THE SCOTTISH ORIENTAL SMALLER COMPANIES TRUST PLC
Annual Financial Report for the year ended 31 August 2022
Financial Highlights
| Total Return Performance for the year ended 31 August 2022 (audited) | |||
| Net Asset Value | 10.0% | MSCI AC Asia ex Japan Small Cap Index (£) | (0.9)% |
| Share Price | 10.3% | MSCI AC Asia ex Japan Index (£) | (7.1)% |
| Total dividends increased by 22% to 14.0p per share | FTSE All-Share Index (£) | 1.0% |
| Summary Data at 31 August 2022 (audited) | |||
| Shares in issue | 24,816,979 | Shareholders’ Funds | £343.2m |
| Net Asset Value per share | 1,382.90p | Market Capitalisation | £295.3m |
| Share Price | 1,190.00p | Share Price Discount to Net Asset Value | 14.0% |
| Ongoing Charges Ratio* | 0.96% | Active Share (MSCI AC Asia ex Japan Small Cap Index) | 98.0% |
| Net Cash | 2.1% | Active Share (MSCI AC Asia ex Japan Index) | 99.7% |
| *No performance fee was payable during the year (2021: nil). |
Chairman’s Statement
I am pleased to present my first annual report as Chairman and am delighted to report that the Company has continued to build on last year’s strong performance. The Net Asset Value (“NAV”) per share rose by 10.0% in total return terms over the 12 months to 31 August 2022. This compares favourably to the MSCI AC Asia ex Japan Small Cap Index, MSCI AC Asia ex Japan Index, and the FTSE All-Share Index which returned -0.9%, -7.1% and +1.0% respectively during the same period. Following our review of the investment performance of the Company, the Board is pleased to see that the investment manager – FSSA Investment Managers – continues to return positive performance to shareholders.
During the period under review, the Company’s share price total return increased by 10.3%.
Shareholders will note that the portfolio is not formally benchmarked against any of the aforementioned indices; comparative data from these indices is solely provided to bring context to the performance of the portfolio. This is further highlighted by the portfolio’s active share against both the MSCI AC Asia ex Japan Small Cap Index (98.0%) and the MSCI AC Asia ex Japan Index (99.7%). If the portfolio fully mirrored the stocks held by an index, then the active share would be zero, conversely, if the portfolio did not hold any stocks in the index; the active share would be 100%.
A performance fee was not paid to the Investment Manager in the year under review.
The Portfolio Managers’ Report below addresses the performance of the Company as well as recent portfolio activity and current positioning. It also analyses the top five contributors to performance all of which are Indonesian or Indian companies, as well as the bottom five detractors. Also included in the report is a review of the history of Scottish Oriental since its inception in March 1995. This review details the Company’s original investment policy and how the Portfolio Managers’ focus on risk management has led to long-term returns in excess of comparator indices, despite short-term periods of underperformance.
During the year, the Company bought back 2,504,180 ordinary shares. The share price discount has remained steady at around 14.0%. The Board continues to have no formal discount control mechanism in place. However, it is prepared to buy back shares opportunistically and to issue new shares at a small premium to NAV where market demand exists.
As announced in November 2021 the Board introduced a performance-related conditional tender offer. The offer will be made for up to 25% of the Company’s outstanding share capital if, over the five-year period starting 1 September 2021 (and at five yearly intervals thereafter), the Company’s NAV on a total return basis fails to exceed the total return of the MSCI AC Asia ex Japan Small Cap Index (net of fees) over the same period on a cumulative basis. During the year to 31 August 2022, the Company outperformed the MSCI AC Asia ex Japan Small Cap Index by 10.9%.
In last year’s annual report, it was noted that the final dividend was not fully covered by earnings. However as many of our investee portfolio companies have emerged from the Covid-19 pandemic and return to “business as usual”, cashflows have started to improve. This has led to an increase in income per share from 9.02p last year to 16.66p in the year to 31 August 2022. On account of this high level of income generation, the Board is proposing to increase the final dividend by 1.5p per share to 13.0p and to pay a special dividend of 1.0p per share, bringing total dividends for the year to 14.0p per share. This represents a 22% year on year increase in dividends paid to shareholders.
On 20 July 2022, James Ferguson stepped down as the Company’s Chairman and retired from the Board. James was appointed as the Company’s Chairman in April 2004 and during his tenure he oversaw an increase in the Company’s market capitalisation from £42 million to over £290 million. He brought a wealth of experience to the Board and his contribution will be missed.
This year’s Annual General Meeting (‘AGM’) will be held on Monday, 5 December 2022 at the offices of First Sentier Investors, Finsbury Circus House, 15 Finsbury Circus, London. I look forward to seeing those of you who can attend the meeting in person.
Shareholders can keep up to date on the performance of the portfolio through the Company’s website at www.scottishoriental.com
Finally, the Board welcomes communication from shareholders and I can be contacted directly through the Company Secretary at cosec@junipartners.com
Jeremy Whitley
Chair
27 October 2022