REG - Scottish Oriental - Final Results
12/11/2025 07:00
For best results when printing this announcement, please click on link below:
https://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20251112:nRSL1247Ha&default-theme=true
RNS Number : 1247H Scottish Oriental Smlr Co Tst PLC 12 November 2025
THE SCOTTISH ORIENTAL SMALLER COMPANIES TRUST PLC
Annual Financial Report for the year ended 31 August 2025
· During the year under review the Company's Net Asset Value
('NAV') Total Return decreased by 1.6 per cent., compared to the MSCI AC Asia
ex Japan Small Cap Index return of 8.2 per cent and the MSCI AC Asia ex Japan
Index return of 16.6 per cent.
· The Board is proposing a final dividend of 2.9p per share (2024:
2.8p* per share) and an additional special dividend of 0.5p per share (2024:
1.6p* per share).
Financial Highlights
Total Return Performance for the year ended 31 August 2025
Net Asset Value (1.6)%(A) MSCI AC Asia ex Japan Small Cap Index (£) 8.2%
Share Price 3.5%(A) MSCI AC Asia ex Japan Index (£) 16.6%
Final dividend of 2.9p per share FTSE All-Share Index (£) 12.6%
Summary Data at 31 August 2025
Shares in issue 115,116,330 Shareholders' Funds £381.9m
Net Asset Value per share 331.7p Market Capitalisation £345.3m
Share Price 300.0p Share Price Discount to Net Asset Value(A) 9.6%
Ongoing Charges Ratio(AB) 0.99% Active Share (MSCI AC Asia ex Japan Small Cap Index)(C) 97.7%
Ongoing Charges Ratio (excluding performance fee) (AB) 0.99%
(A) Alternative Performance Measure
(B) No performance fee is payable for the year ended 31 August 2025 (2024:
£98,000), please refer to note 2 on page 55 of the Annual Report for more
details.
(C) The Active Share ratio figures illustrate the extent to which The Scottish
Oriental Smaller Companies Trust plc's portfolio differs from the index; 100
per cent would indicate that there is no overlap whatsoever.
* Adjusted for the five-for-one share split.
A Glossary of Terms and Alternative Performance Measures is provided on pages
66 to 68 of the Annual Report.
Chairman's Statement
I am pleased to present the Annual Report of the Company for the year ended 31
August 2025, my fourth as Chairman.
Investment Performance
During the year under review the Company's Net Asset Value ('NAV') Total
Return decreased by 1.6 per cent. This was disappointing compared to the
returns of the MSCI AC Asia ex Japan Small Cap Index, the MSCI AC Asia ex
Japan Index, and the FTSE All-Share Index which were 8.2 per cent, 16.6 per
cent and 12.6 per cent respectively during the same period. The Company's
share price rose by 2.0 per cent during the period under review, which,
including the dividend, produced a Share Price Total Return of 3.5 per cent.
In the year to 31 August 2025, Asian equity markets were positive overall but
volatile, with performance led by a narrow group of larger technology stocks,
particularly in China. This concentration of returns was also a theme within
smaller companies where those exposed to the semi‑conductor and artificial
intelligence sectors did particularly well in the second half of the year.
While this backdrop proved challenging, our Portfolio Managers - who are
bottom-up investors - remained focused on identifying well-run businesses with
strong competitive advantages and the ability to deliver attractive returns on
capital. Market volatility during the year provided opportunities to add to
such quality companies at more appealing valuations, even if these investments
have yet to be reflected in short-term market performance. We remain confident
that smaller, well-managed Asian companies offer compelling long-term
potential, particularly where they are supported by powerful structural and
demographic growth trends.
In their report starting below, the Portfolio Managers provide an interesting
review of the history of the Company which explains how the portfolio has
evolved since the launch of the Company, and the challenges which they have
faced. Whilst they do highlight mistakes over this period, these mistakes have
helped the Portfolio Managers to learn and identify potential "red-flags"
ahead of any new investment. Despite the challenges faced, the Company has
been one of the top performing investment trusts since its launch in 1995.¹
I would encourage shareholders to keep up to date on the performance of the
portfolio through the Company's website at www.scottishoriental.com
(http://www.scottishoriental.com) .
Discount Management
Although investment performance has not been as strong as in previous years,
it is welcome to report that the share price discount to NAV had substantially
narrowed to 9.6 per cent as at 31 August 2025 (31 August 2024: 14.0 per cent).
During the year, the Company bought back 2,772,500² ordinary shares
representing 2.4 per cent of shares in issue as at 31 August 2024. The
Company's average discount during the period was 14.2 per cent (2024: 14.5 per
cent). The Board continues to use discretion to re-purchase shares in the
market in order to help manage both the level and volatility of the discount.
Since the year end the Company's discount has widened to 13.1 per cent and the
Company has increased the rate and quantum of buybacks, repurchasing a further
1,235,848 shares.
Marketing
The Board, together with the Investment Manager, place emphasis on raising the
Company's profile and engaging effectively with both existing and potential
shareholders through a proactive marketing campaign.
Building on the progress achieved under the refreshed marketing strategy a
further phase of the marketing campaign went live in October 2025. This phase
will continue to raise awareness of the Company with a focus on print and
digital media across various target publications such as FT, Yahoo Finance,
Reddit, The Telegraph, The Times and Investors Chronicle.
Both the Board and the Manager are committing additional resources to support
the ongoing marketing activities with the aim of attracting new shareholders.
Revenue and Final Dividend
The Company's revenue earnings have decreased from 5.55p per share to 4.51p
per share. Although revenue has decreased, it has remained strong enough to
allow the Board to propose an increased final dividend of 2.9p per share
(2024: 2.8p²). Following a reduction in special dividends received in the
year to 31 August 2025 the Board proposes a reduced special dividend of 0.5p
per share (2024: 1.6p²). The final and special dividends will be paid on 6
February 2026 to shareholders on the register as at 9 January 2026.
Share Split
At the Company's Annual General Meeting held on 29 January 2025, shareholders
approved a five for one share split. The Company's share price had risen to
£14.65 (as at 29 January 2025) and the share split was implemented with the
aim of assisting monthly savers and those who reinvest their dividends or are
looking to reinvest smaller amounts. In addition, the share split should
improve liquidity in the Company's shares to the benefit of all shareholders.
Board Composition
The Board's composition is undergoing a planned period of transition to ensure
continuity and ongoing effectiveness. Having advised that she will be unable
to continue to devote the necessary time to Board duties due to family
commitments, Uma Bhugtiar retired from the Board on 28 October 2025. Andrew
Baird, who has served on the Board since June 2017, will retire in June 2026.
To ensure succession planning is implemented in a phased manner, I, as
Chairman, having served on the Board since March 2017, intend to retire in
June 2027.
The Board has commenced a recruitment process to identify and appoint suitably
qualified successors in advance of these planned retirements, to maintain an
appropriate balance of skills, experience and independence. An update on this
process will be provided in due course.
Annual General Meeting
The Annual General Meeting ('AGM') of the shareholders of the Company will be
held on Wednesday, 28 January 2026 at the offices of Juniper Partners, 28
Walker Street, Edinburgh at 12.15pm. The Board looks forward to meeting as
many of you as possible who can attend the meeting in person.
As always, the Board welcomes communication from shareholders throughout the
year, and I can be contacted directly through the Company Secretary at
cosec@junipartners.com.
Jeremy Whitley
Chairman
11 November 2025
¹ AIC - The 50 investment trusts that would have made you an ISA millionaire.
