Half-yearly Report
SMALL COMPANIES DIVIDEND TRUST PLC
Half-yearly Report
for the six months ended 31 October 2010
Investment objective and policy
The investment objective of the Company is to provide Ordinary shareholders
with a high income and opportunity for capital growth.
The Company's funds will be invested principally in UK companies with a market
capitalisation of up to £500 million at the point of investment. The Company
will invest in the ordinary shares of companies either on the Official List
and traded on the London Stock Exchange's main market or traded on AIM. The
Company will not invest in the securities of other investment trusts or in
unquoted companies. No investment will be made in preference shares, loan
stock or notes, convertible securities or fixed interest securities or any
similar securities convertible into shares. A maximum of 20% of the Company's
portfolio may be invested in companies without reference to their market
capitalisation at the discretion of the Investment Manager.
Capital structure
Borrowings
The Company has a £4.0 million fixed term loan facility with Lloyds Banking
Group.
Ordinary shares - 16,250,000 in issue
Dividends
Holders of Ordinary shares are entitled to dividends.
Capital
On a winding-up of the Company, Ordinary shareholders will be entitled to all
surplus assets of the Company available after payment of all liabilities.
Voting
Each holder on a show of hands will have one vote and on a poll will have one
vote for each Ordinary share held.
If you are in any doubt about the contents of this document or the action you
should take, you are recommended to seek immediately your own independent
financial advice from your stockbroker, bank manager, solicitor, accountant or
other financial adviser authorised under the Financial Services and Markets
Act 2000.
Registered in England
No. 3749536
A member of the Association of Investment Companies
Financial highlights
Discount
31 October 30 April 31 October
Capital 2010 2010 % change 2010
Total net assets (£'000) 16,355 15,752 3.83
Net asset value per Ordinary share** 100.65p 96.94p 3.83
Mid-market price per Ordinary share 85.75p 85.50p 0.29 14.80%
FTSE All-Share Index 2,936.15 2,863.35 2.54
FTSE SmallCap Index 3,076.95 2,960.77 3.92
Six months to Six months to
31 October 31 October
Revenue 2010 2009 % change
Return per Ordinary share 3.22p 2.22p 45.05
Dividend per Ordinary share*** 2.60p 2.50p 4.00
Six months to Six months to
31 October 31 October
Total return 2010 2009
Total assets less current liabilities (excluding bank borrowings) total
return* 5.54% 8.76%
Total return on Company's net assets* 7.49% 12.88%
Total return FTSE All-Share Index 4.20% 21.17%
Total return FTSE SmallCap Index 5.43% 28.22%
* Adding back dividends distributed in the period.
** Net asset values per share have been calculated in accordance with
entitlements as at the period end and in accordance with the Company's
Articles of Association.
*** Dividend per Ordinary share includes the first interim paid and second
interim declared for the period to 31 October 2010 and 2009 and will differ
from the amounts disclosed within the statement of changes in net equity.
Interim management report
Results
This report covers the six months to 31 October 2010. The net asset value per
Ordinary share at 31 October 2010 was 100.65p, an increase of 3.83% in the
past six months compared to an increase of 2.54% in the FTSE All-Share Index
and an increase of 3.92% in the FTSE SmallCap Index. Since the beginning of
the Company's financial year, the Ordinary share price has risen from 85.50p
to 85.75p as at 31 October 2010, whilst the discount has widened from 11.80%
to 14.80% over the same period. Since then the share price has risen further
to 92.00p as at 10 December 2010.
Dividend
A first interim dividend of 1.30p (2009: 1.25p) per Ordinary share was paid on
4 October 2010. The Board has declared a second interim dividend of 1.30p per
Ordinary share (2009: 1.25p) payable on 7 January 2011 to shareholders on the
register at 17 December 2010, making a total for the half year of 2.60p per
Ordinary share (2009: 2.50p).
Review
In the early part of the last period the General Election dominated domestic
news with the policies of the coalition government being welcomed as broadly
supportive of markets. The Comprehensive Spending Review in October produced
few shocks as it had been well flagged beforehand, although it did serve to
highlight the scale of the continuing problems faced by the UK economy.
Quantitative easing remained a theme within developed economies throughout the
last six months and helped to support equity valuations globally as the
prospect of interest rate rises continued to move further to the right.
