Annual Financial Report

RNS Number : 5145X

Standard Life UK Small.Co's Tst PLC

01 September 2015

STANDARD LIFE UK SMALLER COMPANIES TRUST PLC

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2015

1. CHAIRMAN'S STATEMENT

Performance

For the year ended 30 June 2015, the Company's diluted net asset value total return was 14.2%, compared with a total return of 10.4% for the Company's benchmark. The Company's long term performance remains strong. Indeed, since Standard Life Investments' appointment on 1 September 2003, the Company has delivered a diluted net asset value total return of 482.2%, representing an annualised return of 16.2% and outperforming the Company's benchmark, the Numis Smaller Companies Index (excluding investment companies), by 4.2% per annum.

The Company continues to compare well against its peer group, as reflected in the table below:

	1 Year	5 Years	11+ years (since SLI appointment)
Diluted net asset value total return	14.2%	135.5%	482.2%
Share price total return	8.5%	137.0%	644.4%
Benchmark total return	10.4%	123.9%	321.0%
Peer group ranking	4/12	8/12	1/9

Sources: Thomson Datastream and JP Morgan Cazenove

The Investment Manager's Report provides further information on stock performance and portfolio activity during the year, as well as the Investment Manager's outlook for smaller companies. The Board agrees with the Manager's view that steady growth stocks should outperform cyclical stocks over the long term.

Earnings and Dividend

The undiluted (or basic) revenue return per share for the year ended 30 June 2015 was 6.76p (2014 - 5.05p). Basic earnings per share have increased by 33.9% this year as dividend growth from the portfolio remained strong. Income from investments increased by 26.5% in the period. The Company has, again, benefitted from high levels of special dividends, which totalled £1,428,000 (2014 - £874,000) for the year or 2.05p per share (2014 - 1.26p per share).

The Board is recommending a final dividend of 4.40p per share, an increase on last year's final dividend of 36.2%. If approved, the final dividend, together with the interim dividend of 1.40p paid in April, will give a total dividend for the year of 5.80p and will represent an increase of 28.9% on last year.

Subject to shareholder approval at the Annual General Meeting on 22 October 2015, the final dividend will be paid on 29 October 2015 to shareholders on the register as at 9 October 2015 with an associated ex-dividend date of 8 October 2015.

Investment Manager

The Board believes that the appointment of Standard Life Investments continues to be in the long-term interests of shareholders. Harry Nimmo, Head of Smaller Companies at Standard Life Investments, has been the lead investment manager of the Company's investment portfolio since 2003 and his strong performance record gives the Board confidence in the ability of the Investment Manager to continue to deliver attractive long term returns for shareholders. The Company was one of the first investment companies to simplify its investment management fee arrangements ahead of the implementation of the Retail Distribution Review. The performance fee was removed from 1 July 2012 and the investment management fee now comprises a basic fee of 0.85% of total assets.

Gearing

The Board has given the Investment Manager discretion to vary the level of gearing between a net cash position of 5% and net gearing of 25% of net assets, depending on the Investment Manager's view of the outlook for smaller companies.

The Company currently has £19.8 million 3.5% Convertible Unsecured Loan Stock 2018 (CULS) in issue and the Investment Manager is able to vary net gearing by adjusting the level of cash held by the Company. At 30 June 2015, the net gearing or borrowing level was 4.1%.

As a reminder to holders of the CULS, these can be converted into Ordinary shares on 30 September and 31 March of each year up to March 2018, at a fixed price per Ordinary share of 237.2542p.

Issue of Shares

During the period the Company issued 342,169 Ordinary shares as a result of CULS conversions.

Discount

The discount at which the Company's shares trade relative to the diluted statutory net asset value was 10.9% at 30 June 2015. The Company's shares have traded at an average discount to its capital only net asset value of 6.9% over the year ended 30 June 2015 (source: Winterflood Securities) and the Board will continue to monitor the discount level closely going forward. This compares with the average peer group discount of 11.9% for the year to 30 June 2015.

Regular Tender Offers and Share Buy Backs

The Board exercised its discretion and did not conduct a tender offer at 31 December 2014. The Board announced on 2 June 2015 a tender offer for up to 5% of the Company's shares. On 24 July 2015 the Company reported that the tender offer was oversubscribed with 8.38% of the Company's shares being tendered. The basic entitlement was accepted in full and excess tenders satisfied to the extent of 47.78% of the shares tendered. The tender price was 322.66p per share.

Including the tender offers of 2007, 2010 and the latest one announced in June 2015, together with all market share buy backs since the appointment of Standard Life Investments in 2003, the Company has bought back 44.8 million shares returning £65.3 million to shareholders. The Company bought back shares into treasury over the reporting period representing 2,307,155 shares at an average discount of 8.5%. Market buy backs enhance the NAV for all ongoing shareholders whereas the tender offers provide a marginal benefit to NAV and reduce the size of the Company. As stated on 2 June 2015, the Company intends to continue to buy back shares in the market at discounts above 10% where it is in the interests of the Company as a whole to do so. The Board has the additional power to implement tender offers and will continue to do so in circumstances where it believes share buy backs are not sufficient to maintain the discount at an acceptable level.

Board Succession Planning

Immediate past Chairman, Donald MacDonald, will retire from the Board in February 2016 and Lynn Ruddick will also retire from the Board after the conclusion of the October 2016 AGM. The Nomination Committee will be carrying out a search for new directors in due course and will continue to focus on the Company's ongoing succession planning.

AGM and London Presentation

The Annual General Meeting of the Company will be held at the offices of the Investment Manager, Standard Life Investments, 1 George Street, Edinburgh EH2 2LL on Thursday, 22 October 2015. The meeting will start at 12 noon and will include a presentation from the Investment Manager.

In addition, there will be a presentation in London on 27 November 2015 at 11.30am. Shareholders will be sent further details in due course.

Outlook

The Board remains confident in the outlook for the Company over the long term. The Investment Managers' investment process has delivered excellent returns for shareholders. We expect the portfolio to continue to deliver strong earnings and dividend growth. The emphasis on risk aversion, quality and resilience, growth and momentum remains intact.

David Woods

Chairman

28 August 2015

2. INVESTMENT MANAGER'S REPORT

The UK smaller companies sector as represented by the Numis Smaller Companies Index (excluding Investment Trusts) rose by 7.0% over the year. This compares with a rise in the diluted net asset value for the Trust of 12.7%, while the share price rose by 6.7%. Over the same period the FTSE 100 Index of the largest UK listed companies fell by 3.3%. Standard Life Investments has managed the Trust since 1 September 2003. The Trust share price at that time was 47.75p. The Trust share price has risen by 528% from then to the current year end compared with our benchmark which was up 195%.

Equity markets

The year in question started badly for markets. It's not unusual for markets to exhibit pessimism in the Autumn and 2014 was no exception. There was a crescendo of worrying geo-political and economic malaise such as Islamic State actions in Syria and Iraq and increased tension in the Ukraine following the downing of a civilian airliner. Chinese and European economies struggled and even the rise of Ebola in West Africa was seen as a kind of divine retribution. Deliverance came in the shape of the Japanese Central Bank which announced an unexpected increase in the size of their quantitative easing (QE) intervention to 80 trillion Yen. Another helpful change from out of the blue was the collapse in the oil price following Saudi Arabia letting it be known that it would no longer be the "swing producer". This was a direct challenge to the rise of the extraction of oil & gas by "fracking" in North America. More good news arrived with Mario Draghi of the European Central Bank announcing an aggressive QE programme. Strong corporate results and benign economies in the UK and USA were then enough to set the positive tone of markets through to the start of June 2015. The surprise outright win for the Conservatives in the May UK general election sent markets still higher.

Markets then became transfixed by the unedifying turmoil that was the Greek/EU negotiations on their debt burden. On 8 December markets were badly spooked by Greek Prime Minister Antonis Samaras calling a snap election. This was a spectacularly misjudged attempt in his words to "prevent the opposition (Syrizia party) from undermining Greece's economy and directing messages of political uncertainty to financial markets". The unedifying spectacle of chaotic brinkmanship by all parties to the negotiation caused a sharp selloff in June until the final cobbled together eleventh hour agreement was announced.

Bid activity has been mounting steadily as economic confidence continues to grow. The scene was set by the Shell bid for BG. Within mid sized companies "built environment company" Mouchel was taken out by Kier and there was the disappearance of set top box specialist Pace Micro Technologies. New Issues markets remained busy particularly into 2015 but without the frenetic behaviour that characterised the Spring of 2014.