(https://www.theaic.co.uk/aic/news/press-releases/the-50-investment-trusts-that-would-have-made-you-an-isa-millionaire)
² Adjusted for the five-for-one share split
Portfolio Managers' Report
In this report, we address the following topics:
1. Company Performance
2. History doesn't repeat, but it rhymes
3. Recent Portfolio Activity
4. Ten Largest Investments as at 31 August 2025
5. Sector & Geographic Analysis
6. Portfolio Outlook
1. Company Performance
Scottish Oriental's performance was disappointing over the past year. Its net
asset value fell by 1.6%, compared to a gain of 8.2% in the MSCI AC Asia ex
Japan Small Cap Index. In particular, during the second half of the reporting
period (subsequent to "Liberation Day" in the United States of America), we
witnessed a sharp concentration in returns favouring semiconductor and
artificial intelligence related companies in Taiwan, Korea and China. The
Trust's exposure to these sectors is low. In contrast, smaller companies in
India, Indonesia and the Philippines, particularly those in the consumer
sectors, did not keep pace with the returns delivered by the index. This trend
of weak relative performance for Scottish Oriental has persisted subsequent to
the reporting period as well.
Over the thirty years during which the Trust has operated, we have witnessed
similar periods of exaggerated expectations, particularly during times of
technology change. The investment philosophy and process which guide our
portfolio decisions remain unchanged.
We continue to spend our time meeting companies across markets, with recent
visits to all the Asian economies to which the Trust is exposed. These visits
have led to robust idea generation across a range of sectors. Scottish
Oriental's portfolio comprises a group of market-leading businesses in
under-penetrated categories. These companies are led by experienced management
teams, operate in large addressable markets with significant growth
opportunities and have a track record of earning high returns on capital
employed (ROCE) based on disciplined capital allocation. We are excited about
their potential to emerge as the large companies of the future.
Top Five Contributors
Company Country Sector Absolute Return (Sterling) % Contribution Performance %
NetEase Cloud Music China Communication Services 180.2 3.8
DPC Dash China Consumer Discretionary 28.7 2.3
Uni-President China China Consumer Staples 37.4 1.9
JNBY Design China Consumer Discretionary 58.6 1.9
Radico Khaitan India Consumer Staples 35.3 0.6
The key contributors for Scottish Oriental's performance include:
NetEase Cloud Music is the second-largest online music platform in China, and
is part of an attractive duopoly with Tencent, the market leader, which gives
both firms strong pricing power. The company reported strong growth in profits
in 2025 thanks to an increasing number of paying subscribers. Non-subscription
music revenue also grew, due to a rise in digital album sales, but revenue
from other areas, such as social entertainment services, declined. The company
is optimising its strategy to focus on its core music business, where we see
further revenue upside potential, as a result of the platform's young user
base and high retention rate.
DPC Dash is the exclusive franchise operator of Domino's Pizza in China. Its
shares rose this year owing to strong store profitability, which exceeded
analyst expectations. The company continued to show strong momentum in new
openings, adding 190 stores in the first half of the year. DPC Dash now
operates more than 1,000 stores across China and boasts increasing brand
recognition and customer loyalty.
Uni-President China, which operates leading instant noodle and beverage brands
in China, rose after reporting consistent growth led by stronger distribution
and market share gains compared to its leading competitor.
JNBY Design is the leading premium fashion apparel retailer in China. The
company's shares rose after it posted an increase in revenues and profits.
JNBY continued to benefit from the strength of its product portfolio, which
encompasses diverse brands that cater to different demographics, and from
customers enrolled in its annual membership scheme.
Radico Khaitan is one of the largest spirits companies in India, whose
flagship product, Magic Moments, is the leading vodka brand in the country.
Its shares rose after it reported strong sales and market-share gains despite
subdued consumer sentiment in its domestic market. The company also shared an
optimistic outlook for its portfolio of premium-brand spirits, driven by
ongoing premiumisation and demographic tailwinds.
Top Five Detractors
Absolute Contribution Performance %
Company Country Sector Return
(Sterling) %
Colgate-Palmolive (India) India Consumer Discretionary -40.1 -2.1
Philippine Seven Philippines Consumer Staples -31.6 -1.5
Uni-Charm Indonesia Indonesia Consumer Staples -55.9 -1.0
Whirlpool of India India Consumer Discretionary -46.6 -0.7
Kansai Nerolac Paints India Materials -24.3 -0.7
Colgate-Palmolive (India) is the leader in oral care in India. After a period
of exceptional performance, the company's shares declined in 2025 due to
greater competition and concerns about its growth in light of the challenging
demand environment. However, the company maintains a solid franchise with high
barriers to entry. It is currently working on a reformulation of key products
such as Colgate Strong Teeth toothpaste, which will provide higher efficacy
and improved taste and should help drive improvements in sales growth. The
recent reduction in Goods & Services Tax in the oral care category is
likely to improve product affordability and support a revival in demand.
Philippine Seven is the exclusive franchise operator for 7-Eleven stores in
the Philippines. The company's shares declined after it reported disappointing
earnings results. Same-store sales fell due to a mixture of factors, including
a disruption to the real estate market in Metro Manila, and a problem with the
e-wallet system used by the chain's payments partner. Seasonal typhoons also
had an impact in July and August 2025. However, the group continues to expand
its store-count lead over its competitors, and we believe the risk-reward
looks compelling at current valuations.
Uni-Charm Indonesia has a dominant position in the sale of sanitary products
in Indonesia, led by the premium brand positioning and technology of its
parent, Unicharm Japan. The company reported a fall in revenues and profits
in 2025, as it grappled with increasing competition from local peers, which
engaged in aggressive distribution and pricing strategies.
Whirlpool of India has a strong position in several consumer durable products
in India, such as refrigerators, washing machines and air conditioners. The
company reported an improvement in its profitability and market shares during
the year. However, its share price declined as its parent, Whirlpool
Corporation, announced a planned reduction in its stake in the business, to
de-leverage its balance sheet.
Kansai Nerolac Paints is a leading Indian manufacturer of decorative paints
and industrial and automotive coatings. The company registered disappointing
sales in its decorative paints business due to subdued consumer sentiment,
increased competition, and operational disruptions in the north of the country
amid geopolitical tensions between India and Pakistan. However, the company's
longer-term prospects look bright, particularly in its automotive and
industrial businesses, which continue to benefit from ongoing premiumisation
trends in India.
2. History doesn't repeat, but it rhymes:
30 years of investing in Asian Smaller Companies
As 2025 marks the thirtieth anniversary of the founding of Scottish Oriental,
this is a good time to look back at the history of the Trust and the factors
that have helped and hindered our investments in Asian smaller companies
during the period.
Over the past three decades, Asia has transformed beyond recognition. The
Trust has witnessed the currency collapses of the Asian Financial Crisis, the
tech-driven boom and bust of the dotcom era, the upheavals of the Global
Financial Crisis, and the wrenching dislocations that followed the outbreaks
of SARS and Covid-19. We have watched China's ascent to become a technological
superpower and India's emergence as a regional growth engine.
While these events have posed challenges, they have also created immense
opportunities. As bottom-up investors, we are constantly on the lookout for
well-run businesses with strong competitive advantages and the ability to
deliver attractive returns on capital. In this section, we review the
evolution of the portfolio since 1995 and lessons we have learnt from managing
the Trust's assets through periods of both profound crisis and robust growth.
At a time when hype around new technology is once again fuelling an investor
frenzy, the past may well prove to be a useful guide.
