TIDMSST
Scottish Oriental Smlr Co Tst PLC
01 April 2019
THE SCOTTISH ORIENTAL SMALLER COMPANIES TRUST PLC
Interim results for the six months to 28 February 2019
(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
February 2019.
Financial Highlights
Total Return Performance for the six months to 28 February
2019 (Unaudited)
Net Asset Value (capital
return with dividends MSCI AC Asia ex Japan
reinvested) (3.8)% Index (GBP) (3.5)%
MSCI AC Asia ex Japan
Share Price (3.7)% Small Cap Index (GBP) (8.6)%
FTSE All-Share Index
(GBP) (3.7)%
Summary Data at 28 February 2019 (Unaudited)
Shares in issue 29,873,784 Shareholders' Funds GBP325.77m
Net Asset Value per 1,090.49p Market Capitalisation GBP289.78m
share
Share Price Discount
Share Price 970.00p to Net Asset Value 11.1%
-------------------------- ----------- ----------------------- -----------
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$3,000m, or the equivalent thereof, at the time of
investment. For investment purposes, this includes the Indian
sub-continent but excludes Japan and Australasia.
This is an abridged version of Scottish Oriental's investment
policy and objective, which was amended following shareholder
approval at the Annual General Meeting on 18 December 2018. A full
statement of Scottish Oriental's amended investment policy can be
found on page 66 of the Annual Report and Accounts* for the year
ending 31 August 2018 ("the Annual Report and Accounts").
*The Company's Annual Report and Accounts for the year ending 31
August 2018 can be found on the Company's website at:
www.scottishoriental.com.
Interim Management Report
Investment performance
Over the six months ending 28 February 2019, Scottish Oriental's
net asset value ("NAV") per share decreased by 3.8 per cent in
total return terms, while the MSCI AC Asia ex Japan Index recorded
a sterling adjusted decrease of 3.5 per cent and the MSCI AC Asia
ex Japan Small Cap Index a decrease of 8.6 per cent on the same
basis. The Company's share price fell by 3.7 per cent in total
return terms over the period. The Company performed in line with
the FTSE All-Share Index, which fell by 3.7 per cent in total
return terms over the six month period.
The biggest detractor from investment performance was Scottish
Oriental's large exposure to Indian companies. Poor returns from
the Company's investments in the Philippines and Sri Lanka also
hurt performance. Scottish Oriental benefited from its holdings in
Hong Kong and Indonesia.
The Company's shares traded at a discount ranging from 8.1 per
cent to 16.5 per cent during the period, reflecting the volatility
in Asian markets and continued investor caution, and stood at a
discount to NAV of 11.1 per cent on 28 February 2019.
The Company's cash level was GBP23.8 million at the end of the
period, representing 7.3 per cent of net assets. We will seek to
invest this money gradually once suitable long term investment
opportunities have been identified.
Dividend
A dividend of 11.5p per share was paid on 18 January 2019 for
the year ending 31 August 2018 (31 August 2017: 11.5p per share).
It is too early to make a forecast of the distribution for the
current financial year.
Review
Asian stock markets fell over the six months ending 28 February
2019. Investor sentiment was initially negative caused by US-China
trade tensions, rising interest rates, a strong US dollar and
evidence of weakening growth in China. However, as the period
progressed, concerns eased as both the US and China became more
conciliatory, a number of central banks adopted more dovish stances
and China announced supportive economic and monetary policies.
The Pakistani stock market performed worst over the period
reflecting the country's ongoing economic issues. The Indian stock
market was weak with a liquidity crisis amongst some of its
non-banking financial corporations impacting market sentiment.
Taiwan also fell sharply with its large technology sector hurt by a
lack of demand for smartphones. South East Asian stock markets
outperformed with the Indonesian market the strongest. The Hong
Kong market also rose albeit driven by its large capitalisation
financial sector.
Asian smaller companies underperformed their larger
counterparts. Returns were considerably worse for smaller companies
in Hong Kong, India, Indonesia and Sri Lanka.
