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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
---|---|---|---|---|---|
Scottish Oriental Smaller Companies Trust Plc | LSE:SST | London | Ordinary Share | GB0007836132 | ORD 25P |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 1,350.00 | 1,355.00 | 1,370.00 | 0.00 | 01:00:00 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
Unit Inv Tr, Closed-end Mgmt | 30.99M | 20.4M | 0.8220 | 16.48 | 336.27M |
TIDMSST
RNS Number : 2054V
Scottish Oriental Smlr Co Tst PLC
13 April 2021
THE SCOTTISH ORIENTAL SMALLER COMPANIES TRUST PLC
Interim results for the six months to 28 February 2021
(Extracted from the Interim Report)
The Board of The Scottish Oriental Smaller Companies Trust plc is pleased to announce the results for the six months to 28 February 2021.
Financial Highlights
Total Return Performance for the six months to 28 February 2021 (Unaudited) MSCI AC Asia ex Japan Net Asset Value 14.1% Index (GBP) 18.0% MSCI AC Asia ex Japan Share Price 15.4% Small Cap Index (GBP) 22.5% FTSE All-Share Index (GBP) 12.0% Summary Data at 28 February 2021 (Unaudited) Shares in issue 28,156,097 Shareholders' Funds GBP318.79m Net Asset Value per 1,132.23p Market Capitalisation GBP274.80m share Share Price Discount Share Price 976.00p to Net Asset Value 13.8% --------------------- ----------- ----------------------- -----------
Corporate Objective
The investment objective of The Scottish Oriental Smaller Companies Trust plc ("Scottish Oriental", "the Company" or "the Trust") is to achieve long-term capital growth by investing in mainly smaller Asian quoted companies with market capitalisations of below US$5,000m, or the equivalent thereof, at the time of investment. For investment purposes, this includes Australasia, the Indian sub-continent and Japan.
This is an abridged version of Scottish Oriental's investment policy and objective. A full statement of Scottish Oriental's investment policy can be found on page 80 of the Annual Report and Accounts* for the year ending 31 August 2020 ("the Annual Report and Accounts").
*The Company's Annual Report and Accounts for the year ending 31 August 2020 can be found on the Company's website at: www.scottishoriental.com.
Interim Management Report
Investment Performance
Over the six months ending 28 February 2021, Scottish Oriental's net asset value ("NAV") per share increased by 14.1 per cent in total return terms, while the MSCI AC Asia ex Japan Index recorded a sterling adjusted increase of 18.0 per cent and the MSCI AC Asia ex Japan Small Cap Index an increase of 22.5 per cent on the same basis. The Company's share price rose by 15.4 per cent in total return terms over the period. The Company's NAV outperformed the FTSE All-Share Index, which rose by 12.0 per cent in total return terms over the six month period.
The biggest contributor to performance was Scottish Oriental's large exposure to Indian companies.
The Company also benefited from strong share price performance from its investments in China, Malaysia and Vietnam. The Company was negatively impacted by poor performance from its investments in South Korea, Hong Kong, Pakistan and the Philippines.
The Company's shares traded at a discount ranging from 11.4 per cent to 18.2 per cent, reflecting the volatility in Asian markets and continued investor caution, and stood at a discount to NAV of 13.8 per cent on 28 February 2021.
The Company's cash level was GBP9.8 million at the end of the period, representing 3.1 per cent of net assets. The impact of Covid-19 on some stocks has offered the opportunity to acquire a number of companies at reasonable valuations resulting in a notably reduced cash balance.
Subsequent to the period end, the Company raised GBP30m of debt at an interest rate of 2.75% fixed for 20 years. We will seek to invest this money steadily, as we believe the outlook for Asian equities over a 20 year time frame to be very strong.
Dividend
A dividend of 11.5p per share was paid on 15 January 2021 for the year ending 31 August 2020 (31 August 2019: 11.5p per share). It is too early to make a forecast of the distribution for the current financial year. The Company has never sought to pay high dividends instead focusing on finding growing companies, which tend to have lower yields. We expect that any reduced dividend should be compensated for by higher capital growth from the Company's investments.
Review
Asian stock markets were strong over the six months ending 28 February 2021. Investor sentiment was positive for most of the period on expectations of a strong recovery from the impact Covid-19 has had on the global economy. Stock markets further benefitted from significant fiscal support from policymakers.