1995-1999: After launch, an immediate test
When Scottish Oriental was established in March 1995, the investing landscape
in Asia looked very different from today. Hong Kong was still a British
colony, with the China handover still two years away. Markets that have since
become mainstays of global investment portfolios - including mainland China,
India, South Korea and Taiwan - were difficult for foreign equity investors to
access. Others, including Vietnam, Pakistan and Bangladesh, were closed to
foreigners altogether.
This context shaped how the Trust deployed its initial £23.7 million in
capital. Hong Kong and Singapore, which boasted relatively well-developed
stock markets and a growing number of listed smaller companies, received the
bulk of the investment. By contrast, mainland China and India combined
accounted for a mere 1.6% of the portfolio by the close of the Trust's first
financial year.
At this early stage, the portfolio was spread across a large number of
holdings - over 100 in total - partly as a way to diversify risk at a time
when many smaller Asian firms had short trading records and had yet to be
tested in difficult market conditions.
We did not need to wait long for such conditions to arrive. In July 1997, the
Thai government, grappling with a widening current account deficit, was forced
to sharply devalue the baht. This move catalysed the Asian Financial Crisis.
On the eve of the crisis, 18% of Scottish Oriental's investment portfolio was
held in Thailand, and more than 55% in the broader Southeast Asian region. Net
asset value plunged 57.3% in the 1998 financial year. But the investment
team's long-term, fundamentals-orientated philosophy came into its own amid
the fallout, as opportunities emerged to buy strong companies at a discount.
"For those willing to trawl the regional markets for smaller fry, there are
exceptional bargains to be found," portfolio managers wrote in their yearly
review, pointing to their confidence in the high-quality management teams
among holdings. "When the economic recovery comes - and it will - we expect
that profit growth and subsequent stock market re-ratings will astound even
the most optimistic investor."
The following year, a rebound in the value of the Trust's holdings bore this
prediction out: net asset value rose by 112%, and the share price by 145%. The
crisis had proved a useful stress-test, not just of the Trust's nascent
portfolio, but of the wider universe of smaller Asian companies.
2000-2004: From the dotcom bubble to the China boom
By 2000, Asian markets were frothy with investor exuberance once again. The
excitement surrounding Silicon Valley Internet companies spilled over into
Asia, with sharp rises in the valuations of tech-related stocks, particularly
those in India and Taiwan.
The dotcom bubble burst in March of that year, when the US tech index
corrected and the value of many popular internet stocks collapsed,
contributing to a US recession over the subsequent months. Global growth
slowed and Asian markets fell sharply, but Scottish Oriental preserved
capital, largely thanks to disciplined stock selection. Holdings in companies
exposed to domestic consumption, which remained resilient across the region
were major contributors to overall returns. We also began to find more
attractive opportunities in India, where corporate governance was improving
and smaller companies were starting to benefit from trends such as the rise in
service-sector outsourcing among large Western firms.
2005-2009: A focus on resilience
By the time of the Trust's tenth anniversary in 2005, the investment team
observed positive longer-term structural developments such as a fall in
corporate debt and a flourishing dividend culture in many parts of Asia.
Nevertheless, valuations were becoming steep.
By August 2007, the Portfolio Manager's Review was questioning "the investment
community's appetite for risk" in the face of "the deteriorating outlook for
America's sub‑prime debt market". That year, the Trust sold shares in
several Chinese companies on fundamental valuation grounds, mostly those with
exposure to the US economy. "In its pursuit of capital preservation as well as
growth, the Trust's Board and its Investment Manager have always accepted that
it is sometimes necessary to forego short-term gains," as the Review put it.
Over the following two years, as the Global Financial Crisis engulfed the
world's markets, the investment team strived to maintain its focus on
companies with robust franchises and low debt burdens. Scottish Oriental's
enduring commitment to consumer-facing firms in Southeast Asia through this
challenging time reflected our belief that citizens, companies and
policymakers in the region had learned valuable lessons from the Asian
Financial Crisis. Having suffered through that episode, households had
generally kept their savings high and their debts low; companies, too, were
far less leveraged than they had been a decade earlier.
The portfolio's exposure to these kinds of firms was a factor in the Trust's
outperformance when market sentiment turned in 2009. Scottish Oriental's net
asset value increased 20% that year (compared with a rise of 9% for the MSCI
Asia ex-Japan Index and 19.2% for the MSCI Asia ex-Japan Small Cap Index),
with holdings in Thailand, Malaysia, Indonesia and the Philippines among the
positive contributors.
2010-2014: A pivot to India
Companies in Taiwan and South Korea began to account for a larger proportion
of the portfolio during this decade. The most significant shift, however, was
the increase in the Trust's allocation to India, which leapt from 1.5% of the
portfolio in 2012 to 10.7% in 2013.
While the Portfolio Manager Review of that year noted increasing appetite
across the country for muchneeded political reforms, the rise in India
exposure was not a "top down" bet on the direction of the Indian economy.
As always, the Trust's asset allocation was a function of the investment
team's stock selections, and we had begun to identify numerous high-quality
Indian franchises that would be able to prosper even in the event that GDP
growth remained soft.
2015-2019: Consolidation of the portfolio
This period saw a gradual shift in the portfolio, away from mature economies
in ASEAN to India, Indonesia, Philippines and China. Many consumer companies
had reached expensive valuations after many years of strong consumer spending
in the Association of Southeast Asian Nations (ASEAN) region; around this
time, we also noticed declining earnings growth among firms with operations in
important markets such as Singapore and Malaysia, as these economies matured.
Steering clear of such value traps, we began to consolidate our Southeast Asia
holdings into higher-conviction investments in Indonesia and the Philippines.
These markets had much lower penetration levels across categories which
provided companies with a stronger runway for growth.
Troubled by a rise in debt across the region in these volatile circumstances,
we prioritised investments in companies with net-cash balance sheets and paid
careful attention to firms that looked at risk of being caught in the
geopolitical crossfire. We undertook an in-depth review of the portfolio in
2019, stepping up our meetings with management teams to assess their fitness
for purpose in an increasingly challenging macroeconomic environment. In cases
where we couldn't build true conviction in a company's prospects, we opted to
divest. The Trust's portfolio was also consolidated significantly, with the
share of the top ten and twenty holdings increasing consistently, following
increased conviction in their prospects.
2020-2024: The pandemic and recovery
Like many crises, the Covid-19 pandemic happened gradually, then suddenly.
Rumours of a virus circulating in central China quickly gave way to global
panic, as governments around the world imposed movement restrictions to curb
transmission. In most cases, the testing conditions of the pandemic reassured
us of the strengths of key holdings, and we saw opportunities to deploy the
dry powder we had built up before the crisis hit. While movement restrictions
in India, Philippines and Indonesia continued to affect our investments in
those markets into 2022, the broader portfolio performed well in both absolute
and relative terms between 2021 and 2024. As the crisis eased and economies
reopened, we resumed in-person meetings and spotted an increasing number of
interesting opportunities in China, where some smaller companies were showing
an ability to grow consistently through gaining market share despite the weak
performance of the Chinese economy. Examples included DPC Dash, the exclusive
franchise operator of Domino's Pizza in China, and online music platform
NetEase Cloud Music.
We funded these purchases partly by selling some of our Indian holdings, which
had risen to unreasonably high valuations. Although India continued to be the
portfolio's top country exposure, we also added some geographic
diversification, taking advantage of greater flexibility in the Trust's
mandate to acquire our first, small position in New Zealand in 2024.
Staying the course: 2025 and beyond
Comparing the Trust's holdings in 2025 with its first investments in 1995,
it's difficult not to be struck by the differences. Thanks to our efforts to
consolidate into higher-conviction holdings, there are now just 55 companies
in the portfolio, down from over 100 in 1995, and the top 10 investments
account for 40% of shareholders' funds, compared with just over 22% three
decades ago. Exposure to mainland China and India has risen from 2% to over
60%, reflecting the staggering economic expansion and rapid pace of new
company formation in these countries over the last 30 years.
