Interim Results
Scottish Oriental Smlr Co Tst PLC
29 March 2006
THE SCOTTISH ORIENTAL SMALLER COMPANIES TRUST PLC
Preliminary Results (Unaudited) for the six months to 28th February 2006
The Board of The Scottish Oriental Smaller Companies Trust PLC is pleased to
announce the results for the six months to 28th February 2006.
These results are presented in a format which summarises the information which
will be given in the forthcoming Interim Report.
Financial Highlights
• Fully diluted net asset value per ordinary share rose by 19.8% to
260.55p and undiluted net asset value rose by 18.9% to 284.05p.
• This compares with a rise of 23.9% in the benchmark Index - the MSCI AC
Asia (Ex Japan) Index.
• The Nomura Asia Small Cap Index in sterling and the FTSE All-Share Index
increased 22.0% and 11.3% respectively over the same period.
• Share price rose by 16% to 246.75p.
• Warrant price rose by 30.2% to 146.50p.
Statement of Total Return for the six months to 28th February 2006 (Unaudited)
Six months to 28th February **Restated Six months to 28th February 2005
2006
Income* Capital Total Income* Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Gains on
investments - 12,498 12,498 - 8,967 8,967
Income from
investments 623 - 623 907 - 907
Other income 133 - 133 82 - 82
Investment
management fee (183) - (183) (260) - (260)
Currency gains - 78 78 - 40 40
Other
administrative
expenses (141) - (141) (150) - (150)
-------- -------- ------- --------- ------- -------
Net return
before finance
costs and 432 12,576 13,008 579 9,007 9,586
taxation
Finance costs
of borrowing (12) (5) (17) (18) - (18)
-------- -------- ------- --------- ------- -------
Return on
ordinary
activities
before 420 12,571 12,991 561 9,007 9,568
taxation
Tax on
ordinary
activities (112) 2 (110) (153) 28 (125)
-------- -------- ------- --------- ------- -------
Transfer to
reserves 308 12,573 12,881 408 9,035 9,443
-------- -------- ------- --------- ------- -------
Return per
ordinary share 1.20p 49.10p 50.30p 1.60p 35.45p 37.05p
* The total column of this statement is the Profit and Loss Account of the
Trust.
All income and capital items derive from continuing operations.
** See note 1 at the end of this Statement
Statement of Total Return for the six months to 28th February 2006 (Unaudited)
(Continued)
**Restated Year ended 31st August
2005
Income* Capital Total
£'000 £'000 £'000
Gains on investments - 14,479 14,479
Income from investments 2,080 - 2,080
Other income 182 - 182
Investment management fee (562) - (562)
Currency gains - 100 100
Other administrative expenses (297) - (297)
-------- -------- -------
Net return before finance costs and 1,403 14,579 15,982
taxation
Finance costs of borrowing (36) - (36)
-------- -------- -------
Return on ordinary activities before 1,367 14,579 15,946
taxation
Tax on ordinary activities (407) 29 (378)
-------- -------- -------
Transfer to reserves 960 14,608 15,568
-------- -------- -------
Return per ordinary share 3.77p 57.32p 61.09p
* The total column of this statement is the Profit and Loss Account of the
Trust.
All income and capital items derive from continuing operations.
** See note 1 at the end of this Statement
SUMMARY BALANCE At 28th **Restated at 28th **Restated at 31st
SHEET
(Unaudited) February 2006 February 2005 August 2005 (1)
£'000 £'000 £'000
Total investments 69,603 53,904 56,995
Net current assets 5,269 4,918 8,007
Japanese Yen loan - (3,337) (3,353)
Deferred Tax (42) (38) (78)
------------ ----------- -----------
Equity shareholders' 74,830 55,447 61,571
funds ============ =========== ===========
Net asset value per
share - 285.22p 217.54p 241.56p (2)
undiluted
Net asset value per
share - 261.63p 199.68p 219.95p
fully diluted
(1) The preliminary statement is not the Trust's statutory accounts. The results
for the year to 31st August 2005 and the position as at that date are a restated
abridged version of the full accounts for that year, which received an
unqualified audit report and did not contain statements under Section 237(2) or
(3) of the Companies Act 1985 and which have been filed with the Registrar of
Companies.
(2) Including Revenue Reserve uplift for the 6 months to 28th February 2006 (see
note at end of this statement).