We added a number of new stocks to our portfolio where we believe that we have
been able to add to the underlying yield at attractive prices. We purchased
Interior Services, a contracting and fit out business, Dairy Crest, a UK dairy
food company, Personal Group, which provides employee benefit packages such as
accident and health insurance to SME's, Morgan Sindall, a construction and
regeneration business and Randall & Quilter, which provides investment
activities and services to the non-life insurance sector. At the same time we
sold our holdings in both Nicholls and DS Smith after periods of good
performance and where the yields had fallen to levels not commensurate with
our objectives. We also reduced our exposure to Zotefoams and Avesco after
strong runs in their share prices.
Outlook
Once again it is the macro issues that concern investors as the Irish bailout
and the risks of contagion dominate the headlines. Although the domestic
economy appears to be showing the first tentative signs of recovery the
general uncertainty pertaining to the strength of the banking system and its
ability to withstand a major financial shock may continue to hold back
investor confidence in the short term.
At the corporate level we expect earnings to grow next year but the growth
will become harder to come by as comparatives get much tougher. We do however
see the opportunity for margin expansion as companies have contained their
costs as turnover has grown. This should help to underpin a continuation of
the strong cash generation we have seen over the past eighteen months and
will, we believe, be supportive of a continuation of the trend of real
dividend rises by an increasing number of companies.
Board
The Company has expressed its deep sadness at the news that Bryan Lenygon, a
Director of the Company since launch in 1999, passed away last month. Bryan,
was an important member of the Board and his experience, wisdom and humour
will be greatly missed by all.
Chelverton Asset Management Limited
16 December 2010
Principal risks
The principal risks facing the Company are substantially unchanged since the
date of the annual report for the year ended 30 April 2010 and continue to be
as set out in that report. Risks faced by the Company include, but are not
limited to, market risk, discount volatility, regulatory risk, financial risk,
risks associated with banking and hedging and the risk of non-compliance with
Section 1158 of the Corporation Tax Act 2010.
Responsibility statement of the Directors in respect of the half-yearly report
We confirm that to the best of our knowledge:
- the condensed set of financial statements has been prepared in compliance
with the IAS34 "Interim Financial Reporting" and gives a true and fair view of
the assets, liabilities and financial position of the Company; and
- the interim management report and notes to the half-yearly report include a
fair view of the information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication
of the important events that have occurred during the first six months of the
financial year and their impact on the condensed set of financial statements;
and a description of the principal risks and uncertainties for the remaining
six months of the year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party
transactions that have taken place in the first six months of the current
financial year and that have materially affected the financial position or
performance of the entity during that period; and any changes in the related
party transactions described in the last annual report that could do so.
This half-yearly report was approved by the Board of Directors on 16 December
2010 and the above responsibility statement was signed on its behalf by Lord
Lamont, Chairman.
Statement of comprehensive income (unaudited)
for the six months ended 31 October 2010
Six months to Year to Six months to
31 October 2010 30 April 2010 31 October 2009
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Investments (audited)
Gains on investments - 810 810 - 5,685 5,685 - 2,851 2,851
Investment income 684 - 684 1,012 - 1,012 517 - 517
Expenses
Investment
management
fee (25) (76) (101) (45) (134) (179) (21) (62) (83)
Recovery of VAT on
investment
management fee - - - 49 74 123 - - -
Other expenses (95) - (95) (180) - (180) (91) - (91)
Recovery of loss in
former subsidiary
company - - - - 6 6 - 6 6
(120) (76) (196) (176) (54) (230) (112) (56) (168)
Net return before
finance costs
and taxation 564 734 1,298 836 5,631 6,467 405 2,795 3,200
Finance costs
Bank interest
payable on
overdraft and
loan (44) (131) (175) (86) (258) (344) (43) (130) (173)
Movement in
fair value of
ineffective
element of
interest rate
swap 3 8 11 6 17 23 4 14 18
(41) (123) (164) (80) (241) (321) (39) (116) (155)
Net return
and
comprehensive
income before
taxation 523 611 1,134 756 5,390 6,146 366 2,679 3,045
Taxation
(see note 4) - - - (5) - (5) (5) - (5)
Net return
and
comprehensive
income after
taxation 523 611 1,134 751 5,390 6,141 361 2,679 3,040
Revenue Capital Total Revenue Capital Total Revenue Capital Total
pence pence pence pence pence pence pence pence pence
Return per
Ordinary share
(see note 2) 3.22 3.76 6.98 4.62 33.17 37.79 2.22 16.49 18.71
The total column of this statement is the statement of comprehensive income of
the Company prepared under International Financial Reporting Standards
(`IFRS') as adopted by the EU. All revenue and capital items in the above
statement derive from continuing operations. The Company does not have any
income or expense that is not included in the net return for the period, and
therefore the "net return for the period" is also the "Total comprehensive
income for the period", as defined in International Accounting Standard 1
(revised). All of the net return for the period and the total comprehensive
income for the period is attributed to the Shareholders of the Company. The
supplementary revenue and capital return columns are presented for information
purposes as recommended by the Statement of Recommended Practice issued by the
Association of Investment Companies (`AIC'). These accounts are unaudited and
are not the Company's statutory accounts.