South Korea and Taiwan were the best performing major markets over the period, driven by strong performance by their large technology companies which have benefited from increased demand for semiconductor chips over the past year. The Indian market also produced strong returns on evidence of an improving economy. Most other markets rose with only Malaysia and Pakistan producing sterling losses.
Asian smaller companies outperformed their larger counterparts.
13 new positions were initiated. Beijing Capital International Airport and property developer China Overseas Grand Ocean were purchased on attractive valuations. In India we bought IIFL Wealth Management for its leading position in the country's growing wealth management industry; cable manufacturer Kei Industries which has many growth opportunities; city gas distributor Mahanagar Gas which has seen its franchise solidified by a recent regulatory review; temporary staffing provider Quess Corp where a new chief executive has made many positive changes; and engineering company Thermax which is seeing demand return after a long fallow period and strong interest from customers in its clean energy business. In South East Asia we purchased leading nappy and feminine hygiene brand owner Uni-Charm Indonesia; Mr DIY, Malaysia's leading home improvement store; Singapore's Credit Bureau Asia which has a near monopoly on credit reference services in its home market and further growth opportunities in Cambodia and Myanmar; and TISCO Financial, a leading auto finance company in Thailand. We also purchased South Korea's Zinus an innovator in mattress and furniture retailing and Taiwan's Parade Technologies which is benefiting from rising demand for its integrated circuits which facilitate high speed data transmission.
13 positions were sold. Several Indian holdings were sold following strong share price performance being cement companies ACC Limited and Ambuja Cements; chemicals company BASF India; Great Eastern Shipping; IT outsourcer Zensar Technologies; and Tata Global Beverages. Hong Kong's Nexteer Automotive Group; Korean technology firm Leeno Industrial; and Vietnamese conglomerate REE Corp were also sold following strong share price appreciation. We sold city gas distributor Towngas China; Chinese online recruitment platform 51jobs; and Malaysian auto components manufacturer APM Automotive on disappointing capital allocation. Hatton National Bank was sold as the Sri Lankan economy looks likely to remain depressed.
As a result of this, Scottish Oriental's exposure to China, Indonesia, Taiwan and Singapore rose, whereas exposure to Hong Kong, India and the Philippines fell. At a sector level, exposure to Consumer Discretionary and Financials rose, with Materials falling. Although the number of transactions was high this period, the bulk of this activity was as a result of profit taking with proceeds reinvested in companies which we believe have similar growth potential to those sold but at more reasonable valuations.
Outlook
The impact that Covid-19 has had on Asia's economies, companies and people has been significant. This impact has been less severe in North Asia where governments have performed better at containing the virus than in South and South East Asia. North Asia's economies are also more export focused with exports proving more resilient than domestic consumption. As Asia's economies open up again we expect consumption to return to normal gradually. One of the key drivers of exports has been fiscal and monetary stimulus in the West. This stimulus should not be sustainable but recent activity by policymakers shows an intent to support economic activity and markets in the short term at almost any cost.
Expectations are for strong growth in corporate earnings in 2021. Looking at Scottish Oriental's portfolio, many of its investments are attractively valued, particularly when based upon measures such as market capitalisation per capita. This is most obvious in Indonesia and the Philippines where sentiment is currently poor and smaller companies have lagged over the last few years. As these economies normalise we expect to see the dominant franchises the Company owns benefit from significantly improved levels of profitability which will in turn be reflected in their share prices. The last year has been tough for many of Scottish Oriental's holdings but we have been impressed at the actions taken by their management teams to rein in costs and adapt business models. As a result we have every confidence in their future prospects, particularly as the crisis has not been as kind to weaker competitors.
In the past year there has been much interest by market participants in the technology and healthcare sectors where growth potential is believed to be the highest, and excess liquidity has led to large sums of money bidding up valuations. Many companies in more traditional sectors with proven business models and high returns on capital have been left behind despite having strong competitive positions and there still being much growth to come. Recently we have seen indications of a broadening in the market rebound to include such proven but less fashionable companies. We have not chased valuations in companies that have rallied the hardest and continue to focus on increasing the quality of the portfolio by identifying companies that are growing, have strong competitive positions, and are already highly profitable. We believe the growth and high returns on capital enjoyed by the companies in Scottish Oriental's portfolio offers a compelling proposition.
