Annual Financial Report

SMALL COMPANIES DIVIDEND TRUST PLC ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 APRIL 2014 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 477500 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 Strategic Report. FINANCIAL HIGHLIGHTS 30 April 30 April 2014 2013 % change Capital Total net assets (£'000) 31,706 22,579 40.42 Net asset value per Ordinary share 191.58p 138.95p 37.88 Mid-market price per Ordinary share 188.00p 128.50p 46.30 Discount 1.87% 7.52% Net asset value per Zero Dividend 110.24p 104.00p 6.00 Preference share Mid-market price per Zero Dividend Preference share 117.00p 112.75p 3.77 Premium 6.13% 8.41% Year ended Year ended 30 April 30 April 2014 2013 % change Revenue Return per Ordinary share 11.47p 7.02p 63.39 Dividends declared per Ordinary share 9.575p 6.60p Total Return Total return on Group's net assets* (prior 34.28% 46.35% to deduction for provision of Zero Dividend Preference share entitlement) Total return on Group's net assets* 45.36% 37.10% Ongoing charges** 2.00% 2.38% * Adding back dividends paid in the year. **Calculated in accordance with the Association of Investment Companies ("AIC") guidelines. Based on total expenses, excluding finance costs for the year and average net asset value. STRATEGIC REPORT The Strategic Report has been prepared in accordance with section 414A of the Companies Act 2006 (the "Act"). Its purpose is to inform members of the Company and help them understand how the Directors have performed their duty under section 172 of the Act to promote the success of the Company. CHAIRMAN'S STATEMENT Results The Company's net asset value per Ordinary share at 30 April 2014 was 191.58p (2013: 138.95p), an excellent increase over the year of 37.88%. In the year total dividends of 9.575p per Ordinary share were paid and declared including a Special Dividend of 2.75p. During the same period the MSCI Index increased by 9.19% and the MSCI UK SmallCap Index increased by 19.29%. Since the Company was launched, on 12 May 1999, the net asset value per Ordinary share has risen by 99.56% and a total of 139.325p has been paid in dividends. Since the year end, the net asset value per Ordinary share has fallen to 184.89p as at 30 June 2014, including the fourth interim dividend of 2.40p per Ordinary share and the Special Dividend of 2.75p per Ordinary share which both went ex-dividend on 25 June 2014. The Company is currently invested in 74 companies spread across 22 sectors. This spread creates a well-diversified portfolio which we are confident will lead to steady revenue growth and, in time, capital growth. Dividend growth has again been strong in the past year and we received a number of Special Dividends. As a result, despite paying an increased dividend of 6.825p per Ordinary share and the Special Dividend of 2.75p per Ordinary share the Company has been able to add to revenue reserves. The introduction of the Zero Dividend Preference shares in the 2013 financial year had a full year impact in this year. The Company has enjoyed a strong year with share prices generally increasing. Since January the focus of investor's attention has been more on the largest of companies and this is reflected in the Small and Mid Cap Indices largely trading sideways for the past few months. Ordinary share issue To meet demand for the Ordinary shares which could not be met from the market the Company issued 300,000 new shares at a small premium to the prevailing net asset value. Zero Dividend Preference Shares The Zero Dividend Preference shares have traded throughout the year at a premium to their redemption value. The Zero Dividend Preference shares have a redemption date of 8 January 2018 and an annual gross coupon of 6%. Dividend The Board has declared a fourth interim dividend of 2.40p per Ordinary share (2013: 2.40p) which when added to the three quarterly interim dividends of 1.475p per Ordinary share (2013: 1.40p), equates to a total dividend for the year of 6.825p per Ordinary share (2013: 6.60p), an increase of 3.41% over the previous year. In addition the Board has declared a Special Dividend of 2.75p per Ordinary share to be paid with the fourth interim dividend. So shareholders will effectively receive a fourth dividend of 5.15p per Ordinary share. The Company has revenue reserves, which after payment of the fourth interim dividend and Special Dividend represent 110.14% of the current annual dividend or 7.46p per Ordinary share. Outlook As the economic recovery in the UK broadens and deepens the companies invested in by the fund should enjoy further increases in sales and profits. Generally it is expected that results will start to improve towards the end of this year and be announced in 2015. The background environment is very positive for a portfolio of "UK centric" companies with low inflation, rising employment and greater confidence, both consumer and corporate, anticipated in the future. However the