Annual Financial Report

SMALL COMPANIES DIVIDEND TRUST PLC ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 APRIL 2013 The full Annual Report and Accounts can be accessed via the Investment Manager's website at www.chelvertonam.com or by contacting the Company Secretary on telephone 01392 412122. INVESTMENT OBJECTIVE AND POLICY The investment objective of Small Companies Dividend Trust plc (the "Company") is to provide Ordinary shareholders with a high income and opportunity for capital growth, having provided a capital return sufficient to repay the capital entitlement of the Zero Dividend Preference shares issued by the subsidiary company, Small Companies ZDP PLC ("SCZ"). The Group's funds are invested principally in smaller capitalised UK companies. The portfolio comprises companies listed on the Official List and companies admitted to trading on AIM. The Group does not invest in other investment trusts or in unquoted companies. No investment is made in preference shares, loan stock or notes, convertible securities or fixed interest securities. The full details of the investment policy can be found in the Business Review below. FINANCIAL HIGHLIGHTS 30 April 30 April 2013 2012 % change Capital Total net assets (£'000) 22,579 17,180 31.43 Net asset value per Ordinary share 138.95p 105.72p 31.43 Mid-market price per Ordinary share 128.50p 98.00p 31.12 Discount 7.52% 7.30% Net asset value per Zero Dividend 104.00p - Preference share Mid-market price per Zero Dividend 112.75p - Preference share Premium 8.41% - Year ended Year ended 30 April 30 April 2013 2012 % change Revenue Return per Ordinary share 7.02p 5.53p 26.94 Dividends declared per Ordinary share 6.60p 6.40p Total Return Total assets less current liabilities 46.35% 1.97% (excluding bank borrowings) total return on Group's net assets* Total return on Group's net assets* 37.10% 0.02% Ongoing charges** 2.38% 2.36% * Adding back dividends paid in the year and excluding derivative financial instruments shown as a current liability on the Balance sheet in order that the figure is comparable with 30 April 2012. ** Calculated in accordance with the new Association of Investment Companies ("AIC") guidelines. Based on total expenses, excluding finance costs for the year and average net asset value. Previously this figure had been calculated based on total expenses and average total asset value. CHAIRMAN'S REPORT Results The Company's net asset value per Ordinary share at 30 April 2013 was 138.95p (2012: 105.72p), an increase over the year of 31.43%. Dividends totalling 6.60p per share were declared for the year. During the same period the MSCI Index increased by 16.58% and the MSCI SmallCap Index increased by 25.48%. Since the Company was launched, on 12 May 1999, the net asset value per Ordinary share has risen by 44.74% and a total of 129.75p has been paid in dividends. Since the year end, the net asset value per Ordinary share has risen to 142.40p as at 30 June 2013 after payment of the fourth interim dividend of 2.40p. The Company is invested in 71 companies across 19 sectors. This spread creates a well diversified portfolio which we expect will lead to steady revenue growth and, in time, capital growth. Dividend growth has again been strong in the past year and despite paying increased dividends of 6.60p the Company has been able to add to revenue reserves. The impact of the introduction of Zero Dividend Preference shares was not fully felt in the year and we expect in the year to April 2014 that earnings will exceed dividends again and a further surplus will be used to replenish revenue reserves. The Company has enjoyed strong performance with share prices generally increasing and with the Company's portfolio outperforming the market. However, since January the focus of investors' attention has been more on larger companies and this has been reflected in the rise in the FTSE 100 Index in the first few months of the year. Zero Dividend Preference Shares Shareholders approved the issue of 8,500,000 Zero Dividend Preference shares in SCZ at an EGM on 24 August 2012. The Zero Dividend Preference shares have a redemption date of 8 January 2018 and an annual gross coupon of 6%. Bank Facility The Company started the year with borrowing facilities of a £4 million fixed loan with Lloyds TSB Bank plc and a £2 million overdraft facility with HSBC Bank plc. During the year part of the proceeds of the issue of 8,500,000 Zero Dividend Preference shares in SCZ was used to repay all outstanding bank debt. Dividend The Board has declared a fourth interim dividend of 2.40p per Ordinary share (2012: 2.35p) which when added to the three quarterly interim dividends of 1.40p (2012: 1.35p), equates to a total dividend for the year of 6.60p per Ordinary share (2012: 6.40p), an increase of 3.13% over the previous year. The Company has revenue reserves, which after payment of the fourth dividend, represent 87% of the current annual dividend or 5.76p per Ordinary share Outlook Once again the vast majority of the companies we are invested in have reported improved results in the period under review. The analysts are generally forecasting steady improvement in the current year and it is in "UK centric" businesses which are the focus of our investment policy that the impact of the drive to reduce the fiscal deficit will be felt. The UK seems to have avoided the triple dip recession but the fiscal reduction programme has slowed. This process will take time and only when confidence has returned can we expect to see capital spending from our investee companies. Despite the persistently above target level of inflation and the unresolved problems in the Eurozone position, the UK economy appears to be slowly improving and we hope for a return to a modest level of growth in the UK economy. Lord Lamont of Lerwick Chairman 8 July 2013 INVESTMENT MANAGER'S REPORT The year to 30 April 2013 has seen strong growth in the Company's asset value and with the new issue of the Zero Dividend Preference shares the appropriate capital structure is now in place until January 2018. In this fiscal year investors returned to the market by buying the very largest of UK quoted companies and as a result pushed the FTSE 100 Index close to its all-time high achieved in 1999. In addition, the smaller, but nonetheless world leading companies that are in the FTSE 250 have been bought to heroic ratings. Whilst the Small and Mid-Cap companies that this trust invests in have gone up in value, they still remain on reasonable price earnings multiples and of course, of great importance to this Group, good dividend yields. In the past year we have seen some strong dividend growth as companies have effectively completed the debt repayment phase, which was started in 2008, and in the absence of mergers and acquisitions, and lacking the confidence to commit to large investment projects, their cash reserves have increased. This is part of the explanation for the increase in companies paying special dividends as they recognise that shareholders are seeking income but they themselves do not want to commit to a higher threshold for normal dividends which they will have to support in the future. Business confidence needs to improve before companies start to increase their investment in their capital stock and their people. This will come and it is of course essential to ensure that these companies are producing the earnings in the future to pay the increased dividends that your Company needs. Portfolio review During the year we had, like last year, four takeovers, Omega Insurance, Psion, Timeweave and Titan Europe. Unfortunately none of these were particularly satisfactory for the Company as they were not completed at large premia and were generally companies that had underperformed in the recent past. However, we also recognise that in the period between 2003 and 2007 when a large number of companies we were invested in were taken over at large premiums, we were also unhappy because these were high quality companies which were hard to replace! Five stocks were sold in their entirety, with only Greene King and Greencore being memorable as strong contributors to the Company's performance. ATH Resources and Metalrax were sold at very significant losses. Holdings were reduced in S & U, Arbuthnot Banking, Smith News, St Ives, Wilmington Group, Beazley and Brown (N) Group after strong share price performance. As part of our investment process we like to have investments in 60-80 companies, and the net proceeds of the Zero Dividend Preference share issue after repaying all of the bank debt, and the cash from the realisations above, were utilised in increasing the number of holdings and adding to smaller existing holdings. Thirteen new shareholdings were added to the Company's investments. Stocks acquired include Acal - an electrical component distributor which the Company has previously owned; Kier Group - a contractor; National Express Group - an operator of bus and rail services; Numis - a middle market stockbroker; and NWF Group - a manufacturer and supplier of animal feeds, distributor of ambient grocery and domestic oil. Again NWF Group is a company that we have owned and achieved excellent profits in the past. Other smaller purchases include Abermarle & Bond - a pawnbroker; Centaur Media - marketing services