THE
SCOTTISH ORIENTAL SMALLER COMPANIES TRUST PLC
Interim results for the six months to 29 February
2024
(Extracted from the Interim
Report)
The Board of The Scottish Oriental
Smaller Companies Trust plc announces the results for the six
months to 29 February 2024.
Financial
Highlights
Total Return Performance (Unaudited) for the six months to 29
February 2024
|
|
|
|
|
Net Asset Value per share
|
8.3%
|
MSCI AC Asia ex Japan Small
Cap
Index (£)
|
6.8%
|
|
|
|
|
Share Price
|
3.8%
|
MSCI AC Asia ex Japan Index
(£)
|
3.7%
|
|
|
|
|
|
|
FTSE All-Share Index (£)
|
3.9%
|
|
|
|
|
Summary Data (Unaudited) at 29 February 2024
|
|
|
|
|
Shares in Issue
|
23,962,351
|
Shareholders' Funds
|
£371.34m
|
|
|
|
|
Net Asset Value per share
|
1,549.68p
|
Market Capitalisation
|
£313.91m
|
|
|
|
|
Share Price
|
1,310.00p
|
Share Price Discount to
Net Asset Value
|
15.5%
|
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 25 of the Annual Report and Accounts* for the year ending 31
August 2023 (''the Annual Report and Accounts'').
*The Company's Annual Report and
Accounts for the year ending 31 August 2023 can be found on the
Company's website at www.scottishoriental.com.
Interim Management Report
Investment Performance
Over the six months ending 29
February 2024, Scottish Oriental's net asset value ("NAV") per
share increased by 8.3 per cent in total return terms, while
the MSCI AC Asia ex Japan Small Cap Index increased by 6.8 per cent
on the same basis. The Company's share price increased by 3.8 per
cent in total return terms. The biggest contributors to performance
were Scottish Oriental's holdings in India and Taiwan. The exposure
to Indonesia and Hong Kong were the biggest detractors from
performance. The Company's shares traded at a discount ranging from
8.6 per cent to 16.5 per cent, which reflects the cautious
sentiment of investors. The discount to NAV stood at 15.5 per
cent on 29 February 2024.
Dividend
A final dividend of 13.0p was paid
on 12 January 2024 for the year ended 31 August 2023 (31 August
2022: 14.0p per share (made up of a final dividend of 13.0p and a
special dividend of 1.0p)). Based on the current forecast it is
likely that, barring any unforeseen circumstances, the final
dividend will be at least maintained for the year ended
31 August 2024.
Review
Asian stock markets, with the
exception of China, were strong over the six months ending 29
February 2024. The recent stabilisation in global inflation rates
and the continued resilience of the global economy despite interest
rate increases has led to optimism among investors. The possibility
of interest rate reductions by global central banks in the coming
periods is being viewed positively.
Five new positions were initiated
during the period. The decline in valuations in markets like China
has led to some attractive bottom-up opportunities. This
includes Haitian International, which is
the largest plastic injection moulding machine manufacturer in
China. The company serves a diversified group of customers across
industries. The strong growth in electric vehicle manufacturing, as
well as Haitian's expansion into markets outside China are likely
to drive an improvement in its growth prospects.
Cloud
Music is the second largest music
platform in China with over 200 million active monthly users. The
company operates in an attractive duopoly structure with a loyal
user base. It has the potential to increase its profitability
levels materially as it expands its share of paying
users.
Mainfreight is a leading global
freight forwarding and logistics service provider, headquartered in
New Zealand. The company has a dominant position in the Australia
and New Zealand markets, which provide strong cash flows to expand
its presence in Europe and the United States of America where it
has the opportunity to scale up its business substantially.
Honasa
Consumer operates several personal
care brands in India, including MamaEarth, its flagship brand with
a focus on safe and toxin-free products. The company initially
began building its brands as a direct to consumer online offering.
It has successfully expanded into the large offline distribution
network and has the potential to grow rapidly in the
underpenetrated personal care category in India.
We had also purchased a small
position in LG Household & Healthcare ("LG H&H"), a large cosmetics, beverage and household
product company in South Korea. The company has a large exposure to
the Chinese cosmetics market. We observed increasing levels of
competitive intensity in China, which was likely to impact LG
H&H's market share and profitability over the medium-term. We
sold the small position due to these concerns.
Five holdings were sold after strong
share price performance, which had led to more expensive
valuations. This included Biocon, a global
pharmaceuticals manufacturer headquartered in India,
Delhivery, the largest third
party logistics service provider in India, HeidelbergCement
India, a leading cement
manufacturer, Mahindra Lifespace, a real
estate developer owned by the well reputed Mahindra group
and Hisense Home Appliances, the
dominant central air‑conditioning manufacturer in China.