Despite the changes, the Scottish Oriental portfolio remains the outcome of
the same bottom-up, long-term, conservative methodology that has driven the
Trust's investments since the beginning. The rationale behind our holdings -
businesses that are well managed by executives with whom we feel aligned as
minority shareholders, many of them strong franchises in under-penetrated
consumer categories with long runways for growth - would have been immediately
recognisable to the Trust's first investment team three decades ago. While the
investment philosophy and process remain unchanged, the economic landscape in
Asia is evolving rapidly. This is creating opportunities for the Trust. Some
of these changes are detailed below.
(1) The consumer landscape across the region is evolving. As per-capita
incomes in the region have grown, consumers in large Asian economies such as
China and India are rapidly shifting from consumer staples to more
discretionary forms of consumption. This has led to rapid growth in domestic
travel, leading to Atour Lifestyle expanding its network of managed hotels in
China. In India, the property cycle remains robust, with aspirational
consumers buying their first homes. This is leading to robust growth in demand
for air-conditioners, paints and wires & cables, which has been a tailwind
for companies including Blue Star, Akzo Nobel and KEI Industries. The recent
initiative of the Indian government to reduce indirect taxes across several
consumer categories is expected to spur consumption in the country.
(2) The changes in global supply-chains started with the inception of the
trade tensions in 2018 and have accelerated recently. Over this period,
manufacturers in Asia have invested in technology, expanded their product
portfolios and used their cost-efficiency to enhance their competitiveness.
They are also using their market-leadership in their domestic businesses as a
launchpad to build larger operations globally. This includes companies such as
Hongfa Technology, which has emerged as the market leader in manufacturing
relays, Airtac International, one of the largest pneumatic component
manufacturers in China, and Haitian International, the world's largest
manufacturer of plastic injection moulding machines. As their customers
navigate a more complex trade situation by optimising their manufacturing
footprint, these companies are gaining market share in their respective
categories.
(3) A marked shift has been the increasing technological intensity among
enterprises and the daily lives of consumers. This has thrown up several
opportunities for us. It includes the emergence of new consumer platforms,
such as NetEase Cloud Music, a leading music streaming platform in China which
has built a strong proposition for younger consumers. The proliferation of
consumer hardware and penetration of technology into areas such as automotive
and industrial applications, has also created tailwinds for companies such as
Silergy and Sporton International, which have strong positions in different
parts of the value-chain from designing integrated circuits to testing
consumer products. Enterprises have also required increased support as they
navigate changes in the technology landscape, from the emergence of digital
applications to the transition to cloud-based technology infrastructure. FPT
in Vietnam has built a leading position in helping Japanese enterprises adapt
to these emerging technologies, which it is now using to expand to other large
global markets.
An equally relevant aspect of the Trust's evolution over the past thirty years
is the mistakes we have made. While painful, the lessons learnt from these
have helped to strengthen our investment process and informed our portfolio
construction today.
Learning the lessons: Three big investment mistakes
While there is much to be proud of in our record of managing Scottish
Oriental's portfolio since 1995, we must also acknowledge some significant
investment mistakes over the last 30 years. Looking back, these have tended to
fall into three broad categories.
First, investing in companies with a limited track record. While we prefer to
invest in firms that have proven their ability to generate cashflows and
deliver returns on capital over the long term, we occasionally make exceptions
where we see emerging opportunities. But this has led to some missteps.
The most relevant example here is India's Solara Active Pharma, in which we
took a stake in 2021. The opportunity for the company was to supply active
pharmaceutical ingredients to large global customers, who were looking for
alternative supply sources due to the shutdowns in China during the pandemic.
Due to the company's limited track record, we were unable to assess the extent
of exceptional demand they were witnessing. As the Covid-19 related
restrictions eased, demand moderated back to historical levels. Only a matter
of months later, the company reported a decline in sales, owing to oversupply
of its main product; it also wrote down the value of its inventory.
The lesson we have learnt is that to avoid investing in newly listed companies
unless we have spent a few years observing the track record of the business
and the management team. As a result, we started engaging with the management
of Niva Bupa Health Insurance in 2021, three years before the business listed
in India. Our engagements with its management team, reference checks with
competitors, discussions with its existing shareholders as well as retired
members of its Board of Directors helped us gain conviction in the long-term
opportunity for health insurance in India, the strong pedigree of its
management, as well as the support from Bupa, its largest shareholder. This
allowed us to participate in its Initial Public Offer in 2024 and we have
added to the Trust's holdings subsequently.
Second, investing in companies that expand too aggressively, taking on too
much debt. As long-term investors, we tend to prefer firms that can deliver
steady organic growth over many years, rather than those that chase outsized
returns in the short term, but we have on occasion mistaken the latter for the
former. One such company was Ezion Holdings, an engineering procurement and
construction (EPC) business operating in the oil & gas industry. The
management had used debt to expand its operations. When oil prices declined in
2015, many of its customers delayed payments, leading to a stretched working
capital position and further increase in Ezion's debt levels. While we exited
the holding before its financial position deteriorated, the lesson learnt was
to avoid owning businesses with leveraged balance sheets. This remains a key
tenet of our investment process, and almost all of Scottish Oriental's
portfolio companies today operate with net-cash balance sheets. This allowed
the Trust's holdings to gain market share during periods of disruption such as
the Covid-19 pandemic, as their smaller competitors with stretched balance
sheets are often unable to survive such periods.
A related mistake is picking the wrong owners and managers. Due diligence on
management teams is a key pillar of our investment approach. Having built
strong networks across the region, we routinely meet not only the senior
executives of prospective holdings, but also their suppliers, customers,
competitors and distributors, in the interests of building a rounded picture
of the reputation of management teams.
This doesn't mean we always make the right calls. We have occasionally
misjudged management quality in our haste to take advantage of a seemingly
unmissable opportunity. For instance, we initiated a position in Philippines
cement producer Cemex Holdings in 2017. The main problem was a lack of
alignment with the company's management. This included their decision to avail
of a US$75m revolving credit facility from a related party to the company and
an unjustifiably hefty 5% annual royalty being extracted from the business by
its parent. Following this experience, we became increasingly proactive about
engaging with management teams through letters on issues ranging from the
composition of their Board of Directors to remuneration policies,
environmental practices and capital allocation issues. Through these
engagements, we observe the approach of the owners and managers in dealing
with their stakeholders. In some cases, such as Century Pacific Food in the
Philippines, our conviction in the quality of stewardship of the management
was strengthened by our engagement on issues including related party
transactions, environmental and social practices. The company's majority
owners agreed to inject a privately owned business, at book value, into the
listed company to enhance alignment with minority shareholders. Our subsequent
engagements on their environmental and social practices, including the risks
of modern slavery in the fisheries supply chain, also convinced us of their
willingness to look beyond the immediate quarters to issues which can impact
the company's social license to operate over the long term. Given the
substantial growth opportunity in its categories as well as the quality of its
management team, we added to the Trust's holding in the company.
We continually engage with each of the Trust's portfolio companies on issues
of strategic relevance. These engagements also help us build strong
relationships with their leadership teams and aid us in our decision making
process.
3. Recent Portfolio Activity
The team undertook a busy programme of research visits to Asian countries this
year. We identified particularly attractive opportunities in China, where
valuations continue to look relatively cheap despite an upturn in market
performance in 2025 following government efforts to strengthen the economic
recovery via policies to support consumer demand. The team also found
attractive buying opportunities in other markets including India, Taiwan and
Australia.