and Games Workshop Group - a supplier of games figures. Outlook Finally, at least in respect of the UK, we are beginning to see the first signs of positive trends in terms of employment, inflation and even GDP growth. It is certainly nothing to compare yet with the United States, but it is beginning to look rather more positive when compared with the members of the Eurozone. We believe that on the basis of profit forecasts and medium term cash flow prospects, current valuations of our universe remain attractive and we continue to focus on the ability of our portfolio to deliver income as a key component of total return. As we have said before, the Company performs very well in periods of acquisition and consolidation and as corporate confidence improves we would expect to see more corporate activity. With the capital structure in place until January 2018, the Group is in a good position to take advantage of buying opportunities as they become available when short sharp corrections take place. Breakdown of Portfolio by Industry at 30 April 2013 Industry % Support Services 16.6 Financial Services 15.2 Non Life Insurance 9.7 Construction & Materials 9.2 Media 7.8 Travel & Leisure 7.3 Life Insurance 3.9 Household Goods & Home 3.8 Construction General Industrials 3.8 Industrial Engineering 3.7 Software & Computer Services 3.5 Food Producers 3.1 Leisure Goods 2.5 Industrial Transportation 2.4 General Retailers 2.0 Electronic & Electrical 1.6 Equipment Chemicals 1.4 Fixed Line Telecommunications 1.4 Gas, Water & Multi-Utilities 1.1 100.0 Source: Capita Sinclair Henderson Limited Twenty Largest Holdings at 30 April 2013 % of portfolio Macfarlane Group Packaging distribution 3.2 Avesco Group Providers of specialist services to 3.0 the corporate presentation, entertainment and broadcast markets GVC Holdings Provides B2B and B2C services to the 2.7 online gaming and sports betting markets Randall & Quilter Specialist non-life insurance 2.5 investor, service provider and underwriting manager St Ives Printing and market solutions 2.5 Marshalls Group Supplies the domestic, public sector 2.4 and commercial markets with ranges of hard landscaping products Intermediate Capital Specialist investment firm and asset 2.4 Group manager Smiths News The UK leading wholesaler of 2.3 newspapers and magazines and a leading UK book wholesaler Chesnara Life assurance 2.3 Sanderson Group UK provider of software solutions 2.3 and IT services Portmeirion Group Markets and manufactures an 2.2 extensive range of high quality tableware, cookware and giftware Dairy Crest Group Producer of dairy products 2.2 Braemer Shipping Provides broking and consulting 2.1 Services services to the global shipping industry across four business segments: shipbroking, logistics, technical services and environmental services Jarvis Securities Operates a number of retail 2.1 stockbroking brands that provide nominee, certificated, SIPP and ISA accounts to individuals and organisations. It also provides outsourced financial administration services to investment firms Personal Group Holdings A group of companies providing 2.1 accident & health insurance, employee benefits, financial advice, and personal insurance and reinsurance broking services Abbey Protection A specialist insurance intermediary 2.1 focused on the underwriting and sale of legal and professional fees insurance to businesses Morgan Sindall Group UK construction and urban 2.0 regeneration group Brown (N) Group Leading internet and catalogue home 2.0 shopping Photo-Me International Provides consumers with a convenient 2.0 & cost-effective means of obtaining ID photos which are compliant with UK passport & driving licence standards Wilmington Group Provides information and training to 1.9 selected professional business markets Top twenty companies 46.3 total Balance held in 51 53.7 holdings Total portfolio 100.0 Breakdown of Portfolio by Market Capitalisation at 30 April 2013 Number of Companies Over £500m 13 £250 - 500m 11 £100 - 250m 16 £75 - 100m 4 £50 - 75m 8 £25 - 50m 9 £0 - 25m 10 Total 71 % of Portfolio % Over £500m 15.6 £250 - 500m 18.0 £100 - 250m 25.3 £75 - 100m 7.3 £50 - 75m 10.7 £25 - 50m 14.3 £0 - 25m 8.8 Total 100.0 Source: Capita Sinclair Henderson Limited David Horner and David Taylor Chelverton Asset Management Limited 8 July 2013 DIRECTORS Lord Lamont of Lerwick* (Chairman) David Harris* William van Heesewijk Howard Myles* * Independent of the Investment Manager BUSINESS REVIEW The Business review has been prepared in accordance with the Companies Act 2006 and should be read in conjuction with the Chairman's report and Investment Manager's report. Company status, objective and review The Company was incorporated on 6 April 1999 and commenced trading on 12 May 1999. Its capital structure consists of Ordinary shares of 25p each of which 16,250,000 are in issue. There were no changes to the share capital during the year. The Company owns 100% of the shares of Small Companies ZDP plc ("SCZ") which was incorporated on 13 July 2012. SCZ issued 8,500,000 Zero Dividend Preference shares on 28 August 2012, which have been admitted to the Official lLst of the UK Listing Authority and to trading on the London Stock Exchange. Further details of the Zero Dividend Preference shares and the loan and contribution agreements entered into by the Company and SCZ can be found in notes 17 and 18 to the financial statements below. The principal activity of the Company is to carry on business as an investment trust. New regulations for obtaining and retaining investment trust status has been published by HM Revenue & Customs ("HMRC") and came into force on 1 January 2012. The Company has applied for, and been granted, approval from HMRC as an investment trust under sections 1158/1159 of the Corporation Tax Act 2010 ("1158/1159") for the year ended 30 April 2013. The Company will be treated as an investment trust company for each subsequent accounting period, subject to there being no subsequent serious breaches of the conditions for approval. The Company is also an investment company as defined in section 833 of the Companies Act 2006. The new rules removed the maximum holding in any one investment of 15% and replaced this with a risk diversification approach. The Board has considered this and agreed that the Company's investment policy offers suitable risk diversification. One of the criteria for continued compliance is that the Company distributes a minimum of 85% of all its income as dividend payments. The Company could lose its investment trust company status if it became a close company at any time during the accounting period. Failure by the Company to satisfy the new requirements could result in it being subject to capital gains tax arising on the sale of investments. Further details on the operation of investment trusts can be obtained from the AIC on their website at www.theaic.co.uk. The investment objective of the Company is to provide Ordinary shareholders with a high income and opportunity for capital growth, having provided a capital return sufficient to repay the capital entitlement of the Zero Dividend Preference shares issued by the subsidiary company SCZ. Investment policies and restrictions The Company's investment policy, as approved by shareholders, is that: ● The Company's assets comprise investments in equities in order to achieve its investment objectives. It is the aim of the Company to provide both income and capital growth predominantly through investment in smaller capitalised United Kingdom companies admitted to the Official List of the United Kingdom Listing Authority and traded on the London Stock Exchange Main Market or traded on AIM. ● The Company will not invest in preference shares, loan stock or notes, convertible securities or fixed interest securities or any similar securities convertible into shares; nor will it invest in the securities of other investment trusts or in unquoted companies. ● There is no set limit on the Company's gearing. The Chairman's report and Investment Manager's report give details of the Company's activities during the financial year under review. Performance analysis using key performance indicators At each quarterly Board meeting the Directors consider a number of key performance indicators ("KPIs") to assess the Group's success in achieving its objectives, including the net asset value ("NAV"), the dividend per share and the total ongoing charges. ● The Group's Consolidated statement of comprehensive income is set out below. ● A total dividend for the year to 30 April 2013 of 6.60p (2012: 6.40p) per Ordinary share has been declared to shareholders by way of three payments of 1.40p per Ordinary share and a fourth interim payment of 2.40p per Ordinary share. ● The NAV per Ordinary share at 30 April 2013 was 138.95p (2012: 105.72p). ● The ongoing charges (including investment management fees and other expenses but excluding performance fees and exceptional items) for the year ended 30 April 2013 were 2.38% (2012: 2.36%). Principal risks The Board considers the following as the principal risks facing the Company. Mitigation of these risks is sought and achieved in a number of ways as set out below: Market risk The Company is exposed to UK market risk due to fluctuations in the market prices of its investments. The Investment