problems of the Eurozone may continue to act as a potential drag on UK growth. In time we can expect these to diminish and greater confidence and better performance to return. The Board are confident that the Company will show further progress over the next year. Changes to the Annual Report You will note that there have been some changes to your Company's Annual Report this year. These are the results of the new narrative reporting requirements that have now come into effect. There is now a Strategic Report, which contains many of the disclosures previously contained within the Business Review section of the Directors' Report, and a new Directors' Remuneration Report. In relation to the latter, shareholders will be asked to vote on both the Directors' Remuneration Policy and the Directors' Remuneration Report at the forthcoming Annual General meeting. Alternative Investment Fund Managers' Directive ("AIFMD") AIFMD was conceived to address a perceived regulatory gap to protect investors and is intended to provide a harmonised regulatory and supervisory framework throughout the European Union ("EU") for regulating Alternative Investment Funds. Although it was principally aimed at private equity and hedge funds, investment trusts and venture capital trusts are also required to comply. AIFMD was implemented by the UK on 22 July 2013, with existing investment companies, such as your Company having until 22 July 2014 to comply fully with the requirements. The Board has been appointed as the Alternative Investment Fund Manager of the Company. Annual General Meeting We hope that as many shareholders as possible will attend the Company's Annual General Meeting, which will be held at 11.00am on Wednesday, 17 September 2014 at the offices of the Association of Investment Companies, 9th Floor, 24 Chiswell Street, London, EC1Y 4YY. Lord Lamont of Lerwick Chairman 3 July 2014 INVESTMENT MANAGER'S REPORT The year to 30 April 2014 has seen strong growth in the Company's net asset value per share and with the full year effect of the introduction of the Zero Dividend Preference shares the revenue account has seen the full benefit of the capital structure introduced in 2012. In the year under review we saw a strong performance in the underlying portfolio from the first eight months and then a weaker second period where companies' share prices generally drifted whilst investors' attention moved to larger companies. We believe that company results due to be announced towards the end of the year and early next year will indicate that many companies whose business is predominantly in the UK are starting to experience good trading performance, which will encourage further interest and investment in our trading universe. It is also clear that investment is beginning to take place by companies to expand capacity, improve efficiency and to develop new markets. With the introduction a few years ago of a number of funds whose remit is to invest in Small and Mid Cap companies with a yield, and their success at attracting funds, there is now several billion pounds being targeted at our sector. This change in attitude towards the type of companies we invest in is very much to be welcomed. In the past year we have seen continued strong dividend growth and also a number of companies paying a Special Dividend. It is the number and scale of these dividends that has allowed the Company in turn to pay a Special Dividend. The fourth interim dividend of 2.40p will be aggregated with a Special Dividend of 2.75p to make a payment of 5.15p per Ordinary share. Portfolio Review In the last year we had one takeover, Abbey Protection, at a very small and unsatisfactory premium. After the year end two of our portfolio companies, Braemar Shipping Services and ACM Shipping, announced that they were going to merge. Acal, one of the better performers in the portfolio over the past year - up 70%, announced a 1 for 1 rights issue to finance a major strategic acquisition. It is developments like this that will drive the capital value forward in the future. We expect to see a number of takeovers of companies in our portfolio once confidence in the future is more widespread, but at the moment there are too many "half reasons" for people to pause and reflect again before doing anything. However as the UK banks and then the European banks continue to strengthen their balance sheets there will be a pressure to lend to ambitious companies again. Seven stocks from the portfolio were sold in their entirety, Abbey Protection - taken over, Arbuthnot, Close Brothers, First Group, Victoria, Vp and Zotefoams. All had been good contributors to the capital performance and were sold because the dividend yield had declined to a point where their income contribution had fallen below the required level of an income fund. Albermarle & Bond was sold at a very significant loss prior to it going into administration. Shareholdings were reduced in Beazley, Chesnara, Connect