Among the China additions was Haitian International, the global market leader
in plastic injection moulding machines. The company's long-term track record
is decent, and strong recent orders suggest it is emerging from an industry
downcycle. We believe continued domestic market share gains, product upgrades
and expansion into overseas countries - where the company's market share is
currently small - could fuel future growth.
Atour Lifestyle is a Chinese asset-light hotel management company, which
offers premium services to hotel franchisees. Atour works with the franchisee
to source new properties, then sends two hotel managers to oversee the
property, instil premium services and deliver training to the rest of the
hotel staff. Atour has developed a membership program to create a lower-cost
distribution channel, passing on the cost savings to both hotel guests (who
benefit from lower room prices) and hotel franchisees (in the form of lower
booking fees). This fosters greater loyalty to the Atour brand, which attracts
more guests and franchisees, resulting in a natural flywheel effect. We
believe Atour will continue to benefit from a broader consumption upgrade
trend in China over the coming years, as travellers demand better rooms
and services.
Stella Holdings is a Chinese manufacturer of shoes for leading global brands,
ranging from Nike to the luxury conglomerate Louis Vuitton Moët Hennessy. The
current CEO is the nephew of one of the founders and has been leading the firm
since 2019. We think this generational change has been positive, with the
focus shifting from casual shoes to sports, fashion and luxury segments, which
have higher gross margins and lower working capital needs. Our channel checks
indicate the firm's culture is stable and risk-aware. Valuations are
attractive, and the firm is returning cash to shareholders via special
dividends and buybacks.
Voltronic Power is a leading Taiwanese original design manufacturer of
uninterruptible power supply (UPS) devices, which provide backup protection
for electronic equipment in the event of a failure in the main power source.
The company has an exceptional culture and a strong track record of execution,
having successfully gained wallet share over recent years thanks to its focus
on good customer service and the cost advantage it offers versus peers.
Voltronic faces limited direct competition and should continue to benefit from
a steady growth in demand.
Sporton International is a leading electromagnetic testing company in Taiwan,
focused on the mobile smartphone and electronics industries. It has high
market share in this lucrative niche and is strongly cash generative,
delivering consistently high return on capital employed and offering decent
shareholder returns. The advent of augmented-reality glasses and AI-powered
devices could provide the company with new opportunities for growth in the
future.
Our India purchases included Niva Bupa Health Insurance, a leading health
insurance company that is majority owned by Bupa. It has been consistently
gaining market share in the under-penetrated health insurance segment. India's
per capita spending on health insurance is much lower than other emerging
economies - at US$22, compared with $126 in Thailand, $155 in Mexico and $200
in China - which suggests Niva Bupa should have a long runway for growth.
Godrej Agrovet Ltd is a diversified agricultural business in India that has
undergone strategic changes in recent years. Now under new management, the
company is taking steps to simplify its operations and improve its return on
capital employed. Godrej is seeing especially strong growth in its palm oil
business, where it is planning to move away from selling commoditised crude
palm oil towards more value-added products.
KEI Industries is a leading Indian cables and wires company. The company
started as an institutional / tender business, which evolved into a
diversified retail franchise. Its track record of growth and return on capital
employed has been solid, while customer concentration has reduced and cash
conversion has improved. The company is now expanding into high-voltage
cables, which can be used in data centres and electric-vehicle charging
stations. We believe the quality of the business has increased significantly
in recent years, and it still has room to grow.
Crisil Limited is the largest credit-rating agency in India, majority owned by
S&P Global. The company's impressive management has built the business
over two decades through astute M&A and organic expansion into new
segments. Today, 40% of Crisil's profit derives from its domestic ratings
business, which is in a strong position and should sustain steady growth and
attractive profitability. The remaining 60% derives from its global research
business, which faces tougher challenges in the short term. Nevertheless, we
are confident Crisil will be able to successfully access new client segments
such as commercial banks and wealth managers in the US.
Unilever Indonesia has been the market leader in the Indonesian fast moving
consumer goods (FMCG) industry for several decades. Ten years ago, it was a
very successful and highly rated company, and we owned it in the portfolio. We
sold after the company became complacent thanks to its very high margins and
market share. However, it is now taking steps to improve its growth prospects
in what is an increasingly competitive consumer market in Indonesia, and we
were able to acquire a stake at an attractive valuation.
GT Capital is a Philippines conglomerate which owns a majority stake in Toyota
Motor Philippines and a significant stake in Metropolitan Bank, as well as
operations in insurance, real estate and infrastructure. The owning family has
built up a decent track record of capital allocation in challenging economic
circumstances; several of the company's businesses enjoy strong market
positions and are set to benefit from steady growth. The family's overall
strategic approach is admirably conservative, and it has undertaken
significant deleveraging of the balance sheet in recent years.
Mobile World Investment is a leading electronics retailer in Vietnam. We have
been impressed by the company's robust track record of organic growth, its
customer-focused culture and the strong alignment we share with its core
management team, which has been in place for two decades. We regard Chairman
Nguyen Duc Tai and his team as among the most capable leaders in Vietnam's
retail landscape. As well as strong growth in its core business, Mobile World
is currently benefiting from continued store expansion and increased profits
at Bach Hoa Xanh, its emerging grocery business.
Guzman Y Gomez is the leading Mexican-focused quick service restaurant (QSR)
operator in Australia. The company has received a positive customer response
to its offering of fast food without added preservatives, additives and
colours. We believe it has the potential to be significantly larger than its
current size, and have confidence in its high-quality management team, which
is committed to creating a durable brand that will endure over decades, in
both Australia and other target markets such as the US.
Sales
We disposed of three Indian holdings during the period. IT services firm
Mphasis was sold after its valuations increased to what we perceived as
expensive levels; similarly, we divested United Breweries due to its expensive
valuations. As for Honasa Consumer, a beauty and personal care firm, we sold
because our faith in the company's management had diminished and we lacked
confidence it could replicate its success in the online and direct-to-consumer
channels in offline retail.
Other sales included Indonesia's Avia Avian, a paint and coatings
manufacturer, due to concerns about weak growth. We also sold a number of
smaller holdings as part of continuing efforts to consolidate the portfolio
into higher-conviction positions, including instant noodles brand Nissin Foods
(Hong Kong), the city gas distribution company Mahanagar Gas (India),
automotive components retailer Astra Otoparts (Indonesia), materials firm
Tokai Carbon Korea and sporting apparel manufacturer Misto Holdings (South
Korea).
4. Ten Largest Investments as at 31 August 2025
Company Country Sector % of Shareholders' Funds
DPC Dash China Consumer Discretionary 6.3
DPC Dash is the exclusive franchise operator for Domino's Pizza stores in
China. It is leading the development of the pizza category in China.
Uni-President China China Consumer Staples 5.7
The company operates leading instant noodle and beverage brands in China. Its
management is focused on launching premium products which earn higher margins,
while strengthening the company's distribution in emerging channels.
Philippine Seven Philippines Consumer Staples 4.5
Is the leading convenience store operator in the Philippines, with the
exclusive right to use the 7-Eleven brand in the country. Philippine Seven is
expected to lead the development of the convenience store industry in the
country, as penetration is still at low levels.
Century Pacific Food Philippines Consumer Staples 4.5
Century Pacific Food is the largest canned food producer in the Philippines.
The company is gaining traction in emerging categories such as milk and pet
food products which should drive steady growth over the medium term.