Manager actively monitors economic performance of investee companies and reports regularly to the Board on a formal and informal basis. The Board formally meets with the Investment Manager on a quarterly basis when the portfolio transactions and performance are discussed and reviewed. The Company is substantially dependent on the services of the Investment Manager's investment team for the implementation of its investment policy. The Company may hold a proportion of the portfolio in cash or cash equivalent investments from time to time. Whilst during positive stock market movements the portfolio may forego notional gains, during negative market movements this may provide protection. Discount volatility As with many investment trust companies, discounts can fluctuate significantly. The Board recognises that, as a closed ended company, it is in the long-term interests of shareholders to reduce discount volatility and believes that the prime driver of discounts over the longer term is performance. The Board, with its advisers, monitors the Company's discount levels and shares may be bought back should it be thought appropriate to do so by the Board. Regulatory risks A breach of Companies Act regulations and FCA rules may result in the Group's companies being liable to fines or the suspension of either of the group companies from listing and from trading on the London Stock Exchange. The Board, with its advisers, monitors the Company's and SCZ's regulatory obligations both on an ongoing basis and at quarterly Board meetings. Financial risk The financial situation of the Group is reviewed in detail at each Board meeting and monitored by the Audit Committee. New developments in accounting standards and industry related issues are actively reported to and monitored by the Board and its advisers, ensuring that appropriate accounting policies are adhered to. A more detailed explanation of the financial risks facing the Group is given in note 26 to the financial statements. Social, environmental and employee issues The Group does not have any employees and the boards of both companies consist entirely of non-executive Directors. As the business of the Group is to invest in other companies, it has no direct impact on the community or the environment, and as such has no policies in this area. Current and future developments A review of the main features of the year is contained in the Chairman's report and the Investment Manager's report. The marketing and promotion of the Group will continue to involve the Board, led by the Investment Manager, with a proactive communications programme either directly or through its website, with existing and potential new shareholders and other external parties. The Directors are seeking to renew the appropriate powers at the next Annual General Meeting ("AGM") to enable the issue and purchase of its own shares, when it is in shareholders' interests as a whole. Dividends paid 30 April 2013 30 April 2012 Payment date pence pence First interim 28 September 2012 1.40 1.35 Second interim 7 January 2013 1.40 1.35 Third interim 15 April 2013 1.40 1.35 Fourth interim 10 July 2013 2.40 2.35 6.60 6.40 The Directors have not recommended a final dividend in respect of the year ended 30 April 2013. Going concern The Group's business activities, together with the factors likely to affect its future development, performance and position, are described in the Chairman's report and in the Investment Manager's report. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the financial statements. In addition, note 26 to the financial statements sets out the Group's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments; and its exposure to credit risk and liquidity risk. The Group has adequate financial resources and as a consequence, the Directors believe that the Group is well placed to manage its business risks successfully despite the economic outlook, and continue to adopt the going concern basis The full Annual Report contains the following statements regarding responsibility for the financial statements and management report/ business review included therein. STATEMENT OF DIRECTORS' RESPONSIBILITIES in respect of the Annual Report and the financial statements The Directors are responsible for preparing the Annual Report and the financial statements. The Directors have elected to prepare financial statements in accordance with International Financial Reporting Standards ("IFRSs") as adopted by the EU. Company law requires the Directors to prepare such financial statements in accordance with IFRSs and the Companies Act 2006. Under company law the Directors must not approve the financial statements unless they are satisfied that they present fairly the financial position, financial performance and cash flows of the Group and the Company for that period. In preparing each of the Group and the Company's financial statements, the Directors are required to: * select suitable accounting policies in accordance with IAS 8: `Accounting Policies, Changes in Accounting Estimates and Errors' and then apply them consistently; * present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; * provide additional disclosures when compliance with specific requirements in IFRSs is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group and the Company's financial position and financial performance; * state that the Group and the Company have complied with IFRSs, as adopted by the EU subject to any material departures disclosed and explained in the financial statements; and * make judgements and estimates that are reasonable and prudent. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's transactions and disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that the Group's financial statements comply with the Companies Act 2006 and Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Under applicable law and regulations, the Directors are also responsible for preparing a Report of the Directors (including Business review), Directors' remuneration report and Statement on corporate governance that comply with that law and those regulations, and for ensuring that the Annual Report includes information required by the Listing Rules of the Financial Conduct Authority. The Directors are responsible for the integrity of the information relating to the Company on the Investment Manager's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements differs from legislation in other jurisdictions. The Directors confirm that, to the best of their knowledge and belief: * the financial statements, prepared in accordance with IFRSs as adopted by the EU give a true and fair view of the assets, liabilities, financial position and profit of the Group; and * the Annual Report includes a fair review of the development and performance of the Group, together with a description of the principal risks and uncertainties faced. On behalf of the Board of Directors Lord Lamont of Lerwick Chairman 8 July 2013 NON-STATUTORY ACCOUNTS The financial information set out below does not constitute the Group's statutory accounts for the years ended 30 April 2013 and 2012 but is derived from those accounts. Statutory accounts for 2012 have been delivered to the Registrar of Companies, and those for 2013 will be delivered in due course. The Auditor has reported on those accounts; its report was (i) unqualified, (ii) did not include a reference to any matters to which the Auditors drew attention by way of emphasis without qualifying its report and (ii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The text of the Auditor's report can be found in the Company's full Annual Report and Accounts on the Investment Manager's website www.chelvertonam.com. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the year ended 30 April 2013 2013 2012 Revenue Capital Total Revenue Capital Total Note £'000 £'000 £'000 £'000 £'000 £'000 Gains/(losses) on 10 - 6,094 6,094 - (699) (699) investments at fair value through profit or loss Investment income 2 1,420 - 1,420 1,167 - 1,167 Investment 3 (69) (208) (277) (55) (166) (221) management fee Recovery of VAT on 4 - - - 45 - 45 administration and secretarial fees Other expenses 4 (196) (18) (214) (180) - (180) Net return before 1,155 5,868 7,023 977 (865) 112 finance costs and taxation Finance costs 6 (15) (384) (399) (78) (235) (313) Net return before 1,140 5,484 6,624 899 (1,100) (201) taxation Taxation 7 - - - - - - Net return after 1,140 5,484 6,624 899 (1,100) (201) taxation Other comprehensive income Movement in fair 52 205 value of cash flow hedge Total comprehensive 6,676 4 income for the year Revenue Capital Total Revenue Capital Total pence pence pence pence pence pence Net return per: Ordinary share 8 7.02 33.75 40.77 5.53 (6.77) (1.24) Zero Dividend 8 - 4.00 4.00 - - - Preference share The total column of this statement is the statement of comprehensive income of the Group prepared in accordance with IFRS as adopted by the EU. All revenue and capital items in the above statement derive from continuing operations. No operations were acquired of discontinued during the year. All of the net return for the period and the total comprehensive income for the period is attributable to the shareholders of the Group. The supplementary revenue and capital return columns are presented for information