During the period the number of portfolio holdings increased
from 57 to 59 stocks. Diagnostic and testing service provider Dr
Lal Pathlabs and industrial gas producer Linde India were sold
because of high valuations. Cement producer Lafarge Malaysia,
utility Manila Water, cosmetics company AmorePacific Group and
courier company Blue Dart Express were sold as earnings prospects
deteriorated.
Eight new positions were initiated. Market weakness allowed us
to buy apparel brands JNBY Design and Li Ning in China and Great
Eastern Shipping in India. India's PVR, an operator of multiplex
cinemas, and consumer goods company Colgate-Palmolive and Pizza Hut
franchisee Sarimelati Kencana of Indonesia should benefit from
continued consumption growth in these countries. Zensar
Technologies has many of the characteristics that we saw in
Mphasis, a fellow information technology outsourcing company, when
we originally purchased it. Oberoi Realty is in a strong position
to benefit from the increased regulation in India's real estate
sector.
As a result of this, Scottish Oriental's exposure to China rose
and Malaysia, South Korea and Taiwan fell. The Company's Indian
weighting fell despite funds being deployed into this market. At
the sector level, exposure to Consumer Discretionary, Information
Technology and Real Estate rose whereas Consumer Staples,
Healthcare and Materials fell. However, the changes made to the
Company's portfolio were not significant overall as we are happy
with its focus on companies which, we believe, have the potential
to deliver multi-year growth and emerge as winners in their
respective industries.
For further detail on Scottish Oriental's investments, please
refer to the Company's website, www.scottishoriental.com, for the
latest Client Update.
Outlook
The last six months have echoed other recent periods for Asian
stock markets - a sell-off caused by concerns about falling growth
and rising interest rates has been mitigated by governments and
central bankers making soothing noises. What did become apparent
throughout 2018 is that normalisation of interest rates and
withdrawal of the excess liquidity that was injected into the
system by the world's central bankers over the last decade will not
be straightforward. We believe that the current economic climate
offers a backdrop of considerable risk for investors and
increasingly less flexibility for policymakers. Interest rates are
probably too low and the levels of liquidity remaining from
printing money are too high.
We try to avoid cyclical companies when investing apart from
taking advantage, in moderation, of weakness in quality cyclical
stocks when markets do turn. Therefore, Scottish Oriental's
portfolio remains heavily tilted towards the domestically focused
stock markets of India, Indonesia and the Philippines. The
companies Scottish Oriental owns in these markets are more
expensive than we would prefer but we can, at least, see long term
prospects for growth. Some of our favourite companies could be much
larger holdings for Scottish Oriental but not at current
valuations. We will remain patient in investing the Company's cash
balance.
In conclusion, we are nervous about economies and stock markets,
but are optimistic about the long term prospects for the Company's
portfolio holdings. Scottish Oriental's companies are growing, and
we believe that they will become larger businesses in the years to
come.
Audit Committee
The Company announced on 16 January 2019 that Jeremy Whitley had
been appointed as Chairman of the Audit Committee.
Income Statement for the six months to 28 February 2019
Six months to Six months to
28 February 2019 28 February 2018
(unaudited) (unaudited)
Revenue Capital Total* Revenue Capital Total*
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------- ----------- ----------- ------------- ----------- -----------
Losses on investments - (15,317) (15,317) - (8,076) (8,076)
Income from investments 1,454 - 1,454 1,740 - 1,740
Other income 33 - 33 10 - 10
Investment management
fee (1,231) - (1,231) (1,375) - (1,375)
Currency losses - (659) (659) - (1,497) (1,497)
Other administrative
expenses (376) - (376) (490) - (490)
-------------- ----------- ----------- ------------- ----------- -----------
Net return on ordinary
activities before taxation (120) (15,976) (16,096) (115) (9,573) (9,688)
Tax on ordinary activities (59) (39) (98) (121) (758) (879)
-------------- ----------- ----------- ------------- ----------- -----------
Net return attributable
to equity
shareholders (179) (16,015) (16,194) (236) (10,331) (10,567)
-------------- ----------- ----------- ------------- ----------- -----------
Net return per ordinary
share (0.60p) (53.61p) (54.21p) (0.76p) (33.38p) (34.14p)
* 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.