Selamat Sempurna Indonesia Consumer Discretionary 3.8
Selamat Sempurna is the leading manufacturer of filters and radiators in
Indonesia. Through its joint venture with Donaldson (based in the United
States of America), it also exports products to global markets. Selamat has
the potential to consolidate the fragmented domestic industry and enter new
segments such as air and water filters, which have a large addressable market.
NetEase Cloud Music China Technology 3.6
NetEase Cloud Music is the second-largest online music platform in China, and
is part of an attractive duopoly with Tencent, the market leader, which gives
both firms strong pricing power. The company is optimising its strategy to
focus on its core music business, where we see further revenue upside
potential thanks to the platform's young user base and high retention rate.
Colgate-Palmolive (India) India Consumer Staples 3.1
Colgate-Palmolive (India) is the market leader in the oral care segment in
India, with about 50% market share in the toothpaste category. It also has
potential to build a larger presence in segments such as personal care.
Bank OCBC NISP Indonesia Financials 3.0
Bank OCBC NISP is an Indonesian bank which is majority-owned by OCBC. This is
a steady business with signs of positive change taking place, such as a
greater focus on growth and closer integration with the parent. Other positive
developments include rising dividend payouts (with an attractive 8% yield) and
digitisation initiatives to acquire more customers. Meanwhile valuations
looked attractive at 0.7 times price-to-book.
JNBY Design China Consumer Discretionary 2.8
JNBY Design is a leading designer apparel brand in China. The company has
built a strong network of loyal members which has driven its growth
consistently.
Computer Age Management India Financials 2.7
Computer Age Management Services is India's largest registrar and transfer
agent (RTA) of mutual funds with a domestic market share of over 60%. It has
built a strong technology platform on which it is now launching new
businesses, including Alternative Investment Funds (AIFs), an Insurance
Repository, Know-Your-Customer (KYC) registrations and Account Aggregation
services.
5. Sector & Geographical Analysis
Sector Allocation at 31 August 2025
Sector % Shareholder's Funds
2025 2024
Consumer Staples 26.1 29.3
Consumer Discretionary 22.7 23.6
Industrials 17.1 8.4
Financials 11.6 6.1
Technology 11.4 10.0
Materials 8.7 11.3
Healthcare 5.0 6.9
Real Estate 2.7 1.7
Logistics 2.0 1.5
Utilities 0.0 2.9
Net Current Assets 1.2 7.9
Non-Current Liabilities (8.5) (9.6)
Country Allocation at 31 August 2025 (based on geographical area of activity)
Country/Region Scottish Oriental Scottish Oriental MSCI Small Cap¹ MSCI²
2025 2024 2025 2025
% % % %
China 24.6 19.3 8.9 27.7
Hong Kong 2.6 2.0 3.4 4.7
Taiwan 10.4 9.1 25.3 21.6
Greater China 37.6 30.4 37.6 54.0
Indonesia 11.8 11.8 2.0 2.0
Malaysia - - 3.0 1.8
Philippines 12.2 10.4 0.8 0.7
Singapore 2.3 1.5 5.5 3.6
Thailand - - 3.4 1.7
Vietnam 3.2 2.3 - -
South East Asia 29.5 26.0 14.7 9.8
India 37.4 40.9 34.4 22.8
Indian Subcontinent 37.4 40.9 34.4 22.8
Australia 0.8 - - -
New Zealand 2.0 1.5 - -
South Korea - 2.9 13.3 13.4
Net Current Assets 1.2 7.9 - -
Non-Current Liabilities (8.5) (9.6) - -
Net Assets 100.0 100.0 100.0 100.0
¹ Morgan Stanley Capital International AC Asia ex Japan Small Cap Index
² Morgan Stanley Capital International AC Asia ex Japan Index
6. Portfolio Outlook
While newspaper headlines are dominated by global trade tensions, geopolitical
issues and the rapid development of artificial intelligence technologies, we
remain focused on bottom-up idea generation. Over 2022 - 2024, we witnessed a
significant shift in the portfolio's exposure. As investors became
increasingly pessimistic about the weak growth, geopolitical pressures and
intensifying government regulations in China, we had the opportunity to build
positions in market leading businesses such as DPC Dash, NetEase Cloud Music,
Atour Lifestyle, Hongfa Technology and others. This was funded by reducing our
exposure to Indian companies, as valuations of small and mid-sized businesses
in India rose to expensive levels.
In recent periods, we have observed a divergence in investor behaviour across
different parts of the investment universe in Asia, which is creating
opportunities for us. On the one hand, there is exuberance in areas related to
the semiconductor value-chain and anything which can be linked to the boom in
artificial intelligence applications. We have been sceptical about the
bottom-up opportunities available here for a few reasons.
· While growth in these areas is undoubtedly strong, it is built on
substantial capital expenditure commitments by a handful of large global
companies. Given the lack of visibility on the economic returns on these
investments, we find it difficult to predict the sustainability of
this growth.
· The technology itself is rapidly changing, with new hardware
standards being introduced every few years. This has significant implications
on the entire value chain, making it difficult to identify the eventual
winners even if the technology is widely adopted.
· In particular for smaller companies which are part of the
supply-chain of large global semiconductor or technology businesses, we
observe that their customer base is typically concentrated and their
bargaining power with these large customers is limited. As such, any changes
in the demand environment could lead to disproportionate impact on their
return on capital, through price negotiations, negative operating leverage and
extended receivable cycles.
· Most companies in these industries are now valued at expensive levels,
on the basis of elevated expectations on growth and return on capital. If
either of these prove to be unsustainable, there could be a substantial
de-rating of valuation multiples.
On the other hand, we are finding attractive opportunities in parts of the
investment universe which have been ignored as investors crowd into the areas
mentioned above. The Trust's largest exposure is across consumer businesses in
Asia. While consumption demand across some countries has moderated, we have
observed several enduring trends. Firstly, consumers continue to premiumise
across a range of categories, from spirits to restaurants and travel.
Secondly, there is increasing confidence among consumers to choose domestic
brands over those operated by large multinationals. These domestic brands are
also able to use the emergence of modern trade and online distribution to
disrupt established moats and reach customers more effectively. Finally, in
large countries such as India, Indonesia and the Philippines, there is still a
substantial opportunity for companies to expand their distribution into
under-penetrated areas, as household consumption levels are low across
categories.
In China, we have observed increasing discipline in capital allocation as
growth levels have moderated, with the management teams of companies
increasingly focused on generating strong free cash flow and returning a
larger share of their cash flows to shareholders in the form of dividends and
share repurchases. This creates the potential for higher total shareholder
returns. In several Southeast Asian countries, valuations in large parts of
the listed equity universe are compellingly attractive, as foreign investors
have gravitated away from these markets in recent years. The emergence of
larger pools of domestic capital and regulatory initiatives to strengthen
corporate governance standards have the potential to drive a re-rating in the
valuations of the attractive businesses available here.
This potential is reflected in Scottish Oriental's portfolio. The Trust's
holdings are led by management teams with strong track records of dealing with
varying macro-economic environments. Through their long history of operations,
they have emerged as market leaders in their respective industries. Their
competitive position is based upon the strength of their brands and technology
investments, while their management teams have been disciplined about their
capital allocation policies and maintained conservative balance sheets. We are
confident that these companies will capture a disproportionate share of the
growth in their respective profit pools in the years to come. These are the
small companies of today but are likely to emerge as the large businesses of
the future.
