin is de facto chief executive and is fully empowered to make all changes he sees fit. The disruption caused by the lockdown in the Philippines has impacted Max's heavily with revenues in the second quarter of 2020 falling by more than 70 per cent compared to the same period in 2019 and the company booked a large loss for this period. Management have responded by cutting costs, enhancing takeout and delivery offerings and shutting some weaker stores permanently. When the Philippines recovers, Max's will be very well positioned to take advantage with its leaner cost structure and greater focus on its core brands. The market value of Max's is now not much more than US$ 100 million. It operates almost 750 restaurants, the majority directly owned with the rest franchised. Its average restaurant generates more than US$ 500,000 of revenues yet the current stock market valuation ascribes less than US$ 200,000 for each directly owned restaurant and less than US$ 100,000 for each franchised restaurant. Should earnings return to prior levels, Max's will be on a price to earnings ratio of six times. However we expect profitability to improve with the operational changes made and there is still plenty scope for growth. We cannot forecast when things will get better but there is significant upside when they do. It seems unlikely to us that eating out will not be popular again as humans are by their nature a social creature. As a species we are impatient but patience is important when investing. We believe, if we are patient, Max's will generate strong returns for the Company over the coming years.

Another restaurant company that has performed poorly for Scottish Oriental this year has been Sarimelati Kencana. With more than 500 Pizza Hut outlets in Indonesia and by far the dominant operator in the country, the company's restaurants were impacted by declining confidence and various local lockdowns. However, approximately half of its outlets are exclusively for delivery and delivery sales increased significantly during the period. As a result, in the second quarter of 2020 revenues fell by only 17 per cent and the company still generated a profit albeit a very modest one. 2020 profits will be significantly down on last year's. But the demand for eating out has not gone away and comparing the current share price with 2019's profits shows Srimelati Kencana as being on a "normalised" price to earnings ratio of less than 10 times. The growth in pizza delivery may not have cannibalised dine-in as they serve two different purposes. Therefore as life returns to normal, the crisis may well turn out to have accelerated Sarimelati Kencana's growth by drawing customers' attention to its delivery operations. To give an indication of the potential, Domino's Pizza, the leader in the UK delivery market, has more than 1,000 outlets serving a population that is only one quarter of Indonesia's population. Sarimelati Kencana is now valued at only 0.5 times its revenues compared to Domino's in the UK at 4 times revenues and Domino's Indian franchisee on 9 times revenues. We believe that Sarimelati Kencana should prosper even if Indonesians never venture out to restaurants again. This seems unlikely and we expect its restaurants to be as busy as its delivery operations once confidence returns. We do not know if this will take months or years but the return available is well worth waiting for.

Another industry that has seen a temporary setback has been air conditioners. Scottish Oriental owns the leading manufacturers in India (Voltas and Blue Star) and also the Philippines (Concepcion Industrial). Unfortunately both countries went into lockdown during the peak sales period leading into summer and all three companies saw revenues in the second quarter of 2020 more than halve from the same period the prior year. We do not believe that demand for air conditioning in either country has been reduced. Annual air conditioner sales in India are approximately five million for a population of 1.38 billion, compared to approximately 45 million in China for a similar population size. In the Philippines, annual sales of air conditioners are less than one million for a population of 110 million. Although India and the Philippines both have lower levels of per capita income than China, our analysis of demand trends across emerging markets suggests that per capita incomes in both India and Philippines are nearing levels at which demand for discretionary products such as air conditioners typically accelerates. Therefore we expect revenues for all three companies to resume growth in due course. One other observation worth highlighting is when compared to share prices at the end of February i.e. before fear of the coronavirus took hold, Voltas' share price has almost recovered, and Blue Star's share price is well on its way to recovering, whereas Concepcion's share price is still down significantly. The relative competitive positions of these companies are unchanged yet share price performance has been very different. Voltas' market capitalisation is a multiple of Blue Star's which is a multiple of Concepcion Industrial's. And the difference in the value of shares traded in each company is even more exacerbated. Therefore we believe the biggest driver of share price performance here has been liquidity rather than fundamentals. This is reflective of what we are seeing in stock markets everywhere. Money printing has driven flows into stock markets. These flows are directed towards larger more liquid companies. We believe that fundamentals will be reflected in time with patience rewarded as the Company's quality companies grow and produce outsized returns for shareholders. This was the case for Scottish Oriental's portfolio after both the Asian Financial Crisis and the Global Financial Crisis and we expect this pattern to repeat.

The Company's portfolio trades on a historic price earnings ratio of 20 times, with an expected earnings decline of 11 per cent in the current year. On these metrics, the Company's portfolio is as expensive as it has ever been. Earnings growth for the following year is forecast at 28 per cent which would take the portfolio back to a more reasonable valuation. Forecasting earnings is not our strength, particularly in times as uncertain as these. We do not know which way markets will go next and are comfortable with Scottish Oriental holding eight per cent cash meaning the portfolio is 92 per cent invested and should capture most upside if markets continue to rally. If markets fall again we will look to deploy this cash into our favourite companies. We have also been using the Company's cash to buy back shares in Scottish Oriental, effectively adding to the entire portfolio on behalf of shareholders.