We also sold Beijing Capital
Airport and Indus Motor
Company during the period. These
businesses were affected by regulatory changes as well as the weak
macro-economic environment prevailing in China and Pakistan,
respectively. These disposals were also aimed at consolidating the
portfolio among the highest conviction holdings.
Outlook
Over the last four years, Asian
economies have faced several headwinds including the impact of the
Covid-19 pandemic as well as the rise in inflation and interest
rates. The recovery in economic sentiment is uneven across the
region. Countries such as India and Indonesia have recovered
strongly since the initial impact of the pandemic. However, the
recovery in China and Hong Kong has been subdued, due to extended
lockdowns as well as geopolitical tensions, regulatory
interventions across a number of industries and a long overdue
property market downturn. During this period of disruption across
Asian countries, Scottish Oriental's holdings have gained market
share from their weaker competitors. They are likely to emerge with
a larger share of their respective categories' profit pools as the
operating environment improves. We are excited about the
portfolio's prospects, given the solid balance sheets of the
portfolio's holdings, their strong growth potential and
attractive valuations.
Vinay Agarwal
Sreevardhan Agarwal
FSSA Investment Managers
8 April 2024
Sustainability and ESG Integration
As long-term investors, the FSSA
team is focused on identifying companies that are intelligently
driving sustainable outcomes. A key part of its philosophy is
seeking founders and management teams with high governance
standards and whose interests are well-aligned with minority
shareholders. These are franchises with the ability to deliver
sustainable and predictable returns even in down markets,
comfortably in excess of the cost of capital.
Every member of the FSSA investment
team integrates ESG into their bottom-up research as a fundamental
part of an assessment of quality. This consideration gives a strong
indication as to whether management are truly good long-term
stewards. By evaluating ESG factors, it is possible to assess what
might improve or even destroy the investment case. The team closely
engage and track management's response to ESG concerns including
analysing targets and supporting KPIs.
Case Study: Beyond a Tick-Box Exercise
Kansai Nerolac Paints ("Kansai
Nerolac") is a leading paints company in India, 75%-owned by Kansai
Paints of Japan. Over the last two decades, it has been dominant in
automotive coatings with over 60% domestic market share. The
company is also one of the largest manufacturers of decorative wall
paints with the iconic Nerolac brand, which has been present in
India since the 1950s.
FSSA have been shareholders for most
of the last decade and hold the management team in high regard for
the way they have built the business over time. We believe their
track record of growing consistently and generating significant
operating cash flows is commendable - over the past 20 years, the
company has grown sales nearly eleven-fold while generating returns
on capital employed of 24% on average.
As part of our regular portfolio
monitoring and reviews, we recently sought to improve our
understanding of Kansai Nerolac's sustainability challenges and
opportunities, as well as their approach to the subject. As we
compared its data on Scope 1 and 2 emissions intensity, water
intensity and its share of renewable energy versus some listed
peers, we observed that it was lagging on a few metrics. As the
company has historically been a pioneer on sustainability
initiatives, including being the first company to produce lead-free
decorative paints in India, we decided to write a letter to the
management team to seek clarity on the current
situation.
We received a prompt and proactive
response from the company, which highlighted the difference in
Kansai Nerolac's business mix compared to peers. In particular, a
significant proportion of its business is industrial automotive
paints which by nature are more energy intensive. In that context,
the company's emissions intensity was only marginally higher than
peers, despite it not being a like-for-like comparison. Further,
the management team wanted to measure and validate its current
environmental impact against global frameworks. Although this
undertaking would take longer, the result would be more concrete
plans towards its long-term decarbonisation goals. The company has
now undertaken several short-term and long-term decarbonisation
initiatives and is the only paints company in India to have targets
verified by the Science Based Targets initiative ("SBTi") across
Scope 1, 2 and 3 emissions.
Overall, we were encouraged by the
company's response. While its current emissions intensity and
renewable energy consumption metrics appear less impressive than
peers, the direction of travel is positive. Kansai Nerolac has
chosen to approach sustainability in a comprehensive, long-term
manner rather than simply ticking the boxes. We look forward to
continuing our dialogue with the management team in the coming
years and tracking the progress of their climate-related
initiatives.