FSSA Investment Managers
11 November 2025
Income Statement for the year ended 31 August
2025
2025
2024
Revenue Capital Total* Revenue Capital Total*
£'000 £'000 £'000 £'000 £'000 £'000
(Losses)/gains on investments - (15,233) (15,233) - 67,406 67,406
Income from investments 11,028 8 11,036 12,382 - 12,382
Other income 136 - 136 80 - 80
Investment management fee (2,900) - (2,900) (2,802) - (2,802)
Performance fee - - - - (98) (98)
Currency losses - (288) (288) - (357) (357)
Other administrative expenses (1,013) - (1,013) (777) - (777)
Net return on ordinary activities before finance costs and taxation 7,251 (15,513) (8,262) 8,883 66,951 75,834
Finance costs (835) - (835) (835) - (835)
Net return on ordinary activities before taxation 6,416 (15,513) (9,097) 66,951 74,999
8,048
Tax on ordinary activities (1,173) 2,308 1,135 (1,403) (11,440) (12,843)
Net return attributable to equity 5,243 (13,205) (7,962) 6,645 62,156
shareholders 55,511
Net return per ordinary share 4.51 (11.36) (6.85) 5.55p(†) 46.34p(†) 51.89p(†)
* 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 final dividend of 2.9p per share for the year ended
31 August 2025 (2024: 2.8p(†) ) and a special dividend of 0.5p per share
(2024: 1.6p(†)) which if approved, will be payable on 6 February 2026 to
shareholders recorded on the Company's shareholder register on 9 January 2026.
The accounting policies on pages 53 and 54 and the notes on pages 55 to 65 of
the Annual Report form part of these Financial Statements.
All revenue and capital items derive from continuing operations.
(†) Adjusted for the five for one share split of the ordinary shares on 28
February 2025
Summary Statement of Financial Position as at 31 August 2025
2025 2024
£'000 £'000 £'000 £'000
Investments held at fair value through profit or loss 409,617 409,758
Current Assets
Debtors 944 2,834
Cash and deposits 6,650 37,972
7,594 40,806
Current Liabilities
Creditors (3,051) (8,948)
(3,051) (8,948)
Net Current Assets 4,543 31,858
Non-Current Liabilities
Deferred tax liabilities on Indian capital gains (2,442) (8,707)
Loan notes (29,851) (29,841)
(32,293) (38,548)
Total Assets less Liabilities 381,867 403,068
Capital and reserves
Ordinary share capital 7,853 7,853
Share premium account 34,259 34,259
Capital redemption reserve 58 58
Capital reserves 328,341 349,645
Revenue reserve 11,356 11,253
Total Equity Shareholders' Funds 381,867 403,068
Net asset value per share 331.72 341.91p(†)
(†) Adjusted for the five for one share split of the Ordinary shares on 28
February 2025.
Cash Flow Statement for the year ended 31 August 2025
2025 2024
£'000 £'000
(3,920) (5,751)
Net cash outflow from operations before dividends, interest, purchases and
sales of investments
Dividends received from investments 11,055 12,535
Interest received from deposits 136 80
Cash inflow from operations 7,271 6,864
Taxation (1,422) (1,396)
Net cash inflow from operating activities 5,849 5,468
Investing activities
Purchases of investments (194,115) (123,398)
Sales of investments 175,236 159,114
Capital gains tax paid on the sale of investments (3,713) (6,554)
Net cash (outflow)/inflow from investing activities (22,592) 29,162
Financing activities
Interest paid (825) (825)
Equity dividend(s) paid (5,140) (3,138)
Buyback of ordinary shares (8,326) (10,427)
Net cash outflow from financing activities (14,291) (14,390)
(Decrease)/increase in cash and cash equivalents (31,034) 20,240
Cash and cash equivalents at the start of the year 37,972 18,089
Effect of currency losses (288) (357)
Cash and cash equivalents at the end of the year* 6,650 37,972
*Cash and cash equivalents represents cash at bank.
Total tax paid for the year ended 31 August 2025 was £5,135,000 (2024:
£7,950,000).
Statement of Changes in Equity
For the year ended 31 August 2025
Ordinary Share premium account Capital
share capital redemption Capital reserves Revenue
reserve reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
Balance at 31 August 2024 7,853 34,259 58 349,645 11,253 403,068
Total comprehensive income:
Return for the year - - - (13,205) 5,243 (7,962)
Transactions with owners recognised directly in equity:
Dividends paid in year (5,140) (5,140)
- - - -
Buyback of Ordinary shares (8,099)
- - - (8,099) -
Balance at 31 August 2025 34,259 328,341
7,853 58 11,356 381,867
Statement of Changes in Equity
For the year ended 31 August 2024
Ordinary Share premium account Capital
share capital redemption Capital reserves Revenue
reserve reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
Balance at 31 August 2023
7,853 34,259 58 304,661 7,746 354,577
Total comprehensive income:
Return for the year - - - 55,511 6,645 62,156
Transactions with owners recognised directly in equity:
Dividend paid in year
- - - - (3,138) (3,138)
Buyback of Ordinary shares
- - - (10,527) - (10,527)
Balance at 31 August 2024
7,853 34,259 58 349,645 11,253 403,068
Principal Risks and Uncertainties
The Board has carried out a thorough assessment of risks faced by the Company.
Below the Board has set out the principal and emerging risks identified from
the consideration. The Company faces emerging risks from the impact of
technology and artificial intelligence ('AI') and sector consolidation. The
Company's principal risks are detailed below, together with a summary of the
mitigating actions taken to manage these risks.
Emerging Risks
Risk Mitigation
Technology and AI
The Investment Manager's process relies heavily not only on financial data but
on relationships built with the management of investee companies which would
The advancement of AI and machine learning across the asset management be hard to replicate using AI alone.
industry may lead to challenges from similarly managed portfolios at lower
costs.
The Investment Manager reports regularly to the Board on the investment
process and is undertaking a thorough review of the use of AI in its
There is also the risk that AI may impact on the investment process at FSSA investment processes.
and the business models and competitiveness of underlying businesses in the
portfolio.
Sector Consolidation
The Board reviews the Company's strategy and growth opportunities on a regular
basis. Its priority is to offer shareholders a relevant and attractive
The investment trust sector is under pressure to provide companies of investment proposition.
sufficient scale to remain relevant to larger investors. In addition the
sector is experiencing heightened pressure from activist investors, which may
result in high costs of navigating potential campaigns that may not be in the
interests of the majority of shareholders. Together with the Investment Manager and the Company's advisors, the Board
continues to be proactive in monitoring the shareholder register, managing the
discount to NAV, engaging in targeted marketing, and being well-prepared for
both potential opportunities and activist approaches.
Principal Risks
Risk Mitigation
Investment objective and strategy The Company's investment objective and strategy is monitored by the Board to
ensure it continues to remain appropriate.
An inappropriate or unattractive investment objective and strategy may have an
adverse effect on shareholder returns or cause a reduction in demand for the The Board conducts annual strategy reviews and considers investment
Company's shares, both of which could lead to a widening discount. performance, shareholder views and developments in the marketplace as well as
emerging risks which could impact the Company regularly throughout the year.
The Board reviews changes to the shareholder register at its quarterly Board
meetings has appointed the Corporate Broker to continually monitor the
discount at which the Company's shares trade on a daily basis and buy back
shares when appropriate.
No change to this risk
Investment performance The Board reviews investment performance at each quarterly Board meeting. The
Investment Manager reports on the Company's performance, transaction activity,
Poor investment performance may have an adverse effect on shareholder returns. individual holdings, portfolio characteristics and outlook.
In extreme circumstances, poor investment performance could lead to the The Investment Manager is formally appraised annually by the Management
Company breaching loan covenants. Engagement Committee.
The Board formally reviews compliance with the Company's loan covenants on a
quarterly basis.