Normal service was resumed for small companies in the shape of the Numis UK Smaller Companies Index (excluding Trusts) out-distancing large companies FTSE 100 index by more than 10%. The mid sized companies FTSE 250 index did even better. The key to this being two things:- first, small companies are growing more quickly, and secondly, they have greater exposure to the UK economy which is currently a positive. The United Kingdom is seen as a veritable safe haven of political stability, economic vibrancy and the sound financial management of the economy.

Performance

The year in question has been characterised by steady if unspectacular out-performance, clawing back the bulk of the under-performance from the difficult calendar second quarter 2014. Markets were characterised by more normalised investment patterns based on the earnings prospects for companies rather than pure valuation.

The weak Autumn saw the start of a resurgence of a number of our larger holdings that had been weak in the previous quarter such as Workspace, Ted Baker, Rightmove and PaddyPower. In terms of sector exposure the Trust was helped by overweight positions in healthcare, retail and software and a decent position in the large real estate sector. It was also helpful that the Trust was generally light in oil & gas, mining and engineering sectors. Falling oil & gas and commodity prices has wrought havoc for those companies most directly exposed to the exploration end of these sectors. End demand for engineers has also been found to be somewhat dependent on extractive industries. The Trust suffered from being light in housebuilders, building materials and other stocks that have benefitted from the buoyancy of the UK housing market.

A couple of individual stock names caused problems for the Trust namely Telecom Plus and Paypoint. These two companies have rather idiosyncratic business models that are seen by many investors to be outdated and indeed a bit last century. It is pleasing that both these stocks rallied significantly following reasonable results thus confounding the short sellers.

The Trust received cash for a couple of bids during the year in question namely Kentz Corp the oil services specialist and Cambridge Silicon Radio (CSR) the Cambridge based semiconductor designer. Our five leading performers in the year have been as follows:-

Ted Baker plc, has continued to trade strongly throughout the year as they develop their clothing brand into an international success story. This is a tightly managed business that guards the provenance of the brand from the founder & chief executive downwards.

Workspace plc, is a real estate company that owns and operates over a hundred managed work centres in central London. Their flexible all service value for money leases attract small vibrant growth businesses to their centres. Redevelopment potential is also catching the eye of the valuers providing strong net asset value growth.

CVS Group, is a chain of veterinary surgeries that is consolidating the sector and benefiting from derived economies of scale. Results have continued to beat expectations.

Paddy Power, performed strongly during the year in question with particular strength in Australia. They also paid a massive special dividend, underlining the quality of the business.

Clinigen, recovered from a difficult previous period to round off the year with a strategically very sound acquisition of the biggest competitor in the ethical distribution of unlicensed medicine worldwide.

New Issues Sanne Group (asset administration), Gamma Communications and Fevertree Drinks, the premium mixers company, all performed well, especially the latter which rose by 106% from the 139p listing price. The company's maiden set of results were well ahead of expectations. Fevertree tonic in particular is the leader in the new market for premium mixers which goes along with the growth of the premium gin & vodka markets worldwide. A mixer for the discerning drinker who has tired of established brands of dubious provenance.

The poorest performer in the Trust was Telecom Plus. This multi-utility vendor was hit by sharply falling gas prices alongside political concern about a utility price freeze if Labour won the UK general election. Their independent distributor model, eschewing of price comparison sites but delivering everyday low prices to loyal customers rather than promiscuous switchers, set them apart from current wisdom on the direction of their markets. The Trust's policy of holding on to this long term holding has been rewarded since the announcement of recent results which have reassured investors.

Other weak performers include Pressure Technologies in oil services equipment which has since been sold. Colombian oil & gas producer Amerisur Resources and jack rig fabricator Gulf Marine Services were weak as the oil price collapsed. Esure continued weak as the insurance pricing cycle moved against them. This holding has been sold.

Dealing and Activity

The most significant new additions to the portfolio were as follows:-

The Trust bought back into Restaurant Group which is still rolling out its successful formats Frankie & Bennys, Chiquito's and Coast to Coast. Another repurchase was Greggs the value for money "food to go" company, which under the influence of a new CEO is revamping its offering and reinvigorating its brand. NMC Health, the Abu Dhabi based hospital group was added. This company has performed very strongly since purchase as Dubai has changed its insurance rules in favour of providing universal healthcare. A holding was taken in First Derivatives, the Newry based specialist in software related to the regulation of financial markets. Clarkson, the world leading ship broker has been added to the Trust and has performed well as they continue to take market share. Sprue Aegis, the designer and manufacturer of smoke and CO2 alarms was purchased. They have benefitted from health and safety trends within France and Germany. Skyepharma, the specialist pharmaceutical development company was acquired following their capital reorganisation. Avon Rubber is also a new holding. They now specialise in gas masks and rubber milking equipment. They have a world leading position in these two niches. Dominos Pizza was bought back. The company, like Greggs, has been reinvigorated by a new Chief Executive and is benefitting from mobile apps for ordering and updates that ward against pizza delivery angst among hungry customers.

Our key sales were:-

Profits were taken in Supergroup following a partial rehabilitation of the brand. After a long and successful holding period Hargreaves Lansdown, now a FTSE100 company was sold. The Trust made more than four times its money in the UK's leading fund supermarket. Profits were taken in BTG, the leading emerging pharmaceutical stock which had become too big a business for the Trust. Profits were taken in Aveva which was judged to have too high an exposure to oil & gas markets. Keller was sold; likewise there was a significant exposure to Canadian oil & gas markets here. Profits were taken in Optimal Payments following the sharp upward price move that occurred on the announcement of the leveraged acquisition of competitor Skrill. Other holdings sold completely include Xaar (electronics), Rotork (engineering), Vectura (pharmaceuticals), Pressure Technologies in oil services, Utilitywise (support services) and small positions in Boohoo, Poundland and Mysale in retailing.

In general terms the key sector changes include increased exposure to high quality growth businesses with genuine earnings visibility particularly in the healthcare, software and leisure sectors. Exposure to high growth or more speculative growth businesses was reduced. Oil & gas and engineering stocks with oil & gas orientated businesses were sold.

The overall risk profile of the Trust is now lower than it was one and two years ago. The Trust remains overweight in retailers and in general has a higher exposure to businesses deriving the bulk of their profits from the UK. Currently around 70% of the underlying profits of the holdings in the portfolio come from the UK. Given the comparative vibrancy of the UK business environment this is no bad thing.

Outlook

The recent severe correction in Chinese markets reflects further slowing in the rate of growth of that economy. This should really come as no surprise given that China is moving to a new stage in its development. This is a less energy, infrastructure and commodity intensive phase where there will be greater emphasis on domestic consumer markets and quality of life issues such as education and the environment. In the short term there will be dislocations impacting the oil price, commodities such as copper and iron ore and their associated industrial sectors. Furthermore, anti-corruption initiatives have put the brakes on spending at the luxury end of the market. The medium to longer term outlook for China still looks strong but with a different emphasis than before.

The Governor of the Bank of England recently signalled the likelihood of interest rates moving upwards from current record low levels by the start of 2016, increasing in quarter point increments over the next three years. This is the sharpest yet statement of intent by monetary authorities that the slow recovery from the banking crisis is over and that "special measures" are being unwound. He has picked that point a year on from the inflation busting falls in the crude oil price.

While certainly not the end of the world it is fair to say that many borrowers have become rather used to the delights of ultra low interest rates and may find the percentage increase somewhat painful. There is also no doubt in my mind that ultra low interest rates have inflated the value of real assets of late which may unwind somewhat. Chinese turmoil however, may delay the point where interest rates are increased.

In the meantime though, the UK & USA economies are in pretty good shape and are growing steadily representing a benign environment for UK small and medium sized listed companies. Europe as well, especially the northern half, is responding to recent quantitative easing initiatives. The constituents of the Trust portfolio derive around 70% of their profits from the "safe haven" UK economy.

The outlook for corporate profits is still very positive although those companies in more cyclical sectors are showing profit margins at or near cyclical peaks, hence our preference for businesses demonstrating organic growth. This also supports our view that we are very much in the later stages of the current economic cycle which after all started its upward move from the nadir in 2009 which is six years ago. Corporate activity is increasing with gradually increasing numbers of mergers, acquisitions, share issuance and new listings. All this is again symptomatic of a mature economic cycle. Valuations for smaller companies remain toward the upper end of the spectrum leaving the market open to the threat of correction.

Geopolitics remains murky with plenty to worry about from Isis to Ukraine and Greece. The latter looks destined to cause further trouble in future. The quantum of Greek debt has not been reduced which to me means a lasting solution has not yet been achieved. The US/Iran deal coupled, with China weakness looks positive for low oil prices being in place for longer which is a good thing for world economies, including the UK.