Condensed statement of changes in net equity (unaudited)
for the six months ended 31 October 2010
Share
Share premium Capital Hedge Revenue
capital account reserve reserve reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
Six months ended 31 October 2010
30 April 2010 4,063 11,917 (1,322) (413) 1,507 15,752
Net return after taxation for the period - - 611 - 523 1,134
Dividends paid - - - - (577) (577)
Movement in fair value of cashflow hedge taken to equity - - - 46 - 46
31 October 2010 4,063 11,917 (711) (367) 1,453 16,355
Year ended 30 April 2010 (audited)
30 April 2009 4,063 11,917 (6,712) (503) 1,641 10,406
Net return after taxation for the year - - 5,390 - 751 6,141
Dividends paid - - - - (885) (885)
Movement in fair value of cashflow hedge taken to equity - - - 90 - 90
30 April 2010 4,063 11,917 (1,322) (413) 1,507 15,752
Six months ended 31 October 2009
30 April 2009 4,063 11,917 (6,712) (503) 1,641 10,406
Net return after taxation for the period - - 2,679 - 361 3,040
Dividends paid - - - - (479) (479)
Movement in cashflow hedge taken
to equity - - - 71 - 71
31 October 2009 4,063 11,917 (4,033) (432) 1,523 13,038
Condensed balance sheet (unaudited)
as at 31 October 2010
31 October 30 April 31 October
2010 2010 2009
£'000 £'000 £'000
(audited)
Non-current assets
Fair value through profit or loss investments 20,724 19,479 17,253
Current assets
Trade and other receivables 89 540 93
Cash and cash equivalents 218 358 322
307 898 415
Total assets 21,031 20,377 17,668
Current liabilities
Trade and other payables (217) (109) (90)
(217) (109) (90)
Total assets less current liabilities 20,814 20,268 17,578
Non-current liabilities
Bank loan (4,000) (4,000) (4,000)
Derivative financial instruments (459) (516) (540)
(4,459) (4,516) (4,540)
Total liabilities (4,676) (4,625) (4,630)
Net assets 16,355 15,752 13,038
Represented by:
Share capital 4,063 4,063 4,063
Share premium account 11,917 11,917 11,917
Capital reserve (711) (1,322) (4,033)
Hedge reserve (367) (413) (432)
Revenue reserve 1,453 1,507 1,523
Issued capital and reserves 16,355 15,752 13,038
Net asset value per: (see note 3) pence pence pence
Ordinary share 100.65 96.94 80.23
Condensed statement of cash flows (unaudited)
for the six months ended 31 October 2010
Six months to Year to Six months to
31 October 30 April 31 October
2010 2010 2009
£'000 £'000 £'000
(audited)
Operating activities
Investment income received 818 1,030 680
Bank deposit interest received - 16 -
Investment management fee paid (100) (166) (76)
Administration and secretarial fees paid (32) (47) (24)
Refund of VAT paid on investment management fees - 312 189
Recovery of loss in former subsidiary company - - 6
Other cash payments (85) (125) (89)
Cash generated from operations 601 1,020 686
Loan interest paid (171) (342) (170)
Net cash inflow from operating activities 430 678 516
Investing activities
Purchases of investments (2,473) (4,303) (1,664)
Sales of investments 2,480 4,550 1,631
Net cash inflow/(outflow) from investing activities 7 247 (33)
Financing activities
Dividends paid (577) (885) (479)
Net cash outflow from financing activities (577) (885) (479)
(Decrease)/increase in cash and cash equivalents for period (140) 40 4
Cash and cash equivalents at start of period 358 318 318
Cash and cash equivalents at end of period 218 358 322
Notes to the condensed half-yearly report
for the six months ended 31 October 2010
1 General information
The financial information contained in this half-yearly report does
not constitute statutory financial statements as defined in Section 434 of the
Companies Act 2006. The statutory financial statements for the year ended 30
April 2010, which contained an unqualified auditors' report, have been lodged
with the Registrar of Companies and did not contain a statement required under
the Companies Act 2006. These statutory financial statements were prepared
under International Financial Reporting Standards (`IFRS') and in accordance
with the Statement of Recommended Practice: Financial Statements of Investment
Trust Companies and Venture Capital Trusts issued in January 2009.