Vinay Agarwal

Scott McNab

First State Investment Management (UK) Limited, Investment Manager

30 October 2020

 

Ten Year Record

Capital

Year ended 31 August	Market Capitalisation £m	Shareholders' Funds £m	NAV p	Share Price p	Discount to NAV %
2011	181.28	186.89	618.56	600.00	3.0
2012	182.19	201.60	667.26	603.00	9.6
2013	232.19	253.63	801.53	733.75	8.5
2014	268.65	283.82	896.93	849.00	5.3
2015	227.39	257.18	816.57	722.00	11.6
2016	280.65	324.82	1,047.12	904.75	13.6
2017	330.19	369.26	1,192.68	1,066.50	10.6
2018	304.71	345.40	1,156.20	1,020.00	11.8
2019	301.73	346.06	1,158.42	1,010.00	12.8
2020	249.73	289.45	992.14	856.00	13.7

Revenue

Year ended 31 August	Gross Revenue £000	Available for ordinary shareholders £000	Earnings per share* p	Dividend per share (net) p	Ongoing charges† %	Ongoing charges incl. perf. fee %	Actual gearing ‡	Potential gearing Ω
2011	5,726	3,443	11.39	9.00	1.01	2.29	95	111
2012	7,073	4,348	14.39	11.00	1.01	1.96	97	110
2013	7,903	4,518	14.56	11.50	1.03	1.73	88	108
2014	6,339	3,035	9.59	11.50	1.03	1.36	93	107
2015	8,716	4,929	15.58	11.50	1.01	1.05	95	108
2016	6,740	2,966	9.50	11.50	1.04	1.04	92	106
2017	6,431	2,097	6.77	11.50	0.99	0.99	91	100
2018	7,004	2,825	9.19	11.50	1.01	1.01	94	100
2019	7,648	3,734	12.50	11.50	1.01	1.01	88	100
2020	6,308	2,439	8.19	11.50	1.03	1.03	92	100

* 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.

† Management fee and all other operating expenses, excluding interest, expressed as a percentage of the average daily net assets during the year (2011: expressed as a percentage of the average month end net assets during the year).

‡ Total assets less current liabilities and all cash and fixed interest securities (excluding convertibles) divided by shareholders' funds.

Ω Total assets less current liabilities divided by shareholders' funds.

Cumulative Performance (taking year ended 31 August 2010 as 100)

Year ended 31 August	NAV	Share price	MSCI AC Asia ex Japan Index	FTSE All- Share Index	Earnings per share	Dividend per share
2010	100	100	100	100	100	100
2011	111	124	101	104	108	106
2012	120	125	98	110	136	129
2013	144	152	105	126	138	135
2014	162	176	116	135	91	135
2015	147	149	103	127	147	135
2016	189	187	133	137	90	135
2017	215	221	165	151	64	135
2018	208	211	164	152	87	135
2019	209	209	160	147	118	135
2020	179	177	173	124	77	135

Strategic Report

The purpose of this report is to provide shareholders with details of the Company's strategy and business model as well as the principal and emerging risks and challenges the Company has faced during the year under review. It should be read in conjunction with the Chairman's Statement and the Portfolio Managers' Report which provide a review of the Company's investment activity and a look to the future.

The Board is responsible for the stewardship of the Company, including overall strategy, investment policy, borrowings, dividends, corporate governance procedures and risk management. Biographies of the directors can be found on page 24 of the Annual Report.

The Board assesses its performance in meeting the Company's objectives against the following Key

Performance Indicators, details of which can be found in the Financial Highlights, Ten Year Record,

Chairman's Statement and Portfolio Managers' Report:

· the movement in net asset value per ordinary share on a total return basis;

· the movement in the share price on a total return basis;

· the discount; and

· ongoing charges.

Business and Status

The Company is an investment company within the meaning of section 833 of the Companies Act 2006.

The Company carries on the business of an investment trust. The Company has been approved as an investment trust by HM Revenue and Customs subject to the Company continuing to meet eligibility conditions. The Company intends to conduct its affairs so as to enable it to comply with the ongoing requirements.

Business Model and Strategy for Achieving Objectives

· 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 Company's portfolio of investments is contained in the country allocation and sector allocation analysis within the Portfolio Managers' Report.

· 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 are not determined by reference to regional stock market indices. We do not consider ourselves obliged to hold investments in any individual market, sector or company.

· Existing holdings are carefully 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 Investment Region and on meeting the management of those companies in which the Company is invested, or might invest.

Purpose and values

Purpose

To achieve long-term capital growth by investment in mainly smaller Asian quoted companies.

Values

Independence: to act independently in the interests of shareholders.

Sustainability: to ensure that the companies in which the company invests are supportive of good environmental, social and governance practices and that the manager encourages continuous improvement in these areas.

Transparency: to report transparently and accurately to shareholders on the condition, performance and prospects of the company.

Culture

The Board considers that its culture of open debate combined with strong governance and the benefits of a diverse board is central to delivering its purpose, values and strategy.

Investment Objective

· The Scottish Oriental Smaller Companies Trust plc aims to achieve long-term capital growth by investing in mainly smaller Asian quoted companies.

Investment Policy

· The Company invests mainly in the shares of smaller Asian quoted companies, that is, companies with market capitalisations of below US$3,000m, or the equivalent thereof, at the time of first investment.

· The Company may also invest in companies with market capitalisations of between US$3,000m and US$5,000m at the time of first investment, although not more than 20 per cent of the Company's net assets at the time of investment will be invested in such companies.

· To enable the Company 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, Hong Kong, India, Indonesia, Malaysia, Pakistan, Philippines, Singapore, South Korea, Sri Lanka, Taiwan, Thailand 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 Company will consider the use of long-term borrowings up to a limit of 50 per cent of the net assets of the Company at the time of borrowing.

· The Company invests no more than 15 per cent of its total assets in other listed investment companies (including listed investment trusts).

· The Company invests no more than 15 per cent of its total assets in the securities of any one company or group of companies at the time of investment.

· The Company 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 Company may invest in debt instruments in any country or currency.

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

A portfolio review by the Investment Manager is provided above and the investments held at the year end are listed on pages 21 and 22 of the Annual Report.

Investment Manager

First State Investment Management (UK) Limited has been Investment Manager since 20 March 1995. In order to comply with the Alternative Investment Fund Managers Directive, with effect from 2 July 2014 the Company terminated its investment management agreement with First State Investment Management (UK) Limited and appointed First State Investments (UK) Limited as its Alternative Investment Fund Manager ("AIFM"). First State Investments (UK) Limited delegated portfolio management services to First State Investment Management (UK) Limited.

A summary of the terms of the Investment Management Agreement is contained in note 2 of the Accounts on page 63 of the Annual Report.