To this end nothing has changed with our process. It has generally worked well over the past twelve years and I see no reason for this to change. The vast majority of our companies have net cash positions and can grow from internally generated cash-flows in a predictable way. Dividend growth is strong and special dividends are quite plentiful without compromising growth prospects. This all gives me great confidence in the long term outlook for the Trust. Our aim is to be exposed to predictable growth, but in a lower risk way as there is always risk out there particularly in this inter-dependent global financial system. Given that uncertainty remains behind every corner, our emphasis on risk aversion, resilience, growth and momentum still feels right for the future.

Harry Nimmo

Standard Life Investments, Investment Manager

28 August 2015

3. STRATEGIC REPORT

This Strategic Report has been prepared by the Directors in accordance with Section 414 of the Companies Act 2006, as amended. The Company's Auditor is required to confirm that this Report is consistent with the Financial Statements.

The Board

The Board is responsible for setting and monitoring the Company's strategy. As at 30 June 2015, the Board consisted of five non-executive Directors, three men and two women. The names and biographies of the Directors, as set out in the section on the Board of Directors, indicate their range of investment, commercial and professional experience.

Investment Objective

The Company aims to achieve long term capital growth by investment in UK quoted smaller companies.

Business Model and Investment Policy

The Company is an investment trust which invests in accordance with the objective stated above. It has no employees and outsources its management function to its Investment Manager, Standard Life Investments (Corporate Funds) Limited ('the Manager').

To achieve its investment objective the Company invests in a diversified portfolio consisting mainly of UK quoted smaller companies. The portfolio will normally comprise around 60 individual holdings representing the Manager's highest conviction investment ideas. In order to reduce risk in the Company without compromising flexibility, no holding within the portfolio should exceed 5 per cent of total assets at the time of acquisition.

The Company may use derivatives for portfolio hedging purposes (i.e. only for the purpose of reducing risk in its investments in order to protect the Company's portfolio).

The Company is adhering to its stated investment policy and is managing the risks arising from it. This is illustrated in various tables and charts throughout this Annual Report, and from the information provided in the Chairman's Statement and the Investment Manager's Report.

Gearing Policy

Within the Company's Articles of Association, the maximum level of gearing is 100% of net assets. The Directors' policy is that gearing will be between 5% net cash and 25% net gearing (at the time of drawdown) in normal market conditions. The Directors have delegated responsibility to the Investment Manager for the operation of the gearing level within the above parameters.

The Board regularly reviews gearing which was a net geared position of 4.1% as at 30 June 2015. This compared to a net cash position of 4.6% as at 30 June 2014. Gearing is calculated as the liability component of the Convertible Unsecured Loan Stock 2018 ("CULS") less cash balances, as a proportion of net assets.

Manager's investment process

The Manager's investment process combines asset allocation, stock selection, portfolio construction, risk management, and dealing. The investment process is research-intensive and is driven by the Manager's distinctive "focus on change" which recognises that different factors drive individual stocks and markets at different times in the business cycle. This flexible, but disciplined process ensures that the Manager has the opportunity to out-perform in different market conditions.

Results and Dividend

The Company's results and performance for the year are detailed in the Financial Highlights.

The total revenue return attributable to shareholders for the year ended 30 June 2015 amounted to £4,784,000

(2014: £3,500,000).

An interim dividend of 1.40 pence per share (2014 - 1.27 pence) was paid on 7 April 2015 to shareholders on the register as at 13 March 2015. The ex-dividend date was 12 March 2015.

The Directors are recommending to shareholders that a final Ordinary dividend of 4.40 pence per share

(2014- 3.23 pence) be paid on 29 October 2015 to shareholders on the share register as at the close of business on 9 October 2015. The ex-dividend date is 8 October 2015.

If approved, the final dividend together with the interim dividend paid in April will give a total dividend for the year of 5.80 pence per share (2014 - 4.50 pence)

Details of the final Ordinary and Interim dividends paid during the year ended 30 June 2015 are disclosed in Note 7 to the Financial Statements.

Review of Performance

For the year ended 30 June 2015, the Company's diluted net asset value total return was 14.2%, compared to a total return of 10.4% for the Company's benchmark, the Numis Smaller Companies Index (excluding Investment Companies).

The Board considers performance with the Manager at every meeting. As well as carrying out the matters reserved to the Board as set out in the Statement of Corporate Governance, the Board receives a detailed portfolio report for each meeting, sets the overall strategy for the Company and establishes the extent to which the Company is successful in achieving its objectives, as measured by key performance indicators.

Key Performance Indicators (KPIs)

The three KPIs by which performance is measured are as follows:

• diluted net asset value total return relative to the Company's benchmark with particular attention to long-term performance, which is considered by the Board to be over a period of five years;

• Ordinary share price (total return); and

• discount or premium of the Ordinary share price to underlying net asset value.

A record of these KPIs, for the year under review, is included in the financial highlights and Chairman's Statement.

A review of the Company's performance, market background, investment activity and portfolio strategy during the year under review, as well as the Manager's investment outlook, is provided in the Investment Manager's Report.

Principal Risks and Uncertainties

The Board regularly reviews the principal risks and uncertainties facing the Company which the Board and the Manager have identified and the Board sets out delegated controls designed to manage those risks and uncertainties. Key risks within investment strategy, including inappropriate stock selection and gearing, are managed by the Board through a defined investment policy, with guidelines and restrictions, and by the process of oversight at each Board meeting. Operational disruption, accounting and legal risks are also covered at least annually and regulatory compliance is reviewed at each Board meeting.

The Directors have adopted a robust framework of internal controls which is designed to monitor the principal risks and uncertainties facing the Company and to provide a monitoring system to enable the Directors to mitigate these risks as far as possible. A description of the Directors' system of internal controls is set out in the Statement of Corporate Governance.

The major risks associated with the Company are:

• Investment and market risk: The Company is exposed to the effect of variations in share prices due to the nature of its business. A fall in the value of its investment portfolio will have an adverse effect on the value of shareholders' funds.

• Capital structure and gearing risk: The Company's capital structure, as at 30 June 2015, consisted of equity share capital comprising 69,418,600 Ordinary shares and £19,772,582 nominal amount of CULS. The Company also held 2,208,575 Ordinary shares in treasury.

The effect of gearing should be beneficial in rising markets but could adversely affect returns to shareholders in falling markets. The Manager is able to increase or decrease the Company's level of net gearing by holding a lower or higher cash balance subject to the Company's investment policy which requires that gearing should remain between 5% net cash and 25% net gearing at the time of drawdown.

• Revenue and dividend risk: In view of the Company's investment objective, which is to generate long-term capital growth by investment in UK quoted smaller companies, the Manager is required to strike a balance more in favour of capital growth than revenue return. In normal circumstances, the Board intends to pay a dividend commensurate with the year's income. The Board receives regular updates as to the progress made by the Manager in generating a revenue return and the consequent level of the Company's anticipated dividend.

· Regulatory risk: The Company operates in a complex regulatory environment and faces a number of regulatory risks. A breach of Section 1158 would result in the Company being subject to capital gains tax on portfolio investments. Breaches of other regulations, including the Companies Act 2006, the UKLA Listing Rules, the UKLA Disclosure and Transparency Rules or the Alternative Investment Fund Managers Directive, could lead to a number of detrimental outcomes and reputational damage. Breaches of controls by service providers to the Company could also lead to reputational damage or loss.

There is also a further regulatory risk in ensuring compliance with the Alternative Investment Fund Managers Directive ("AIFMD") which was fully implemented with effect from 22 July 2014. The AIFMD introduces a new authorisation and supervisory regime for all investment trust fund managers and investment companies in the European Union. In accordance with the requirements of the Alternative Investment Fund Managers ("AIFM") Directive, the Company has appointed Standard Life Investments (Corporate Funds) Limited as its AIFM and BNP Paribas Securities Services as its Depositary. The Board has put in place controls in the form of regular reporting from the AIFM and the depositary to ensure both are meeting their regulatory responsibilities in relation to the Company.

• Supplier risk: In common with most investment trusts, the Company has no employees. The Company therefore relies upon services provided by third parties, including the Manager in particular, to whom responsibility for the management of the Company has been delegated under an Investment Management Agreement.

Employee, Environmental and Human Rights Policy

As an investment trust, the Company has no direct employee or environmental responsibilities, nor is it responsible for the emission of greenhouse gases. Its principal responsibility to shareholders is to ensure that the investment portfolio is properly managed and invested. The Company has no employees and, accordingly, has no requirement to report separately on employment matters. The management of the portfolio is undertaken by the Manager. The Manager engages with the Company's underlying investee companies in relation to their corporate governance practices and in developing their policies on social, community and environmental matters and further information may be found in the Statement of Corporate Governance. The Manager's specific policies are outlined in their Corporate Governance UK Guidelines, which may be found on the Manager's website at http://www.standardlifeinvestments.com/CG_Corporate_Governance_Booklet/getLatest.pdf. In light of the nature of the Company's business, there are no relevant human rights issues and, therefore, the Company does not have a human rights policy.