Income Statement for the six months to 28 February 2021
Six months to Six months to 28 February 2021 29 February 2020 (unaudited) (unaudited) Revenue Capital Total* Revenue Capital Total* GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 -------------- --------- --------- ------------- ----------- ----------- Gains/(losses) on investments - 46,158 46,158 - (24,954) (24,954) Income from investments 1,820 - 1,820 1,448 - 1,448 Other income - - - 33 - 33 Investment management fee (1,158) - (1,158) (1,232) - (1,232) Currency losses - (98) (98) - (1,888) (1,888) Other administrative expenses (426) - (426) (416) - (416) -------------- --------- --------- ------------- ----------- ----------- Net return on ordinary activities before taxation 236 46,060 46,296 (167) (26,842) (27,009) Tax on ordinary activities (note 3) (273) (3,770) (4,043) (77) (256) (333) -------------- --------- --------- ------------- ----------- ----------- Net return attributable to equity shareholders (37) 42,290 42,253 (244) (27,098) (27,342) -------------- --------- --------- ------------- ----------- ----------- Net return per ordinary share (0.13p) 147.56p 147.43p (0.82p) (90.71p) (91.53p)
* The total column of this statement is the Profit & Loss Account of the Company. The revenue and capital columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies.
There are no items of other comprehensive income. This statement is, therefore, the single statement of comprehensive income of the Company.
All revenue and capital items derive from continuing operations.
Statement of Financial Position as at 28 February 2021
At 28 At 31 February August 2020 2021 GBP'000 GBP'000 (unaudited) (audited) FIXED ASSETS - EQUITY INVESTMENTS Bangladesh 4,732 4,952 China 34,744 21,950 Hong Kong 17,002 22,349 India 117,410 113,874 Indonesia 52,910 36,558 Malaysia 3,209 127 Pakistan 3,821 3,317 Philippines 32,460 36,190 Singapore 9,128 3,369 South Korea 7,579 4,422 Sri Lanka - 1,615 Taiwan 19,337 11,367 Thailand 3,841 - Vietnam 5,368 7,236 Total Equities 311,541 267,326 Net Current Assets 9,572 22,122 Non-current Liabilities (note 3) (2,320) - ------------- ------------- Total Assets less Liabilities 318,793 289,448 CAPITAL AND RESERVES Ordinary share capital 7,853 7,853 Share premium account 34,259 34,259 Capital redemption reserve 58 58 Capital reserve 272,800 240,134 Revenue reserve 3,823 7,114 ------------- ------------- Equity Shareholders' Funds 318,793 289,448 ============= ============= Net asset value per share 1,132.23p 992.14p
Cash Flow Statement for the six months to 28 February 2021
Six months Six months to to 28 February 29 February 2021 2020 GBP'000 GBP'000 (unaudited) (unaudited) Note Net cash outflow from operations before dividends, interest, purchases and sales of investments 9 (1,589) (1,691) Dividends received from investments 1,900 1,777 Interest received from deposits - 33 Purchases of investments (83,169) (72,415) Sales of investments 85,028 58,408 ------------ ------------ Cash inflow/(outflow) from operations 2,170 (13,888) Taxation (1,733) (345) ------------ ------------ Net cash inflow/(outflow) from operating activities 437 (14,233) Financing activities Equity dividend paid (3,284) (3,435) Buyback of ordinary shares (9,720) - Net cash outflow from financing activities (13,004) (3,435) Decrease in cash and cash equivalents (12,567) (17,668) Cash and cash equivalents at the start of the period 22,459 40,949 Effect of currency losses (98) (1,888) ------------ ------------ Cash and cash equivalents at the end of the period* 9,794 21,393 ------------ ------------
*Cash and cash equivalents represents cash at bank
Statement of Changes in Equity
For the six months ended 28 February 2021 Share Capital Share Premium Redemption Capital Revenue Capital Account Reserve Reserves Reserve Total GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 -------------------------- ---------- --------- ------------ ----------- ---------- ---------- Balance at 31 August 2020 7,853 34,259 58 240,134 7,144 289,448 -------------------------- ---------- --------- ------------ ----------- ---------- ---------- Total comprehensive income: Return for the period - - - 42,290 (37) 42,253 Transactions with owners recognised directly in equity: Dividend paid in the period - - - - (3,284) (3,284) Buyback of Ordinary shares - - - (9,624) - (9,624) Balance at 28 February 2021 7,853 34,259 58 272,800 3,823 318,793 -------------------------- ---------- --------- ------------ ----------- ---------- ---------- For the six months ended 29 February 2020 Share Capital Share Premium Redemption Capital Revenue
