Scottish Oriental Plc – Final Results

THE SCOTTISH ORIENTAL SMALLER COMPANIES TRUST PLC

Annual Financial Report for the year ended 31 August 2021

Financial Highlights

Chairman's Statement

Scottish Oriental had a much improved performance last year compared to the poor result for 2020. The Net Asset Value (“NAV”) per share rose by 28.4 per cent in total return terms over the 12 months to 31 August 2021 while the 'comparative indices', the MSCI AC Asia ex Japan Index and the MSCI AC Asia ex Japan Small Cap Index, rose by 14.7 per cent and 37.8 per cent respectively. As usual, we would stress that the Company is not invested with regard to any particular benchmark and these indices are shown to provide some context. In the Financial Highlights above you will see figures for the portfolio's active share against the two indices. These figures illustrate the extent to which our portfolio differs from each index; 100 per cent would indicate that there is no overlap whatsoever. The share price total return was 28.8 per cent. A performance fee was not paid this year.

In last year's annual report we raised a note of caution that it was likely that our dividend could be cut this year. This view was based on the premise that the objective of Scottish Oriental since its inception has been capital growth with the dividend being a secondary consideration. However, in the very unusual circumstances that have prevailed recently, we have decided to recommend an unchanged dividend of 11.5p. This is not fully covered by earnings and would require the use of part of our revenue reserve.

We believe that this is a sensible compromise for this year, but that it should not be seen as a longer term policy of exhausting revenue reserves to maintain the dividend. Although it means that the outlook for the dividend will be uncertain, it will be a continuation of the approach that has served the trust well for many years. We expect that the portfolio's dividends for the year to August 2022 will be likely to increase, but it is too early to make an accurate estimate of the extent of this and to make any forecast for the dividend next year.

During the year, the Company bought back 1,852,871 ordinary shares. 4,092,504 ordinary shares were held in Treasury at the year end. The Board continues to have no formal discount control mechanism but will be prepared to buy back shares opportunistically and to issue new shares at a small premium to NAV.

The review of the method of selecting shares for the portfolio that I referred to last year has helped to improve the performance. It justified the strong emphasis on India rather than China, which has been beneficial. The Managers' report gives more details of this investment process.

The Managers are confident that the outlook for Asian equities over a 20-year time frame will be very strong. Due to this, and the availability of long-term debt at relatively low rates of interest, the Board approved the issue of £30 million of loan notes in March 2021 providing the Company with long-term financing. The privately placed loan notes were issued in one tranche, with a fixed coupon of 2.75 per cent payable semi-annually to be repaid 24 March 2041.

Our plan for Board succession is unchanged from last year. We value the balance of our three more recently appointed directors from diverse financial backgrounds alongside the experience of the two longer serving directors and I intend to step-down as Chairman within the next twelve months.

Despite the present background of concerns about China, you will see from the outlook section of the Managers' report that they are enthusiastic about the outlook for the companies in our portfolio. We share that optimism.

This year's Annual General Meeting will be held on 7 December 2021 at the offices of Juniper Partners Limited, 28 Walker Street, Edinburgh. I look forward to seeing shareholders then.