Future Trends

The Company's smaller company portfolio features high quality growth stocks with visible, recurring revenue, which exhibit both earnings and price momentum. Given the availability of high quality companies at sustainable valuations, the Company continues to be positive about the long-term outlook for smaller companies.

Future Strategy

The Board and Manager intend to maintain the strategic policies set out above for the year ending 30 June 2016 as it is believed that these are in the best interests of shareholders.

David Woods

Chairman

28 August 2015

4. FINANCIAL HIGHLIGHTS

	Year to 30 June 2015
Diluted net asset value total return		14.2%
Share price total return		8.5%
Benchmark total return		10.4%
Increase in total dividends		28.9%

	30 June 2015	30 June 2014	% change
Capital
Net asset value per Ordinary share (statutory)
- Basic	349.73p	307.38p	13.8%
- Diluted	336.89p	298.92p	12.7%
Share price	300.00p	281.25p	6.7%
Benchmark capital return	6,930.22	6,476.55	7.0%
Discount of Ordinary share price to net asset value
- Basic	14.2%	8.5%
- Diluted	10.9%	5.9%
Total assets (£m)¹	261.94	239.14	9.5%
Shareholders' funds (£m)	242.78	219.42	10.6%
Ordinary shares in issue	69,418,600	71,383,586	(2.8%)

Gearing
Gearing²	4.1%	-4.6%

CULS
CULS in issue	£19,772,582	£20,584,450	(3.9%)
CULS yield	2.8%	2.9%
CULS price	125.00p	122.00p	2.5%

Earnings and Dividends
Revenue return per Ordinary share
- Basic	6.76p	5.05p	33.9%
- Diluted	6.25p	4.66p	34.1%
Interim dividend paid for the year	1.40p	1.27p	10.2%
Proposed final dividend for the year	4.40p	3.23p	36.2%
Total dividends for the year	5.80p	4.50p	28.9%
Dividend yield	1.9%	1.6%

Expenses
Ongoing charges³	1.19%	1.19%

¹Total assets less current liabilities, after excluding short-term debt of nil (2014 - nil).

² Net gearing ratio calculated as the total liability component of £19.1m of the Convertible Unsecured Loan Stock less the cash invested in AAA money market funds and cash and short term deposits, divided by net assets.

³ Ongoing charges ratio calculated in accordance with guidance issued by the AIC as the total of the investment management fee and administrative expenses divided by the average cum income net asset value throughout the year.

5. GOING CONCERN

The Company's assets consist of equity shares in companies listed on recognised stock exchanges and are considered by the Board to be realisable within a short timescale under normal market conditions. The Board has set overall limits for borrowing and regularly reviews the Company's level of gearing, cash flow projections and compliance with banking covenants, when applicable.

The Company has no bank borrowings at 30 June 2015 (2014: nil).

The Directors are mindful of the Principal Risks and Uncertainties disclosed in the Strategic Report and, having reviewed forecasts detailing revenue and liabilities, the Directors believe that the Company has adequate financial resources to continue its operational existence for the foreseeable future. Accordingly, the Directors believe that it is appropriate to continue to adopt the going concern basis in preparing the Financial Statements.

6. STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with UK Accounting Standards. Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.

In preparing these financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgments and estimates that are reasonable and prudent; and

• state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements.

The Directors are responsible for keeping proper accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Statement of Corporate Governance that comply with that law and those regulations.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website hosted by the Investment Manager. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The work carried out by the auditor does not involve consideration of these matters and, accordingly, the auditor accepts no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

The Directors are also responsible for ensuring that the Annual Report and Financial Statements, taken as a whole are fair, balanced and understandable and provide the information necessary to assess the Company's performance, business model, position, and strategy.

Directors' Responsibilities Statement

Each Director confirms, to the best of their knowledge, that:

• the financial statements, prepared in accordance with UK Accounting Standards and applicable law, give a true and fair view of the assets, liabilities, financial position and profit of the Company as at 30 June 2015 and for the year to date;

• the Strategic Report includes a fair review of the development and performance of the business and the financial position of the Company together with a description of the principal risks and uncertainties that the Company faces; and

• the Annual Report and Financial Statements taken as a whole are fair, balanced and understandable and provide the information necessary to assess the Company's performance, business model, position, and strategy.

For and on behalf of the Board of Standard Life UK Smaller Companies Trust plc

David Woods

Chairman

28 August 2015

INCOME STATEMENT

for the year ended 30 June 2015

		2015			2014
		Revenue	Capital	Total	Revenue	Capital	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000
Net gains on investments held at fair value	9	-	29,882	29,882	-	14,399	14,399
Currency losses		-	-	-	-	(13)	(13)
Income	2	6,123	-	6,123	4,860	-	4,860
Investment management fee	3	(521)	(1,563)	(2,084)	(526)	(1,580)	(2,106)
Other administrative expenses	4	(586)	-	(586)	(566)	-	(566)
		________	________	________	________	________	________
NET RETURN BEFORE FINANCE COSTS AND TAXATION		5,016	28,319	33,335	3,768	12,806	16,574

Finance costs	5	(232)	(697)	(929)	(262)	(786)	(1,048)
		________	________	________	________	________	________
RETURN ON ORDINARY ACTIVITIES BEFORE TAXATION		4,784	27,622	32,406	3,506	12,020	15,526

Taxation	6	-	-	-	(6)	-	(6)
		________	________	________	________	________	________
RETURN ON ORDINARY ACTIVITIES AFTER TAXATION		4,784	27,622	32,406	3,500	12,020	15,520
		________	________	________	________	________	________
RETURN PER ORDINARY SHARE:
BASIC	8	6.76p	39.04p	45.80p	5.05p	17.33p	22.38p
DILUTED	8	6.25p	35.49p	41.74p	4.66p	15.90p	20.56p

The total column of this statement represents the profit and loss account of the Company.

A Statement of Total Recognised Gains and Losses has not been prepared as all gains or losses are recognised in the Income Statement.

All revenue and capital items in the above statement derive from continuing operations.

The accompanying notes are an integral part of the financial statements.

BALANCE SHEET

as at 30 June 2015

		2015	2014
	Notes	£'000	£'000
NON-CURRENT ASSETS
Investments at fair value through profit or loss	9	252,517	212,603
		___________	___________
CURRENT ASSETS
Debtors	10	1,105	1,348
Investments in AAA Money Market funds	15	9,238	29,798
Cash and short term deposits	15	27	5
		___________	___________
		10,370	31,151
		___________	___________
CURRENT LIABILITIES
Creditors: amounts falling due within one year	11	(947)	(4,617)
		___________	___________
NET CURRENT ASSETS		9,423	26,534
		___________	___________
TOTAL ASSETS LESS CURRENT LIABILITIES		261,940	239,137

NON-CURRENT LIABILITIES
3.5% Convertible Unsecured Loan Stock 2018	12	(19,164)	(19,719)
		___________	___________
NET ASSETS		242,776	219,418
		___________	___________

CAPITAL AND RESERVES
Called-up share capital	13	17,907	17,846
Share premium account		19,805	19,309
Equity component of Convertible Unsecured Loan Stock 2018	12	1,470	1,470
Special reserve		40,558	46,871
Capital reserve		157,204	129,582
Revenue reserve		5,832	4,340
		___________	___________
EQUITY SHAREHOLDERS' FUNDS		242,776	219,418
		___________	___________
NET ASSET VALUE PER ORDINARY SHARE:
BASIC	16	349.73p	307.38p
DILUTED	16	336.89p	298.92p

The financial statements were approved by the Board of Directors on 28 August 2015 and were signed on its behalf by:

David Woods, Chairman

The accompanying notes are an integral part of the financial statements.

