TIDMSST
RNS Number : 2054V
Scottish Oriental Smlr Co Tst PLC
13 April 2021
THE SCOTTISH ORIENTAL SMALLER COMPANIES TRUST PLC
Interim results for the six months to 28 February 2021
(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 2021.
Financial Highlights
Total Return Performance for the six months to 28 February 2021
(Unaudited)
MSCI AC Asia ex Japan
Net Asset Value 14.1% Index (GBP) 18.0%
MSCI AC Asia ex Japan
Share Price 15.4% Small Cap Index (GBP) 22.5%
FTSE All-Share Index
(GBP) 12.0%
Summary Data at 28 February 2021 (Unaudited)
Shares in issue 28,156,097 Shareholders' Funds GBP318.79m
Net Asset Value per 1,132.23p Market Capitalisation GBP274.80m
share
Share Price Discount
Share Price 976.00p to Net Asset Value 13.8%
--------------------- ----------- ----------------------- -----------
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$5,000m, or the equivalent thereof, at the time of
investment. For investment purposes, this includes Australasia, the
Indian sub-continent and Japan.
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 80 of the Annual Report and
Accounts* for the year ending 31 August 2020 ("the Annual Report
and Accounts").
*The Company's Annual Report and Accounts for the year ending 31
August 2020 can be found on the Company's website at:
www.scottishoriental.com.
Interim Management Report
Investment Performance
Over the six months ending 28 February 2021, Scottish Oriental's
net asset value ("NAV") per share increased by 14.1 per cent in
total return terms, while the MSCI AC Asia ex Japan Index recorded
a sterling adjusted increase of 18.0 per cent and the MSCI AC Asia
ex Japan Small Cap Index an increase of 22.5 per cent on the same
basis. The Company's share price rose by 15.4 per cent in total
return terms over the period. The Company's NAV outperformed the
FTSE All-Share Index, which rose by 12.0 per cent in total return
terms over the six month period.
The biggest contributor to performance was Scottish Oriental's
large exposure to Indian companies.
The Company also benefited from strong share price performance
from its investments in China, Malaysia and Vietnam. The Company
was negatively impacted by poor performance from its investments in
South Korea, Hong Kong, Pakistan and the Philippines.
The Company's shares traded at a discount ranging from 11.4 per
cent to 18.2 per cent, reflecting the volatility in Asian markets
and continued investor caution, and stood at a discount to NAV of
13.8 per cent on 28 February 2021.
The Company's cash level was GBP9.8 million at the end of the
period, representing 3.1 per cent of net assets. The impact of
Covid-19 on some stocks has offered the opportunity to acquire a
number of companies at reasonable valuations resulting in a notably
reduced cash balance.
Subsequent to the period end, the Company raised GBP30m of debt
at an interest rate of 2.75% fixed for 20 years. We will seek to
invest this money steadily, as we believe the outlook for Asian
equities over a 20 year time frame to be very strong.
Dividend
A dividend of 11.5p per share was paid on 15 January 2021 for
the year ending 31 August 2020 (31 August 2019: 11.5p per share).
It is too early to make a forecast of the distribution for the
current financial year. The Company has never sought to pay high
dividends instead focusing on finding growing companies, which tend
to have lower yields. We expect that any reduced dividend should be
compensated for by higher capital growth from the Company's
investments.
Review
Asian stock markets were strong over the six months ending 28
February 2021. Investor sentiment was positive for most of the
period on expectations of a strong recovery from the impact
Covid-19 has had on the global economy. Stock markets further
benefitted from significant fiscal support from policymakers.
South Korea and Taiwan were the best performing major markets
over the period, driven by strong performance by their large
technology companies which have benefited from increased demand for
semiconductor chips over the past year. The Indian market also
produced strong returns on evidence of an improving economy. Most
other markets rose with only Malaysia and Pakistan producing
sterling losses.
Asian smaller companies outperformed their larger
counterparts.