Group (renamed from Smiths News), Dairy Crest, GVC, ISG, Intermediate Capita, Jarvis Securities, Macfarlane, Marshalls, Numis Securities, Photo-Me International, Portmerion, Sanderson, St Ives, Trifast and Wilmington, after strong share price performances. Eleven new shareholdings were added to the Company's investments in the year and two others after the year end. Stocks acquired include Amino Technologies - a producer of software and set-top boxes, Amlin - an insurer and reinsurer, Bloomsbury - a publisher, GLI Finance - a loan business providing loans to small companies, Go-Ahead - a public transport provider, Greggs - the largest bakery chain in the UK, Ladbrokes - gaming, Moss Bross - the eponymous clothing retailer, Town Centre Securities - a property investor, and Tritax Big Box - a specialist property investor specialising in very large distribution centres. After the year end we subscribed for shares in the flotation of Shoe Zone - a budget retailer of shoes. Outlook We are now seeing growth in most sectors of the economy and also geographically across the UK. This in turn is leading to increasing employment and strong GDP growth. Compared to the members of the Eurozone the UK is becoming the place to do business and to produce products. We believe that on the basis of profit forecasts and medium term cash flow prospects, current valuations in our investment universe remain attractive and we continue to focus on the ability of our portfolio to deliver income as a key component of total return. We repeat again that once mergers and acquisitions become more common, rather than just the one takeover in the past year, we would expect to see further growth in the value of the Company. The Company has a well balanced portfolio with 74 investments and 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 2014 Industry % Support Services 14.6 Financial Services 13.2 Construction & Materials 10.5 Travel & Leisure 9.8 Non-Life Insurance 7.5 Media 6.6 Real Estate Investment 3.7 Industrial Engineering 3.4 Industrial Transportation 3.4 Leisure Goods 3.4 Life Insurance 3.3 General Industrials 2.9 Food Producers 2.7 Household Goods & Home 2.7 Construction Software & Computer Services 2.6 Fixed Line Telecommunications 2.1 Electronic & Electrical 1.5 Equipment General Retailers 1.5 Food & Drug Retailers 1.3 Gas, Water & Multi-Utilities 1.2 Equity Investment Instruments 1.1 Technology Hardware & 1.0 Equipment 100.0 Source: Capita Sinclair Henderson Limited Twenty Largest Holdings at 30 April 2014 Market % of value portfolio £'000 Connect Group The UK leading wholesaler of 990 2.4 newspapers and magazines and a leading UK book wholesaler Clarke (T) Electrical contractors with a 978 2.4 distinctive regional business covering the UK. Jarvis Securities Operates a number of retail 922 2.3 stockbroking brands that provide nominee, certificated, SIPP and ISA accounts to individuals and organisations. It also provides outsourced financial administration services to investment firms. St Ives Printing and market solutions. 891 2.2 Marshalls Supplies the domestic, public 886 2.2 sector and commercial markets with ranges of hard landscaping products. Macfarlane Group Packaging distribution 873 2.1 Braemar Shipping Provides broking and consulting 863 2.1 Services services to the global shipping industry across four business segments; shipbroking, logistics, technical services and environmental services. Cineworld Group Operations of cinemas in the UK, 852 2.1 Ireland and Spain Personal Group A group of companies providing 849 2.1 Holdings accident and health insurance, employee benefits, financial advice, and personal insurance and reinsurance broking services KCOM Group Fixed line telecommunications 847 2.1 service company. S & U Consumer credit and car finance 819 2.0 throughout the UK Photo-Me International Provides consumers with a 810 2.0 convenient & cost-effective means of obtaining ID photos which are compliant with UK passport & driving licence standards. Wilmington Group Provides information and training 795` 1.9 to selected professional business markets. Morgan Sindall Group UK construction and urban 793 1.9 regeneration group GVC Holdings Provides B2B and B2C services to 776 1.9 the online gaming and sports betting markets. Ladbrokes Leader in global betting and 767 1.9 gaming market Tritax Big Box Investor in "Big Box" logistic 761 1.9 assets in the UK Sanderson Group UK provider of software solutions 750 1.8 and IT services Town Centre Securities Property investment and 744 1.8 development company Randall & Quilter Specialist non-life insurance 740 1.8 investor, service provider and underwriting manager. Top twenty companies 16,706 40.9 total Balance held in 54 24,114 59.1 holdings Total portfolio 40,820 100.0 Breakdown of Portfolio by Market Capitalisation at 30 April 2014 Number of Companies Over £500m 18 £250 - 500m 10 £100 - 250m 20 £75 - 100m 5 £50 - 75m 6 £25 - 50m 6 £0 - 