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

For the year ended 30 June 2015
		Share	Equity
	Share	premium	component	Special	Capital	Revenue
	capital	account	CULS 2018	reserve	reserve	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 30 June 2014	17,846	19,309	1,470	46,871	129,582	4,340	219,418
Return on ordinary activities after taxation	-	-	-	-	27,622	4,784	32,406
Share Buybacks	-	-	-	(6,539)	-	-	(6,539)
Issue of new Ordinary Shares and/or shares from Treasury from conversion of 3.5% Convertible Unsecured Loan Stock 2018	61	496	-	226	-	-	783
Dividends paid (see note 7)	-	-	-	-	-	(3,292)	(3,292)
	________	________	________	________	________	________	________
BALANCE AT 30 JUNE 2015	17,907	19,805	1,470	40,558	157,204	5,832	242,776
	________	________	________	________	________	________	________

For the year ended 30 June 2014
		Share	Equity
	Share	premium	component	Special	Capital	Revenue
	capital	account	CULS 2018	reserve	reserve	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 30 June 2013	16,666	7,225	1,470	46,871	117,562	3,690	193,484
Return on ordinary activities after taxation	-	-	-	-	12,020	3,500	15,520
Issue of shares	725	8,434	-	-	-	-	9,159
Issue of new ordinary shares from conversion of 3.5% Convertible Unsecured Loan Stock 2018	455	3,650	-	-	-	-	4,105
Dividends paid (see note 7)	-	-	-	-	-	(2,850)	(2,850)
	________	________	________	________	________	________	________
BALANCE AT 30 JUNE 2014	17,846	19,309	1,470	46,871	129,582	4,340	219,418
	________	________	________	________	________	________	________

The revenue and realised capital reserves represents the amount of the Company's retained reserves distributable by way of dividend. The accompanying notes are an integral part of the financial statements.

CASHFLOW STATEMENT

Year ended 30 June 2015

		2015		2014
	Notes	£'000	£'000	£'000	£'000
NET CASH INFLOW FROM OPERATING ACTIVITIES	14		3,238		2,654

SERVICING OF FINANCE
Interest paid			(709)		(828)

TAXATION			-		(6)

FINANCIAL INVESTMENT
Purchase of investments		(73,049)		(63,068)
Sale of investments		59,813		78,268
		_________		_________
NET CASH (OUTFLOW)/INFLOW FROM FINANCIAL INVESTMENT			(13,236)		15,200

EQUITY DIVIDENDS PAID			(3,292)		(2,850)
			_________		_________
NET CASH (OUTFLOW)/INFLOW BEFORE MANAGEMENT OF LIQUID RESOURCES AND FINANCING			(13,999)		14,170

FINANCING
Shares issued		-		9,159
Share buybacks		(6,539)		-
		_________		_________
NET CASH (OUTFLOW)/INFLOW FROM FINANCING			(6,539)		9,159
			_________		_________
NET CASH (OUTFLOW)/INFLOW BEFORE MANAGEMENT OF LIQUID RESOURCES			(20,538)		23,329

MANAGEMENT OF LIQUID RESOURCES
Purchase of AAA Money Market funds		(45,040)		(68,530)
Sale of AAA Money Market funds		65,600		45,200
		_________		_________
NET CASH INFLOW/(OUTFLOW) FROM MANAGEMENT OF LIQUID RESOURCES			20,560		(23,330)
			_________		_________
INCREASE/(DECREASE) IN CASH	15		22		(1)
			_________		_________

RECONCILIATION OF NET CASHFLOW TO MOVEMENT IN NET CASH
Increase/(decrease) in cash	22		(1)
Net change in liquid resources	(20,560)		23,330
Other non-cash movements	555		3,835
	_________		_________
MOVEMENT IN NET (DEBT)/CASH IN YEAR		(19,983)		27,164

OPENING NET CASH/(DEBT)		10,084		(17,080)
		_________		_________
CLOSING NET (DEBT)/CASH		(9,899)		10,084
		_________		_________

The accompanying notes are an integral part of the financial statements.

NOTES TO FINANCIAL STATEMENTS:

For the year ended 30 June 2015

1	Accounting policies
	(a)	Basis of accounting
		The financial statements have been prepared on a going concern basis and in accordance with applicable UK Generally Accepted Accounting Practice ('UK GAAP') and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts'. They have also been prepared on the assumption that approval as an investment trust will continue to be granted.

	(b)	Valuation of investments
		Investments have been designated upon initial recognition as fair value through profit or loss. All investments are considered to form part of a group of financial assets which is evaluated on a fair value basis, in accordance with the Company's documented investment strategy, and information about the grouping is provided internally on that basis. Investments are recognised and de-recognised at trade date where a purchase or sale is under a Contract whose terms require delivery within the timeframe established by the market concerned, and are measured initially at fair value. Subsequent to initial recognition, investments are valued at fair value. For listed investments, this is deemed to be bid market prices or closing prices for SETS stocks sourced from the London Stock Exchange. SETS is the London Stock Exchange electronic trading service covering most of the market including all FTSE 100 constituents and most liquid FTSE 250 along with some other securities. Gains and losses arising from changes in fair value are included in net profit or loss for the period as a capital item in the Income Statement and are ultimately recognised in the capital reserve.

	(c)	AAA money market funds
		The AAA money market funds are used by the Company to provide additional short term liquidity. As they are not listed on a recognised exchange and due to their short term nature, they are recognised in the financial statements as a current asset and are included at fair value through profit and loss.

	(d)	Income
		Income from equity investments (other than special dividends), including taxes deducted at source, is included in revenue by reference to the date on which the investment is quoted ex-dividend. Special dividends are credited to revenue or capital in the Income Statement, according to the circumstances. Foreign income is converted at the exchange rate applicable at the time of receipt. Interest receivable on short term deposits is accounted for on an accruals basis.

	(e)	Expenses and interest payable
		Expenses are accounted for on an accruals basis. Expenses are charged to the capital column of the Income Statement when they are incurred in connection with the maintenance or enhancement of the value of investments. In this respect, the investment management fee and relevant finance costs are allocated 25% to revenue and 75% to the capital columns of the Income Statement in line with the Board's expectation of returns from the Company's investments over the long term in the form of revenue and capital respectively (see note 3). Transaction costs incurred on the purchase and disposal of investments are recognised as a capital item in the Income Statement.

	(f)	Dividends payable
		Dividends are recognised in the period in which they are paid.

	(g)	Capital reserve
		Gains and losses on realisation of investments and changes in fair values which are readily convertible to cash, without accepting adverse terms, are transferred to the capital reserve.

	(h)	Taxation
		Tax expense represents the sum of tax currently payable and deferred tax. Any tax payable is based on taxable profit for the period. Taxable profit differs from profit before tax as reported in the Income Statement because it excludes items of income or expenses that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the Balance Sheet date. Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the Balance Sheet date where transactions or events that result in an obligation to pay more or a right to pay less tax in future have occurred at the Balance Sheet date measured on an undiscounted basis and based on enacted tax rates. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the underlying timing differences can be deducted. Timing differences are differences arising between the Company's taxable profits and its results as stated in the Financial Statements which are capable of reversal in one or more subsequent periods. Owing to the Company's status as an investment trust company, and the intention to continue meeting the conditions required to obtain approval in the foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments.

	(i)	Other reserves
		The special reserve arose following court approval for the cancellation of the share premium account balance at 24 June 1999 and on 13 October 2009, Court of Session approval was granted for the cancellation of the Company's entire share premium account and capital redemption reserve and subsequent creation of a special distributable capital reserve.

	(j)	Foreign currency
		Overseas monetary assets and liabilities are converted into Sterling at the rate of exchange ruling at the Balance Sheet date. Transactions during the year involving foreign currencies are converted at the rate of exchange ruling at the transaction date. Any gain or loss arising from a change in exchange rates subsequent to the date of the transaction is included as an exchange gain or loss in the Income Statement.

(k)

3.5% Convertible Unsecured Loan Stock 2018

Convertible Unsecured Loan Stock ("CULS") issued by the Company is regarded as a compound instrument, comprising a liability component and an equity component. At the date of issue, the fair value of the liability component was estimated by assuming that an equivalent non-convertible obligation of the Company would have a coupon rate of 4.83%. The fair value of the equity component, representing the option to convert liability into equity, is derived from the difference between the issue proceeds of the CULS and the fair value assigned to the liability. The liability component is subsequently measured at amortised cost using the effective interest rate and the equity component remains unchanged.

Direct expenses associated with the CULS issue were allocated to the liability and equity components in proportion to the split of the proceeds of the issue. Expenses allocated to the liability component are amortised over the life of the instrument using the effective interest rate.

The interest expense on the CULS is calculated according to the effective interest rate method by applying the assumed rate of 4.83% at initial recognition to the liability component of the instrument.

On conversion of CULS, equity is issued and the liability component is derecognised. The original equity component recognised at inception remains in equity. No gain or loss is recognised on conversion.

When CULS are repurchased for cancellation, the fair value of the liability at the redemption date is compared to its carrying amount, giving rise to a gain or loss on redemption that is recognised through profit or loss. The amount of consideration allocated to equity is recognised in equity with no gain or loss being recognised.