Income Statement for the Six Months
to 29 February 2024
|
Six months
to
29 February
2024
(unaudited)
|
Six
months to
28
February 2023
(unaudited)
|
|
Revenue
£'000
|
Capital
£'000
|
Total*
£'000
|
Revenue
£'000
|
Capital
£'000
|
Total*
£'000
|
|
|
|
|
|
|
|
|
|
Gains on investments
|
-
|
29,007
|
29,007
|
-
|
6,850
|
6,850
|
|
Income from investments
|
2,930
|
-
|
2,930
|
2,257
|
-
|
2,257
|
|
Other income
|
46
|
-
|
46
|
8
|
-
|
8
|
|
Investment management fee
|
(1,346)
|
-
|
(1,346)
|
(1,251)
|
-
|
(1,251)
|
|
Performance fee (note 7)
|
-
|
-
|
-
|
-
|
(1,993)
|
(1,993)
|
|
Currency losses
|
-
|
(72)
|
(72)
|
-
|
(362)
|
(362)
|
|
Other administrative
expenses
|
(395)
|
-
|
(395)
|
(356)
|
-
|
(356)
|
|
|
|
|
|
|
|
|
|
Net
return on ordinary activities
|
|
|
|
|
|
|
|
before finance costs and taxation
|
1,235
|
28,935
|
30,170
|
658
|
4,495
|
5,153
|
|
Finance costs
|
(406)
|
-
|
(406)
|
(417)
|
-
|
(417)
|
|
|
|
|
|
|
|
|
|
Net
return on ordinary activities before taxation
|
829
|
28,935
|
29,764
|
241
|
4,495
|
4,736
|
|
Tax on ordinary activities (note
3)
|
(254)
|
(4,412)
|
(4,666)
|
(16)
|
155
|
139
|
|
|
|
|
|
|
|
|
|
Net
return attributable to equity
shareholders
|
575
|
24,523
|
25,098
|
225
|
4,650
|
4,875
|
|
Net return per ordinary
share
|
2.38p
|
101.51p
|
103.89p
|
0.91p
|
18.82p
|
19.73p
|
|
* 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 29 February
2024
|
At 29
February
2024
|
At
31
August
2023
|
|
(unaudited)
£'000
|
(audited)
£'000
|
|
|
|
FIXED ASSET - EQUITY
INVESTMENTS
|
|
|
Bangladesh
|
2,356
|
3,191
|
China
|
51,469
|
41,623
|
Hong Kong
|
17,204
|
17,958
|
India
|
160,154
|
160,435
|
Indonesia
|
55,717
|
62,642
|
New Zealand
|
2,446
|
-
|
Pakistan
|
-
|
1,126
|
Philippines
|
33,591
|
34,008
|
Singapore
|
7,394
|
9,296
|
South Korea
|
15,596
|
13,413
|
Taiwan
|
26,787
|
16,762
|
Thailand
|
5,489
|
5,747
|
Vietnam
|
8,411
|
6,459
|
Total Equities
|
386,614
|
372,660
|
|
|
|
Net
Current Assets
|
20,433
|
15,569
|
Non-Current Liabilities (note 3)
|
(35,708)
|
(33,652)
|
Total Assets less Liabilities
|
371,339
|
354,577
|
CAPITAL AND RESERVES
|
|
|
Ordinary share capital
|
7,853
|
7,853
|
Share premium account
|
34,259
|
34,259
|
Capital redemption reserve
|
58
|
58
|
Capital reserves
|
323,986
|
304,661
|
Revenue reserve
|
5,183
|
7,746
|
Shareholders' Funds
|
371,339
|
354,577
|
|
|
|
Net
asset value per share
|
1,549.68p
|
1,455.58p
|
|
|
|
Cash Flow Statement for the Six
Months to 29 February 2024
|
|
Six months
to
|
Six months
to
|
|
|
29 February
2024
|
28
February 2023
|
|
|
(unaudited)
|
(unaudited)
|
|
Note
|
£'000
|
£'000
|
|
|
|
|
Net
cash outflow from operations before dividends, interest, purchases
and sales of investments
|
9
|
(4,074)
|
(1,730)
|
Dividends received from
investments
|
|
3,340
|
3,187
|
Interest received from
deposits
|
|
46
|
8
|
Cash
(outflow)/inflow from operations
|
|
(688)
|
1,465
|
Taxation
|
|
(241)
|
(131)
|
Net
cash (outflow)/inflow from operating activities
|
|
(929)
|
1,334
|
|
|
|
|
Investing activities
|
|
|
|
Purchases of investments
|
|
(57,665)
|
(45,827)
|
Sales of investments
|
|
70,661
|
56,905
|
Capital gains tax paid on the sale of
investments
|
|
(2,359)
|
(922)
|
Net
cash inflow from investing activities
|
|
10,637
|
10,156
|
|
|
|
|
Financing activities
|
|
|
|
Equity dividend paid
|
|
(3,138)
|
(3,457)
|
Buyback of Ordinary shares
|
|
(5,159)
|
(1,530)
|
Interest paid
|
|
(415)
|
(413)
|
Net
cash outflow from financing activities
|
|
(8,712)
|
(5,400)
|
|
|
|
|
Increase in cash and cash
equivalents
|
|
996
|
6,090
|
Cash and cash equivalents at the
start of the period
|
|
18,089
|
7,490
|
Effect of currency losses
|
|
(72)
|
(362)
|
Cash
and cash equivalents at the end of the period*
|
|
19,013
|
13,218
|
|
|
|
|
*Cash and cash equivalents represents
cash at bank
Statement of Changes in
Equity
|
|
|
For
the six months ended 29 February 2024
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
Capital
|
Share
Premium
Account
|
Capital
Redemption
Reserve
|
Capital
Reserves
|
Revenue
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 period
|
-
|
-
|
-
|
24,523
|
575
|
25,098
|
Transactions with owners recognised directly in
equity:
|
|
|
|
|
|
|
Dividend paid in the period (note
6)
|
-
|
-
|
-
|
-
|
(3,138)
|
(3,138)
|
Buyback of Ordinary shares
|
-
|
-
|
-
|
(5,198)
|
-
|
(5,198)
|
Balance at 29 February 2024
|
7,853
|
34,259
|
58
|
323,986
|
5,183
|
371,339
|
|
|
|
For
the six months ended 28 February 2023
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
Capital
|
Share
Premium
Account
|
Capital
Redemption
Reserve
|
Capital
Reserves
|
Revenue
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
|
Notes to Accounts
1.