13 new positions were initiated. Beijing Capital International
Airport and property developer China Overseas Grand Ocean were
purchased on attractive valuations. In India we bought IIFL Wealth
Management for its leading position in the country's growing wealth
management industry; cable manufacturer Kei Industries which has
many growth opportunities; city gas distributor Mahanagar Gas which
has seen its franchise solidified by a recent regulatory review;
temporary staffing provider Quess Corp where a new chief executive
has made many positive changes; and engineering company Thermax
which is seeing demand return after a long fallow period and strong
interest from customers in its clean energy business. In South East
Asia we purchased leading nappy and feminine hygiene brand owner
Uni-Charm Indonesia; Mr DIY, Malaysia's leading home improvement
store; Singapore's Credit Bureau Asia which has a near monopoly on
credit reference services in its home market and further growth
opportunities in Cambodia and Myanmar; and TISCO Financial, a
leading auto finance company in Thailand. We also purchased South
Korea's Zinus an innovator in mattress and furniture retailing and
Taiwan's Parade Technologies which is benefiting from rising demand
for its integrated circuits which facilitate high speed data
transmission.
13 positions were sold. Several Indian holdings were sold
following strong share price performance being cement companies ACC
Limited and Ambuja Cements; chemicals company BASF India; Great
Eastern Shipping; IT outsourcer Zensar Technologies; and Tata
Global Beverages. Hong Kong's Nexteer Automotive Group; Korean
technology firm Leeno Industrial; and Vietnamese conglomerate REE
Corp were also sold following strong share price appreciation. We
sold city gas distributor Towngas China; Chinese online recruitment
platform 51jobs; and Malaysian auto components manufacturer APM
Automotive on disappointing capital allocation. Hatton National
Bank was sold as the Sri Lankan economy looks likely to remain
depressed.
As a result of this, Scottish Oriental's exposure to China,
Indonesia, Taiwan and Singapore rose, whereas exposure to Hong
Kong, India and the Philippines fell. At a sector level, exposure
to Consumer Discretionary and Financials rose, with Materials
falling. Although the number of transactions was high this period,
the bulk of this activity was as a result of profit taking with
proceeds reinvested in companies which we believe have similar
growth potential to those sold but at more reasonable
valuations.
Outlook
The impact that Covid-19 has had on Asia's economies, companies
and people has been significant. This impact has been less severe
in North Asia where governments have performed better at containing
the virus than in South and South East Asia. North Asia's economies
are also more export focused with exports proving more resilient
than domestic consumption. As Asia's economies open up again we
expect consumption to return to normal gradually. One of the key
drivers of exports has been fiscal and monetary stimulus in the
West. This stimulus should not be sustainable but recent activity
by policymakers shows an intent to support economic activity and
markets in the short term at almost any cost.
Expectations are for strong growth in corporate earnings in
2021. Looking at Scottish Oriental's portfolio, many of its
investments are attractively valued, particularly when based upon
measures such as market capitalisation per capita. This is most
obvious in Indonesia and the Philippines where sentiment is
currently poor and smaller companies have lagged over the last few
years. As these economies normalise we expect to see the dominant
franchises the Company owns benefit from significantly improved
levels of profitability which will in turn be reflected in their
share prices. The last year has been tough for many of Scottish
Oriental's holdings but we have been impressed at the actions taken
by their management teams to rein in costs and adapt business
models. As a result we have every confidence in their future
prospects, particularly as the crisis has not been as kind to
weaker competitors.
In the past year there has been much interest by market
participants in the technology and healthcare sectors where growth
potential is believed to be the highest, and excess liquidity has
led to large sums of money bidding up valuations. Many companies in
more traditional sectors with proven business models and high
returns on capital have been left behind despite having strong
competitive positions and there still being much growth to come.
Recently we have seen indications of a broadening in the market
rebound to include such proven but less fashionable companies. We
have not chased valuations in companies that have rallied the
hardest and continue to focus on increasing the quality of the
portfolio by identifying companies that are growing, have strong
competitive positions, and are already highly profitable. We
believe the growth and high returns on capital enjoyed by the
companies in Scottish Oriental's portfolio offers a compelling
proposition.