Heightened awareness of this risk due to the recent performance of the
Company
Financial and Economic The Board regularly reviews and agrees policies for managing market price
risk, interest rate risk, foreign currency risk, liquidity risk and credit
The Company's investments are impacted by financial and economic factors risk. These are explained in detail in note 16 to the financial statements on
including market prices, interest rates, foreign exchange rates, liquidity and pages 61 to 64 of the Annual Report.
credit which could cause losses to the investment portfolio.
No change to this risk
Share price discount/premium to net asset value The Board has established a share buyback process to assist in the moderation
of share price discount to net asset value. Shareholders are kept informed of
A significant share price discount or premium to the Company's net asset value developments as far as practicable and are encouraged to attend briefings,
per share, or related volatility, could lead to high levels of uncertainty or such as the Company's Annual General Meeting, to understand the implementation
speculation and the potential to reduce investor confidence. of the investment policy to achieve the Company's objectives.
No change to this risk
Operational The Audit Committee formally reviews each service provider at least annually,
considering their reports on internal controls, with a specific focus on IT
The Company is reliant on third party service providers including FSSA security.
Investment Managers as Investment Manager, Juniper Partners as Company
Secretary and Administrator, JP Morgan Europe as Depositary, JP Morgan Chase
Bank as Custodian and Computershare as Registrar. Failure of the internal
control systems of these third parties could result in inaccurate information Further details of the Company's internal control and risk management system
being reported or risk to the Company's assets. is provided on pages 33 and 34 of the Annual Report.
Heightened awareness of this risk due to the increased frequency of cyber
attacks, which could impact on the Company's third party service providers and
their supply chains
Regulatory Compliance with relevant regulations is monitored on an ongoing basis by the
Company Secretary and Investment Manager who report regularly to the Board.
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 The Board monitors changes in the regulatory environment and receives
Company's listing on the London Stock Exchange. regulatory updates from the Company Secretary, Lawyers and Auditor as
relevant.
No change to this risk
Statement of Directors' Responsibilities in Respect of the Annual Financial
Report
In accordance with the Disclosure Guidance and Transparency Rules, we confirm
that to the best of our knowledge:
· the Financial Statements, prepared in accordance with applicable
United Kingdom accounting standards, give a true and fair view of the assets,
liabilities, financial position and profit or 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.
In addition, each of the Directors considers that the Annual Report, taken as
a whole, is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company's performance, position,
business model and strategy.
Going Concern
In assessing the Company's ability to continue as a going concern the
Directors have considered the Company's investment objective detailed on page
2 of the Annual Report, risk management policies detailed on pages 28 and 29
of the Annual Report, the nature of its portfolio and expenditure projections
and believe that the Company has adequate resources, an appropriate financial
structure and suitable management arrangements in place to continue in
operational existence for the foreseeable future and for at least 12 months
from the date of this Report.
In addition, the Board has had regard to the Company's investment performance
(see above), the price at which the Company's shares trade relative to their
NAV (see above) and ongoing investor interest in the continuation of the
Company (including feedback from meetings and conversations
with shareholders).
The Directors performed an assessment of the Company's ability to meet its
liabilities as they fall due. In performing this assessment, the Directors
took into consideration the following factors:
· cash and cash equivalents balances and the portfolio of readily
realisable securities which can be used to meet short-term funding
commitments;
· the ability of the Company to meet all of its liabilities and
ongoing expenses from its assets;
· revenue, operating and finance cost forecasts for the forthcoming
year;
· continued adherence to the loan covenants;
· the ability of third-party service providers to continue to
provide services; and
· four potential downside scenarios including stress testing the
Company's portfolio for a 30 per cent fall in the value of the investment
portfolio; a 50 per cent fall in dividend income; a similar level of share
buybacks to the current year; and a full take up of the 25 per cent tender
offer. The cumulative impact of these four downside scenarios would leave the
Company with a negative cash position, however there are sufficient liquid
assets which could be utilised if required.
Based on this assessment, the Directors are confident that the Company will
have sufficient funds to continue to meet its liabilities as they fall due for
at least 12 months from the date of approval of the financial statements, and
therefore have prepared the financial statements on a going concern basis.
Related Party Transactions
The Directors' fees for the year are detailed in the Directors' Remuneration
Report on pages 35 and 36 of the Annual Report. An amount of £31,313 was
outstanding to the Directors at the year end (2024: £28,500). 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 and performance fees for the year are detailed in note 2 on
page 55 of the Annual Report and amounts payable to the Investment Manager at
year end are detailed in note 10 on page 59 of the Annual Report. The
Investment Management team's individual shareholdings in the Company are set
out on page 5 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 1.03 and
1.04 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.
Notes:
1. 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.
These Financial Statements 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 July 2022
(the 'SORP'). These Financial Statements are prepared on a going concern
basis.
All of the Company's operations are of a continuing nature.
Estimates and judgements are continually evaluated and are based on historical
experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances.
There are two areas of significant judgement -
· The Directors use their judgement in selecting the appropriate rate
of capital gains tax to apply to unrealised gains on Indian investments. The
Directors have chosen to apply the long-term capital gains tax rate on
unrealised gains on Indian investments. Please refer to note 5 (a) on page 56
of the Annual Report for further details.
· The Directors use their judgement in recognising and classifying
special dividends received as either revenue or capital in nature.
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.
2. Fair Value Hierarchy
Investments in securities are financial assets designated at fair value
through profit or loss on initial recognition. In accordance with FRS102,
these investments are analysed using the fair value hierarchy described 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 data.
The Company held the following categories of financial instruments as at 31
August 2025:
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Listed equities 379,137 30,480 - 409,617
Total 379,137 30,480 - 409,617
The Company held the following categories of financial instruments as at 31
August 2024:
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Listed equities 385,316 24,442 - 409,758
Total 385,316 24,442 - 409,758
Listed investments included in fair value Level 1 are actively traded on
recognised stock exchanges and the fair value of these investments has been
determined by reference to their quoted prices at the reporting date.
Listed investments included in Level 2 are deemed to be illiquid. The fair
value of these investments has been determined by reference to their quoted
prices at the reporting date.
3. Cashflow reconciliation
2025 2024
Reconciliation of net return on ordinary activities before finance costs and £'000 £'000
taxation to net cash outflow from operations before dividends, interest,
purchases and sales
Net return on activities before finance costs and taxation (8,262) 75,834
Net losses/(gains) on investments 15,233 (67,406)
Currency losses 288 357
Dividend income (11,036) (12,382)
Interest income (136) (80)
Decrease in creditors (122) (2,070)
Decrease/(increase) in debtors 115 (4)
Net cash outflow from operations before dividends, interest, purchases and (3,920) (5,751)
sales
4. These are not statutory accounts in terms of Section 434 of the Companies
Act 2006. Full audited accounts for the year to 31 August 2025 will be sent to
shareholders in November 2025 and copies will be available from the Company's
website www.scottishoriental.com (http://www.scottishoriental.com) and the
Company Secretary's office at 28 Walker Street, Edinburgh, EH3 7HR. The
audited accounts for the year ended 31 August 2025 will be lodged with the
Registrar of Companies.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END FR BBBFTMTABBTA
Copyright 2019 Regulatory News Service, all rights reservedRecent news on Scottish Oriental Smaller Companies Trust
See all newsREG - Scottish Oriental - Net Asset Value(s)
AnnouncementREG - Scottish Oriental - Net Asset Value(s)
AnnouncementREG - Scottish Oriental - Net Asset Value(s)
AnnouncementREG - Scottish Oriental - Net Asset Value(s)
AnnouncementREG - Scottish Oriental - Transaction in Own Shares
Announcement