The Board regularly appraises the performance and effectiveness of the investment management arrangements of the Company. As part of this process, such arrangements are reviewed formally once a year by the Management Engagement Committee. In relation to the Management Engagement Committee's formal review, the performance and effectiveness of such arrangements are measured against certain criteria. These include the Company's growth and return; performance against the Company's peer group; the success of the Company's investment strategy; the effectiveness, quality and standard of investment resource dedicated by the Investment Manager to the Company; and the level of the Investment Manager's fee in comparison to its peer group.

The Management Engagement Committee, having conducted its review, considers that the Investment Manager's continued appointment as investment manager to the Company is in the best interests of shareholders.

Responsible Investing

The Investment Manager takes a strategic approach to responsible investing and stewardship, focused on quality investment processes, a culture of stewardship across the organisation and engaging all employees in responsible investing. The team believe that environmental, social and governance ("ESG") issues comprise sources of long-term risk and return and can therefore impact long-term investment value. The team also believe that, as stewards of shareholders' funds, they can achieve better long-term investment outcomes through active company engagement and by exercising the equity ownership rights they hold on behalf of shareholders.

The Investment Manager is a signatory to the UK Stewardship Code and has maintained the highest tiering - Tier 1 - awarded by the Financial Reporting Council for the quality of stewardship related activities and disclosures. The Investment Manager is also a signatory to the Principles for Responsible Investment, achieving in its most recent assessment 7 A+ ratings and 1 A rating for the 8 areas of assessment, and it is fully compliant with the CFA Institute's Code of Ethics and Standards of Professional Conduct for asset managers.

Principal Risks and Uncertainties

The Board has carried out a careful assessment of the principal and emerging risks facing the Company, including the unprecedented situation surrounding the Covid-19 pandemic. The Board acknowledges that there are a number of related emerging risks resulting from the pandemic that may impact the Company. These include investment risks surrounding the companies in the portfolio such as reduced demand, reduced turnover and supply chain breakdowns. The Board continues to work with the Investment Manager, PATAC and its other advisers to manage these risks as far as possible in these uncertain times.

The principal and emerging risks and uncertainties facing the Company, together with a summary of the mitigating action the Board takes to manage these risks, are set out below.

Risk	Mitigation
Investment objective and strategy The Board is responsible for setting the investment objective and strategy of the Company. An inappropriate or unattractive objective and strategy may have an adverse effect on Shareholder returns or cause a reduction in demand for the Company's shares, both of which could lead to a widening discount.	The Board conduct an annual strategy review and consider investment performance, shareholder views and developments in the marketplace as well as emerging risks which could impact the Company. The Board reviews changes to the shareholder register at quarterly Board meetings and engages the Administrator to continually monitor the discount at which the Company's shares trade, reporting regularly to the Board and buying back shares when appropriate.
Investment performance The Board is responsible for monitoring investment performance. Poor investment performance may have an adverse effect on Shareholder returns.	The Board reviews investment performance at each quarterly Board meeting. The Investment Manager reports on the Company's performance, transaction activity, individual holdings, portfolio characteristics and outlook. Investment performance and the portfolio composition has been monitored specifically in light of the Covid-19 pandemic. The Investment Manager is formally appraised at least annually by the Management Engagement Committee.
Financial and Economic The Company's investments are impacted by financial and economic factors including market prices, interest rates, foreign exchange rates, liquidity and credit which could cause losses to the investment portfolio.	The Board regularly reviews and agrees policies for managing market price risk, interest rate risk, foreign currency risk, liquidity risk and credit risk. These are explained in detail in note 13 to the financial statements on pages 68 to 71 of the Annual Report.
Operational The Company is reliant on third party service providers including FSSA Investment Managers as Investment Manager, PATAC as Company Secretary and Administrator, J P Morgan as Depositary and Custodian and Computershare are Registrar. Failure of the internal control systems of these third parties could result in inaccurate information being reported or risk to the Company's assets.	Operationally, Covid-19 is affecting each of the Company's key service providers and each has put in place the appropriate arrangements for their staff to work from home. To date these services have continued without disruption and the operational arrangements have proven adequate. The Board will continue to monitor these arrangements. The Audit Committee formally reviews each service provider at least annually, considering their reports on internal controls. Further details of the Company's internal control and risk management system is provided on page 38 of the Annual Report.
Regulatory The Company operates in a regulatory environment. Failure to comply with s1158 of the Corporation Tax Act 2010 could result in the Company losing investment trust status and being subject to tax on capital gains.  Failure to comply with other regulations could result in financial penalties or the suspension of the Company's listing on the London Stock Exchange.	Compliance with relevant regulations is monitored on an ongoing basis by the Company Secretary and Investment Manager who report regularly to the Board. The Board monitors changes in the regulatory environment and receives updates from the Company Secretary, Lawyers and Auditors as relevant. The Board has been updated on any regulatory changes proposed in respect of the response to the Covid-19 pandemic as required.

Duty to Promote the Success of the Company

The Directors have a duty to promote the success of the Company for the benefit of its shareholders as a whole. The Directors are required to include a report explaining how they have discharged their duties under Section 172(1) of the Companies Act 2006 and how they have considered the views of the Company's key stakeholders in regard to any key decisions taken. The report includes specific matters the Board has considered during the Covid-19 pandemic. The Company being an investment trust, the key stakeholders comprise its shareholders, the Investment Manager and its third-party service providers (including the Company Secretary and Administrator, the Registrar, the Depositary and the Custodian).

The Board welcomes the views of shareholders and places considerable importance on communications with them. The Investment Manager reports back to the Board on meetings with shareholders and the Chairman and other Directors are available to meet shareholders if required. The Annual General Meeting of the Company and presentations held in London in the normal course provide a forum, both formal and informal, for shareholders to meet and discuss issues with the Board.

The Company's primary business relationships are with its Investment Manager and AIFM, First State Investments (UK) Limited, and its Company Secretary and Administrator, PATAC. First State are specialists in Asia Pacific and Global Emerging Markets equity strategies with a team of dedicated investment professionals based in Hong Kong, Singapore and Edinburgh. They are bottom-up investors, using fundamental research and analysis to construct high-conviction portfolios. First Sate conduct more than a thousand direct company meetings a year, seeking to identify high quality companies that they can invest in for the long term. As responsible, long-term shareholders, First State engage extensively on environmental, labour and governance issues and are signatories to the UN Principles for Responsible Investment. They also support social impact initiatives across the Asia region through the strategic philanthropic work of Manan Trust.