If, at any time after 31 March 2016, the middle market price of the Ordinary Shares is 30 per cent or more above the Conversion Price for at least 20 dealing days during a period of 30 consecutive dealing days, the Company will be able to require CULS Holders to redeem their CULS at par. In such event, CULS Holders would be given a final opportunity to convert their CULS into Ordinary Shares.

		2015	2014
		£000	£000
2	Income from investments

	Franked investment income	3,538	3,278
	Overseas and unfranked investment income	1,064	615
	Special dividends	1,428	875
		__________	__________
	Total investment income	6,030	4,768
		__________	__________
	Interest income
	Interest from AAA Money Market funds	93	92
		__________	__________
	Total interest income	93	92
		__________	__________
		__________	__________
	Total income	6,123	4,860
		__________	__________

		2015	2014
3	Investment management fee	£000	£000

	Investment management fee	2,084	2,106
	Charged to capital reserve	(1,563)	(1,580)
		__________	__________
		521	526
		__________	__________

	The Company has an agreement with Standard Life Investments (Corporate Funds) Limited ('SLI') for the provision of management services. The contract is terminable by either party on twelve months' notice. The management fee paid to SLI is 0.85% per annum of the total assets of the Company after deducting current liabilities. The fee is chargeable 25% to revenue and 75% to capital. The balance due to SLI at the year end was £557,000 (2014 - £508,000).

		2015	2014
		£000	£000
4	Administrative expenses (inclusive of VAT)
	Secretarial fees Directors' fees	169	169
	Secretarial fees Directors' fees	109	88
	Auditor's remuneration
	- fees payable to the Company's auditor for the audit of the Company's annual accounts	22	22
	- fees payable to the Company's auditor and its associates for non audit services	2	2

	Registrar's fees	21	30
	Professional fees	39	86
	Custody fees	17	17
	Depositary fees	44	-
	Other expenses	163	152
		__________	__________
		586	566
		__________	__________

The balance due to the Company Secretary at the year end was £43,248 (2014: - £41,850)

		2015	2014
		£000	£000
5	Finance costs
	Interest on 3.5% Convertible Unsecured Loan Stock 2018	703	791
	Notional Interest on 3.5% Convertible Unsecured Loan Stock 2018	154	184
	Amortisation of 3.5% Convertible Unsecured Loan Stock 2018 issue expenses	72	73
		__________	__________
		929	1,048
	Charged to capital reserve	(697)	(786)
		__________	__________
	Charged to revenue reserve	232	262
		__________	__________

			2015				2014
			Revenue		Capital	Total	Revenue	Capital	Total
6	Taxation		£000		£000	£000	£000	£000	£000
	(a) Analysis of charge for year
	Overseas taxation		-		-	-	6	-	6
			_______		_____	_______	_______	_____	_______

	(b) Provision for deferred taxation
	At 30 June 2015, the Company had unutilised management expenses and loan relationship losses of £45,105,000 (2014 - £41,840,000). No deferred asset has been recognised on the unutilised management expenses and loan relationship losses as it is unlikely there will be sufficient taxable profits from which the future reversal of the deferred asset could be deducted.

	(c) Factors affecting current tax charge for year
	UK corporation tax at an effective rate of 20.75% (2014: 22.50%). The differences are explained below.

		2015					2014
		Revenue		Capital		Total	Revenue	Capital	Total
		£'000		£'000		£'000	£'000	£'000	£'000

	Net profit on ordinary activities before taxation	4,784		27,622		32,406	3,506	12,020	15,526
		_______		_______		_______	_______	______	_______
	Corporation tax at an effective rate of 20.75% (2014: 22.50%)	993		5,731		6,724	789	2,705	3,494

	Effects of:
	Non-taxable UK dividend income	(1,030)		-		(1,030)	(934)	-	(934)
	Non-taxable overseas dividends	(184)		-		(184)	(104)	-	(104)
	Overseas taxes	-		-		-	6	-	6
	REIT Income	4		-		4	-	-	-
	Excess management expenses and loan relationship losses	217		469		686	249	535	784

	Other capital returns (e.g. gains on investments)	-		(6,200)		(6,200)	-	(3,240)	(3,240)
		_______		_______		_______	_______	_______	_______
	Current tax charge	-		-		-	6	-	6
		_______		_______		_______	_______	_______	_______

		2015	2014
7	Dividends	£000	£000
	Amounts recognised as distributions to equity holders in the period:
	2014 final dividend of 3.23p per share (2013 - 2.90p) paid on 16 October 2014	2,306	1,954
	2015 interim dividend of 1.40p per share (2014 - 1.27p) paid on 7 April 2015	986	896
		__________	__________
		3,292	2,850
		__________	__________

	The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements. We set out below the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of Section 1158 - 1159 of the Corporation Taxes Act 2010 are considered. The revenue available for distribution by way of dividend for the year is £4,784,000 (2014 - £3,500,000).

		2015	2014
		£000	£000
	2015 interim dividend of 1.40p per share (2014 - 1.27p) paid on 7 April 2015	986	896
	2015 final dividend of 4.40p per share (2014 - 3.23p) payable on 29 October 2015	2,902	2,306
		__________	__________
		3,888	3,202
		__________	__________

	The amount payable for the proposed final dividend is based on the Ordinary shares in issue as at the date of approval of this report (65,947,670) which satisfies the requirement of Section 1159 Corporation Tax Act 2010.

		2015		2014
		p	£000	p	£000
8	Return per ordinary share
	Basic	6.76	4,784	5.05	3,500
	Revenue return	39.04	27,622	17.33	12,020
	Capital return
		________	________	________	________
	Total return	45.80	32,406	22.38	15,520
		________	________	________	________

	Weighted average number of Ordinary shares in issue		70,748,133		69,340,457
			__________		__________
	Diluted
	Revenue return	6.25	4,949	4.66	3,676
	Capital return	35.49	28,117	15.90	12,548
		_______	________	________	________
	Total return	41.74	33,066	20.56	16,224
		________	________	_______	_______
	Weighted average number of Ordinary
	shares in issue		79,224,144		78,911,644

	The calculation of the diluted total, revenue and capital returns per ordinary share are carried out in accordance with Financial Reporting Standard 22, "Earnings per Share". For the purpose of calculating total, revenue and capital returns per Ordinary share, the number of Ordinary shares used is the weighted average number used in the basic calculation plus the number of Ordinary shares deemed to be issued for no consideration on exercise of all Convertible Unsecured Loan Stock 2018 (CULS). The calculations indicate that the exercise of CULS would result in an increase in the weighted average number of Ordinary shares of 8,476,011 (2014 - 9,571,187) to 79,224,144 (2014 - 78,911,644) Ordinary shares. Where dilution occurs, the net returns are adjusted for items relating to the Convertible Unsecured Loan Stock ('CULS'). Total earnings for the period are tested for dilution. Once dilution has been determined individual revenue and capital earnings are adjusted. CULS finance costs for the period and unamortised issues expenses are reversed.

			2015	2014
			£000	£000
9		Investments
		Fair value through profit or loss
		Opening fair value	212,603	210,492
		Opening fair value gains on investments held	(78,185)	(100,735)
			__________	__________
		Opening book cost	134,418	109,757
		Additions at cost	69,307	66,762
		Disposals - proceeds	(59,275)	(79,050)
		- realised gains on sales	11,785	36,949
			__________	__________
		Closing book cost	156,235	134,418
		Current year fair value gains on investments held	96,282	78,185
			__________	__________
		Closing fair value	252,517	212,603
			__________	__________
		Gains on investments
		Realised gains on sales	11,785	36,949
		(Decrease)/increase in fair value gains on investments held	18,097	(22,550)
			__________	__________
			29,882	14,399
			__________	_________
		All investments are equity shares listed on the London Stock Exchange.

