Half Yearly Report

RNS Number : 0581B

Scottish Oriental Smlr Co Tst PLC

27 March 2013

 

THE SCOTTISH ORIENTAL SMALLER COMPANIES TRUST PLC

Interim results for the six months to 28th February 2013

(Extracted from the Interim Report)

The Board of The Scottish Oriental Smaller Companies Trust plc is pleased to announce the results for the six months to 28^th February 2013.

Financial Highlights

Performance for the six months to 28th February 2013 (Unaudited)
Net Asset Value	30.3%	MSCI AC Asia ex Japan Index (£) †	20.3%
Share Price	50.1%	MSCI AC Asia ex Japan Small Cap	23.7%
		Index (£) †
		FTSE All-Share Index (£) †	14.2%
Summary Data at 28th February 2013 (Unaudited)
Shares in issue	31,333,650	Shareholders' Funds	£272.4m
Net Asset Value per share	869.5p	Market Capitalisation	£283.6m
Share Price	905.0p	Share Price Premium to Net Asset Value	4.1%

† Total return (capital return with dividends reinvested)

Corporate Objective

The investment objective of The Scottish Oriental Smaller Companies Trust plc ("Scottish Oriental", "the Company" or "the Trust") is to achieve long-term capital growth by investing in mainly smaller Asian quoted companies with market capitalisations of below US$1,000m, or the equivalent thereof, at the time of investment. For investment purposes, the Region includes the Indian sub-continent but excludes Japan and Australasia.

This is an abridged version of Scottish Oriental's investment policy and objective. A full statement of Scottish Oriental's investment policy can be found on page 3 of the Annual Report and Accounts for the year ending 31^st August 2012 (the "Annual Report and Accounts").

Principal Risks and Uncertainties

Given the nature of its investment activities, the principal risks that Scottish Oriental faces from its financial instruments are market prices (comprising interest rate, currency and share price risks) and credit risk.  The principal risks and uncertainties have not changed since the publication of the Annual Report and Accounts. A detailed explanation of these risks and how they are managed is set out in Note 16 on pages 43-45 of the Annual Report and Accounts.  As Scottish Oriental's assets mainly comprise readily realisable securities, other than in exceptional circumstances there should be no significant liquidity risk.  Scottish Oriental's investment portfolio is exposed to market price fluctuations and currency fluctuations which are monitored by the Investment Manager.  Scottish Oriental does not invest in either fixed or floating rate securities and interest rate risk exposure is restricted to interest receivable on bank deposits or payable on bank overdraft positions which will be affected by fluctuations in interest rates.

Directors' Responsibility Statement

The Directors are responsible for preparing the half-yearly financial report in accordance with applicable law and regulations.  The Directors confirm that, to the best of their knowledge:

(a)      the condensed set of financial statements within the half-yearly financial report, prepared in accordance with the Accounting Standards Board's statement 'Half-Yearly Financial Reports' gives a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

(b)      the Interim Management Report includes a fair review of the information required by 4.2.7R of the Financial Services Authority's Disclosure and Transparency Rules (important events that have occurred in the first six months of the Company's financial year, together with their effect on the half yearly financial statements to 28^th February 2013 and a description of the principal risks and uncertainities for the remaining six months of the financial year). Rule 4.2.8R requires information on related party transactions. No related party transactions have taken place during the first six months of the financial year that have materialy affected the financial position of the Company during that period and there have been no changes in the related party transactions described in the last annual report that could do so.

The half-yearly report, for the six months to 28^th February 2013, comprises the Interim Management Report, the Directors' Responsibility Statement and a condensed set of financial statements and has not been audited or reviewed by auditors pursuant to the Auditing Practices Board guidance on Review of Interim Financial Information.

By order of the Board

James Ferguson

Chairman

27^th March 2013

Interim Management Report

Investment Performance

In the six months ending 28^th February 2013, Scottish Oriental's net asset value per share rose by 30.3 per cent to 869.5p.  This compares with a sterling-adjusted increase of 20.3 per cent in the MSCI AC Asia Free ex Japan Index and a rise of 23.7 per cent in the MSCI AC Asia ex Japan Small Cap Index.  The Trust's share price also increased by 50.1 per cent over the period resulting in the shares trading at a premium to net asset value of 4.1 per cent on 28^th February 2013.  The Trust outperformed the FTSE All-Share Index, which rose by 14.2 per cent over the six month period.

Scottish Oriental had borrowings of £21.4 million, equivalent to 7.9 per cent of net asset value, as at 28^th February 2013. The Trust issued 1.12 million new shares in January and February 2013 in a total of 5 tranches at an average premium of 2.5% above the prevailing net asset value.   As a result the cash level rose to £32.4 million at the end of the period which represented 11.9% of net assets.  The Manager will continue to invest this money gradually once suitable long term investment opportunities have been identified.

Review

Asian stockmarkets achieved significant gains in the six months ending 28^th February 2013, supported by further monetary easing by the European and US central banks and an increased flow of funds into the Region.  Investor sentiment towards China also improved, responding to evidence of a recovery in economic growth as well as the prospect of further economic reforms following the appointment of the new Communist party leaders.  The Philippines was the best performing market with economic growth higher than expected, resulting in upgrades to analysts' forecasts for corporate earnings and valuations.