25m 9 Total 74 % of Portfolio % Over £500m 24.1 £250 - 500m 15.7 £100 - 250m 29.7 £75 - 100m 5.7 £50 - 75m 9.0 £25 - 50m 9.2 £0 - 25m 6.6 Total 100.0 Source: Capita Sinclair Henderson Limited David Horner and David Taylor Chelverton Asset Management Limited 3 July 2014 OTHER STATUTORY INFORMATION Company status, objective, review and business model The Company was incorporated on 6 April 1999 and commenced trading on 12 May 1999. The registered number of Small Companies Dividend Trust PLC is 3749536. Its capital structure consists of Ordinary shares of 25p. On 14 January 2014, the Company announced the issue of 300,000 Ordinary shares at a price of 189.5p each, which were to rank pari passu in all respects with the Ordinary shares in issue. The shares were issued for cash in order to meet investor demand. Following this admission there are now 16,550,000 Ordinary shares in issue. The Company has only one class of share and this figure represents 100% of the Company's share capital and voting rights. The Group financial statements consolidated the audited financial statements of the Company and its subsidiary undertaking drawn up for the year ended 30 April 2014. 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 List 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 15 and 16 to the financial statements below. SCZ, at its Annual General Meeting on 17 September 2014 will put an Ordinary Resolution to its shareholders to allot shares up to an aggregate value of 2,833,333, being one third of the issued Zero Dividend Preference share capital as at 30 April 2014. The principal activity of the Company is to carry on business as an investment trust. The Company has applied for, and has been granted, approval from HMRC as an investment trust under sections 1158/1159 of the Corporation Tax Act 2010 (`1158/1159') on an ongoing basis. 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 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, 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 UK companies admitted to the Official List of the UK Listing Authority and traded on the London Stock Exchange Main Market or traded on AIM. • The Company will not invest in preference shares, loan stocks or notes,convertible securities or fixed interest securities or any similar securities convertible into shares; nor will it invest in the securities or other investment trusts or in unquoted companies. • There is no set limit on the Company's gearing. • The Chairman's Report and the Investment Manager's Report above 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 2014 of 9.575p (2013: 6.60p) per Ordinary share has been declared to shareholders by way of three payments of 1.475p per Ordinary share and a fourth interim dividend payment of 2.40p per Ordinary share and a Special Dividend of 2.75p per Ordinary share. • The NAV per Ordinary share at 30 April 2014 was 191.58p (2013:138.95p). • The ongoing charges (including investment management fees and other expenses but excluding performance fees and exceptional items) for the year ended 30 April 2014 were 2.00% (2013:2.38%). 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 close 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 Financial Conduct Authority ("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 24 to the financial statements below. Employees, environmental, human rights and community issues The Board recognises the requirement under Section 414C of the Act to detail information about employees, human rights and community issues, including information about any policies it has in relation to these matters and the effectiveness of these policies. These requirements do not apply to the Company as it has no employees and no physical assets, all the Directors are non-executive and it has outsourced all its management and administrative functions to third party service providers; the Company has therefore not reported further in respect of these provisions. However, in carrying out its activities and in relationships with suppliers, the Company aims to conduct itself responsibly, ethically and fairly. Current and future developments A review of the main features of the year and the outlook for the Company are contained in the Chairman's Statement and Investment Manager's Report above. 