All revenue and capital items derive from continuing
operations.
Statement of Financial Position as at 28 February 2019
At 28 At 31
February August 2018
2019
GBP'000 GBP'000
(unaudited) (audited)
FIXED ASSETS - EQUITY INVESTMENTS
Bangladesh 6,274 6,003
China 31,004 29,892
Hong Kong 19,371 20,752
India 90,208 100,283
Indonesia 31,237 26,268
Malaysia 3,505 7,138
Pakistan 5,511 5,811
Philippines 30,537 32,032
Singapore 18,976 19,371
South Korea 3,114 6,619
Sri Lanka 12,130 14,915
Taiwan 33,469 41,064
Thailand 9,578 9,083
Vietnam 6,080 6,497
Total Equities 300,994 24,777
Net Current Assets 24,777 19,672
------------- -------------
Total Assets less Current Liabilities 325,771 345,400
CAPITAL AND RESERVES
Ordinary share capital 7,853 7,853
Share premium account 34,259 34,259
Capital redemption reserve 58 58
Capital reserve 279,374 295,389
Revenue reserve 4,227 7,841
------------- -------------
Equity Shareholders' Funds 325,771 345,400
============= =============
Net asset value per share 1,090.49p 1,156.20p
Cash Flow Statement for the six months to 28 February 2019
Six months Six months
to to
28 February 28 February
2019 2018
GBP'000 GBP'000
(unaudited) (unaudited)
Note
Net cash outflow from operations
before dividends, interest, purchases
and sales 8 (1,743) (1,810)
Dividends received from investments 1,758 2,156
Interest received from deposits 33 10
Purchases of investments (39,962) (75,320)
Sales of investments 48,914 80,093
---------- ----------
Cash from operations 9,000 5,129
Taxation (134) (892)
---------- ----------
Net cash inflow from operating activities 8,866 4,237
Financing activities
Equity dividend paid (3,435) (3,559)
Buyback of ordinary shares (1) (123)
---------- ----------
Net cash outflow from financing activities (3,436) (3,682)
Increase in cash and cash equivalents 5,430 555
Cash and cash equivalents at the
start of the period 19,046 32,816
Effect of currency losses (659) (1,497)
Cash and cash equivalents at the
end of the period*
23,817 31,874
---------- ----------
*Cash and cash equivalents represents cash at bank
Statement of Changes in Equity
For the six months ended 28 February
2019
Share Capital
Share Premium Redemption Capital Revenue
Capital Account Reserve Reserves Reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------- ---------- --------- ------------ ----------- ---------- -----------
Balance at 31 August
2018 7,853 34,259 58 295,389 7,841 345,400
------------------------- ---------- --------- ------------ ----------- ---------- -----------
Total comprehensive
income:
Return for the
period - - - (16,015) (179) (16,194)
Transactions with
owners recognised
directly in equity:
Dividend paid in
the period - - - - (3,435) (3,435)
Balance at 28 February
2019 7,853 34,259 58 279,374 4,227 325,771
------------------------- ---------- --------- ------------ ----------- ---------- -----------
For the six months ended 28 February
2018
Share Capital
Share Premium Redemption Capital Revenue
Capital Account Reserve Reserves Reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- ---------- --------- ------------ ----------- ---------- -----------
Balance at 31 August
2017 7,853 34,259 58 318,511 8,575 369,256
-------------------------- ---------- --------- ------------ ----------- ---------- -----------
Total comprehensive
income:
Return for the period - - - (10,331) (236) (10,567)
Transactions with
owners recognised
directly in equity:
Buyback of ordinary
shares - - - (123) - (123)
Dividend paid in
the period - - - - (3,559) (3,559)
Balance at 28 February
2018 7,853 34,259 58 308,057 4,780 355,007
-------------------------- ---------- --------- ------------ ----------- ---------- -----------
Notes to Accounts
(1) The condensed Financial Statements for the six months to 28
February 2019 comprise the Income Statement, Statement of Financial
Position, Cash Flow Statement and Statement of Changes in Equity,
together with the notes set out below. They have been prepared in
accordance with FRS 104 'Interim Financial Reporting' and the AIC's
Statement of Recommended Practice issued in November 2014 and
updated in February 2018 with consequential amendments.