purposes as recommended by the Statement of Recommended Practice issued by the AIC. The notes form part of these financial statements. CONSOLIDATED AND PARENT COMPANY STATEMENT OF CHANGES IN NET EQUITY for the year ended 30 April 2013 Share Share p Capital Hedge Revenue Total capital remium reserve reserve reserve account Note £'000 £'000 £'000 £'000 £'000 £'000 Year ended 30 April 2013 30 April 2012 4,063 11,917 2 (52) 1,250 17,180 Total - - 5,484 52 1,140 6,676 comprehensive return for the year Expenses of Zero - - (213) - - (213) Dividend Preference share issue Transactions with owners: Dividends paid 9 - - - - (1,064) (1,064) 30 April 2013 4,063 11,917 5,273 - 1,326 22,579 Year ended 30 April 2012 30 April 2011 4,063 11,917 1,102 (257) 1,383 18,208 Total - - (1,100) 205 899 4 comprehensive return for the year Transactions with owners: Dividends paid 9 - - - - (1,032) (1,032) 30 April 2012 4,063 11,917 2 (52) 1,250 17,180 The notes form part of these financial statements. CONSOLIDATED AND PARENT COMPANY BALANCE SHEETS as at 30 April 2013 Group* Company Company 2013 2013 2012 Note £'000 £'000 £'000 Non-current assets Investments at fair value 10 31,318 31,318 22,120 through profit or loss Investments in subsidiary 12 - 13 - 31,318 31,331 22,120 Current assets Trade and other 13 194 194 205 receivables Cash and cash equivalents 39 39 - 233 233 205 Total assets 31,551 31,564 22,325 Current liabilities Bank overdraft - - (950) Trade and other payables 14 (132) (145) (130) Derivative financial 16 - - (65) instruments (132) (145) (1,145) Total assets less current 31,419 31,419 21,180 liabilities Non-current liabilities Bank loan 15 - - (4,000) Zero Dividend Preference 17 (8,840) - - shares Loan from subsidiary (8,840) (8,840) - (8,840) (8,840) (4,000) Total liabilities (8,972) (8,985) (5,145) Net assets 22,579 22,579 17,180 Represented by: Share capital 19 4,063 4,063 4,063 Share premium account 20 11,917 11,917 11,917 Capital reserve 20 5,273 5,273 2 Hedge reserve 20 - - (52) Revenue reserve 20 1,326 1,326 1,250 Equity shareholders' 22,579 22,579 17,180 funds The notes form part of these financial statements. * The subsidiary was incorporated on 13 July 2012 and therefore no comparatives for the Group are shown for the year ended 30 April 2012. These financial statements were approved by the Board of Small Companies Dividend Trust plc and authorised for issue on 8 July 2013. Lord Lamont of Lerwick Chairman 8 July 2013 CONSOLIDATED AND PARENT COMPANY STATEMENT OF CASH FLOWS for the year ended 30 April 2013 2013 2012 Note £'000 £'000 Operating activities Investment income received 1,432 1,162 Interest income received - 6 Investment management fee paid (254) (222) Administration and secretarial (60) (58) fees paid Refund of VAT paid on - 45 administration and secretarial fees Other cash payments (146) (119) Cash generated from operations 972 814 Loan interest paid (101) (352) Net cash inflow from operating 22 871 462 activities Investing activities Purchases of investments (7,643) (5,703) Sales of investments 4,538 5,570 Net cash outflow from investing (3,105) (133) activities Financing activities Issue of Zero Dividend Preference 8,500 - shares Expenses of Zero Dividend (213) - Preference share issue Repayment of bank loan (4,000) - Dividends paid (1,064) (1,032) Net cash inflow/(outflow) from 3,223 (1,032) financing activities Increase/(decrease) in cash and 23 989 (703) cash equivalents for year Cash and cash equivalents at 24 (950) (247) start of year Cash and cash equivalents at end 24 39 (950) of year Cash and cash equivalents at 30 April comprise: Cash at bank 39 - Bank overdraft - (950) 39 (950) The notes form part of these financial statements. NOTES TO THE FINANCIAL STATEMENTS as at 30 April 2013 1 ACCOUNTING POLICIES Small Companies Dividend Trust PLC is a company domiciled in the UK. The consolidated financial statements for the Group for the year ended 30 April 2013 comprise the Company and its subsidiary, SCZ (together referred to as the "Group") Basis of preparation The consolidated financial statements of the Group and the financial statements of the Company have been prepared in conformity with International Financial Reporting Standards ("IFRSs") issued by the International Accounting Standards Board (as adopted by the EU) and Interpretations issued by the International Financial Reporting Interpretations Committee, and applicable requirements of United Kingdom company law, and reflect the following policies which have been adopted and applied consistently. As this is the first reporting period since the incorporation of SCZ on 13 July 2012, no comparative figures for the Group have been shown. The accounting policies adopted are consistent with those of the previous financial year and with the new accounting policies detailed below with regards to the new subsidiary and the Zero Dividend Preference share issue. At the date of authorisation of the financial statements, the following Standards which have not been applied in these financial statements were in issue but were not yet effective: * IAS 1 Presentation of Financial Statements - Amendments to revise the way other comprehensive income is presented (effective 1 July 2012) * IAS 32 Financial Instruments: Presentation - Amendments to application guidance on the offsetting of financial assets and financial liabilities (effective 1 January 2014) * IFRS 7 Financial Instruments: Disclosures - Amendments enhancing disclosures about offsetting of financial assets and financial liabilities (effective 1 January 2013). * IFRS 7 Financial Instruments: Disclosures - Amendments requiring disclosures about the initial application of IFRS 9 (effective 1 January 2015 or otherwise when IFRS 9 is first applied) * IFRS 9 Financial Instruments - Classification and measurement of financial assets (effective 1 January 2015) * IFRS 9 Financial Instruments - Accounting for financial liabilities and de-recognition (effective 1 January 2015) * IFRS 12 Disclosure of Interests in Other Entities - Disclosure of information to evaluate the nature of, and risks assiociated with, interests in other entities and the effects of those interests on its financial position, financial performance and cash flows (effective 1 January 2013) * IFRS 13 Fair Value Measurement - Replaces the guidance on fair value measurement in existing IFRS accounting literature with a single standard (effective 1 January 2013) The Directors do not expect that the adoption of the Standards listed above will have a material impact on the financial statements of the Group in future periods. Basis of consolidation The Group financial statements consolidate the financial statements of the Company and its wholly owned subsidiary undertaking, SCZ, drawn up to the same accounting date. The subsidiary is consolidated from the date of its incorporation, being the date on which the Company obtained control, and will continue to be consolidated until the date that such control ceases. Control comprises the power to govern the financial and operating policies of the investee so as to obtain benefit from its activities and is achieved through direct or indirect ownership of voting rights. The financial statements of the subsidiary are prepared for the same reporting year as the Company, using consistent accounting policies. All inter-company balances and transactions, including unrealised profits arising from them, are eliminated. As permitted by Section 408 of the Companies Act 2006, the Company has not presented its own Statement of comprehensive income. The amount of the Company's return for the financial period dealt with in the financial statements of the Group is a profit of £6,676,000. Convention The financial statements are presented in Sterling rounded to the nearest thousand. The financial statements have been prepared on a going concern basis under the historical cost convention, except for the measurement at fair value of investments classified as fair value through profit or loss and interest rate swaps taken out as cash flow hedges. Where presentational guidance set out in the Statement of Recommended Practice regarding the Financial Statements of Investment Trust Companies and Venture Capital Trusts ("SORP"), issued by the Association of Investment Companies in January 2009, is consistent with the requirements of IFRS, the Directors have sought to prepare the financial statements on a consistent basis compliant with the recommendations of the SORP. Segmental reporting The Directors are of the opinion that the Group is engaged in a single segment of business, being investment business. The Group only invests in companies listed in the UK. Investments All investments held by the Group are recorded at 'fair value through profit or loss'. Investments are initially recognised at cost, being the fair value of the consideration given. After initial recognition, investments are measured at fair value, with unrealised gains and losses on investments and impairment of investments recognised in the Consolidated statement of comprehensive income and allocated to capital. Realised gains and losses on investments sold are calculated as the difference between sales proceeds and cost. For investments actively traded in organised financial markets, fair value is generally determined by reference