PATAC provides Company Secretarial and Administration services to the Company. PATAC also seeks to maintain constructive relationships with the Company's other third-party suppliers, for example the Registrar, the Depositary and the Custodian, on behalf of the Board typically through regular communication and provision of information.

Since the emergence of the Covid-19 pandemic the Directors have had increased interaction with the Investment Manager and PATAC to ensure the continued operation of the Company and its portfolio for the benefit of its key stakeholders in uncertain circumstances. To date the Company has continued to function without disruption.

The Board continued to monitor the discount levels at which the Company's shares traded to its net asset value, and in the year bought back 699,754 shares to be held in Treasury. The Board also undertook a review of the new AIC Code and established a separate Management Engagement Committee to better reflect its obligations under the Code. A decision was also taken during to the year to appoint Michelle Paisley to the Board, please refer to page 46 of the Annual Report for further details.

Social, Community and Human Rights Issues

The Board undertakes an annual review of environmental, social and governance factors in the context of the investment portfolio, considering the Investment Manager's approach to the responsible investment of shareholders' funds.

The Company has given discretionary voting powers to the Investment Manager. The Board supports the integration by the Investment Manager of environmental, social and governance issues in its investment decision making. In the Investment Manager's view, this assists the sustainable performance of the Company.

The Board and Outlook

The Company has five Directors. Two are women and three are men. The Company has no employees.

The Chairman provides an outlook for the Company in his statement above.

On behalf of the Board

PATAC Limited

Company Secretary

30 October 2020

 

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Annual Report in accordance with applicable law and regulations.

Company law requires the Directors to prepare accounts for each financial year.

Under that law the Directors have elected to prepare the Accounts in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law), including FRS102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland". Under company law the Directors must not approve the Accounts unless they are satisfied that they give a true and fair view of the assets, liabilities, financial position and the profit or loss of the Company for that period. In preparing these Accounts, the Directors are required to:

· select suitable accounting policies and then apply them consistently;

· make judgments and accounting estimates that are reasonable and prudent; and

· state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the Accounts.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the Accounts and the Remuneration Report comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence 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 Directors consider that the Annual Report and Accounts, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's position and performance, business model and strategy. In reaching this conclusion, the Directors have assumed that the reader of the Annual Report and Accounts has a reasonable level of knowledge of the investment industry.

The Accounts are published on the Company's website www.scottishoriental.com which is maintained by the Investment Manager. 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 auditor does not involve consideration of the maintenance and integrity of this website and, accordingly, the auditor accepts no responsibility for any changes that may have occurred to the Accounts 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 accounts may differ from legislation in other jurisdictions.

Each of the Directors confirms that to the best of his or her knowledge:

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

· the Strategic Report and the Directors' 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 and emerging risks and uncertainties that the Company faces.

By order of the Board

James Ferguson

Chairman

30 October 2020

 

Income Statement for the year ended 31 August 2020 (audited)

  2020         2019

	Revenue £'000	Capital £'000	Total* £'000	Revenue £'000	Capital £'000	Total* £'000
Losses on investments [Note 7]	-	(45,575)	(45,575)	-	(649)	(649)
Income from investments [Note 1]	6,273	-	6,273	7,544	-	7,544
Other income [Note 1]	35	-	35	104	-	104
Investment management fee [Note 2]	(2,301)	-	(2,301)	(2,544)	-	(2,544)
Currency (losses)/gains	-	(4,002)	(4,002)	-	1,252	1,252
Other administrative expenses [Note 3]	(867)	-	(867)	(824)	-	(824)
Net return on ordinary activities before taxation	3,140	(49,577)	(46,437)	4,280	603	4,883
Tax on ordinary activities [Note 4]	(701)	(256)	(957)	(546)	(238)	(784)
Net return attributable to equity shareholders	2,439	(49,833)	(47,394)	3,734	365	4,099
Net return per ordinary share [Note 6]	8.19p	(167.34)p	(159.15)p	12.50p	1.22p	13.72p

* The total column of this statement is the Profit & Loss Account of the Company. The revenue and capital columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies.

There are no items of other comprehensive income, therefore this statement is the single statement of comprehensive income of the Company.

The Board is proposing a dividend of 11.50p per share for the year ended 31 August 2020 (2019: 11.50p per share) which, if approved, will be payable on 15 January 2021 to shareholders recorded on the Company's shareholder register on 4 December 2020.

The accounting policies and the notes on the Accounts can be found below.

All revenue and capital items derive from continuing operations.

 

Summary Statement of Financial Position as at 31 August 2020 (audited)

	2020			2019
	£'000	£'000	£'000		£'000
INVESTMENTS HELD AT FAIR VALUE THROUGH PROFIT OR LOSS [Note 7]		267,326			312,736
CURRENT ASSETS
Debtors [Note 8]	1,044		8,483
Cash and deposits	22,459		40,949
	23,503		49,432
CURRENT LIABILITIES (due within one year)
Creditors [Note 9]	(1,381)		(16,104)
	(1,381)		(16,104)
Net Current Assets		22,122			33,328
Total Assets less Current Liabilities		289,448			346,064
CAPITAL AND RESERVES
Ordinary share capital [Note 10]		7,853			7,853
Share premium account		34,259			34,259
Capital redemption reserve		58			58
Capital reserve		240,134			295,754
Revenue reserve		7,144			8,140
Total Equity Shareholders' Funds		289,448			346,064
Net asset value per share[Note 11]		992.14p			1,158.42p

 

 The accounting policies and the notes to the Accounts can be found below.