(2) The position as at 31 August 2018 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 August
2018.
(3) The return per ordinary share figure is based on the net
loss for the six months ended 28 February 2019 of GBP16,194,000
(six months ended 28 February 2018: net loss of GBP10,567,000) and
on 29,873,784 (six months ended 28 February 2018: 30,954,196)
ordinary shares, being the weighted average number of ordinary
shares in issue during the respective periods.
(4) At 28 February 2019 there were 29,873,784 ordinary shares in
issue and 1,539,879 ordinary shares held in Treasury (31 August
2018: 29,873,784 in issue and 1,539,879 held in Treasury).
(5) Dividends
At At
28 February 28 February
2019 2018
GBP'000 GBP'000
Amounts recognised as distributions
in the period:
Dividend for the year ending 31 August
2018 of 11.5p (2017 - 11.5p), paid 18
January 2019 3,435 3,559
------------- -------------
(6) 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 51 of the Annual Report and
Accounts. The total fee payable to the Investment Manager is capped
at 1.5% per annum of the Company's net assets.
Assuming no change in share price, MSCI AC Asia ex Japan Index
Total Return and shares in issue between 28 February and 31 August
2019, the estimated performance fee for the year ending 31 August
2019 would amount to GBPnil. No performance fee has been accrued in
the six months to 28 February 2019.
(7) Investments in securities are financial assets designated at
fair value through profit or loss on initial recognition. In
accordance with FRS 102 and FRS 104, these investments are analysed
using the far value hierarchy described below. Short term balances
are excluded as their carrying value at the reporting date
approximates to their fair value.
The levels are determined by the lowest (that is, the least
reliable or least independently observable) 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 six month period to 28 February 2019.
(8) Reconciliation of total return on ordinary activities before
taxation to net cash outflow before dividends, interest, purchases
and sales
Six months Six months
to to 28 February
28 February 2018
2019
GBP'000 GBP'000
Net return on activities before taxation (16,096) (9,688)
Net losses on investments 15,317 8,076
Currency losses 659 1,497
Dividend income (1,454) (1,740)
Interest income (33) (10)
Decrease in creditors (125) (3)
(Increase)/decrease in debtors (11) 58
------------ ---------------
Net cash outflow from operations before
dividends,
interest, purchases and sales (1,743) (1,810)
Principal Risks and Uncertainties
Given the nature of its investment activities, the principal
risks that Scottish Oriental faces from its financial instruments
are market risk (comprising interest rate, currency and other 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 15 on pages 56 to 59 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. The Company is also exposed to minimal interest
rate risk on interest receivable from bank deposits and interest
payable on bank overdraft positions.
Going Concern
After making inquiries, and bearing in mind the nature of the
Company's business and assets, which are considered to be readily
realisable if required, the Directors believe that there are no
material uncertainties and that the Company has adequate resources
to continue operating for at least twelve months from the date of
approval of the condensed financial statements. For this reason,
they continue to adopt the going concern basis in preparing the
accounts.
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
Financial Reporting Standard 104 (Interim Financial Reporting),
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 Conduct Authority's
Disclosure Guidance 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 February 2019 and a description of the principal
risks and uncertainties 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 materially
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 and Accounts that could do
so.
The half-yearly report for the six months to 28 February 2019
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
29 March 2019
-- The terms of the interim report and this announcement were
approved by the Board on 29 March 2019.
-- 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 Company Secretary's office at
21 Walker Street, Edinburgh EH3 7HX.
Enquiries:
PATAC Limited, Edinburgh, +44 (0)131 538 6610
1 April 2019
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END
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