Scottish Oriental - Half-year Report
15/05/2023 07:00
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RNS Number : 3193Z Scottish Oriental Smlr Co Tst PLC 15 May 2023
THE SCOTTISH ORIENTAL SMALLER COMPANIES TRUST PLC
Interim results for the six months to 28 February 2023
(Extracted from the Interim Report)
The Board of The Scottish Oriental Smaller Companies Trust plc announces the
results for the six months to 28 February 2023.
Financial Highlights
Total Return Performance (Unaudited) for the six months to 28 February 2023
Net Asset Value 2.7% MSCI AC Asia ex Japan Small Cap (3.8%)
Index (£)
Share Price 3.0% MSCI AC Asia ex Japan Index (£) (5.7%)
FTSE All-Share Index (£) 8.7%
Summary Data (Unaudited) at 28 February 2023
Shares in issue 24,686,519 Shareholders' Funds £343.09m
Net Asset Value per share 1,389.79p Market Capitalisation £298.71m
Share Price 1,210.00p Share Price Discount to 12.9%
Net Asset Value
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 22 of the Annual Report and Accounts* for the year ending 31
August 2022 (''the Annual Report and Accounts'').
* The Company's Annual Report and Accounts for the year ending 31 August 2022
can be found on the Company's website at www.scottishoriental.com
(http://www.scottishoriental.com)
Performance Fee
The Board is pleased to report that following a period of strong portfolio
performance, we expect the performance fee threshold to be met for the year
ending 31 August 2023. The estimated performance fee is £2.0m. This figure
has been accrued in the interim financial statements.
The Investment Manager's performance fee is calculated on a 3 year performance
period. With effect from 1 September 2021, the benchmark index used by the
Company as its primary investment performance comparator changed from the MSCI
AC Asia ex Japan Index to the MSCI AC Asia ex Japan Small Cap Index. As a
result of the change in performance comparator, for the year ending 31 August
2023, a hybrid performance comparator will be used to calculate the
performance fee due to the Investment Manager.
The Board is currently reviewing the mechanism for the calculation of future
performance fees to ensure that the target outperformance of the MSCI AC Asia
ex Japan Small Cap Index to be achieved by the Investment Manager, prior to
any performance fee becoming payable, is adequate and in the best interest of
shareholders. An update on the outcome of the review will be provided to
shareholders in due course.
Interim Management Report
Investment Performance
Over the six months ending 28 February 2023, Scottish Oriental's net asset
value ("NAV") per share increased by 2.7 per cent in total return terms, while
the MSCI AC Asia ex Japan Small Cap Index decreased by 3.8 per cent on the
same basis. The Company's share price increased by 3.0 per cent in total
return terms.
The biggest contributors to performance were Scottish Oriental's holdings in
China, Taiwan and Indonesia. The exposure to India was the biggest detractor
from performance. The Company's shares traded at a discount ranging from 16.0
per cent to 9.5 per cent, which reflects the cautious sentiment of investors.
The discount to NAV stood at 12.9 per cent on 28 February 2023.
Dividend
A final dividend of 13.0p and a special dividend of 1.0p, were paid on 13
January 2023 for the year ended 31 August 2022 (31 August 2021: 11.5p per
share). It is too early to make a forecast of the distribution for the current
financial year.
Review
Asian stock markets were weak over the six months ending 28 February 2023. A
sustained increase in inflation, an extended period of movement restrictions
in China and Hong Kong, as well as geopolitical tensions between the United
States and China, have led to concerns around the sustainability of corporate
profitability. The level of monetary policy support which global central banks
have consistently provided over the last 15 years has also moderated.
Ten new positions were initiated during the period, as the decline in
valuations in markets such as China, Taiwan and South Korea offered attractive
bottom-up opportunities. This includes ASM Pacific Technology, the world's
largest manufacturer of back-end semiconductor and surface mount technology
equipment, which is used in manufacturing electronic chips. The industry has
suffered a sharp downturn over the last year, which has led to attractive
valuations for ASM Pacific Technology. The company has established a track
record of bouncing back strongly after such periods. Luk Fook Holdings is a
leading jewellery retailer which was established in Hong Kong and has built a
sizable store network in the much larger market of Mainland China in recent
years. As domestic demand recovers in Mainland China, the company's growth is
expected to improve. It is also attractively valued, with the current
enterprise value being similar to the value of its jewellery inventory. AirTac
International is a pneumatic component manufacturer in China. It should gain
from the accelerating investments in factory automation. Silergy is the
largest analogue integrated circuit designer in Asia which has been gaining
market share from multinational corporations in China.
In South Korea, we initiated positions in Amorepacific, a leading cosmetics
company which operates brands including Sulwhasoo in the luxury segment. Its
business was severely impacted by movement restrictions in China as well as
fewer tourists visiting South Korea, which are both expected to improve in the
coming periods. FILA Holdings is the owner of the Fila brand globally, as well
as the majority shareholder of Acushnet which operates the Titleist brand for
golf equipment and accessories. It is attractively valued and the management
is taking several initiatives to strengthen Fila's operating performance.