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/declared Payment date 30 April 2014 30 April 2013 pence pence First interim 4 October 2013 1.475 1.40 Second interim 10 January 2014 1.475 1.40 Third interim 4 April 2014 1.475 1.40 Fourth interim 10 July 2014 2.40 2.40 Special Dividend 10 July 2014 2.75 - 9.575 6.60 The Directors have not recommended a final dividend in respect of the year ended 30 April 2014. Diversity The Board of Directors of the Company comprised four male Directors in the year to 30 April 2014. While the Board recognises the benefits of diversity in future appointments to the Board, the key criteria for the appointment of new directors will be the appropriate skills and experience in the interests of shareholder value. The Directors are satisfied that the Board currently contains members with an appropriate breadth of skills and experience. No new appointments to the Board have been made or are contemplated at present. On behalf of the Board Lord Lamont of Lerwick 3 July 2014 DIRECTORS' REPORT The Directors present their Annual Report and financial statements for the Group and the Company for the year ended 30 April 2014. The Directors who served during the year ended 30 April 2014 were as follows: Lord Lamont* D Harris* W van Heesewijk H Myles* *Independent of the Investment Manager 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 Statement and Investment Manager's Report above. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the financial statements. In addition, note 24 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 International Accounting Standards (`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 Strategic Report, a Directors' Report, 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 FCA. The Directors are responsible for the integrity of the information relating to the Company on the Investment Manager's website. Legislation in the UK 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. • the Annual Report is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy. • the Investment Managers' Report includes a fair review of the development and performance of the business and the Company and its undertakings included in the consolidation taken as a whole and adequately describes the principal risks and uncertainties they face. Lord Lamont of Lerwick Chairman 3 July 2014 NON-STATUTORY ACCOUNTS The financial information set out below does not constitute the Group's statutory accounts for the year ended 30 April 2014 and the year ended 30 April 2013 but is derived from those accounts. Statutory accounts for 2013 have been delivered to the Registrar of Companies, and those for 2014 will be delivered in due course. The Auditor has reported on those accounts; their 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 (iii) 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 2014 2014 2013 Revenue Capital Total Revenue Capital Total Note £'000 £'000 £'000 £'000 £'000 £'000 Gains on 10 - 8,649 8,649 - 6,094 6,094 investments at fair value through profit or loss Investment income 2 2,179 - 2,179 1,420 - 1,420 Investment 3 (97) (292) (389) (69) (208) (277) management fee Other expenses 4 (208) (21) (229) (196) (18) (214) Net return before 1,874 8,336 10,210 1,155 5,868 7,023 finance costs and taxation Finance costs 6 - (530) (530) (15) (384) (399) Net return before 1,874 7,806 9,680 1,140 5,484 6,624 taxation Taxation 7 - - - - - - Net return after 1,874 7,806 9,680 1,140 5,484 6,624 taxation Other comprehensive income Movement in fair - 52 value of cash flow hedge Total comprehensive 9,680 6,676 income for the year Revenue Capital Total Revenue Capital Total pence pence pence pence pence pence Net return per: Ordinary share 8 11.47 47.79 59.26 7.02 33.75 40.77 Zero Dividend 8 - 6.24 6.24 - 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 2014 Share Share Capital Hedge Revenue Total capital premium reserve reserve reserve account Note £'000 £'000 £'000 £'000 £'000 £'000 Year ended 30 April 2014 30 April 2013 4,063 11,917 5,273 - 1,326 22,579 Total - - 7,806 - 1,874 9,680 comprehensive return for the year Ordinary shares 75 493 - - - 568 issued Expenses of - (7) - - - (7) Ordinary share issue Transactions with owners: Dividends paid 9 - - - - (1,114) (1,114) 30 April 2014 4,138 12,403 13,079 - 2,086 31,706 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 The notes form part of these financial statements. CONSOLIDATED AND PARENT COMPANY BALANCE SHEETS as at 30 April 2014 Group* Group Company Company 2014 2013 2014 2013 Note £'000 £'000 £'000 £'000 Non-current assets Investments at fair 10 40,820 31,318 40,820 31,318 value through profit or loss Investments in 12 - - 13 13 subsidiary 40,820 31,318 40,833 31,331 Current assets Trade and other 13 291 194 291 194 receivables Cash and cash 136 39 136 39 equivalents 427 233 427 233 Total assets 41,247 31,551 41,260 31,564 Current liabilities Trade and other 14 (171) (132) (184) (145) payables Total assets less 41,076 31,419 41,076 31,419 current liabilities Non-current liabilities Zero Dividend 15 (9,370) (8,840) - - Preference shares Loan from subsidiary 16 - - (9,370) (8,840) (9,370) (8,840) (9,370) (8,840) Total liabilities (9,541) (8,972) (9,554) (8,985) Net assets 31,706 22,579 31,706 22,579 Represented by: Share capital 17 4,138 4,063 4,138 4,063 Share premium 18 12,403 11,917 12,403 11,917 account Capital reserve 18 13,079 5,273 13,079 5,273 Revenue reserve 18 2,086 1,326 2,086 1,326 Equity shareholders' 31,706 22,579 31,706 22,579 funds The notes form part of these financial statements. These financial statements