Capital Account Reserve Reserves Reserve Total GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 -------------------------- ---------- --------- ------------ ----------- ---------- ----------- Balance at 31 August 2019 7,853 34,259 58 295,754 8,140 346,064 -------------------------- ---------- --------- ------------ ----------- ---------- ----------- Total comprehensive income: Return for the period - - - (27,098) (244) (27,342) Transactions with owners recognised directly in equity: Dividend paid in the period - - - - (3,435) (3,435) Balance at 29 February 2020 7,853 34,259 58 268,656 4,461 315,287 -------------------------- ---------- --------- ------------ ----------- ---------- -----------
Notes to Accounts
(1) The condensed Financial Statements for the six months to 28 February 2021 comprise the Income Statement, Statement of Financial Position, Cash Flow Statement and Statement of Changes in Equity, together with the notes set out below. They have been prepared in accordance with FRS 104 'Interim Financial Reporting', UK Generally Accepted Accounting Principles ("UK GAAP") and the AIC's Statement of Recommended Practice issued in October 2019.
(2) The position as at 31 August 2020 is an abridged version of that contained in the Annual Report and Accounts, which received an unqualified audit report and which have been filed with the Registrar of Companies. This Interim Report has been prepared under the same accounting policies adopted for the year to 31 August 2020.
(3) On 1 April 2018, the Indian Government withdrew an exemption from capital gains tax on investments held for 12 months or longer. Indian capital gains tax is now charged on sales of investments at 15% where the investment has been held for less than 12 months, this is reduced to 10% if the investment has been held for longer than 12 months.
The Company has incurred GBP1,450,000 of capital gains tax on the sale of investments in the six months to 28 February 2021 (six months to 29 February 2020: GBP256,000).
The Company has recognised a deferred tax liability of GBP2,320,000 (31 August 2020: GBPnil) on capital gains which may arise if Indian investments are sold.
(4) The return per ordinary share figure is based on the net return for the six months ended
28 February 2021 of GBP42,253,000 (six months ended 29 February 2020: net loss of GBP27,342,000) and on 28,659,615 (six months ended 29 February 2020: 29,873,784) ordinary shares, being the weighted average number of ordinary shares in issue during the respective periods.
(5) At 28 February 2021 there were 28,156,097 ordinary shares in issue and 3,257,566 ordinary shares held in Treasury (31 August 2020: 29,174,030 in issue and 2,239,633 held in Treasury). During the six months ended 28 February 2021, the Company bought back 1,017,933 ordinary shares (year to 31 August 2020; the Company bought back 699,754 ordinary shares).
(6) Dividends
At At 28 February 29 February 2021 2020 GBP'000 GBP'000 Amounts recognised as distributions in the period: Dividend for the year ending 31 August 2020 of 11.5p (2019 - 11.5p), paid 15 January 2021 3,284 3,435 ------------- -------------
(7) Under the terms of the Investment Management Agreement, an annual performance fee may be payable to the Investment Manager at the end of the year. A detailed explanation of the performance fee computation is set out on page 63 of the Annual Report and Accounts. The total fee payable to the Investment Manager is capped at 1.5% per annum of the Company's net assets.
Assuming no change in share price, MSCI AC Asia ex Japan Index Total Return and shares in issue between 28 February 2021 and 31 August 2021, the estimated performance fee for the year ending 31 August 2021 would amount to GBPnil. No performance fee has been accrued in the six months to 28 February 2021.
(8) Investments in securities are financial assets designated at fair value through profit or loss on initial recognition. In accordance with FRS 102 and FRS 104, these investments are analysed using the far value hierarchy described below. Short-term balances are excluded as their carrying value at the reporting date approximates to their fair value.