to Stock Exchange quoted market bid prices and SETS at last trade price at the close of business on the Balance sheet date, without adjustment for transaction costs necessary to realise the asset. Derivative financial instruments and hedge accounting It is the Company's policy not to trade in derivative financial instruments. However, the Company utilised interest rate swaps as cash flow hedges to mitigate its exposure to interest rate changes on its bank loan which was subject to a variable rate of interest. As at 30 April 2013 the Company had repaid its loan and had no interest rate swap in place. All derivatives are recognised at their fair value. The method of recognising movements in the fair value of derivatives depends on whether they are designated as hedging instruments and, if so, the nature of the item being hedged. Derivatives are only designated as hedges provided certain strict criteria are met. At the inception of a hedge its terms must be clearly documented and there must be an expectation that the derivative will be highly effective in offsetting changes in the cash flow of the hedged risk. The effectiveness of the hedging relationship is tested throughout its life and if at any point it is concluded that it is no longer highly effective the hedge relationship is terminated. The effective portion of changes in the fair value of derivatives that are designated as cash flow hedges (being the interest rate swaps) is recognised in equity. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss. Trade date accounting All 'regular way' purchases and sales of financial assets are recognised on the 'trade date' i.e., the day that the Group commits to purchase or sell the asset. Regular way purchases, or sales, are purchases or sales of financial assets that require delivery of the asset within a time frame generally established by regulation or convention in the market place. Income Dividends receivable on quoted equity shares are taken into account on the ex-dividend date. Where no ex-dividend date is quoted, they are brought into account when the Group's right to receive payment is established. Other investment income and interest receivable are included in the financial statements on an accruals basis. Dividends received from UK registered companies are accounted for net of imputed tax credits. Expenses All expenses are accounted for on an accruals basis. All expenses are charged through the revenue account in the Consolidated statement of comprehensive income except as follows: ● expenses which are incidental to the acquisition of an investment are included within the costs of the investment; ● expenses which are incidental to the disposal of an investment are deducted from the disposal proceeds of the investment; and ● expenses are charged to capital reserve where a connection with the maintenance or enhancement of the value of the investments can be demonstrated. The investment management fees, bank interest and all other expenses are allocated to revenue with the exception of 75% (2012: 75%) of the Investment Manager's fee, 75% (2012: 75%) of bank and loan interest and 100% of the provision for the Investment Manager's performance fee, all of which are allocated to capital. In respect of the investment management fee, bank and loan interest allocation to revenue and capital, this is in line with the Board's expected long-term split of returns from the investment portfolio, in the form of income and capital gains respectively. The operating expenses of the subsidiary are borne by the Company and taken 100% to capital. Cash and cash equivalents Cash in hand and in banks and short-term deposits which are held to maturity are carried at cost. Cash and cash equivalents are defined as cash in hand, demand deposits and short-term, highly liquid investments readily convertible to known amounts of cash and subject to insignificant risk of changes in value. Bank loans and borrowings All bank loans and borrowings are initially recognised at cost, being the fair value of the consideration received, less issue costs, where applicable. After initial recognition, all interest-bearing loans and borrowings are subsequently measured at amortised cost. Any difference between cost and redemption value is recognised in the Consolidated statement of comprehensive income over the period of the borrowings on an effective interest basis. Zero Dividend Preference shares Shares issued by the subsidiary are treated as a liability of the Group, and are shown in the Balance sheet at their redemption value at the Balance sheet date. The appropriations in respect of the Zero Dividend Preference shares necessary to increase the subsidiary's liabilities to the redemption values are allocated to capital in the Consolidated statement of comprehensive income. This treatment reflects the Board's long-term expectations that the entitlements of the Zero Dividend Preference shareholders will be satisfied out of gains arising on investments held primarily for capital growth. Share issue costs Costs incurred directly in relation to the issue of shares in the subsidiary were borne by the Company and taken 100% to capital. Taxation There is no charge to UK income tax as the Group's allowable expenses exceed its taxable income. Deferred tax assets in respect of unrelieved excess expenses are not recognised as it is unlikely that the Group will generate sufficient taxable income in the future to utilise these expenses. Deferred tax is not provided on capital gains and losses because the Company meets the conditions for approval as an investment trust company. Dividends payable to shareholders Dividends to shareholders are recognised as a liability in the period in which they are paid or approved in general meetings and are taken to the Statement of changes in net equity. Dividends declared and approved by the Group after the Balance sheet date have not been recognised as a liability of the Group at the Balance sheet date. 2 Income 2013 2012 £'000 £'000 Income from listed investments UK net dividend income 1,200 1,045 Unfranked foreign dividend income 220 116 1,420 1,161 Other income Interest on VAT refund - 6 Total income 1,420 1,167 Total income comprises: Dividends 1,420 1,161 Interest - 6 1,420 1,167 3 Investment management fee 2013 2012 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Investment management fee 69 208 277 55 166 221 At 30 April 2013 there were amounts outstanding of £79,000 (2012: £56,000). 4 Other expenses 2013 2012 £'000 £'000 Administration and secretarial fees 60 58 Directors' remuneration (note 5) 58 58 Auditor's remuneration: audit services* 20 16 Insurance 6 6 Other expenses* 70 42 Recovery of VAT on administration and - (45) secretarial fees 214 135 Subsidiary operating costs taken 100% to (18) - capital 196 135 * The above amounts include irrecoverable VAT where applicable. 5 Directors' Remuneration 2013 2012 £ £ Total fees 57,500 57,500 Remuneration to Directors Lord Lamont (Chairman) 20,000 20,000 D Harris 20,000 20,000 H Myles 17,500 17,500 W van Heesewijk* - - * Mr van Heesewijk has waived his entitlement to fees. 6 Finance costs 2013 2012 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Interest payable on 18 54 72 91 273 364 bank overdraft and bank loan Movement in fair value (3) (10) (13) (13) (38) (51) of ineffective element of interest rate swap Appropriations in - 340 340 - - - respect of Zero Dividend Preference shares 15 384 399 78 235 313 7 Taxation 2013 2012 £'000 £'000 Based on the revenue return for the year Current tax - withholding tax on foreign - - dividend income The current tax charge for the year is lower than the standard rate of corporation tax in the UK of 24% to 31 March 2013 and 23% from 1 April 2013. The differences are explained below: 2013 2012 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Return on ordinary 1,140 5,484 6,624 899 (1,100) (201) activities before taxation Theoretical 273 1,312 1,585 232 (284) (52) corporation tax at 23.92% (2012: 25.83%) Effects of: Capital items not - (1,376) (1,376) - 181 181 taxable UK and foreign (340) - (340) (300) - (300) dividends which are not taxable in the UK Excess expenses in 67 64 131 68 103 171 the year Actual current tax - - - - - - charged to the revenue account The Group has unrelieved excess expenses of £17,902,000 (2012: £17,353,000). It is unlikely that the Group will generate sufficient taxable profits in the future to utilise these expenses and therefore no deferred tax asset has been recognised. 