		Transaction costs
		During the year, expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within gains on investments in the Income Statement. The total costs were as follows:

			2015	2014
			£000	£000
		Purchases	308	278
		Sales	47	67
			__________	__________
			355	345
			__________	_________

		2015	2014
		£000	£000
10	Debtors
	Amounts due from brokers	244	782
	Net dividends and interest receivable	791	495
	Tax recoverable	54	54
	Other debtors	16	17
		__________	__________
		1,105	1,348
		__________	__________

		2015	2014
		£000	£000
11	Creditors: amounts falling due within one year
	Interest payable	172	180
	Investment management fee payable	557	508
	Sundry creditors	218	187
	Amounts due to brokers	-	3,742
		__________	__________
		947	4,617
		__________	__________

12	Non-current liabilities
		Nominal	Liability	Equity
	3.5% Convertible Unsecured Loan Stock 2018	Amount £000	Component £000	Component £000
	As at 30 June 2015
	Opening balance	20,584	19,719	1,470
	Conversion of 3.5% Convertible Unsecured Loan Stock 2018 into Ordinary Shares	(811)	(781)	-
	Notional Interest on 3.5% Convertible Unsecured Loan Stock 2018	-	154	-
	Amortisation	-	72	-
		__________	__________	__________
	Closing balance	19,773	19,164	1,470
		__________	__________	__________

	3.5% Convertible Unsecured Loan Stock 2018
	As at 30 June 2014
	Opening balance	24,897	23,567	1,470
	Conversion of 3.5% Convertible Unsecured Loan Stock 2018 into Ordinary Shares	(4,313)	(4,105)	-
	Notional Interest on 3.5% Convertible Unsecured Loan Stock 2018	-	184	-
	Amortisation	-	73	-
		__________	__________	__________
	Closing balance	20,584	19,719	1,470
		__________	__________	__________

	On 30 September 2014 the Company converted £577,944 nominal amount of 3.5% Convertible Unsecured Loan Stock 2018 into 243,589 Ordinary Shares. Also on 31 March 2015 the Company converted £233,924 nominal amount of 3.5% Convertible Unsecured Loan Stock 2018 into 98,580 Ordinary Shares. As at 30 June 2015, there was £19,772,582 nominal amount of 3.5% Convertible Unsecured Loan Stock 2018 in issue. The loan stock can be converted at the election of holders into Ordinary shares during the months of March and September each year throughout their life up until 31 March 2018 at a fixed price per Ordinary share of 237.2542p. Interest is paid on the 3.5% Convertible Unsecured Loan Stock 2018 on 30 September and 31 March each year. In the event of a winding-up of the Company the rights and claims of the Trustee and CULS holders would be subordinate to the claims of all creditors in respect of the Company's secured and unsecured borrowings, under the terms of the Trust Deed.

		2015	2014
13	Called up share capital	£000	£000
	Authorised:
		£37,500	37,500
		__________	__________
	Issued and fully paid:
	69,418,600 (2014 - 71,383,586) Ordinary shares of 25p each - equity	17,355	17,846
	Held in treasury:
	2,208,575 (2014 - nil) Ordinary shares of 25p each - equity	552	-
		__________	__________
		17,907	17,846
		__________	__________


		2015	2014
		Ordinary shares	Ordinary shares
		Number	Number

	As at 30 June 2014	71,383,586	66,665,988
	Conversion of CULS	342,169	1,817,598
	Share buybacks	(2,307,155)	-
	Issue of own shares	-	2,900,000
		__________	__________
	As at 30 June 2015	69,418,600	71,383,586
		__________	__________
	During the year the Company bought back 2,307,155 Ordinary shares into Treasury for a total consideration of £6,539,000. Also the Company issued 342,169 Ordinary shares following the receipt of elections to convert by holders of the Company's 3.5% Convertible Unsecured Loan Stock 2018, of these 98,580 Ordinary shares were issued from Treasury. On 24 July 2015, the Company announced the results of the 30 June 2015 tender offer as detailed in Note 20. Capital Management The investment objective of the Company is to achieve long term capital growth by investment in UK quoted smaller companies. The Company manages its capital to ensure that it will be able to continue as a going concern while maximising the return to Shareholders through the optimisation of the debt and equity balance.

The Company's capital compromises the following:
	2015	2014
	£000	£000
Equity
Equity share capital	17,907	17,846
Reserves	224,869	201,572
	__________	__________
Liabilities
CULS	19,164	19,719
	__________	__________
	261,940	239,137
	__________	__________

The Board has delegated responsibility for gearing to the Investment Manager. The Board has set parameters of between 5% net cash and 25% net gearing (at time of drawdown) for the level of gearing that can be employed in normal market conditions. Gearing for this purpose is defined as the excess amount above shareholders' funds of total assets (including net current assets/liabilities) less cash/cash equivalents, expressed as a percentage of the shareholders' funds. If the amount so calculated is negative, this is shown as a 'net cash' position.

	2015 £000	2014 £000
Investments at fair value through profit or loss	252,517	212,603
Current assets excluding cash	1,105	1,348
Current liabilities excluding bank loans	(947)	(4,617)
Total assets	252,675	209,334
Net assets	242,776	219,418
Gearing (%)	4.1	(4.6)

The Board monitors and reviews the broad structure of the Company's capital on an ongoing basis. This review includes: - the planned level of gearing which takes account of the Investment Manager's views on the market; - the level of equity shares; - the extent to which revenue in excess of that which is required to be distributed should be retained. The Company's objectives, policies and processes for managing capital are unchanged from the preceding accounting period. The Company does not have any externally imposed capital requirements.

		2015	2014
14	Reconciliation of net return before finance costs and taxation to net cash inflow from operating activities	£000	£000

	Net return before finance costs and taxation	33,335	16,574

	Adjusted for:
	Gains on investments	(29,882)	(14,399)
	Currency losses	-	13
	Decrease/(increase) in accrued income	(296)	364
	Increase in other debtors	1	(2)
	Increase in sundry creditors including investment management fee	80	104
		__________	__________
	Net cash inflow from operating activities	3,238	2,654
		__________	__________

		At 30 June 2014	Cashflow	Currency and other movements	At 30 June 2015
		£000	£000	£000	£000
15	Analysis of changes in net debt
	Cash and short term deposits	5	22	-	27
	AAA Money Market funds	29,798	(20,560)	-	9,238
	Debt due in more than one year	(19,719)	-	555	(19,164)
		__________	_________	__________	_________
	Net (debt)/cash	(10,084)	(20,538)	555	(9,899)
		__________	_________	__________	_________

16	Net asset value per share
	Total shareholders' funds have been calculated in accordance with the provisions of applicable accounting standards. The analysis of total shareholders' funds on the face of the Balance Sheet reflects the rights, under the Articles of Association, of the ordinary shareholders on a return of assets.

		2014	2014
	Basic net asset value per share
	Net assets attributable (£000)	242,776	219,418
	Number of Ordinary shares in issue at year end	69,418,600	71,383,586
	(excluding shares held in treasury)
	Net asset value per share	349.73p	307.38p
		_________	_________

	Diluted net asset value per share
	Net assets attributable (£000)	261,940	239,317
	Potential number of Ordinary shares in issue at year end	77,752,523	80,059,702
	(excluding shares held in treasury)
	Net asset value per share	336.89p	298.92p
		_________	_________

	The diluted net asset value per Ordinary share as at 30 June 2015 has been calculated on the assumption that 19,772,582 3.5% Convertible Unsecured Loan Stock 2018 are converted at 237.25p per share, giving a total of 77,752,523 Ordinary shares. Where dilution occurs, the net assets are adjusted for items relating to the convertible loan stock. Net asset value per share - debt converted In accordance with the Company's understanding of the current methodology adopted by the AIC, convertible financial instruments are deemed to be 'in the money' if the cum income (debt at fair value) net asset value ("NAV") exceeds the conversion price of 237.25p per share. In such circumstances a net asset value is produced and disclosed assuming the convertible debt is fully converted. At 30 June 2015, the cum income (debt at fair value) NAV was 349.73p and thus the CULS 2018 were 'in the money'.

Financial instruments

The Company's financial instruments comprise securities and other investments, cash balances, loans and debtors and creditors that arise directly from its operations; for example, in respect of sales and purchases awaiting settlement, and debtors for accrued income. The Company also has the ability to enter into derivative transactions for the purpose of managing currency and market risks arising from the Company's activities. No such transactions took place during the year.

The main risks the Company faces from its financial instruments are (i) market price risk (comprising interest rate risk, currency risk and other price risk), (ii) liquidity risk and (iii) credit risk.

The Board regularly reviews and agrees policies for managing each of these risks. The Manager's policies for managing these risks are summarised below and have been applied throughout the year. The numerical disclosures exclude short-term debtors and creditors, other than for currency disclosures.

(i) Market price risk

The fair value or future cash flows of a financial instrument held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements - interest rate risk, currency risk and other price risk.

Interest rate risk

Interest rate movements may affect:

- the fair value of the investments in fixed interest rate securities;

- the level of income receivable on cash deposits and money market funds;

- interest payable on the Company's variable rate borrowings.

The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment and borrowing decisions.

It is the Company's policy to increase its exposure to equity market price risk through the judicious use of borrowings. When borrowed funds are invested in equities, the effect is to magnify the impact on Shareholders' funds of changes - both positive and negative - in the value of the portfolio.

During the year ended 30 June 2015, the Company had no revolving credit facility in place. The Board regulates the overall level of gearing by raising or lowering the level of the credit facility.

The 3.5% Convertible Unsecured Loan Stock 2018 was issued by the Company at a fixed cost until its conversion. It is carried in the Company's balance sheet at amortised cost rather than at fair value.