 

Summary Cash Flow Statement for the year ended 31 August 2020 (audited)

		2020	2019
		£'000	£'000
Net cash outflow from operations before dividends, interest, purchases and sales [Note 12]		(3,239)	(3,418)
Dividends received from investments		6,332	7,720
Interest received from deposits		35	104
Purchases of investments		(169,109)	(92,436)
Sales of investments		161,576	112,925
Cash from operations		(4,405)	24,895
Taxation		(957)	(808)
Net cash (outflow)/inflow from operating activities		(5,362)	24,087
Financing activities Equity dividend paid		(3,435)	(3,435)
Buyback of ordinary shares		(5,691)	(1)
Net cash outflow from financing activities		(9,126)	(3,436)
(Decrease)/Increase in cash and cash equivalents		(14,488)	20,651
Cash and cash equivalents at the start of the period		40,949	19,046
Effect of currency (losses)/gains		(4,002)	1,252
Cash and cash equivalents at the end of the period*		22,459	40,949
*Cash and cash equivalents represents cash at bank

 

	Statement of Changes in Equity (audited)
	For the year ended 31 August 2020
		Ordinary Share capital	Share premium account	Capital redemption reserve	Capital reserve	Revenue reserve	Total
		£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 August 2019		7,853	34,259	58	295,754	8,140	346,064
Total comprehensive income:
Return for the year		-	-	-	(49,833)	2,439	(47,394)
Transactions with owners recognised directly in equity:
Buyback of Ordinary shares		-	-	-	(5,787)	-	(5,787)
Dividend paid in the year†		-	-	-	-	(3,435)	(3,435)
Balance at 31 August 2020		7,853	34,259	58	240,134	7,144	289,448
See note 5

	Statement of Changes in Equity (audited)
	For the year ended 31 August 2019
		Ordinary Share capital	Share premium account	Capital redemption reserve	Capital reserve	Revenue reserve	Total
		£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 August 2018		7,853	34,259	58	295,389	7,841	345,400
Total comprehensive income:
Return for the year		-	-	-	365	3,734	4,099
Transactions with owners recognised directly in equity:
Dividend paid in the year†		-	-	-	-	(3,435)	(3,435)
Balance at 31 August 2019		7,853	34,259	58	295,754	8,140	346,064
† See note 5

Accounting Policies

Basis of accounting

(a)  The Scottish Oriental Smaller Companies Trust plc is a public company limited by shares, incorporated and domiciled in Scotland, and carries on business as an investment trust.  Details of the Company's registered office can be found on the inside back cover of the Annual Report.

These Accounts have been prepared under the historical cost convention (modified to include the revaluation of fixed asset investments which are recorded at fair value) and in accordance with the Companies Act 2006, UK Generally Accepted Accounting Practice (''UK GAAP''), including FRS 102, and the Statement of Recommended Practice ''Financial Statements of Investment Trust Companies and Venture Capital Trusts'' issued in October 2019 (the ''SORP'').  The Directors considered the impact of the Covid-19 pandemic and the impact this may have on the Company, in particular noting that, in addition to its net current assets, the Company holds a portfolio of largely liquid assets that, if required, can be sold to maintain adequate cash balances to meet expected cash flows. The Directors are satisfied that the contingency plans and working arrangements of the key service providers are sustainable. Therefore, the going concern basis has been adopted in preparing the Company's Financial Statements

In order to better reflect the activities of the Company and in accordance with guidance issued by the AIC, supplementary information which analyses the Profit and Loss Account between items of revenue and capital nature has been presented in the Income Statement.

The Accounts have also been prepared on the assumption that approval as an investment trust will continue to be granted.

The functional and reporting currency of the Company is pounds sterling as this is the currency of the Company's share capital and the currency in which most of its shareholders operate.

Income

(b)  Dividends on securities are recognised on the date on which the security is quoted "ex dividend'' on the stock exchange in the country in which the security is listed. Foreign dividends include any withholding taxes payable to the tax authorities. Where a scrip dividend is taken in lieu of cash dividends, the net amount of the cash dividend declared is credited to the revenue account. Any excess in the value of shares received over the amount of cash dividend foregone is recognised as capital. Special dividends are credited to revenue or capital based on the nature of the dividend.

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

(d)  Bank interest receivable is accounted for on an accruals basis and taken to revenue.

Expenses

(e)  Expenses are accounted for on an accruals basis and are charged through the revenue column of the Income Statement.

(f)  The investment management fee has been charged in full to the revenue column of the Income Statement. The performance fee is chargeable in full to the capital column of the Income Statement.

Financial Instruments

(g)   The Company has elected to adopt Sections 11 and 12 of FRS 102 in respect of financial instruments.

(h)  Financial assets and liabilities are recognised in the Company's Statement of Financial Position when it becomes party to the contractual provisions of the instrument.

(i)  Listed investments have been classified 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 (excluding any transaction costs). Subsequent to initial recognition, investments are valued at fair value which for listed investments is deemed to be bid price or last traded price. 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. Gains and losses arising on realisation of investments are shown in the Capital Reserve.

(j)  Equities include ordinary shares and warrants.

(k)  Cash and cash equivalents include cash at hand, deposits held on call with banks and other short term highly liquid investments with maturities of three months or less.

(l)  Debtors and creditors do not carry any interest, are short term in nature, and are stated as nominal value less any allowance for irrecoverable amounts as appropriate. 

Foreign currency

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

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

Dividends

(o)  Interim dividends are recognised in the period in which they are paid and final dividends are recognised in the period in which they are approved by the Company's shareholders.

Taxation

(p)  Current tax payable is based on taxable profit for the year.  In accordance with the SORP, any tax relief on expenses is allocated between capital and revenue on the marginal basis using the Company's effective rate of corporation tax for the year.

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.

Owing 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.

Significant judgements and estimates

(q)  The preparation of the Company's financial statements requires the Directors to make judgements, estimates and assumptions that affect the reported amounts recognised in the financial statements and disclosure of contingent liabilities. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in future periods. There have been no significant judgements, estimates or assumptions for the current or preceding financial year.

Reserves

Share premium account

(r)  The share premium represents the difference between the nominal value of new ordinary shares issued and the consideration the Company receives for these shares. This account is non-distributable.

Capital redemption reserve

(s)  The capital redemption reserve represents the nominal value of ordinary shares bought back for cancellation. This reserve is non-distributable.