were approved by the Board of Small Companies Dividend Trust plc and authorised for issue on 3 July 2014. Lord Lamont of Lerwick Chairman 3 July 2014 Company Registered Number: 3749536 CONSOLIDATED AND PARENT COMPANY STATEMENT OF CASH FLOWS for the year ended 30 April 2014 2014 2013 Note £'000 £'000 Operating activities Investment income received 2,081 1,432 Investment management fee paid (365) (254) Administration and secretarial (57) (60) fees paid Other cash payments (156) (146) Cash generated from operations 1,503 972 Loan interest paid - (101) Net cash inflow from operating 20 1,503 871 activities Investing activities Purchases of investments (8,807) (7,643) Sales of investments 7,954 4,538 Net cash outflow from investing (853) (3,105) activities Financing activities Issue of Zero Dividend Preference - 8,500 shares Expenses of Zero Dividend - (213) Preference share issue Issue of Ordinary shares 568 - Expenses of Ordinary share issue (7) - Repayment of bank loan - (4,000) Dividends paid (1,114) (1,064) Net cash inflow/(outflow) from (553) 3,223 financing activities Increase in cash and cash 21 97 989 equivalents for year Cash and cash equivalents at 22 39 (950) start of year Cash and cash equivalents at end 22 136 39 of year The notes form part of these financial statements. NOTES TO THE FINANCIAL STATEMENTS as at 30 April 2014 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 2014 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 "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 UK company law, and reflect the following policies which have been adopted and applied consistently. New standards, interpretations and amendments adopted by the Group The accounting policies adopted in the preparation of the consolidated financial statements are consistent with those of the previous financial year, except for the adoption of new standards and interpretations as described below: The Group has adopted IFRS 13 Fair Value Measurement with an initial application date of 1 January 2013. IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. It also replaces and expands the disclosure requirements about fair value measurements in other IFRS's, including IFRS 7 Financial Instruments: Disclosures. It does not introduce any new requirements to measure an asset or a liability a fair value, change what is measured at fair value in IFRS or address how to present changes in fair value. The adoption of this standard has therefore had no impact on the financial statements. Several other new standards and amendments apply for the first time for the financial year ended 30 April 2014. However, they do not impact the consolidated financial statements of the Group. 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 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 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 (no stated effective date) • IFRS 9 Financial Instruments - Classification and measurement of financial liabilities and de-recognition requirements from IAS 39 Financial Instruments Recognition and Measurement (no stated effective date) • Investment Entities - Amendments to IFRS 10 Consolidated Financial Statements, IFRS 12 Joint Arrangements and IAS 27 Separate Financial Statements (effective 1 January 2014). 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 £9,680,000 (2013: £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. 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. • operating expenses of the subsidiary are borne by the Company and taken 100% to capital. All other expenses are allocated to revenue with the exception of 75% (2013: 75%) of the Investment Manager's fee which is allocated to 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. 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. Loans and borrowings All 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 are borne by the Company and taken 100% to capital. Share issue costs relating to Ordinary share issues by the Company are taken 100% to share premium account. 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 shareholdersDividends 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 2014 2013 £'000 £'000 Income from listed investments UK net dividend income 1,911 1,200 Overseas dividend income 268 220 Total income 2,179 1,420 Total income comprises: Dividends 2,179 1,420 Interest - - 2,179 1,420 3 Investment management fee 2014 2013 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Investment 97 292 389 69 208 277 management fee At 30 April 2014 there were amounts outstanding of £103,000 (2013: £79,000). 4 Other expenses 2014 2013 £'000 £'000 Administration and secretarial fees 62 60 Directors' remuneration (note 5) 58 58 Auditor's remuneration: audit services* 21 20 Insurance 4 6 Other expenses* 84 70 229 214 Subsidiary operating costs taken 100% to (21) (18) capital 208 196 * The above amounts include irrecoverable VAT where applicable. 