Income Statement for the six months to 28 February 2021
Six months to Six months to
28 February 2021 29 February 2020
(unaudited) (unaudited)
Revenue Capital Total* Revenue Capital Total*
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------- --------- --------- ------------- ----------- -----------
Gains/(losses) on investments - 46,158 46,158 - (24,954) (24,954)
Income from investments 1,820 - 1,820 1,448 - 1,448
Other income - - - 33 - 33
Investment management
fee (1,158) - (1,158) (1,232) - (1,232)
Currency losses - (98) (98) - (1,888) (1,888)
Other administrative
expenses (426) - (426) (416) - (416)
-------------- --------- --------- ------------- ----------- -----------
Net return on ordinary
activities before taxation 236 46,060 46,296 (167) (26,842) (27,009)
Tax on ordinary activities
(note 3) (273) (3,770) (4,043) (77) (256) (333)
-------------- --------- --------- ------------- ----------- -----------
Net return attributable
to equity
shareholders (37) 42,290 42,253 (244) (27,098) (27,342)
-------------- --------- --------- ------------- ----------- -----------
Net return per ordinary
share (0.13p) 147.56p 147.43p (0.82p) (90.71p) (91.53p)
* 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. This statement
is, therefore, 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 2021
At 28 At 31
February August 2020
2021
GBP'000 GBP'000
(unaudited) (audited)
FIXED ASSETS - EQUITY INVESTMENTS
Bangladesh 4,732 4,952
China 34,744 21,950
Hong Kong 17,002 22,349
India 117,410 113,874
Indonesia 52,910 36,558
Malaysia 3,209 127
Pakistan 3,821 3,317
Philippines 32,460 36,190
Singapore 9,128 3,369
South Korea 7,579 4,422
Sri Lanka - 1,615
Taiwan 19,337 11,367
Thailand 3,841 -
Vietnam 5,368 7,236
Total Equities 311,541 267,326
Net Current Assets 9,572 22,122
Non-current Liabilities (note 3) (2,320) -
------------- -------------
Total Assets less Liabilities 318,793 289,448
CAPITAL AND RESERVES
Ordinary share capital 7,853 7,853
Share premium account 34,259 34,259
Capital redemption reserve 58 58
Capital reserve 272,800 240,134
Revenue reserve 3,823 7,114
------------- -------------
Equity Shareholders' Funds 318,793 289,448
============= =============
Net asset value per share 1,132.23p 992.14p
Cash Flow Statement for the six months to 28 February 2021
Six months Six months
to to
28 February 29 February
2021 2020
GBP'000 GBP'000
(unaudited) (unaudited)
Note
Net cash outflow from operations
before dividends, interest, purchases
and sales of investments 9 (1,589) (1,691)
Dividends received from investments 1,900 1,777
Interest received from deposits - 33
Purchases of investments (83,169) (72,415)
Sales of investments 85,028 58,408
------------ ------------
Cash inflow/(outflow) from operations 2,170 (13,888)
Taxation (1,733) (345)
------------ ------------
Net cash inflow/(outflow) from operating
activities 437 (14,233)
Financing activities
Equity dividend paid (3,284) (3,435)
Buyback of ordinary shares (9,720) -
Net cash outflow from financing activities (13,004) (3,435)
Decrease in cash and cash equivalents (12,567) (17,668)
Cash and cash equivalents at the
start of the period 22,459 40,949
Effect of currency losses (98) (1,888)
------------ ------------
Cash and cash equivalents at the
end of the period* 9,794 21,393
------------ ------------
*Cash and cash equivalents represents cash at bank
Statement of Changes in Equity
For the six months ended 28 February
2021
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 2020 7,853 34,259 58 240,134 7,144 289,448
-------------------------- ---------- --------- ------------ ----------- ---------- ----------
Total comprehensive
income:
Return for the
period - - - 42,290 (37) 42,253
Transactions
with owners recognised
directly in equity:
Dividend paid
in the period - - - - (3,284) (3,284)
Buyback of Ordinary
shares - - - (9,624) - (9,624)
Balance at 28
February 2021 7,853 34,259 58 272,800 3,823 318,793
-------------------------- ---------- --------- ------------ ----------- ---------- ----------
For the six months ended 29 February
2020
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 2019 7,853 34,259 58 295,754 8,140 346,064
-------------------------- ---------- --------- ------------ ----------- ---------- -----------
Total comprehensive
income:
Return for the
period - - - (27,098) (244) (27,342)
Transactions
with owners recognised
directly in equity:
Dividend paid
in the period - - - - (3,435) (3,435)
Balance at 29
February 2020 7,853 34,259 58 268,656 4,461 315,287
-------------------------- ---------- --------- ------------ ----------- ---------- -----------
Notes to Accounts
(1) The condensed Financial Statements for the six months to 28
February 2021 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', UK Generally
Accepted Accounting Principles ("UK GAAP") and the AIC's Statement
of Recommended Practice issued in October 2019.