Capital reserve

(t)  Gains and losses on the realisation of investments, realised exchange differences of a capital nature and returns of capital are accounted for in this reserve. Increases and decreases in the valuation of investments held at the year end and unrealised exchange differences of a capital nature are also accounted for in this reserve. Any performance fee due is deducted from the Capital reserve. The cost of shares bought back to be held in Treasury is also deducted from this reserve. The Articles of the Company stipulate that this reserve is non-distributable. However, subject to a change to the Company's Articles approved by shareholders, this reserve could be made distributable should the need arise.

Revenue reserve

(u)  Any surplus/deficit arising from the net revenue return for the year is taken to/from this reserve. This reserve is distributable to shareholders by way of dividend.

NOTES ON THE ACCOUNTS (audited):

(1) Income

Income from investments relates to dividends. Other income relates to bank deposit interest.

(2) Investment Management Fee

	2020 £'000	2019 £'000
Investment management fee	2,301	2,544

Management

First State Investment Management (UK) Limited has been Investment Manager since 20 March 1995. In order to comply with the Alternative Investment Fund Managers Directive, with effect from 2 July 2014 the Company terminated its investment management agreement with First State Investment Management (UK) Limited and appointed First State Investments (UK) Limited as its Alternative Investment Fund Manager. First State Investments (UK) Limited delegated portfolio management services to First State Investment Management (UK) Limited.

The terms of the Agreement provide for payment of a base fee of 0.75 per cent 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. The total fee payable to the Investment Manager is capped at 1.5 per cent per annum of the Company's net assets.

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 MSCI AC Asia ex Japan Index over the three year period plus ten percentage points, 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. No performance fee (2019: £nil) is due to be paid for the year ended 31 August 2020.

The Investment Manager's appointment is subject to termination on one year's notice. The

Company is entitled to terminate the Investment Manager's appointment on less than the specified notice period subject to compensation being paid to the Investment Manager for the period of notice not given. The compensation in the case of the Investment Manager's termination is based on 0.75% 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.

The Agreement sets out matters over which the Investment Manager has authority and the limits above which board approval is required. In addition, the Board has a formal schedule of matters specifically reserved to it for decision. This includes determination and monitoring of the Company's investment objectives and policy and its future strategic direction, gearing policy, matters relating to the buy-back and issuance of the Company's shares, appointment and removal of third party service providers, review of key investment and financial data and the Company's corporate governance and risk control arrangements.

(3) Other Administrative Expenses

	2020 £'000	2019 £'000
Auditors' remuneration for audit services	32	23
Directors' fees	125	117
Company secretarial fees	155	119
Bank, custodial and other expenses	555	565
	867	824

Company Secretary

PATAC Limited provides company secretarial, accounting and administrative services. The fee for the year ended 31 August 2020, which is payable quarterly in advance and linked to the movement in the Retail Price Index annually, was £155,000 (2019: £119,000). As reported in the 2019 Annual Report the fee will rise to £195,000 for the year to 31 August 2021 and £195,000 per annum plus an annual adjustment to reflect the increase in the Consumer Price Index thereafter. The appointment is terminable on three months' notice.

(4) Taxation

(a)  Analysis of charge in the year Overseas tax:
	2020			2019
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Tax on overseas dividends	701	-	701	546	-	546
Indian capital gains tax	-	256	256	-	238	238
	701	256	957	546	238	784

(b) Factors affecting the tax charge for the year

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:

	2020			2019
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Return for the year before taxation	3,140	(49,577)	(46,437)	4,280	603	4,883
Total return for the year before taxation multiplied by the standard rate of corporation tax of 19.00% (2019: 19.00%)	597	(9,420)	(8,823)	813	115	928
Effect of:
Non-taxable losses on investments	-	8,659	8,659	-	123	123
Non-taxable losses/(gains) on foreign currency	-	761	761	-	(238)	(238)
Non-taxable income	(1,192)	-	(1,192)	(1,433)	-	(1,433)
Overseas tax	701	256	957	546	238	784
Unutilised management expenses	595	-	595	620	-	620
Total tax charge for the year	701	256	957	546	238	784

Under changes enacted in the Finance Act 2009, dividends and other distributions received from foreign companies from 1 July 2009 are largely exempt from corporation tax.

(c) Provision for deferred tax

The Company has a deferred tax asset of £6,953,000 (2019: £6,421,000) at 31 August 2020 in respect of unrelieved tax losses carried forward. This asset has not been recognised in the Accounts as it is unlikely under current legislation that it will be capable of being offset against future taxable profits.

5) Dividends

	2020	2019
	£'000	£'000
Dividends paid in the period:
Dividend of 11.50p per share paid 17 January 2020 (2019 - 11.50p)	3,435	3,435

The below proposed dividend in respect of the financial year is the basis upon which the requirements of section 1158 of the Corporation Tax Act 2010 are considered. The proposed dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these Accounts.

	2020	2019
	£'000	£'000
Income available for distribution	2,439	3,734
Proposed dividend for the year ended 31 August 2020 - 11.50p
(2019 - 11.50p) payable 15 January 2021	(3,326)	(3,435)
Amount transferred (from)/to retained income	(887)	299

(6) Return per Ordinary Share

		2020			2019
	Revenue p	Capital p	Total p	Revenue p	Capital p	Total p
Net return per ordinary share	8.19	(167.34)	(159.15)	12.50	1.22	13.72
					2020	2019
Revenue return					£2,439,000	£3,734,000
Capital return					£(49,833,000)	£365,000
Weighted average ordinary shares in issue					29,779,419	29,873,784
There are no dilutive or potentially dilutive instruments in issue.