8 Return per share Ordinary shares Revenue return per Ordinary share is based on revenue on ordinary activities after taxation of £1,140,000 (2012: £899,000) and on 16,250,000 (2012: 16,250,000) Ordinary shares, being the weighted average number of Ordinary shares in issue during the year. Capital return per Ordinary share is based on the capital profit of £5,484,000 (2012: capital loss of £1,100,000) and on 16,250,000 (2012: 16,250,000) Ordinary shares, being the weighted average number of Ordinary shares in issue during the year. Zero Dividend Preference shares Capital return per Zero Dividend Preference share is based on allocations from the Company of £340,000 and on 8,500,000 Zero Dividend Preference shares, being the weighted average number of Zero Dividend Preference shares in issue during the year. 9 Dividends 2013 2012 £'000 £'000 Declared and paid per Ordinary share Fourth interim dividend for the year ended 382 374 30 April 2012 of 2.35p (2011: 2.30p) First interim dividend of 1.40p (2012: 227 219 1.35p) Second interim dividend of 1.40p (2012: 227 219 1.35p) Third interim dividend of 1.40p (2012: 228 220 1.35p) 1,064 1,032 Declared and paid per Ordinary share* Fourth interim dividend for the year ended 390 382 30 April 2013 of 2.40p (2012: 2.35p) * Dividend paid subsequent to the year end. 10 Investments - Group and Company 2013 Listed AIM Total £'000 £'000 £'000 Year ended 30 April 2013 Opening book cost 15,873 9,909 25,782 Opening investment holding losses (2,010) (1,652) (3,662) Opening valuation 13,863 8,257 22,120 Movements in the year: Purchases at cost 5,264 2,378 7,642 Disposals: Proceeds (3,481) (1,057) (4,538) Net realised gains/(losses) on 816 (1,658) (842) disposals Transfers from AIM to Listed 232 (232) - Movement in investment holding 3,405 3,531 6,936 losses Closing valuation 20,099 11,219 31,318 Closing book cost 18,704 9,340 28,044 Closing investment holding gains 1,395 1,879 3,274 20,099 11,219 31,318 Realised gains/(losses) on 816 (1,658) (842) disposals Movement in investment holding 3,405 3,531 6,936 losses Gains on investments 4,221 1,873 6,094 2012 Listed AIM Total £'000 £'000 £'000 Year ended 30 April 2012 Opening book cost 15,829 9,504 25,333 Opening investment holding losses (719) (1,925) (2,644) Opening valuation 15,110 7,579 22,689 Movements in the year: Purchases at cost 4,300 1,335 5,635 Disposals: Proceeds (4,154) (1,351) (5,505) Net realised (losses)/ gains on (102) 421 319 disposals Movement in investment holding (1,291) 273 (1,018) losses Closing valuation 13,863 8,257 22,120 Closing book cost 15,873 9,909 25,782 Closing investment holding losses (2,010) (1,652) (3,662) 13,863 8,257 22,120 Realised (losses)/gains on (102) 421 319 disposals Movement in investment holding (1,291) 273 (1,018) losses (Losses)/gains on investments (1,393) 694 (699) Transaction costs During the year the Group incurred transaction costs of £70,000 (2012: £53,000) and £15,000 (2012: £20,000) on purchases and sales of investments respectively. These amounts are included in losses on investments, as disclosed in the Consolidated statement of comprehensive income. 11 Significant Interests The Company has a holding of 3% or more in the following investments: Name of undertaking 30 April 2013 Class of share % held Stadium Group Ordinary 4.06 RTC Group Ordinary 3.48 Sanderson Group Ordinary 3.47 Chamberlin Ordinary 3.33 Macfarlane Group Ordinary 3.04 12 Investment in subsidiary The Company owns the whole of the issued ordinary share capital of SCZ, especially formed for the issuing of Zero Dividend Preference shares, which is incorporated and registered in England and Wales, under company number: 8142169. 13 Trade and other receivables Group Company Company 2013 2013 2012 £'000 £'000 £'000 Dividends receivable 189 189 201 Prepayments and accrued income 5 5 4 194 194 205 14 Trade and other payables Group Company Company 2013 2013 2012 £'000 £'000 £'000 Purchases of investments for - - 1 future settlement Trade and other payables 132 132 129 Loan from subsidiary - 13 - undertaking 132 145 130 15 Bank loan Group Company Company 2013 2013 2012 £'000 £'000 £'000 Bank loan - - 4,000 The loan was repaid in full on 31 August 2012. 16 DERIVATIVE FINANCIAL INSTRUMENTS An interest rate swap is an agreement between two parties to exchange fixed and floating interest payments based upon interest rates defined in the contract without the exchange of the underlying principal amounts. The Company entered into an interest rate swap agreement (£5 million fixed at 6.2475%) that expired on 10 July 2012. Prior to this date the Company had reduced the loan drawn to £4 million and there was a mismatch with the two swap transactions. The £4 million loan represented 80% of the £5 million swap. Therefore 20% of the cost of the swap is charged to income with the remaining 80% to equity. At 30 April 2012 the fair value of the interest rate swap designated as a cash flow hedge was £65,000. 17 ZERO DIVIDEND PREFERENCE SHARES On 28 August 2012, SCZ issued 8,500,000 Zero Dividend Preference shares at 100p per share and with net proceeds of £8.3 million. The expenses of the placing were borne by the Company. The Zero Dividend Preference shares each have an initial capital entitlement of 100p per share, growing by an annual rate of 6% compounded daily to 136.70p on 8 January 2018, a total of £11,620,000. The accrued entitlement as per the Articles of Association of SCZ at 30 April 2013 was 104.00p per share, being £8,840,000 in total, and the total amount accrued for the year of £340,000 has been charged to capital. 18 SECURED LOAN Pursuant to a loan agreement between SCZ and the Company, SCZ has lent the gross proceeds of £8,500,000, raised from the placing on 28 August 2012 of 8,500,000 Zero Dividend Preference shares at 100p, to the Company. The loan is non-interest bearing and is repayable three business days before the Zero Dividend Preference share redemption date of 8 January 2018 or, if required by SCZ, at any time prior to that date in order to repay the Zero Dividend preference share entitlement. The funds are to be managed in accordance with the investment policy of the Company. The loan is secured by way of a floating charge on the Company's assets under a debenture entered into between the Company and SCZ. dated 1 August 2012. A contribution agreement between the Company and SCZ has also been made whereby the Company will undertake to contribute such funds as would ensure that SCZ will have in aggregate sufficient assets on 8 January 2018 to satisfy the final capital entitlement of the Zero Dividend Preference shares. The loan is secured by way of a floating charge on the Company's assets under a debenture entered into between the Company and SCZ. dated 1 August 2012. At 30 April 2013 the contribution due from the Company to cover the accrued entitlement was £340,000. Company Company 2013 2012 £'000 £'000 Value at 1 May - - Loan issued in year 8,500 - Contribution to accrued capital entitlement 340 - of Zero Dividend Preference shares Value at 30 April 8,840 - 19 Share capital 2013 2012 £'000 £'000 Issued, allotted and fully paid 16,250,000 (2012: 16,250,000) Ordinary shares 4,063 4,063 of 25p each For details regarding the issue of Zero Dividend Preference shares by SCZ please see note 17. The rights attaching to the Ordinary shares are: As to dividends each year Ordinary shares are entitled to all the revenue profits of the Company available for distribution, including all undistributed income. As to capital on winding-up On a winding-up, the holders of Zero Dividend Preference shares issued by SCZ are entitled to a payment of an amount equal to 100p per share, increased daily from 28 August 2012 at such a compound rate as will give an entitlement to 136.70p for each Zero Dividend Preference share at 8 January 2018, £11,620,000 in total. The holders Ordinary shares will receive all the assets available for distribution to shareholders after payment of all debts and satisfaction of all liabilities of the Company rateably according to the amounts paid or credited as paid up on the Ordinary shares held by them respectively. Voting Each holder of Ordinary shares on a show of hands will have one vote and on a poll will have one vote for each Ordinary share held. Each holder of Zero Dividend Preference shares on a show of hands will have one vote at meetings where Zero Dividend Preference shareholders are entitled to vote and on a poll will have one vote for every Zero Dividend Preference share held. Duration Under the Company's Articles of Association, the Directors are required to convene a general meeting of the Company to be held in October 2017 or a date which is either four months before or four months after this date so as to align the vote with any timetable for a further issue of zero dividend preference shares or to save costs by proposing the Continuation Resolution (as defined below) at the annual general meeting or some other general meeting of the Company ("the First GM"), at which an ordinary resolution will be proposed to the effect that the Company continues in existence ("the Continuation Resolution"). In the event that such resolution is not passed the Directors shall, subject to the Statutes, put forward further proposals to shareholders regarding the future of the Company (which may include voluntary liquidation, unitisation or other reorganisation of the Company) ("the Restructuring Resolution") at a general meeting of the Company to be convened not more than four months after the date of the First GM (or such adjournment). The Restructuring Resolution shall be proposed as a special resolution. If the Restructuring Resolution is either not proposed or not passed then the Directors shall convene a general meeting not more than four months after the date of the First GM (or such adjournment). If the Restructuring Resolution is not proposed or four months after the date the Restructuring Resolution is not passed an ordinary resolution pursuant to section 84 of the Insolvency Act 1986 to voluntarily wind-up the Company shall be put to shareholders and the votes taken on such