Interest risk profile The interest rate risk profile of the portfolio of financial assets and liabilities at the Balance Sheet date was as follows:
	Weighted average period for which rate is fixed	Weighted average interest rate	Fixed rate	Floating rate
As at 30 June 2015	Years	%	£000	£000
Assets
AAA Money Market funds	-	0.54	-	9,238
Cash deposits	-	-	-	27
	_________	________	________	________
Total assets	-	-	-	9,265
	_________	________	________	________
Liabilities
3.5% Convertible Unsecured Loan Stock 2018	2.75	3.50	19,164	-
	_________	________	________	________
Total liabilities	-	-	19,164	-
	_________	________	________	________

	Weighted average period for which rate is fixed	Weighted average interest rate	Fixed rate	Floating rate


As at 30 June 2014	Years	%	£000	£000
Assets
AAA Money Market funds	-	0.51	-	29,798
Cash deposits	-	-	-	5
	_________	________	________	________
Total assets	-	-	-	29,803
	_________	________	________	________
Liabilities
3.5% Convertible Unsecured Loan Stock 2018	3.75	3.50	19,719	-
	_________	________	________	________
Total liabilities	-	-	19,719	-
	_________	________	________	________

The weighted average interest rate is based on the current yield of each asset, weighted by its market value.

The floating rate assets consist of AAA Money Market funds and cash deposits on call earning interest at prevailing market rates.

All financial liabilities are measured at amortised cost.

Interest rate sensitivity

The sensitivity analyses below have been determined based on the exposure to interest rates at the balance sheet date and with the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period in the case of instruments that have floating rates.

If interest rates had been 100 basis points higher / lower and all other variables were held constant, the Company's profit for the year ended 30 June 2015 and net assets would increase / decrease by £93,000 (2014 : increase / decrease by £298,000).

Foreign currency risk

A small proportion of the Company's investment portfolio is invested in overseas securities and the Balance Sheet can be affected by movements in foreign exchange rates. It is not the Company's policy to hedge this risk on a continuing basis. The Company only has borrowings denominated in sterling.

The revenue account is subject to currency fluctuation arising on overseas income. The Company does not hedge this currency risk.

Foreign currency risk exposure by currency of denomination:

30 June 2015

30 June 2014

Overseas

investments

Net

monetary

assets

Total

currency

exposure

Overseas

investments

Net

monetary

assets

Total

currency

exposure

£'000

Euro

3,940

3,084

_________

________

_________

________

The asset allocation between specific markets can vary from time to time based on the Investment Manager's opinion of the attractiveness of the individual markets.

Foreign Currency sensitivity

There is no sensitivity analysis included as the Company has no outstanding foreign currency denominated monetary items. Where the Company's equity investments (which are non-monetary items) are priced in a foreign currency, they have been included within the other price risk sensitivity analysis so as to show the overall level of exposure.

Other price risk

Other price risks (ie changes in market prices other than those arising from interest rate or currency risk) may affect the value of the quoted investments.

It is the Board's policy to hold an appropriate spread of investments in the portfolio in order to reduce the risk arising from factors specific to a particular sector. The allocation of assets and the stock selection process, both act to reduce market risk. The Manager actively monitors market prices throughout the year and reports to the Board, which meets regularly in order to review investment strategy. The investments held by the company are mainly listed on the London Stock Exchange.

Other price risk sensitivity

If market prices at the Balance Sheet date had been 10% higher or lower while all other variables remained constant, the return attributable to ordinary shareholders for the year ended 30 June 2015 would have increased / decreased by £25,252,000 (2014 - increase / decrease of £21,260,000). This is based on the Company's equity portfolio held at each year end.

(ii) Liquidity risk

This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities.

Liquidity risk is not considered to be significant as the Company's assets comprise mainly readily realisable securities, which can be sold to meet funding commitments if necessary. The maturity of the Company's existing borrowings is set out in the credit risk profile section of this note.

Expected cashflows

Due within 3 months

Due between 3 months and 1 year

Due after 1 year

As at 30 June 2015

£000

3.5% Convertible Unsecured Loan Stock 2018

21,845

346

21,153

________

_________

________

21,845

346

21,153

________

_________

________

(iii) Credit risk

This is the risk of failure of a counter party to a transaction to discharge its obligations under that transaction that could result in the Company suffering a loss.

The risk is not significant, and is managed as follows:

- where the investment manager makes an investment in a bond, corporate or otherwise, the credit rating of the issuer is taken into account so as to minimise the risk to the Company of default;

- investment transactions are carried out with a large number of brokers, whose credit-standing is reviewed periodically by the investment manager, and limits are set on the amount that may be due from any one broker;

- the risk of counterparty exposure due to failed trades causing a loss to the Company is mitigated by the review of failed trade reports on a monthly basis. In addition, both stock and cash reconciliations to the Custodians' records are performed on a daily basis to ensure discrepancies are investigated on a timely basis.

- cash is held only with reputable banks with high quality external credit enhancements. None of the Company's financial assets are secured by collateral or other credit enhancements.

Credit risk exposure

In summary, compared to the amounts in the Balance Sheet, the maximum exposure to credit risk at

30 June was as follows:

2015

2014

Balance

Sheet

Maximum

exposure

Balance

Sheet

Maximum

exposure

Current assets

£'000

Debtors

1,105

1,348

AAA Money Markets funds

9,238

29,798

Cash and short term deposits

_________

10,370

31,151

_________

None of the Company's financial assets is past due or impaired.

Maturity of financial liabilities

The maturity profile of the Company's financial liabilities at 30 June was as follows:

In less than 1 year

Between 1 year and 3 years

In more than 3 years

£000

As at 30 June 2015

3.5% Convertible Unsecured Loan Stock 2018

19,164

19,773

All the other financial assets and liabilities do not have a maturity date.

The full contractual liability for the CULS assuming no further conversions is £21,676,000

(2014 - £23,286,000)

Fair Value hierarchy

FRS 29 'Financial Instruments: Disclosures' require an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:

- Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;

- Level 2: inputs other than quoted prices included within Level 1 that are observable for the assets or liability, either directly (ie as prices) or indirectly (ie derived from prices); and

- Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

All of the Company's investments are in quoted equities (2014 - same) that are actively traded on recognised stock exchanges, with their fair value being determined by reference to their quoted bid prices at the reporting date. The total value of the investments (2015 - £252,517,000; 2014 - £212,603,000) have therefore been deemed as Level 1.

The Company's CULS are actively traded on a recognised stock exchange. The fair value of the CULS (2015 - £24,716,000; 2014 - £25,113,000) has therefore been deemed Level 1.

19.

Related party transactions

Standard Life Investments (Corporate Funds) Limited received fees for its services as investment manager and company secretary. Further details are provided in notes 3 & 4. The Directors of the company received fees for their services. Further details are provided in the Directors' Remuneration Report.

Post Balance Sheet events

The Company released a Periodic Tender Offer document to shareholders in June 2015. The Company announced on 24 July 2015 that the Offer resulted in 3,470,930 Ordinary shares (representing approximately 8.38 per cent of the Company's issued share capital) being tendered.

The cost of the shares bought back was £11,199,000 excluding tender offer costs of £265,000 which have been charged against the special reserve during the year.

Following the implementation of the Periodic Tender Offer, the Company had 65,947,670 Ordinary shares in issue with a total number of voting rights of 65,947,670 and had 5,679,505 shares in Treasury.

Additional notes

This Annual Financial Report is not the Company's statutory accounts. The statutory accounts for the year ended 30 June 2014 have been delivered to the Registrar of Companies. The statutory accounts for the years ended 30 June 2014 and 30 June 2015 received an audit report which was unqualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report and did not include a statement under either section 498(2) or 498(3) of the Companies Act 2006.

The statutory accounts for the financial year ended 30 June 2015 have been approved and audited but will not be filed with the Registrar of Companies until after the Company's Annual General Meeting which will be held at 12 noon on Thursday 22 October 2015 at the offices of Standard Life Investments, 1 George Street, Edinburgh, EH2 2LL.

The Annual Report will be posted to shareholders in September 2015 and copies will be available from the Manager or by download from the Company's webpage hosted by the Manager (www.standardlifeinvestments.com/its).

Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise and may be affected by exchange rate movements. Investors may not get back the amount they originally invested.

For Standard Life UK Smaller Companies Trust Plc

Maven Capital Partners UK LLP, Company Secretary

For further information please contact:

Standard Life Investments - Gordon Humphries, Head of Investment Companies - Tel. 0131 245 2735

END

This information is provided by RNS

The company news service from the London Stock Exchange

END

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