(7) Equity Investments	2020	2019
	£'000	£'000
Opening book cost	298,469	292,617
Unrealised gains	14,267	33,111
Opening valuation	312,736	325,728
Purchases at cost	154,344	107,721
Sales - proceeds	(154,179)	(120,064)
Loss on investments	(45,575)	(649)
Closing valuation	267,326	312,736
Closing book cost	291,839	298,469
Closing unrealised (losses)/gains	(24,513)	14,267
The Company received £154,179,000 (2019: £120,064,000) from investments sold in the year. The average book cost of these investments when they were purchased was £160,974,000 (2019: £101,869,000). These investments have been revalued over time and until they were sold any unrealised gains/losses were included in the fair value of investments. All investments are listed on recognised stock exchanges. Transaction Costs During the year the Company incurred transaction costs of £344,000 (2019: £266,000) on the purchase of investments and £449,000 (2019: £376,000) on the sale of investments.

	2020	2019
(8) Debtors	£'000	£'000
Sales awaiting settlement	770	8,167
Accrued income	257	316
Other debtors	17	-
	1,044	8,483

	2020	2019
(9) Creditors (amounts falling due within one year)	£'000	£'000
Purchases awaiting settlement	614	15,283
Management fee payable	560	651
Other creditors	207	170
	1,381	16,104

(10)   Share Capital

The allotted and fully paid capital is £7,853,416 (2019: £7,853,416) represented by 31,413,663 ordinary shares of 25p each (2019: 31,413,663). During the year the Company bought back

699,754 ordinary shares (2019: nil). The Company held 2,239,633 ordinary shares in Treasury at

the year end (2019: 1,539,879), being 7.1 per cent of share capital, with a nominal value of £559,908 (2019: £384,970). 254,055 ordinary shares have been bought back since the year end.

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; and

-  the extent to which revenue in excess of that which is required to be distributed should be retained.

The capital of the Company is the ordinary share capital and the other reserves. It is managed in accordance with its investment policy in pursuit of its investment objective, which is detailed in the Strategic Report above.

(11) Net Asset Value per Ordinary Share

Net assets per share are based on total net assets of £289,448,000 (2019: £346,064,000) divided

by 29,174,030 (2019: 29,873,784) ordinary shares of 25p each in issue (excludes shares held

in Treasury).

(12) Cash Flow Statement

 

Reconciliation of net return on ordinary activities before taxation to net cash outflow from operations before dividends, interest, purchases and sales			2020 £'000	2019 £'000
Net return before taxation			(46,437)	4,883
Net losses on investments			45,575	649
Currency losses/ (gains)			4,002	(1,252)
Dividend Income			(6,273)	(7,544)
Interest Income			(35)	(104)
Decrease in creditors			(54)	(50)
Increase in debtors			(17)	-
Net cash outflow from operations before dividends, interest, purchases and sales			(3,239)	(3,418)

(13) Risk Management, Financial Assets and Liabilities

The Company invests mainly in smaller Asian quoted companies. Other financial instruments comprise cash balances and short-term debtors and creditors. The Investment Manager follows the investment process outlined in the Strategic Report above and in addition the Board conducts quarterly reviews with the Investment Manager. The Investment Manager's Risk and Compliance department monitors the Investment Manager's compliance with the Company's investment and borrowing powers to ensure that risks are controlled and minimised. Additionally, its Compliance and Risk Committee reviews risk management processes monthly.

The main risks that the Company faces from its financial instruments are market risk (comprising interest rate, currency and other price risks) and credit risk. As the Company's assets are mainly in readily realisable securities, other than in exceptional circumstances there is no significant liquidity risk. The Board, in conjunction with the Investment Manager, regularly reviews and agrees policies for managing each of these risks. The Investment Manager's policies for managing these risks are available on the website and summarised below.

Market Risk

The fair value of, or future cash flows from, a financial instrument held by the Company will fluctuate because of changes in market prices.

To mitigate this risk, the Investment Manager focuses on investing in soundly managed and financially strong companies with good growth prospects and ensures the portfolio is diversified geographically and by sector at all times. Existing holdings are scrutinised to ensure corporate performance expectations are met and valuations are not excessive. The portfolio valuation and transactions undertaken by the Investment Manager are regularly reviewed by the Board.

Interest Rate Risk

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.

The Company is exposed to interest rate risk on interest receivable from bank deposits and interest payable on bank overdraft positions. The interest rate risk profile of the Company at 31 August is show below.

Interest Rate Risk Profile

	2020 £'000		2019 £'000
Cash	22,459		40,949
	22,459		40,949

Interest Rate Sensitivity

Considering effects on cash balances, an increase of 50 basis points in interest rates would have increased net assets and total return for the period by £112,000 (2019: £205,000). A decrease of 50 basis points would have had an equal but opposite effect. The calculations are based on the cash balances at the date of the Statement of Financial Position and are not representative of the year as a whole.

Foreign Currency Risk

The majority of the Company's assets, liabilities and income were denominated in currencies other than sterling (the currency in which the Company reports its results) as at 31 August 2020. The Statement of Financial Position 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 reserves the right to undertake foreign exchange hedging of its portfolio. 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 August 2020			31 August 2019
	Overseas investments £000	Net monetary assets  000	Total currency exposure £000	Overseas investments £000	Net monetary assets  000	Total currency exposure £000
Indian rupee	113,874	615	114,489	100,822	(3,387)	97,435
Hong Kong dollar	42,252	56	42,308	47,877	87	47,964
Indonesian rupiah	36,558	39	36,597	36,558	(188)	36,370
Philippine peso	36,190	-	36,190	34,061	-	34,061
US dollar	2,047	16,670	18,717	5,623	27,993	33,616
Taiwanese dollar	11,367	-	11,367	34,836	(781)	34,055
Vietnamese dong	7,236	298	7,534	7,934	-	7,934
Bangladeshi taka	4,952	-	4,952	6,182	-	6,182
Korean won	4,422	-	4,422	3,853	-	3,853
Singapore dollar	3,369	54	3,423	19,617	121	19,738
Pakistan rupee	3,317	-	3,317	5,082	-	5,082
Sri Lankan rupee	1,615	-	1,615	7,409	-	7,409
Malaysian ringgit	127	24	151	2,882	-	2,882
Total foreign currency	267,326	17,756	285,082	312,736	23,845	336,581
Sterling	-	4,366	4,366	-	9,483	9,483
Total currency	267,326	22,122	289,448	312,736	33,328	346,064

Currency Risk Sensitivity

At 31 August 2020, if sterling had strengthened by 5% in relation to all currencies, with all other variables held constant, total net assets and total return on ordinary activities would have decreased by the amounts shown below. A 5% weakening of sterling against all currencies, with all other variables held constant, would have had an equal but opposite effect on the financial statement amounts. The analysis is performed on the same basis for 2019.