** See note 1 at the end of this Statement
Cash Flow Statement for the six months to 28th February 2006 (unaudited)
Six months to Six months to Year to
28th February 2006 29th February 2005 31st August 2005
£'000 £'000 £'000 £'000 £'000 £'000
OPERATING
ACTIVITIES:
Dividends
received from
investments 771 961 1,979
Interest received 132 82 182
-------- -------- -------
903 1,043 2,161
Investment
management fee (222) (245) (533)
Secretarial fee (22) (22) (44)
Directors' fees (37) (35) (69)
Other expenses
paid (96) (94) (181)
-------- -------- --------
(377) (396) (827)
-------- -------- -------
Net cash inflow
from operating
activities 526 647 1,334
RETURNS ON
INVESTMENTS AND
SERVICING OF
FINANCE
Interest paid on
borrowings (12) (18) (36)
TAXATION:
Total tax paid (31) (30) (233)
CAPITAL EXPENDITURE
AND FINANCIAL
INVESTMENT:
Purchases of
investments (10,327) (8,818) (18,326)
Sales of
investments 11,172 11,047 22,193
Capital
Corporation Tax - - (32)
Indian capital
gains tax - 28 28
Currency gains/
(losses) 24 (27) 50
Capital expenses (5) - -
-------- -------- --------
Net cash inflow
from capital
expenditure and
financial
investment 864 2,230 3,913
EQUITY DIVIDEND
PAID (663) (401) (401)
Financing:
Subscription of new
capital:
Ordinary shares 747 6 6
Loan Repayment (3,300) - -
-------- -------- --------
(2,553) 6 6
-------- -------- -------
(Decrease)/
increase in cash (1,869) 2,434 4,583
======== ======== =======
BOARD STATEMENT
Investment Performance
In the six months ending 28th February 2006, Scottish Oriental's fully diluted
and undiluted net asset values per share rose 19.8 per cent to 260.55p and 18.9
per cent to 284.05p respectively. This compares with sterling-adjusted increases
of 23.9 per cent in the MSCI AC Asia Free (ex Japan) Index and 22.0 per cent in
the Nomura Asia Small Cap Index.
The Trust's share price appreciated by 16.0 per cent over the period, resulting
in a widening of the discount to fully diluted net asset value to 5.3 per cent.
The Trust outperformed the FTSE All-Share Index, which rose 11.3 per cent over
the six months.
Smaller companies generally underperformed their larger counterparts over the
period. The Trust's performance relative to the benchmark suffered from its
underweight position in the more volatile markets of India, Indonesia and South
Korea.
Review
Asian equity markets continued to benefit from large inflows of capital in the
six months ending 28th February 2006. The global appetite for risk remains high
and the benchmark MSCI Asia ex Japan Index significantly outperformed the MSCI
World Index over the period. South Korea was the best performing market with
local investors returning to the stockmarket after the Government imposed
measures to reduce speculation in the property market; at the same time foreign
investors continued to buy the Korean market, attracted by inexpensive
valuations relative to the rest of the Region. Indian stocks also outperformed
as corporate earnings growth accelerated owing to the strong economy and low
interest rates.
Outlook
In general, economic growth rates in Asia are expected to remain well above
those for Europe and the USA. Inflation has emerged as a potential problem in
some Asian countries. The reduction of fuel subsidies in Indonesia, Malaysia and
Thailand has resulted in higher costs for transport and power. In parts of
China, labour shortages have forced some manufacturers to raise wages in excess
of ten per cent per annum. The high cost of commodities has yet to be fully
reflected in overall consumer prices.However it is hard to see commodity prices
falling for some time yet if China and India continue to grow at the current
pace.
Although Asian valuations are not as attractive as in the past, they still offer
value from a global perspective. Corporate profit growth is relatively dull,
particularly for the manufacturing sector which is suffering from a slowdown in
export growth and lower margins. Cash flow generation is strong, but returns on
equity are expected to fall as balance sheets become increasingly less geared.
Dividend yields are high on both an historic and a relative basis.
The longer term outlook for Asia remains positive, despite the more immediate
concerns discussed above. As in the past, Scottish Oriental's focus on well
managed, soundly financed companies with strong business franchises should stand
it in good stead if stockmarkets weakened.
Borrowing
The Trust repaid the yen borrowing in January 2006. This reflects the Manager's
cautious view on Asian smaller companies given their relatively high valuations
and uncertain earnings outlook.
Dividend
A dividend of 2.6p per share net (equivalent to 2.89p gross) was paid on 27th
January 2006 for the year ending 31st August 2005. It is too early to make a
forecast of the current year's distribution, but your Board would hope at least
to maintain last year's dividend.