resolution shall be on a poll. 20 Reserves - Group and Company Share Capital Hedge Revenue premium reserve reserve reserve account £'000 £'000 £'000 £'000 At 1 May 2012 11,917 2 (52) 1,250 Net return on realisation of - (842) - - investments Movement in investment holding losses - 6,936 - - Costs charged to capital - (270) - - Expenses of Zero Dividend Preference - (213) - - share issue Appropriations in respect of Zero - (340) - - Dividend Preference shares Net return after dividends for the - - - 76 year retained Movement in fair value of cash flow - - 52 - hedge At 30 April 2013 11,917 5,273 - 1,326 At 1 May 2011 11,917 1,102 (257) 1,383 Net return on realisation of - 319 - - investments Movement in investment holding losses - (1,018) - - Costs charged to capital - (401) - - Net return after dividends for the - - - (133) year retained Movement in fair value of cash flow - - 205 - hedge As 30 April 2012 11,917 2 (52) 1,250 21 Net asset value per share The net asset value per share and the net assets attributable to the Ordinary shareholders and Zero Dividend Preference shareholders are as follows: Net asset Net assets Net asset Net assets value per attributable value per attributable share to share to 2013 shareholders 2012 shareholders pence 2013 pence 2012 £'000 £'000 Ordinary shares 138.95 22,579 105.72 17,180 Zero Dividend Preference 104.00 8,840 - - shares The net asset value per Ordinary share is calculated on 16,250,000 (2012: 16,250,000) Ordinary shares, being the number of Ordinary shares in issue at the year end. The net asset value per Zero Dividend Preference share is calculated on 8,500,000 Zero Dividend Preference shares, being the number of Zero Dividend Preference shares in issue at the year end. 22 Reconciliation of net return before and after taxation to net cash flow from operating activities - Group and Company 2013 2012 £'000 £'000 Net return before taxation 6,624 (201) Taxation - - Net return after taxation 6,624 (201) Net capital return (5,484) 1,100 Movement in fair value of ineffective element of (13) (51) interest rate swap Decrease in receivables 11 5 Increase in payables 3 10 Interest and expenses charged to the capital reserve (270) (401) Net cash inflow from operating activities 871 462 23 Reconciliation of net cash flow to movement in net cash/(debt) - Group and Company 2013 2012 £'000 £'000 Increase/(decrease) in cash in year 989 (703) Repayment of bank loan 4,000 - Change in net cashflow 4,989 (703) Net debt at 1 May (4,950) (4,247) Net cash/(debt) at 30 April 39 (4,950) 24 Analysis of changes in net (debt)/cash - Group and Company At 1 May Cash flows At 30 April £'000 2012 2013 £'000 £'000 Cash at bank - 39 39 Bank overdraft (950) 950 - (950) 989 39 Debt due after more than one year (4,000) 4,000 - (4,950) 4,989 39 25 Related party transactions Under the terms of an agreement dated 30 April 2006 (effective from 1 December 2005), the Company appointed Chelverton to be Investment Manager. The fee arrangements for these services and fees payable are set out in the Report of the Directors in the full Annual Report and in note 3 to the financial statements. Chelverton contributed £100,000 towards the issue costs relating to the Zero Dividend Preference share issue. 26 Analysis of financial assets and liabilities Objectives, policies and strategies The Group primarily invests in companies with a market capitalisation of up to £500 million. All of the Group's investments comprise ordinary shares in companies listed on the Official List and companies admitted to AIM. The Group finances its operations through Zero Dividend Preference shares issued by SCZ and equity. Cash, liquid resources and short-term debtors and creditors arise from the Group's day-to-day operations. It is, and has been throughout the year under review, the Group's policy that no trading in financial instruments shall be undertaken. In pursuing its investment objective, the Group is exposed to a variety of risks that could result in either a reduction in the Group's net assets or a reduction of the profits available for distribution. These risks are market risk (comprising currency risk, interest rate risk, and other price risk), credit risk and liquidity risk. The Board reviews and agrees policies for managing each of these risks and they are summarised below. As required by IFRS 7: Financial Instruments: Disclosures, an analysis of financial assets and liabilities, which identifies the risk to the Group of holding such items, is given below. Market risk Market risk arises mainly from uncertainty about future prices of financial instruments used in the Group's business. It represents the potential loss the Group might suffer through holding market positions by way of price movements and movements in exchange rates and interest rates. The Investment Manager assesses the exposure to market risk when making each investment decision and these risks are monitored by the Investment Manager on a regular basis and the Board at quarterly meetings with the Investment Manager. Market price risk Market price risks (i.e. changes in market prices other than those arising from currency risk or interest rate risk) may affect the value of investments. The Board manages the risks inherent in the investment portfolios by ensuring full and timely reporting of relevant information from the Investment Manager. Investment performance is reviewed at each Board meeting. The Group's exposure to changes in market prices at 30 April on its investments is as follows: 2013 2012 £'000 £'000 Fair value through profit or loss 31,318 22,120 investments Sensitivity analysis A 10% increase in the market value of investments at 30 April 2013 would have increased net assets by £3,132,000 (2012: £2,212,000). An equal change in the opposite direction would have decreased the net assets available to shareholders by an equal but opposite amount. Foreign currency risk All the Group's assets are denominated in Sterling and accordingly the only currency exposure the Group has is through the trading activities of its investee companies. Interest rate risk Interest rate movements may affect the level of income receivable on cash deposits. The majority of the Group's financial assets are non-interest bearing. As a result the Group's financial assets are not subject to significant amounts of risk due to fluctuations in the prevailing levels of market interest rates. 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 decisions. The exposure at 30 April of financial assets and financial liabilities to interest rate risk is as follows: Within one year More than one Total year £'000 £'000 £'000 30 April 2013 Cash and cash equivalents 39 - 39 Total exposure to interest 39 - 39 rates 30 April 2012 Cash and cash equivalents and (950) - (950) bank overdraft Bank loan - (4,000) (4,000) Total exposure to interest (950) (4,000) (4,950) rates The loan facility of £4 million was repaid on 31 August 2012, therefore the Group no longer has any interest rate risk associated to variable bank borrowings. Credit risk Credit risk is the risk of financial loss to the Group if the contractual party to a financial instrument fails to meet its contractual obligations. The carrying amounts of financial assets best represent the maximum credit risk exposure at the Balance sheet date. Listed investments are held by Jarvis Investment Management Limited acting as the Company's custodian. Bankruptcy or insolvency of the custodian may cause the Company's rights with respect to securities held by the custodian to be delayed. The Board monitors the Group's risk by reviewing the custodian's internal controls reports. Investment transactions are carried out with a number of brokers whose creditworthiness is reviewed by the Investment Manager. Transactions are ordinary undertaken on a delivery versus payment basis whereby the Company's custodian bank ensures that the counterparty to any transaction entered into by the Group has delivered in its obligations before any transfer of cash or securities away from the Group is completed. Cash is only held at banks that have been identified by the Board as reputable and of high credit quality. The maximum exposure to credit risk as at 30 April 2013 was £31,551,000 (2012: £22,325,000). The calculation is based on the Group's credit risk exposure as at 30 April 2013 and this may not be representative of the year as a whole. None of the Group's assets are past due or impaired. Liquidity risk The majority of the Group's assets are listed securities in small companies, which can under normal conditions be sold to meet funding commitments if necessary. They may however be difficult to realise in adverse market conditions. Financial instruments by category The financial instruments of the Group fall into the following categories 30 April 2013 At Loans and Assets at Total cost receivables fair value £'000 £'000 £'000 through profit or loss £'000 Assets as per Balance sheet Investments - - 31,318 31,318 Trade and other - 194 - 194 receivables Cash and cash equivalents 39 - - 39 Total 39 194 31,318 31,551 Liabilities as per Balance sheet Trade and other payables 132 - - 132 Total 132 - - 132 30 April 2012 Assets at fair value through Derivatives At Loans and profit or used for Total cost receivables loss hedging £'000 £'000 £'000 £'000 £'000 Assets as per Balance sheet Investments - - 22,120 - 22,120 Trade and other - 205 - - 205 receivables Total - 205 22,120 - 22,325 Liabilities as per Balance sheet Trade and other payables 130 - - - 130 Bank loan 4,000 - - - 4,000 Bank overdraft 950 - - - 950 Derivative financial - - - 65 65 instruments Total 5,080 - - 65 5,145 IFRS 7 hierarchy The Company has adopted the amendment to IFRS 7, effective 1 January 2009. This requires the Company 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 consists of the following three levels: Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1). An active market is a market in which transactions for the asset or liability occur with sufficient frequency and volume on an ongoing basis such that quoted prices reflect prices at which an orderly transaction would take place between market participants at the measurement date. Quoted prices provided by external pricing services, brokers and vendors are included in Level 1, if they reflect actual and regularly occurring market transactions on an arms length basis. Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices). Level 2 inputs include the following: • quoted prices for similar (i.e. not identical) assets in active markets. • quoted prices for identical or similar assets or liabilities in markets that are not active. Characteristics of an inactive market include a significant decline in the volume and level of trading activity, the available prices vary significantly over time or among market participants or the prices are not current. • inputs other than quoted prices that are observable for the asset (for example, interest rates and yield curves observable at commonly quoted intervals). • inputs that are derived principally from, or corroborated by, observable market data by correlation or other means (market-corroborated inputs). Level 3 - Inputs for the asset or liability that are not based on observable market data (unobservable inputs). The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability. The determination of what constitutes 'observable' requires significant judgement by the Company. The Company considers observable data to investments actively traded in organised financial markets. Fair value is generally determined by reference to Stock Exchange quoted market bid prices (or last traded in respect of SETS) at the close of business on the Balance sheet date, without adjustment for transaction costs necessary to realise the asset. Investments whose values are based on quoted market prices in active markets, and therefore classified within Level 1, include active listed equities. The Company does not adjust the quoted price for these investments. Financial instruments that trade in markets that are not considered to be active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within Level 2. Investments classified within Level 3 have significant unobservable inputs. Level 3 instruments include private equity and corporate debt securities. As observable prices are not available for these securities, the Company has used valuation techniques to derive the fair value. The Company has no Level 2 or Level 3 investments, however the interest rate swap derivative was designated Level 3. This was due to the fair value obtained being reliant upon inputs obtained from brokers that are indicative and could not easily be corroborated with observable market data. The following table presents the movement in the Level 3 instrument for the year ended 30 April 2013: Ineffective Effective Total element (20%) element (80%) £'000 to income to equity £'000 (hedge reserve) £'000 30 April 2012 13 52 65 Movement in year (13) (52) (65) 30 April 2013 - - - COMPANY SUMMARY History The Company was launched on 12 May 1999, raising £21.38 million before expenses, by a placing of 15,000,000 Ordinary shares and, through its former subsidiary company, Small Companies PLC, 6,250,000 Zero Dividend Preference shares and 31,260 Preference shares. A further 750,000 Ordinary shares were issued as a result of a placing for cash on 3 March 2000 and on 26 October 2005 a further 500,000 shares were issued. The subsidiary, Small Companies PLC, was placed into members' voluntary liquidation on 30 April 2007, following which the capital entitlements of the Zero Dividend Preference and Preference shares were repaid. Group structure The Company has in issue one class of Ordinary share. In addition, it has a new wholly owned subsidiary, SCZ, through which Zero Dividend Preference shares have been issued. The new subsidiary was incorporated on 13 July 2012 and has a capital structure comprising unlisted ordinary shares and Zero Dividend Preference shares listed on the Official List and traded on the London Stock Exchange. SCZ was incorporated specifically for the issue of Zero Dividend Preference shares. On 28 August 2012, SCZ issued 8,500,000 Zero Dividend Preference shares at 100p per share and with net proceeds of £8.3 million. The expenses of the placing were borne by the Company. Pursuant to a loan agreement between SCZ and the Company, SCZ has lent the proceeds of the placing to the Company. The loan is non-interest bearing and is repayable three business days before the Zero Dividend Preference share redemption date of 8 January 2018 or, if required by SCZ, at any time prior to that date in order to repay the Zero Dividend Preference share entitlement. The funds are to be managed in accordance with the investment policy of the Company. A contribution agreement between the Company and SCZ has also been made whereby the Company will undertake to contribute such funds as will ensure that SCZ will have in aggregate sufficient assets on 8 January 2018 to satisfy the final capital entitlement of the Zero Dividend Preference shares. Total net assets and market capitalisation at year end As at 30 April 2013, the Company had a market capitalisation of £20,881,000 (2012: £15,925,000) and total net assets amounted to £22,579,000 (2012: £17,180,000). Management fee The fee payable to the Investment Manager is 1% of the gross assets of the Group. Capital structure Details of share structure and entitlements and voting rights of each class can be found below. ISA status The Company's Ordinary shares are qualifying investments for Individual Savings Accounts ("ISAs") as are the ZDP shares of SCZ. CAPITAL STRUCTURE Small Companies Dividend Trust PLC (the "Company") The Company has in issue one class of Ordinary share. In addition, it has a wholly owned subsidiary, Small Companies ZDP PLC, through which Zero Dividend Preference shares have been issued. Ordinary shares of 25p each ("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 the Company's liabilities, including the capital entitlement of the Zero Dividend Preference shares. 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. Small Companies ZDP PLC ("SCZ") Ordinary shares of 100p each ("ordinary shares") - 50,000 in issue (partly paid up as to 25p each) The ordinary shares are owned by the Company. References to Ordinary shares within this Annual Report are to the Ordinary shares of Small Companies Dividend Trust PLC. Capital Following the payment of any liabilities and the capital entitlement to the Zero Dividend Preference shareholders, ordinary shareholders are entitled to any surplus assets of SCZ. 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. Zero Dividend Preference shares of 100p each - 8,500,000 in issue Dividends Holders of Zero Dividend Preference shares are not entitled to dividends. Capital On a winding up of SCZ, after the satisfaction of prior ranking creditors and subject to sufficient assets being available, Zero Dividend Preference shareholders are entitled to an amount equal to 100p per share increased daily from 28 August 2012 at such compound rate as will give an entitlement to 136.7p per share at 8 January 2018. Voting Each holder of Zero Dividend Preference shares on a show of hands will have one vote at meetings where Zero Dividend Preference shareholders are entitled to vote and on a poll will have one vote for every Zero Dividend Preference share held. Holders of Zero Dividend Preference shares are not entitled to attend, speak or vote at general meetings unless the business of the meeting includes a resolution to vary, modify or abrogate the rights attached to the Zero Dividend Preference shares. ANNUAL REPORT AND ANNUAL GENERAL MEETING The foregoing represents extracts from the full text of the Annual Report and Accounts for the year ended 30 April 2013. The full Report will shortly be available for download from the following website: www.chelvertonam.com Copies will be posted to shareholders shortly. The Annual General Meeting will be held on Wednesday 18 September 2013 at 11.00am at the offices of the Association of Investment Companies, 9th Floor, 24 Chiswell Street, London EC1Y 4YY. NATIONAL STORAGE MECHANISM A copy of the Annual Report and Accounts will be submitted shortly to the National Storage Mechanism ("NSM") and will be available for inspection at the NSM, which is situated at: www.morningstar.co.uk/uk/nsm 8 July 2013 Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on this announcement (or any other website) is incorporated into, or forms part of, this announcement.

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