(2) The position as at 31 August 2020 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
2020.
(3) On 1 April 2018, the Indian Government withdrew an exemption
from capital gains tax on investments held for 12 months or longer.
Indian capital gains tax is now charged on sales of investments at
15% where the investment has been held for less than 12 months,
this is reduced to 10% if the investment has been held for longer
than 12 months.
The Company has incurred GBP1,450,000 of capital gains tax on
the sale of investments in the six months to 28 February 2021 (six
months to 29 February 2020: GBP256,000).
The Company has recognised a deferred tax liability of
GBP2,320,000 (31 August 2020: GBPnil) on capital gains which may
arise if Indian investments are sold.
(4) The return per ordinary share figure is based on the net
return for the six months ended
28 February 2021 of GBP42,253,000 (six months ended 29 February
2020: net loss of GBP27,342,000) and on 28,659,615 (six months
ended 29 February 2020: 29,873,784) ordinary shares, being the
weighted average number of ordinary shares in issue during the
respective periods.
(5) At 28 February 2021 there were 28,156,097 ordinary shares in
issue and 3,257,566 ordinary shares held in Treasury (31 August
2020: 29,174,030 in issue and 2,239,633 held in Treasury). During
the six months ended 28 February 2021, the Company bought back
1,017,933 ordinary shares (year to 31 August 2020; the Company
bought back 699,754 ordinary shares).
(6) Dividends
At At
28 February 29 February
2021 2020
GBP'000 GBP'000
Amounts recognised as distributions
in the period:
Dividend for the year ending 31 August
2020 of 11.5p (2019 - 11.5p), paid 15
January 2021 3,284 3,435
------------- -------------
(7) 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 63 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 2021 and 31
August 2021, the estimated performance fee for the year ending 31
August 2021 would amount to GBPnil. No performance fee has been
accrued in the six months to 28 February 2021.
(8) 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 2021.
(9) 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 29 February
2021 2020
GBP'000 GBP'000
Net return on activities before taxation 46,296 (27,009)
Net (gains)/losses on investments (46,158) 24,954
Currency losses 98 1,888
Dividend income (1,820) (1,448)
Interest income - (33)
Decrease in creditors (1) (31)
Increase in debtors (4) (12)
------------ ------------
Net cash outflow from operations before
dividends,
interest, purchases and sales of investments (1,589) (1,691)
(10) On 23 March 2021 the Company agreed to issue GBP30 million
of long-term, fixed rate, senior, unsecured privately placed notes
providing the Company with long-term financing.
The new privately placed notes are being issued in one tranche:
GBP30 million with a fixed coupon of 2.75% to be repaid 24 March
2041. The coupon will be payable semi-annually. The funding date
was 24 March 2021.
Principal Risks and Uncertainties
The principal and emerging risks faced by the Company are;
investment objective and strategy, investment performance,
financial and economic, operational and regulatory. These risks
have not changed since the publication of the Annual Report and
Accounts. 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 on pages 28 and 29 of
the Annual Report and Accounts. Scottish Oriental's assets mainly
comprise listed equities though the significant market volatility
resulting from the outbreak of Covid-19 may impact liquidity in the
underlying portfolio. The Investment Manager monitors portfolio
liquidity and manages this to ensure the Company maintains
sufficient levels of liquidity to operate effectively. 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, the Directors believe 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 financial statements.
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 2021 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 2021
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
12 April 2021
-- The terms of the half-yearly financial report and this
announcement were approved by the Board on 12 April 2021.
-- Copies of the half-yearly financial 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 28 Walker Street, Edinburgh EH3 7HR.
Enquiries:
PATAC Limited, Edinburgh, +44 (0)131 378 0500
12 April 2021
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