Half-yearly Report

SMALL COMPANIES DIVIDEND TRUST PLC HALF - YEARLY REPORT FOR THE PERIOD ENDED 31 OCTOBER 2008 Investment objective The investment objective of the Company is to provide Ordinary shareholders with a high income and opportunity for capital growth. The Company's funds will be invested principally in companies with a market capitalisation of up to £500 million. The Company's portfolio will comprise companies listed on the Official List and companies admitted to trading on AIM. The Company will not invest in other investment trusts or in unquoted companies. No investment will be made in preference shares, loan stock or notes, convertible securities or fixed interest securities. Capital structure Borrowings The Company has an overdraft facility of £6.5 million which is available to provide gearing to the Ordinary shares. Interest, payable quarterly, is at 1% over the Banks' base rate. As at 31 October 2008 the overdraft was £nil. The Company also has a £5.0 million fixed term loan facility with Lloyds TSB Bank plc. 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. Voting Each holder on a show of hands will have one vote and on a poll will have one vote for each Ordinary share held. If you are in any doubt about the contents of this document or the action you should take, you are recommended to seek immediately your own independent financial advice from your stockbroker, bank manager, solicitor, accountant or other financial adviser authorised under the Financial Services and Markets Act 2000. Financial highlights Premium 31 October 30 April 31 October 2008 2008 % change 2008 Capital Total assets less 16,559 34,556 (52.1) current liabilities (£ '000) Total net assets (£ 10,957 24,265 (54.8) '000) Net asset value per 67.43p 149.32p (54.8) Ordinary share** Mid-market price per 67.50p 124.50p (45.8) 0.1% Ordinary share FTSE All-Share Index 2,183.69 3,099.94 (29.6) FTSE SmallCap Index 1,938.55 3,154.39 (38.5) Six months to Six months to 31 October 31 October 2008 2007 % change Revenue Return per Ordinary 5.72p 7.58p (24.5) share Dividend per Ordinary 4.40p 6.40p share *** Six months to Six months to 31 October 31 October 2008 2007 Total Return Total assets less (51.76)% 7.31% current liabilities (excluding bank borrowings) total return *† Total return on (54.17)% (14.97)% Company's net assets* Total return FTSE (28.24)% 4.60% All-Share Index Total return FTSE (37.44)% (4.27)% SmallCap Index † Adjusted for change in bank borrowings during the period. * Adding bank dividends distributed for the period. ** Net asset values per share have been calculated in accordance with entitlements as at the period end and in accordance with the Company's Articles of Association. *** Dividend per Ordinary share includes the first interim paid and second interim proposed for the period to 31 October 2008 and 2007 and will differ from the amounts disclosed within the statement of changes in net equity. Interim Management Report Results This half-yearly report covers the six months to 31 October 2008. The net asset value per Ordinary share at 31 October 2008 was 67.43p, a decrease of 55% in the past six months compared to a decrease of 30% in the FTSE All-Share Index and a fall of 39% in the FTSE SmallCap Index. Since the beginning of the Company's financial year, the Ordinary share price has declined from 124.5p to 67.5p at 31 October 2008, a fall of 46% whilst the discount has narrowed from 17% to a premium of 0.1% over the same period. Since then the share price has fallen further to 52p as at 30 November 2008. Dividend In the last couple of months, the dramatic deterioration in the economic outlook, the liquidity crisis in the banking sector and the subsequent sell off in equity markets have combined to fundamentally change the ability of the Company to continue to maintain dividend payments at the same level as last year. On average in the first half of the year, the dividend income from our investee companies held up relatively well and compares to our previous experience of a downturn in 2002/ 03 in terms of the number of dividend cuts. Nevertheless shareholders should be aware that recent market falls and the reduction on the level of bank gearing required in order to stay within our banking covenants will affect our capacity to pay dividends. In the last downturn by contrast the Company was geared by zero dividend preference shares. As a result of asset