5 Directors' Remuneration 2014 2013 £ £ 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 2014 2013 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Interest payable on - - - 18 54 72 bank overdraft and bank loan Movement in fair value - - - (3) (10) (13) of ineffective element of interest rate swap Appropriations in - 530 530 - 340 340 respect of Zero Dividend Preference shares - 530 530 15 384 399 7 Taxation 2014 2013 £'000 £'000 Based on the revenue return for the year Current tax - - The current tax charge for the year is lower than the standard rate of corporation tax in the UK of 23% to 31 March 2014 and 21% from 1 April 2014. The differences are explained below: 2014 2013 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Return on ordinary 1,874 7,806 9,680 1,140 5,484 6,624 activities before taxation Theoretical 428 1,782 2,210 273 1,312 1,585 corporation tax at 22.83% (2013: 23.92%) Effects of: Capital items not - (1,854) (1,854) - (1,376) (1,376) taxable UK and overseas (494) - (494) (340) - (340) dividends which are not liable to corporation tax Expenses not - 1 1 - - - deductible for tax purposes Excess expenses in 66 71 137 67 64 131 the year Actual current tax - - - - - - charged to the revenue account The Group has unrelieved excess expenses of £18,500,500 (2013: £17,902,000). 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 £1,874,000 (2013: £1,140,000) and on 16,335,000(2013: 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 £7,806,000 (2013: £5,484,000) and on 16,335,000 (2013: 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 £530,000 (2013: £340,000) and on 8,500,000 (2013: 8,500,000) Zero Dividend Preference shares, being the weighted average number of Zero Dividend Preference shares in issue during the year. 9 Dividends 2014 2013 £'000 £'000 Declared and paid per Ordinary share Fourth interim dividend for the year ended 390 382 30 April 2013 of 2.40p (2012: 2.35p) First interim dividend of 1.475p (2013: 240 227 1.40p) Second interim dividend of 1.475p (2013: 240 227 1.40p) Third interim dividend of 1.475p (2013: 244 228 1.40p) 1,114 1,064 Declared per Ordinary share* Fourth interim dividend for the year ended 397 390 30 April 2014 of 2.40p (2013: 2.40p) Special dividend for the year ended 30 455 - April 2014 of 2.75p (2013: Nil) 852 390 * Dividend paid subsequent to the year end. 10 Investments - Group and company 2014 Listed AIM Total £'000 £'000 £'000 Year ended 30 April 2014 Opening book cost 18,704 9,340 28,044 Opening investment holding gains 1,395 1,879 3,274 Opening valuation 20,099 11,219 31,318 Movements in the year: Purchases at cost 7,234 1,573 8,807 Disposals: Proceeds (4,449) (3,505) (7,954) Net realised gains on disposals 1,704 1,217 2,921 Movement in investment holding 4,047 1,681 5,728 gains Closing valuation 28,635 12,185 40,820 Closing book cost 23,193 8,625 31,818 Closing investment holding gains 5,442 3,560 9,002 28,635 12,185 40,820 Realised gains on disposals 1,704 1,217 2,921 Movement in investment holding 4,047 1,681 5,728 gains Gains on investments 5,751 2,898 8,649 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 Transaction costs During the year the Group incurred transaction costs of £59,000 (2013: £70,000) and £21,000 (2013: £15,000) 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 Class of share 30 April 2013 % held Chamberlin Ordinary 3.77 RTC Group Ordinary 3.48 Stadium Group Ordinary 3.38 Office 2 Office Ordinary 3.30 Avesco Group Ordinary 3.18 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 Group Company Company 2014 2013 2014 2013 £'000 £'000 £'000 £'000 Dividends receivable 284 189 284 189 Prepayments and accrued 7 5 7 5 income 291 194 291 194 14 Trade and other payables Group Group Company Company 2014 2013 2014 2013 £'000 £'000 £'000 £'000 Trade and other payables 171 132 171 132 Loan from subsidiary - - 13 13 undertaking 171 132 184 145 15 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 2014 was 110.24p (2013: 104.00p) per share, being £9,370,000 (2013: £8,840,000) in total, and the total amount accrued for the year of £530,000 (2013: £340,000) has been charged to capital. 16 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. At 30 April 2014 the contribution due from the Company to cover the accrued entitlement was £ 530,000 (2013: £340,000). Company Company 2014 2013 £'000 £'000 Value at 1 May 8,840 - Loan issued in year - 8,500 Contribution to accrued capital entitlement 530 340 of Zero Dividend Preference shares Value at 30 April 9,370 8,840 17 Share capital 2014 2013 Number £'000 Number £'000 Issued, allotted and fully paid Opening 16,250,000 4,063 16,250,000 4,063 balance Issue of 300,000 75 - - Ordinary shares 16,550,000 4,138 16,250,000 4,063 On 14 January 2014, the Company announced the issue of 300,000 Ordinary shares of 25p each at an issue process of 189.5p per Ordinary share. For details regarding the issue of Zero Dividend Preference shares by SCZ please see note 15. 