Tokai Carbon Korea is the dominant global market leader in manufacturing
silicon carbide rings, a consumable used in the semiconductor etching process.
In India, we initiated holdings in Metropolis Healthcare, Whirlpool of India
and Delhivery. Metropolis Healthcare is among the largest diagnostics services
companies in the country. The industry is under-penetrated and consolidating
rapidly among higher quality operators such as Metropolis. Whirlpool of India
is a subsidiary of Whirlpool Corporation and has a strong position in the
consumer durables industry in India. This includes refrigerators and washing
machines, as well as a growing portfolio in kitchen appliances. Delhivery is
India's biggest third-party logistics services company. The company caters to
the fast growing e-commerce industry and is expected to gain market share from
smaller competitors.
Three holdings were sold after strong share price performance, which led to
more expensive valuations. This included Kei Industries, a wires and cables
manufacturer in India, Arwana Citramulia, one of the largest ceramic tile
producers in Indonesia and Autobio Diagnostics, an in-vitro diagnostics
equipment manufacturer in China.
Scottish Oriental's exposure to Taiwan, South Korea and Hong Kong increased,
whereas the exposure to India and Indonesia declined during the period. At a
sector level, the exposure to Technology increased while that to Consumer
Staples declined.
Outlook
After a prolonged period of disruption, Asian economies have finally emerged from the impact of the Covid-19 pandemic. A strong recovery is evident in countries such as India and Indonesia, to which Scottish Oriental has significant exposure. Consumer demand is also expected to gradually improve in Greater China and South Korea as movement restrictions have been removed. Historically, periods of disruption such as that witnessed over the last three years, has led to consolidation of industries in favour of market leaders which use their strong balance sheets, pricing power and technology resources to gain market share from their weaker competitors. We have seen this across various Asian economies recently as well. Companies in Scottish Oriental's portfolio have often led the process of consolidation in their respective industries. We are excited about the prospects of the portfolio which has strong growth potential, a net debt to equity level of zero percent and is valued attractively. As the excesses observed in financial markets during recent years led by easy liquidity is abating, we believe that our investment process with a focus on capital preservation will hold the Company in good stead.
Income Statement for the six months to 28 February 2023
Six months to Six months to
28 February 2023 28 February 2022
(unaudited) (unaudited)
Revenue Capital Total* Revenue Capital Total*
£'000 £'000 £'000 £'000 £'000 £'000
Gains/(losses) on investments - 6,850 6,850 - (12,884) (12,884)
Income from investments 2,257 - 2,257 2,346 - 2,346
Other icome 8 - 8 - - -
Investment management fee (1,251) - (1,251) (1,255) - (1,255)
Performance Fee (note 7) - (1,993) (1,993) - - -
Currency losses - (362) (362) - (81) (81)
Other administrative expenses (356) - (356) (337) - (337)
Net return on ordinary activities
before finance costs and taxation 658 4,495 5,153 754 (12,965) (12,211)
Finance costs (417) - (417) (417) - (417)
Net return on ordinary activities before taxation 337
241 4,495 4,736 (12,965) (12,628)
Tax on ordinary activities (note 3) (16) 155 139 (272) 287 15
Net return attributable to equity
shareholders 225 4,650 4,875 65 (12,678) (12,613)
Net return per ordinary share 0.91p 18.82p 19.73p 0.24p (47.49)p (47.25)p
* 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 2023
At 28 At 31
February 2023 August 2022
£'000 £'000
(unaudited) (audited)
FIXED ASSETS - EQUITY INVESTMENTS
Bangladesh 3,162 4,325
China 46,359 44,112
Hong Kong 22,530 18,521
India 126,756 139,526
Indonesia 67,242 75,324
Pakistan 1,317 2,695
Philippines 30,821 31,529
Singapore 10,075 10,575
South Korea 13,492 4,494
Taiwan 28,754 27,408
Thailand 3,501 3,178
Vietnam 5,445 6,755
Total Equities 359,454 368,442
Net Current Assets 15,570 7,766
Non-Current Liabilities (note 3) (31,934) (33,006)
Total Assets less Liabilities 343,090 343,202
CAPITAL AND RESERVES
Ordinary share capital 7,853 7,853
Share premium account 34,259 34,259
Capital redemption reserve 58 58
Capital reserves 296,445 293,325
Revenue reserve 4,475 7,707
Equity Shareholders' Funds 343,090 343,202
Net asset value per share 1,389.79p 1,382.93p
Cash Flow Statement for the six months to 28 February 2023
Six months to Six months to
28 February 28 February 2022
2023
£'000 £'000
(unaudited) (unaudited)
Note
Net cash outflow from operations before dividends, interest, purchases and
sales of investments
9 (1,730) (1,712)
Dividends received from investments 3,187 3,129
Interest received from deposits 8 -
Cash inflow from operations 1,465 1,417
Taxation (131) (333)
Net cash inflow from operating activities 1,334 1,084
Investing activities
Purchases of investments (45,827) (65,139)
Sales of investments 56,905 70,363
Capital gains tax paid on sale of investments (922) (2,435)