Asian smaller companies generally outperformed their larger counterparts with a particularly strong return achieved in China, the Philippines and Thailand. Scottish Oriental's performance benefited from its relatively large positions in Aeon Thana Sinsap and Ezion Holdings as the share prices for both companies rose by more than 90% in Sterling over the six month period.

Outlook

Global economic growth is likely to remain subdued in the short term.  In the absence of any significant rebound in external demand, economic growth in the Region has become increasingly dependent on domestic consumption. This has been supported by minimum wage increases in a number of countries, resulting in an upward shift in other lower level salaries. So far the impact on inflation has been limited but the risk remains that increased demand will eventually feed through into higher prices.

The recent sense of optimism towards Asian equities seems somewhat premature particularly for cyclical companies.   Whilst an acceleration in China's economic growth should be positive for the Region, the impact is likely to be more muted than before as the Government is aiming for a lower level of GDP growth than that achieved in the past 10 years. Given this, the recent upgrade to forecasts for corporate earnings may prove to be over-optimistic.  In addition, the consumer related companies that have benefited from strong domestic consumption in South East Asia are now trading on expensive valuations. 

Dividend

A dividend of 11.0p per share was paid on 31^st January 2013 for the year ending 31st August 2012 (31st August 2011: 9.0p per share). It is too early to make a forecast of the distribution for the current financial year.

 

Income Statement for the six months to 28^th February 2013

	Six months to 28th February 2013 (unaudited)			Six months to 29th February 2012 (unaudited)
	Revenue £'000	Capital £'000	Total* £'000	Revenue £'000	Capital £'000	Total* £'000
Gains on investments	-	65,798	65,798	-	11,981	11,981
Income from investments	1,949	-	1,949	1,889	-	1,889
Other income	37	-	37	1	-	1
Investment management fee	(932)	(1,505)	(2,437)	(694)	(904)	(1,598)
Currency gains/(losses)	-	132	132	-	(219)	(219)
Other administrative expenses	(247)	-	(247)	(213)	-	(213)
Net return before finance costs and taxation	807	64,425	65,232	983	10,858	11,841
Finance costs of borrowing	(225)	-	(225)	(230)	-	(230)
Net return on ordinary activities before taxation	582	64,425	65,007	753	10,858	11,611
Tax on ordinary activities	(62)	-	(62)	(62)	-	(62)
Net return attributable to equity shareholders	520	64,425	64,945	691	10,858	11,549
Net return per ordinary share (p)	1.71	211.87	213.58	2.29	35.94	38.23

	Year ended 31st August 2012 (audited)
	Revenue £'000	Capital £'000	Total* £'000
Gains on investments	-	15,129	15,129
Income from investments	7,056	-	7,056
Other income	17	-	17
Investment management fee	(1,435)	(1,795)	(3,230)
Currency losses	-	(247)	(247)
Other administrative expenses	(457)	-	(457)
Net return before finance costs and taxation	5,181	13,087	18,268
Finance costs of borrowing	(461)	-	(461)
Net return on ordinary activities before taxation	4,720	13,087	17,807
Tax on ordinary activities	(372)	-	(372)
Net return attributable to equity shareholders	4,348	13,087	17,435
Net return per ordinary share (p)	14.39	43.32	57.71

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

A Statement of Total Recognised Gains or Losses has not been prepared as any gains or losses are recognised in the Income Statement.

All revenue and capital items derive from continuing operations.

Balance Sheet as at 28^th February 2013

	At 28th February 2013	At 29th February 2012	At 31st August 2012
	£'000	£'000	£'000
	(unaudited)	(unaudited)	(audited)
EQUITY INVESTMENTS
China	45,784	31,359	28,422
Hong Kong	27,932	19,889	20,178
India	4,130	2,642	2,947
Indonesia	14,830	9,640	10,268
Malaysia	19,710	18,136	16,872
Philippines	9,285	8,477	8,534
Singapore	44,549	33,039	33,771
South Korea	28,067	22,206	24,873
Sri Lanka	6,013	3,309	3,773
Taiwan	31,102	26,890	29,471
Thailand	26,162	14,572	16,451
Vietnam	3,879	3,290	3,389
Total equities	261,443	193,449	198,949
Net current assets	32,437	22,689	23,142
Total Assets less Current Liabilities	293,880	216,138	222,091
CREDITORS (due after one year)
Loan	(21,438)	(20,420)	(20,487)
Equity Shareholders' Funds	272,442	195,718	201,604
CAPITAL AND RESERVES
Ordinary share capital	7,834	7,554	7,554
Share premium account	30,274	21,337	21,337
Warrant reserve - exercised	1,319	1,319	1,319
Capital reserve	227,015	160,361	162,590
Revenue reserve	6,000	5,147	8,804
	272,442	195,718	201,604
Net asset value per share	869.49p	647.78p	667.26p

 