The condensed Financial Statements for the six
months to 29 February 2024 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 2023 on page 9 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 2023.
3.
The Company has incurred £2,359,000 of capital
gains tax on the sale of investments in the six months to
29 February 2024 (six months to 28 February 2023: £946,000).
The Company has recognised a deferred tax liability of £5,873,000
(31 August 2023: £3,820,000) 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 to 29 February 2024 of
£25,098,000 (six months to 28 February 2023: net profit of
£4,875,000) and on 24,148,104 (six months to 28 February 2023:
24,709,483) Ordinary shares, being the weighted average number of
Ordinary shares in issue during the respective periods.
5.
At 29 February 2024 there were 23,962,351 Ordinary
shares in issue and 7,451,312 Ordinary shares held in Treasury (31
August 2023: 24,359,851 in issue and 7,053,812 held in Treasury).
During the six months to 29 February 2024, the Company bought back
397,500 Ordinary shares (year to 31 August 2023; the Company bought
back 457,128 Ordinary shares).
6.
Dividends
|
At
29 February
2024
£'000
|
At
28
February
2023
£'000
|
Amounts recognised as distributions
in the period:
|
|
|
|
|
|
|
|
|
Final dividend of 13.0p (2022 -
13.0p)
|
3,138
|
3,210
|
Special dividend nil (2022 -
1.0p)
|
-
|
247
|
|
3,138
|
3,457
|
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. The total fee payable to the Investment Manager is
capped at 1.5% per annum of the Company's net assets. As at 29
February 2024, the estimated performance fee for the year ending 31
August 2024 is £nil.
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.
Financial Assets at Fair Value
Through Profit or Loss
|
29 February
2024
|
31 August
2023
|
|
Level 1
|
Level 2
|
Level 3
|
Total
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|
£000
|
£000
|
£000
|
£000
|
£000
|
£000
|
£000
|
£000
|
Listed investments
|
347,220
|
39,394
|
-
|
386,614
|
313,937
|
58,723
|
-
|
372,660
|
Total
|
347,220
|
39,394
|
-
|
386,614
|
313,937
|
58,723
|
-
|
372,660
|
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. An investment is categorised as
illiquid when historic trading data indicates it would take more
than 250 days to liquidate. The fair value of these investments has
been determined by reference to their quoted prices at the
reporting date.
9.
Reconciliation of total return on ordinary activities before
finance costs and tax to net cash outflow before dividends,
interest, purchases and sales
|
Six months
to
29 February
2024
|
|
Six months
to
28
February
2023
|
£'000
|
|
£'000
|
Net return on activities before
finance costs and taxation
|
30,170
|
|
5,153
|
Net gains on investments
|
(29,007)
|
|
(6,850)
|
Currency losses
|
72
|
|
362
|
Dividend income
|
(2,930)
|
|
(2,257)
|
Interest income
|
(46)
|
|
(8)
|
(Decrease)/increase in
creditors
|
(2,228)
|
|
1,989
|
Increase in debtors
|
(105)
|
|
(119)
|
Net
cash outflow from operations before dividends,
|
|
|
|
interest, purchases and sales of investments
|
(4,074)
|
|
(1,730)
|
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 31 and 32 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 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 29 February 2024 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 29 February 2024 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
8 April 2024
· The
terms of the half-yearly financial report and this announcement
were approved by the Board on 8 April 2024.
· 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
8 April 2024