This half-yearly report has been prepared using the accounting
policies adopted in the audited financial statements for the year ended 30
April 2010 and in compliance with IAS 34 `Interim Financial Reporting'. This
report has not been reviewed by the Company's Auditors.
The Company has considerable financial resources and therefore, the Directors
believe that the Company is well placed to manage its business risks and also
believe that the Company will have sufficient adequate resources to continue
in operational existence for the foreseeable future. Accordingly, they
continue to adopt the going concern basis in preparing this half-yearly
report.
2 Return per Ordinary share
The return per Ordinary share is based on 16,250,000 (30 April 2010:
16,250,000, 31 October 2009: 16,250,000) Ordinary shares.
3 Net asset values
Net asset values per share have been calculated in accordance with
entitlements as at the period end and in accordance with the Company's
Articles of Association and include current period revenue.
The net asset values per Ordinary share is based on assets
attributable of £16,355,000 (30 April 2010: £15,752,000, 31 October 2009:
£13,038,000) and on 16,250,000 (30 April 2010: 16,250,000, 31 October 2009:
16,250,000) Ordinary shares, being the number of Ordinary shares in issue at
the period end.
4 Taxation
31 October 30 April 31 October
2010 2010 2009
£'000 £'000 £'000
Based on the revenue return for the period
Current tax - 5 5
The current tax charge for the year is lower than the averaged standard rate
of corporation tax in the UK of 28% (2009: 28%).The differences are explained
below:
31 October 30 April 31 October
2010 2010 2009
£'000 £'000 £'000
Revenue on ordinary activities before taxation 1,134 6,146 3,045
Theoretical tax at UK corporation rate of 28%
(30 April 2009: 28%, 31 October 2009: 28%) 318 1,721 853
Effects of:
Capital items not taxable (227) (1,592) (800)
UK and foreign dividends which are not taxable in the UK (192) (269) (144)
Excess expenses in the period 101 140 82
Accrued income brought forward 6 - 9
Actual income considered taxable in prior period but now considered exempt (6) - -
Withholding tax suffered on unfranked foreign dividend income - 5 5
Actual current tax charged to the revenue account - 5 5
The Company has unrelieved excess expenses of £16,344,000 at 31 October 2010
(30 April 2010: £16,125,000, 31 October 2009: £15,767,000). It is unlikely
that the Company will generate sufficient taxable profits in the future to
utilise these expenses and therefore no deferred tax asset has been
recognised.
5 Reconciliation of net return before and after taxation to net cash inflow
from operating activities
31 October 30 April 31 October
2010 2010 2009
£'000 £'000 £'000
Net return before taxation 1,134 6,146 3,045
Taxation - (5) (5)
Net return after taxation 1,134 6,141 3,040
Net capital return (611) (5,390) (2,679)
Movement in fair value of ineffective element of interest rate swap (11) (23) (18)
Decrease in receivables 123 228 347
(Decrease)/increase in payables (6) 17 (2)
Interest and expenses charged to the capital reserve (199) (295) (172)
Net cash inflow from operating activities 430 678 516
6 Related party transactions
The investments are managed by Chelverton Asset Management Limited, a
company in which Mr van Heesewijk, a Director of the Company, has an interest.
The amounts paid to the Investment Manager in the period to 31 October 2010
were £101,000 (year ended 30 April 2010: £179,000, period to 31 October 2009:
£83,000).