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 parent Company's Articles of Association, the Directors are required to convene a general meeting of the Company to be held in October 2017 or on 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. 18 Reserves - Group and Company Share premium Capital Hedge Revenue account reserve reserve reserve £'000 £'000 £'000 £'000 At 1 May 2013 11,917 5,273 - 1,326 Net return on realisation of - 2,921 - - investments Movement in investment holding gains - 5,728 - - Costs charged to capital (313) - - Ordinary shares issued 493 - - - Expenses of Ordinary share issue (7) - - - Appropriations in respect of Zero - (530) - - Dividend Preference shares Net return after dividends for the - - - 760 year retained At 30 April 2014 12,403 13,079 - 2,086 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 As 30 April 2013 11,917 5,273 - 1,326 19 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 assets Net assets Net asset attributable Net asset attributable per share to shareholders per share to shareholders 2014 2014 2013 2013 pence £'000 pence £'000 Ordinary shares 191.58 31,706 138.95 22,579 Zero Dividend Preference 110.24 9,370 104.00 8,840 shares The net asset value per Ordinary share is calculated on 16,550,000 (2013: 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 (2013: 8,500,000) Zero Dividend Preference shares, being the number of Zero Dividend Preference shares in issue at the year end. 20 Reconciliation of net return before and after taxation to net cash flow from operating activities - Group and Company 2014 2013 £'000 £'000 Net return before taxation 9,680 6,624 Taxation - - Net return after taxation 9,680 6,624 Net capital return (7,806) (5,484) Movement in fair value of ineffective element of - (13) interest rate swap (Increase)/decrease in receivables (97) 11 Increase in payables 39 3 Interest and expenses charged to the capital reserve (313) (270) Net cash inflow from operating activities 1,503 871 21 Reconciliation of net cash flow to movement in net cash/(debt) - Group and Company 2014 2013 £'000 £'000 Increase in cash in year 97 989 Repayment of bank loan - 4,000 Change in net cashflow 97 4,989 Net cash/(debt) at 1 May 39 (4,950) Net cash at 30 April 136 39 22 Analysis of changes in net cash - Group and Company At 1 May Cash flows At 30 April 2013 £'000 2014 £'000 £'000 Cash at bank 39 97 136 39 97 136 23 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 Directors' Report, and in note 3 of the financial statements. Chelverton contributed £100,000 towards the issue costs relating to the Zero Dividend Preference share issue in the year ended 30 April 2013. 24 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: 2014 2013 £'000 £'000 Fair value through profit or loss 40,820 31,318 investments Sensitivity analysis A 10% increase in the market value of investments at 30 April 2014 would have increased net assets by £4,082,000 (2013: £3,132,000). 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 Group does not currently receive interest on its 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 2104 of financial assets and financial liabilities to interest rate risk is limited to cash and cash equivalents of £136,000 (2013: £ 39,000). Cash and cash equivalents are all due within one year. 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 ordinarily 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 2014 was £41,247,000 (2013: £31,551,000). The calculation is based on the Group's credit risk exposure as at 30 April 2014 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 2014 Assets at fair value through At Loans and profit or Cost receivables loss Total £'000 £'000 £'000 £'000 Assets as per Balance Sheet Investments - - 40,820 40,820 Trade and other - 291 - 291 receivables Cash and cash equivalents 136 - - 136 Total 136 291 40,820 41,247 Liabilities as per Balance Sheet Trade and other payables 171 - - 171 Total 171 - - 171 30 April 2013 Assets at fair value through At Loans and profit or Cost receivables loss Total £'000 £'000 £'000 £'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 IFRS 7 hierarchy As required by IFRS 7, the Company is required 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 (2013: same). 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 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 2014, the Company had a market capitalisation of £31,114,000 (2013: £20,881,000) and total net assets amounted to £31,706,000 (2013: £ 22,579,000). Management fee The fee payable to the Investment Manager is 1% of the gross combined 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") - 16,550,000 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 2014. 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 17 September 2014 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 3 July 2014 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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