Performance for the six months to 28th February 2006 (Unaudited)
Net Asset Value (fully
diluted) + 19.8% MSCI AC Asia (ex Japan) Index (£) + 23.9%
Net Asset Value
(undiluted) + 18.9% Nomura Asia Small Cap Index (£) + 22.0%
Share Price + 16.0% FTSE All-Share Index + 11.3%
Warrant Price + 30.2%
Summary Data at 28th February 2006 (Unaudited)
Shares in
issue 26,235,601 Shareholders' Funds £74.52m
Warrants in
issue 3,978,049 Market Capitalisation £64.74m
Net Asset
Value per
share 260.55p Share Price Discount to Net Asset 5.3%
(fully Value (fully diluted)
diluted)
Net Asset
Value per
share 284.05p Share Price Discount to Net Asset Value 13.1%
(undiluted)
(undiluted)
Share Price 246.75p
Warrant 146.50p
Price
Benchmark and Comparative Indices
From inception in March 1995 until October 1999, the Trust adopted the Morgan
Stanley Capital International AC Asia (ex Japan) Index ('MSCI') as its
benchmark. No suitable regional smaller companies index was available at that
time.
In October 1999 the Directors agreed to the replacement of the MSCI with the SG
Asian (ex Japan) Smaller Companies Index, following its reconstitution to cover
previously excluded countries. Unfortunately, this Index ceased to be available
from the end of 2002.
The Directors consequently decided to revert to the MSCI as its benchmark. This
Index, being dominated by larger companies, is far from an ideal performance
measurement tool. It has, however, the dual merits of being the most widely
recognised regional index and of pre-dating the inception of the Trust.
For comparison purposes, the Trust is also displaying The Nomura Small Cap Index
('NASCI') which covers the relevant markets with the exception of Pakistan and
Sri Lanka. The NASCI is made up of companies with a market capitalisation of
between US$100m and US$1,000m, This range does not match exactly that of the
Trust, which has no lower limit and which is generally restricted to companies
with a market capitalisation of under US$750m. Unfortunately this Index dates
only from the end of 1996, and thus cannot provide a complete historical
performance comparison with the Trust. Nevertheless, the NASCI gives a useful
indication of the performance of smaller companies in Asia over recent years.
As most investors in the Trust are based in the United Kingdom, the Directors
consider that it is also relevant to compare the Trust's performance to that of
the FTSE All-Share Index.
Notes
1.
1) A number of new UK Financial Reporting Standards have been introduced with
which the Company must comply by its 31 August 2006 financial year end. These
standards are part of the UK convergence programme with International Accounting
Standards and as such have required most UK listed companies to restate prior
year figures to reflect the new accounting treatment. The financial statements
for the six months to 28 February 2006 have been prepared on the basis of the
accounting policies set out in the Company's Annual Financial Statements at 31
August 2005 except as detailed below:
a) investments have been valued at fair value through profit or loss in
accordance with FRS 26 'Financial Instruments: Measurement'. The effect is to
move from a mid to bid basis of valuation, resulting in a reduction in the value
of investments and unrealised capital reserves of £362,000 (28th February -
£66,000; 31st August 2005 - £295,000);
b) in compliance with FRS 21 'Events after the Balance Sheet Date', dividends
declared after the period end are no longer treated as a liability at the period
end. The effect is to reduce creditors and increase revenue reserves by £NIL
(28th February 2005 - £NIL; 31st August 2005 - £663,000)
The overall effect of these changes on shareholders funds is detailed below:
At 28th February At 28th February At 31st August
2006 2005 2005
£'000 £'000 £'000
Investments/
Ca
pital reserve (362) (66) (295)
- unrealised
Creditors:
dividends
payable/
Revenu - - 663
e reserve -------------- -------------- --------------
(362) (66) 368
-------------- -------------- --------------
Under the new standards dividends may no longer be charged through the Statement
of Total Return. As a result, dividends paid and proposed have been presented as
a note to the accounts.
2) Dividends
Amounts recognised as distributions
in the period:
Dividend for the year ending 31st
August 2005 of 2.60p (2004 - 663 401 -
1.575p) paid 27th January 2006 -------------- -------------- --------------
2. The Shareholders' Funds and Net Aset Value per share figures at 28th February
2006 are stated on a capital only basis, and do not include any income retention
at that date. This is because the Trust only pays one dividend per year for
which no provision has been made at this stage. However, the Shareholders' Funds
and Net Asset Value per share figures given with the Balance Sheet do include
the income generated in the six month period.
3. The terms of the interim report and the preliminary announcement were
approved by the Board on 29th March 2006.
4. Copies of the Interim Report will be posted to shareholders shortly and
further copies may be obtained from the registered office at 23 St Andrew Square
Edinburgh EH2 1BB
Enquiries: Angus Tulloch/Susie Rippingall, First State Investments, Edinburgh
Ph:+44 (0) 131 473 2200
29th March 2006
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