7 Dividends
During the period, a fourth interim dividend of 2.25p per Ordinary share for
the year ended 30 April 2010, together with a first interim dividend of 1.30p
per Ordinary share for the year ending 30 April 2011, have been paid to
shareholders.
In addition, the Board has declared a second interim dividend of 1.30p per
Ordinary share payable on 7 January 2011 to shareholders on the register at 17
December 2010.
Principal portfolio investments
as at 31 October 2010
Top 20 holdings
Market value % of
Industrial classification £'000 portfolio
Macfarlane Group Support Services 788 3.8
S&U General Financial 783 3.8
Portmeirion Group Household Goods & Home Construction 760 3.7
Sinclair (William) Holdings Household Goods & Home Construction 683 3.3
Alumasc Group Construction & Materials 672 3.2
Cineworld Group Travel & Leisure 669 3.2
Victoria Household Goods & Home Construction 633 3.1
Consort Medical Health Care, Equipment & Services 625 3.0
Clarke (T) Construction & Materials 605 2.9
Stadium Group Electronic & Electrical Equipment 576 2.8
Chesnara Life Insurance 543 2.6
Marshalls Group Construction & Materials 528 2.6
Trifast Industrial Engineering 502 2.4
Office2office Support Services 500 2.4
Arbuthnot Banking Group General Financial 468 2.3
Jarvis Securities General Financial 461 2.2
Sanderson Group Software & Computer Services 440 2.1
Fiberweb Support Services 440 2.1
Omega Insurance Non Life Insurance 439 2.1
Hansard Global Life Insurance 438 2.1
Top 20 companies 11,553 55.7
Balance held in 35 companies 9,171 44.3
Total portfolio 20,724 100.0
Breakdown of portfolio by industry
Portfolio by industry Percentage
Support Services 13%
Construction & Materials 11%
Household Goods & Home Construction 10%
Non Life Insurance 10%
General Financial 9%
Industrial Engineering 7%
Travel & Leisure 6%
Life Insurance 5%
General Industrials 4%
Food Producers 3%
Electronic & Electrical Equipment 3%
Industrial Transportation 3%
Health Care, Equipment & Services 3%
Chemicals 2%
Gas, Water & Multi-utilities 2%
Mining 2%
Media 2%
General Retailers 2%
Software & Computer Services 2%
Fixed Line Telecommunication 1%
Shareholder information
Financial calendar
Company's year end 30 April
Interim dividends paid April, July, October and
January
Annual results announced July
Annual General Meeting September
Company's half-year 31 October
Half-year results announced December
Share prices and performance information
The Company's Ordinary shares are listed on the London Stock Exchange. The
mid-market prices are quoted daily in the Financial Times under `Investment
Companies'.
The net asset values are announced weekly to the London Stock Exchange and
published monthly via the Association of Investment Companies.
Information about the Company can be obtained on the Chelverton
internet site at www.chelvertonam.com. Any enquiries can also be e-mailed to
cam@chelvertonam.com.
Share register enquiries
The register for the Ordinary shares is maintained by Share Registrars
Limited. In the event of queries regarding your holding, please contact the
Registrar on 01252 821390. Changes of name and/or address must be notified in
writing to the Registrar.
Directors and Advisers
Directors Lord Lamont of Lerwick (Chairman)
Bryan Lenygon*
David Harris
William van Heesewijk
* Deceased 25 November 2010
Investment Manager Chelverton Asset Management Limited
11 George Street
Bath BA1 2EH
Tel: 01225 483030
Secretary and Registered Office Capita Sinclair Henderson Limited
(trading as Capita Financial Group -
Specialist Fund Services)
Beaufort House
51 New North Road
Exeter EX4 4EP
Tel: 01392 412122
Registrar and Transfer Office Share Registrars Limited
Suite E, First Floor
9 Lion and Lamb Yard
Farnham
Surrey GU9 7LL
Tel: 01252 821390
www.shareregistrars.uk.com
Bankers Lloyds TSB Bank Plc
25 Gresham Street
London EC2V 7HN
Auditors Hazlewoods LLP
Windsor House
Bayshill Road
Cheltenham
GL50 3AT
Custodian HSBC Global Services
Level 27
8 Canada Square
London E14 5HQ
Registered in England
No. 3749536
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