The levels are determined by the lowest (that is, the least reliable or least independently observable) level of input that is significant to the fair value measurement for the individual investment in its entirety as follows:
Level 1 - Investments with prices quoted in an active market;
Level 2 - Investments whose fair value is based directly on observable current market prices or is indirectly being derived from market prices; and
Level 3 - Investments whose fair value is determined using a valuation technique based on assumptions that are not supported by observable current market prices or are not based on observable market data.
All of the Company's investments were categorised as Level 1 for the six month period to 28 February 2021.
(9) Reconciliation of total return on ordinary activities before taxation to net cash outflow before dividends, interest, purchases and sales
Six months Six months to to 28 February 29 February 2021 2020 GBP'000 GBP'000 Net return on activities before taxation 46,296 (27,009) Net (gains)/losses on investments (46,158) 24,954 Currency losses 98 1,888 Dividend income (1,820) (1,448) Interest income - (33) Decrease in creditors (1) (31) Increase in debtors (4) (12) ------------ ------------ Net cash outflow from operations before dividends, interest, purchases and sales of investments (1,589) (1,691)
(10) On 23 March 2021 the Company agreed to issue GBP30 million of long-term, fixed rate, senior, unsecured privately placed notes providing the Company with long-term financing.
The new privately placed notes are being issued in one tranche: GBP30 million with a fixed coupon of 2.75% to be repaid 24 March 2041. The coupon will be payable semi-annually. The funding date was 24 March 2021.
Principal Risks and Uncertainties
The principal and emerging risks faced by the Company are; investment objective and strategy, investment performance, financial and economic, operational and regulatory. These risks have not changed since the publication of the Annual Report and Accounts. The principal and emerging risks and uncertainties facing the Company, together with a summary of the mitigating action the Board takes to manage these risks, are set on pages 28 and 29 of the Annual Report and Accounts. Scottish Oriental's assets mainly comprise listed equities though the significant market volatility resulting from the outbreak of Covid-19 may impact liquidity in the underlying portfolio. The Investment Manager monitors portfolio liquidity and manages this to ensure the Company maintains sufficient levels of liquidity to operate effectively. Scottish Oriental's investment portfolio is exposed to market price fluctuations and currency fluctuations which are monitored by the Investment Manager. The Company is also exposed to minimal interest rate risk on interest receivable from bank deposits and interest payable on bank overdraft positions.
Going Concern
After making inquiries and bearing in mind the nature of the Company's business and assets, the Directors believe that the Company has adequate resources to continue operating for at least twelve months from the date of approval of the condensed financial statements. For this reason, they continue to adopt the going concern basis in preparing the financial statements.
Directors' Responsibility Statement
The Directors are responsible for preparing the half-yearly financial report in accordance with applicable law and regulations. The Directors confirm that, to the best of their knowledge:
(a) the condensed set of financial statements within the half-yearly financial report, prepared in accordance with the Financial Reporting Standard 104 (Interim Financial Reporting), gives a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and
(b) the Interim Management Report includes a fair review of the information required by 4.2.7R of the Financial Conduct Authority's Disclosure Guidance and Transparency Rules (important events that have occurred in the first six months of the Company's financial year, together with their effect on the half-yearly financial statements to 28 February 2021 and a description of the principal risks and uncertainties for the remaining six months of the financial year). Rule 4.2.8R requires information on related party transactions. No related party transactions have taken place during the first six months of the financial year that have materially affected the financial position of the Company during that period and there have been no changes in the related party transactions described in the last Annual Report and Accounts that could do so.
The half-yearly report for the six months to 28 February 2021 comprises the Interim Management Report, the Directors' Responsibility Statement and a condensed set of financial statements and has not been audited or reviewed by auditors pursuant to the Auditing Practices Board guidance on Review of Interim Financial Information.
By order of the Board
James Ferguson
Chairman
12 April 2021
-- The terms of the half-yearly financial report and this announcement were approved by the Board on 12 April 2021.
-- Copies of the half-yearly financial report will be posted to shareholders shortly and will be available thereafter on the Company's website: www.scottishoriental.com and from the Company Secretary's office at 28 Walker Street, Edinburgh EH3 7HR.
Enquiries:
PATAC Limited, Edinburgh, +44 (0)131 378 0500
12 April 2021
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