Cash Flow Statement for the six months to 28th February 2013

	Six months to		Six months to		Year to
	28th February 2013 (uaudited)		29th February 2012 (unaudited)		31st August 2012 (audited)
		£'000		£'000		£'000
OPERATING ACTIVITIES
Dividends received from investments		2,368		2,504		7,234
Other income		108		1		17
		2,476		2,505		7,251
Investment management fee		(380)		(681)		(1,413)
Secretarial fee		(25)		(49)		(99)
Directors' fees		(40)		(37)		(75)
Other expenses paid		(169)		(132)		(277)
Net cash inflow from operating activities		1,862		1,606		5,387
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Arrangement fees		-		(20)		(20)
Interest paid on borrowings		(226)		(228)		(457)
Net cash outflow from investments and servicing of finance		(226)		(248)		(477)
TAXATION
Total tax paid		(64)		(68)		(457)
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Purchases of investments		(26,826)		(24,198)		(43,936)
Sales of investments		31,650		20,524		35,996
Currency gains		1,084		241		280
Performance fee		(1,795)		(2,405)		(2,405)
Net cash inflow/ (outflow) from capital expenditure and financial investment		4,113		(5,838)		(10,065)
FINANCING ACTIVITIES
Equity dividends paid		(3,324)		(2,719)		(2,719)
Issue of equity shares		7,789		-		-
Net cash inflow/ (outflow) from financing activities		4,465		(2,719)		(2,719)
Increase/ (decrease) in cash		10,150		(7,267)		(8,331)

Reconciliation of Movements in Shareholders' Funds
For the period ended 28th February 2013
	Share Capital	Share Premium Account	Warrant Reserve Exercised	Capital Reserve	Revenue Reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31st August 2012	7,554	21,337	1,319	162,590	8,804	201,604
Realised gains on investments	-	-	-	13,170	-	13,170
Currency gain	-	-	-	132	-	132
Unrealised appreciation on investments in the period	-	-	-	52,628	-	52,628
Performance fee	-	-	-	(1,505)	-	(1,505)
Income retained in the period	-	-	-	-	520	520
Dividend paid in the period	-	-	-	-	(3,324)	(3,324)
Issue of ordinary shares	280	8,937	-	-	-	9,217
Balance at 28th February 2013	7,834	30,274	1,319	227,015	6,000	272,442

Reconciliation of Movements in Shareholders' Funds
For the year ended 31st August 2012
	Share Capital	Share Premium Account	Warrant Reserve Exercised	Capital Reserve	Revenue Reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31st August 2011	7,554	21,337	1,319	149,503	7,175	186,888
Realised gains on investments	-	-	-	10,799	-	10,799
Currency loss	-	-	-	(247)	-	(247)
Unrealised appreciation on investments in the year	-	-	-	4,330	-	4,330
Performance fee	-	-	-	(1,795)	-	(1,795)
Income retained in the year	-	-	-	-	4,348	4,348
Dividend paid in the year	-	-	-	-	(2,719)	(2,719)
Balance at 31st August 2012	7,554	21,337	1,319	162,590	8,804	201,604

Notes to Accounts

(1) The position as at 31^st August 2012 on page 8 is an abridged version of that contained in the Annual Report and Accounts, which received an unqualified audit report and which have been filed with the Registrar of Companies. This interim report has been prepared under the same accounting policies adopted for the year to 31^st August 2012.

(2) The return per Ordinary share figure is based on the net profit for the six months of   £64,945,000 (six months ended 29 February 2012: net profit of £11,549,000; year ended 31 August 2012: net profit of £17,435,000) and on 30,407,214 (six months ended 29 February 2012: 30,213,650; year ended 31 August 2012: 30,213,650 Ordinary shares, being the weighted average number of Ordinary shares in issue during the respective periods.

(3) At 28 February 2013 there were 31,333,650 Ordinary shares in issue (29 February 2012: 30,213,650; 31 August 2012: 30,213,650). During the six months ended 28 February 2013 the Company issued 1,120,000 Ordinary shares.

(4) Dividends

	At 28th February 2013 £'000	At 29th February 2012 £'000	At 31st August 2012 £'000
Amounts recognised as distributions in the period:
Dividend for the year ending 31st August 2012 of 11.0p (2011 - 9.0p), paid 31st January 2013	3,324	2,719	2,719

(5) Under the terms of the Investment Management Agreement, an annual performance fee may be payable to the Investment Manager at the end of the year.  A detailed explanation of the performance fee computation is set out on page 21 of the Annual Report and Accounts.

Assuming no change in share price, MSCI AC Asia Free ex Japan Index Total Return and shares in issue between 28^th February and 31^st August 2013, the estimated performance fee for the year ending 31^st August 2013 would amount to £3,010,000. An amount of £1,505,000 has been accrued in the six months to 28^th February 2013.

·           The terms of the interim report and this announcement were approved by the Board on 27^th March 2013.

·           Copies of the Interim Report will be posted to shareholders shortly and will be available thereafter on the Company's website: www.scottishoriental.com and from the registered office at 10 St Colme Street, Edinburgh EH3 6AA.

Enquiries:

Personal Assets Trust Administration Company Limited, Edinburgh, [phone]

27^th March 2013

 

END

 

 

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