Net cash inflow from investing activities 10,156 2,789
Financing activities
Equity dividends paid (3,457) (3,053)
Buyback of ordinary shares (1,530) (13,471)
Interest paid (413) (413)
Net cash outflow from financing activities (5,400) (16,937)
Increase/(decrease) in cash and cash equivalents 6,090 (13,064)
Cash and cash equivalents at the start of the period 7,490 17,546
Effect of currency losses (362) (81)
Cash and cash equivalents at the end of the period* 13,218 4,401
*Cash and cash equivalents represents cash at bank
Statement of Changes in Equity
For the six months ended 28 February 2023
Share Premium Capital
Share Capital Account Redemption Capital Revenue
Reserve Reserves Reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
Balance at 31 August 2022
7,853 34,259 58 293,325 7,707 343,202
Total comprehensive income:
Return for the period - - - 4,650 225 4,875
Transactions with owners recognised directly in equity:
Dividends paid in the period (note 6) - - - - (3,457) (3,457)
Buyback of Ordinary shares - - - (1,530) - (1,530)
Balance at 28 February 2023
7,853 34,259 58 296,445 4,475 343,090
For the six months ended 28 February 2022
Share Premium Capital
Share Capital Account Redemption Capital Revenue
Reserve Reserves Reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
Balance at 31 August 2021
7,853 34,259 58 296,908 6,408 345,486
Total comprehensive income:
Return for the period - - - (12,678) 65 (12,613)
Transactions with owners recognised directly in equity:
Dividends paid in the period (note 6) - - - - (3,053) (3,053)
Buyback of Ordinary shares - - - (13,772) - (13,772)
Balance at 28 February 2022
7,853 34,259 58 270,458 3,420 316,048
Notes to Accounts
(1) The condensed Financial Statements for the six months to 28 February 2023
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 July 2022.
(2) The position as at 31 August 2022 above 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. The
Interim Report has been prepared under the same accounting policies adopted
for the year to 31 August 2022.
(3) The Company has incurred £946,000 of capital gains tax on the sale of
investments in the six months to 28 February 2023 (six months to 28 February
2022: £2,370,000).
The Company has recognised a deferred tax liability of £2,107,000 (31 August
2022: £3,184,000) on capital gains which may arise if Indian investments are
sold.
(4) The return per ordinary share figure is based on the net profit for the
six months ended 28 February 2023 of £4,875,000 (six months ended 28 February
2022: net loss of £12,613,000) and on 24,709,483 (six months ended 28
February 2022: 26,696,226) Ordinary shares, being the weighted average number
of ordinary shares in issue during the respective periods.
(5) At 28 February 2023 there were 24,686,519 Ordinary shares in issue and
6,727,144 Ordinary shares held in Treasury (31 August 2022: 24,816,979 in
issue and 6,596,684 held in Treasury). During the six months ended 28 February
2023, the Company bought back 130,460 Ordinary shares (year to 31 August 2022;
the Company bought back 2,504,180 Ordinary shares).
(6) Dividends
At At
28 February 28 February
2023 2022
£'000 £'000
Amounts recognised as distributions in the period:
Final dividend of 13.0p (2021 - 11.5p) 3,210 3,053
Special dividend of 1.0p (2021 - nil) 247 -
3,457 3,053
(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 54 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. As
at 28 February 2023, the estimated performance fee for the year ending 31
August 2023 is £1,993,000.
(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 fair 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 2023.
(9) Reconciliation of total return on ordinary activities before taxation to
net cash outflow before dividends, interest, purchases and sales
Six months to Six months to
28 February 28 February
2023 2022
£'000 £'000
Net return on activities before taxation 5,153 (12,211)
Net (gains)/losses on investments (6,850) 12,884
Currency losses 362 81
Dividend income (2,257) (2,346)
Interest income (8) -
Increase/(decrease) in creditors 1,989 (106)
Increase in debtors (119) (14)
Net cash outflow from operations before dividends,
interest, purchases and sales of investments (1,730) (1,712)
Principal Risks and Uncertainties
The principal and emerging risks faced by the Company are; investment
objective and strategy, investment performance, financial and economic, share
price discount/premium to net asset value, 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 out on pages 28 and 29 of the Annual Report and
Accounts. 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 enquiries 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 Director Update and 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 2023 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 2023 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
Jeremy Whitley
Chairman
12 May 2023
· The terms of the half-yearly financial report and this
announcement were approved by the Board on 12 May 2023.
· 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:
Juniper Partners Limited, Edinburgh, +44 (0)131 378 0500
12 May 2023
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