	2020 £000	2019  000
Indian rupee	5,724	4,872
Hong Kong dollar	2,115	2,398
Indonesian rupiah	1,830	1,818
Philippine peso	1,810	1,703
US dollar	936	1,681
Taiwanese dollar	568	1,703
Vietnamese dong	377	397
Bangladeshi taka	248	309
Korean won	221	193
Singapore dollar	171	987
Pakistan rupee	166	254
Sri Lankan rupee	81	370
Malaysian ringgit	8	144
Total	14,255	16,829

Other Price Risk

Changes in market prices, other than those arising from interest rate or currency risk, will affect the value of quoted investments. It is the Board's policy to hold an appropriate spread of investments in the portfolio in order to reduce the risk arising from factors specific to a particular country or sector. The Investment Manager monitors market prices throughout the year and reports to the Board on a regular basis.

Other Price Risk Sensitivity

If market values at the date of the Statement of Financial Position had been 10% higher or lower with all other variables remaining constant, the return attributable to ordinary shareholders for the year ending 31 August 2020 would have increased/(decreased) by £26,732,600 (2019: increased/(decreased) by £31,273,600) and equity reserves would have increased/(decreased) by the same amount.

Liquidity Risk

This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. Liquidity risk is not significant as the majority of the Company's assets are investments in quoted securities that are readily realisable. The Company has the power to take out borrowings, which could give it access to additional funding when required.

The contractual maturities of financial liabilities at the year end, based on the earliest date on which payment can be required, are as follows:

	2020			2019
	3 months or less £000	3 to 12 months  000	More than 12 months £000	3 months or less £000	3 to 12 months  000	More than 12 months £000
Amount due to brokers Other creditors and accruals	614 767	- -	- -	15,283 821	- -	- -
	1,381	-	-	16,104	-	-

Credit Risk

This is the risk that a failure of a counterparty to a transaction to discharge its obligations under that transaction could result in a loss to the Company.

Investment transactions are carried out with a large number of approved brokers, whose credit-standing is reviewed periodically by the Investment Manager. Transactions are ordinarily done on a delivery versus payment basis whereby the Company's custodian bank ensures that the counterparty to any transaction entered into by the Company has delivered on its obligations before any transfer of cash or securities away from the Company is completed.

Cash exposures are carefully managed to ensure that money is placed on deposit with reputable counterparties meeting a minimum credit rating.

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

In summary, compared to the amounts in the Statement of Financial Position, the maximum exposure to credit risk at 31 August 2020 was as follows:

	2020		2019
	Statement of Financial Position	Maximum exposure	Statement of Financial Position	Maximum exposure
Current assets	£'000	£'000	£'000	£'000
Receivables	1,027	1,027	8,483	8,483
Cash at bank	22,459	22,459	40,949	40,949
	23,486	23,486	49,432	49,432

Fair Value Hierarchy

Investments in securities and financial assets are designated at fair value through profit or loss on initial recognition. In accordance with FRS102, these investments are analysed using the fair value hierarchy below. Short term balances are excluded as their carrying value at the reporting date approximates their fair value.

The levels are determined by the lowest level of input that is significant to the fair value measurement for the individual investment in its entirety as follows:

Level 1 - investments with prices quoted in an active market;

Level 2 - investments whose fair value is based directly on observable current market prices or is indirectly being derived from market prices; and

Level 3 - investments whose fair value is determined using a valuation technique based on assumptions that are not supported by observable current market prices or are not based on observable market data.

All of the Company's investments were categorised as Level 1 for the year to 31 August 2020 (2019: All investments Level 1).

14. Related Party Transactions

The Directors' fees for the year are detailed in the Directors' Remuneration Report on pages 40 to 43 of the Annual Report. An amount of £21,000 was outstanding to the Directors at the year end (2019: £21,000). No Director has a contract of service with the Company. During the year no Director had any related party transactions requiring disclosure under section 412 of the Companies Act 2006.

The management fees for the year are detailed in Note 2 and amounts payable to the Investment Manager at year end are detailed in Note 9. The Investment Management team's holdings in the Company are set out on page 3 of the Annual Report.

Alternative Investment Fund Managers Directive (unaudited)

Under the Alternative Investment Fund Managers Directive the Company is required to publish maximum exposure levels for leverage on a 'Gross' and 'Commitment' basis. The process for calculating exposure under each method is largely the same, except that, where certain conditions are met, the Commitment method allows instruments to be netted off to reflect 'netting' or 'hedging' arrangements and the Company's leverage exposure would then be reduced. The AIFM set maximum leverage levels of 3.0 and 1.7 times the Company's net asset value under the 'Gross' and 'Commitment' methods respectively. At the Company's year end the levels were respectively 0.98 and 1.00 times the Company's net asset value.

The Alternative Investment Fund Managers Directive requires the AIFM to make available certain remuneration disclosures to investors. This information is available from the AIFM on request.

The financial information contained within this announcement does not constitute statutory accounts as defined in sections 434 and 435 of the Companies Act 2006. The results for the years ended 31 August 2020 and 2019 are an abridged version of the statutory accounts for those years. The Auditor has reported on the 2020 and 2019 accounts, their reports for both years were unqualified and did not contain a statement under sections 495 to 498 of the Companies Act 2006. Statutory accounts for 2019 have been filed with the Registrar of Companies and those for 2020 will be delivered in due course.

The 2020 Annual Report will be posted to shareholders in November 2020 and copies will be available from the Company's website www.scottishoriental.com and the Company Secretary's office at 28 Walker Street, Edinburgh, EH3 7HR.

Enquiries:	PATAC Limited, Company Secretary
	Telephone [phone]

30 October 2020

 

END

 

 

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