sales the Company is not now large enough to support the recent absolute dividend levels of cash payment on a quarterly basis without compromising our covenants. A first interim dividend of 3.20p (2007: 3.20p) per Ordinary share was paid on 28 September 2008. The Board has declared a second interim dividend of 1.20p per Ordinary share (2007: 3.20p) payable on 9 January 2009 to shareholders on the register on 12 December 2008, making a total for the half year of 4.40p per Ordinary share (2007: 6.40p). At present it is anticipated that the Company will maintain this level of dividend for the remaining third and fourth quarters. The increasingly pessimistic forecasts for both global and domestic economies in the past six months have shifted investor concerns from inflation to deflation and has provided the background to a series of co-ordinated interest rate cuts. Commodity and oil prices have fallen and equity markets have declined dramatically as investors have raised cash. Domestically, despite expectations of further interest cuts, the banks remain reluctant to lend to each other and the resulting `liquidity crisis' is having a detrimental affect on `Corporate UK'. In any stock market downturn there comes a point at which stocks become `oversold' which is then corrected, in part, by bid activity from the corporate sector and venture capitalists. The current inability to raise bank funding means that this traditional support to small cap valuations at this stage in the cycle is largely removed and has been a contributory factor in small cap underperformance. Despite this your Company has benefited from cash offers for both Highway Insurance and Abacus in the last period. We made two new investments in the last six months, Cineworld, the second largest cinema operator in the UK with 75 sites, and Restaurant Group whose business is predominantly based on leisure parks and at airports. At the same time we raised cash from a broad range of our holdings, including Braemar and Clarkson which were sold in their entirety ahead of the recent fall in shipping rates. Partial sales included, Chesnara, Arbuthnot and Nicholls where we sold stock back to the companies. Interestingly over 50% of our holdings that reported figures announced increases in dividend distributions. Outlook In the latter part of the period companies became noticeably reticent to comment on prospects because of the sheer uncertainty pertaining to the economic outlook, and this uncertainty looks set to continue for the rest of our year. At the same time there has been a significant increase in companies `re-basing' their dividends downwards, citing the need to retain cash for trading purposes given the difficulties and cost of obtaining finance from the banks. There is also a growing belief on the part of directors and advisors that companies can cut with impunity as the implied current yields have done little to support valuations. The combination of this changed attitude in approach to dividend distribution and a rapidly deteriorating trading environment means that dividend income across the market is under unprecedented pressure. Our focus in the short term therefore is to invest in those companies that will at least maintain their dividend payout, as it is these stocks that will, we believe, lead the recovery in equity markets when it occurs. Chelverton Asset Management Limited Responsibility statement of the Directors in respect of the half-yearly financial report We confirm that to the best of our knowledge: ● the condensed set of financial statements has been prepared in compliance with the IAS34 "Interim Financial Reporting". ● the interim management report and notes to the Half-yearly report include a fair review of the information required by: (a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and (b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so. This Half-Yearly Report was approved by the Board of Directors on 16 December 2008 and the above responsibility statement was signed on its behalf by Lord Lamont, Chairman. Condensed income statement (unaudited) for the six months ended 31 October 2008 Six months to 31 Year to 30 April Six months to 31 October 2008 2008 October 2008 Revenue Capital Total Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Investments Losses on - (12,493) (12,493) - (17,645) (17,645) - (7,032) (7,032) investments Investment 1,196 - 1,196 2,757 - 2,757 1,565 - 1,565 income Expenses Investment (26) (78) (104) (116) (350) (466) (67) (235) (302) management fee Other (96) - (96) (200) - (200) (124) - (124) expenses Exceptional - - - - 73 73 - - - items (122) (78) (200) (316) (277) (593) (191) (235) (426) Net return 1,074 (12,571) (11,497) 2,441 (17,922) (15,481) 1,374 (7,267) (5,893) before finance costs and taxation Finance costs Bank (79) (235) (314) (249) (747) (996) (139) (418) (557) interest payable Derivative (57) (171) (228) - - - - - - financial instrument breakage costs Provision - - - - (26) (26) - (24) (24) for loss in former subsidiary company Net return 938 (12,977) (12,039) 2,192 (18,695) (16,503) 1,235 (7,709) (6,474) before taxation Taxation (8) - (8) (7) - (7) (4) - (4) Net return 930 (12,977) (12,047) 2,185 (18,695) (16,510) 1,231 (7,709) (6,478) after taxation Revenue Capital Total Revenue Capital Total Revenue Capital Total pence pence pence pence pence pence pence pence pence Return per : (see note 2) Ordinary 5.72 (79.86) (74.14) 13.45 (115.05) (101.60) 7.58 (47.44) (39.86) share The total column of this statement is the income statement of the Company. All items in the above statement derive from continuing operations. No operations were acquired or discontinued during the period. These accounts are unaudited and are not the Company's statutory accounts. Condensed statement of changes in net equity (unaudited) for the six months ended 31 October 2008 Share Share Capital Hedge Revenue Total capital premium reserve reserve reserve account £'000 £'000 £'000 £'000 £'000 £'000 Six months ended 31 October 2008 30 April 2008 4,063 11,917 6,740 (291) 1,836 24,265 Net return after - - (12,977) - 930 (12,047) taxation for the period Dividends paid - - - - (1,178) (1,178) Movement in cashflow - - - (83) - (83) hedges taken to equity 31 October 2008 4,063 11,917 (6,237) (374) 1,588 10,957 Year ended 30 April 2008 30 April 2007 4,063 11,917 25,435 - 1,861 43,276 Net return after - - (18,695) - 2,185 (16,510) taxation for the year Dividends paid - - - - (2,210) (2,210) Movement in cashflow - - - (291) - (291) hedges taken to equity 30 April 2008 4,063 11,917 6,740 (291) 1,836 24,265 Six months ended 31 October 2007 30 April 2007 4,063 11,917 25,435 - 1,861 43,276 Net return after - - (7,709) - 1,231 (6,478) taxation for the period Dividends paid - - - - (1,170) (1,170) 31 October 2007 4,063 11,917 17,726 - 1,922 35,628 Condensed balance Sheet (unaudited) as at 31 October 2008 31 October 30 April 31 October 2008 2008 2007 £'000 £'000 £'000 Non-current assets Fair value through profit or loss 16,109 34,077 51,443 investments Current assets Trade and other receivables 65 573 162 Cash and cash equivalents 489 79 172 554 652 334 Total assets 16,663 34,729 51,777 Current liabilities Trade and other payables (104) (173) (365) Bank overdraft - - (5,784) (104) (173) (6,149) Total assets less current liabilities 16,559 34,556 45,628 Non-current liabilities Bank loan (5,000) (10,000) (10,000) Derivative financial instruments (602) (291) - (5,602) (10,291) (10,000) Total liabilities (5,706) (10,464) (16,149) Net assets 10,957 24,265 35,628 Represented by: Share capital 4,063 4,063 4,063 Share premium account 11,917 11,917 11,917 Capital reserve (6,237) 6,740 17,726 Hedge reserve (374) (291) - Revenue reserve 1,588 1,836 1,922 Issued capital and reserves 10,957 24,265 35,628 Net asset value per: (see note 3) pence pence pence Ordinary share 67.43 149.32 219.25 Condensed statement of cash flows (unaudited) for the six months ended 31 October 2008 Six months to Year to Six months to 31 October 30 April 31 October 2008 2008 2007 £'000 £'000 £'000 Operating activities Investment income received 1,688 2,809 2,048 Bank deposit interest received 13 11 5 Investment management fee paid (149) (556) (339) Administration and secretarial fees (29) (55) (27) paid Other cash payments (90) (172) (134) Cash generated from operations 1,433 2,037 1,553 Bank interest paid (325) (995) (495) Other costs in respect of former - (26) - subsidiary company Net cash inflow from operating 1,108 1,016 1,058 activities Investing activities Purchases of investments (1,017) (6,213) (6,213) Sales of investments 6,497 13,725 6,975 Net cash inflow from investing 5,480 7,512 762 activities Financing activities (Repayment)/advance of loan (5,000) 10,000 10,000 Dividends paid (1,178) (2,210) (1,170) Repayment of Zero Dividend - - (11,539) Preference shares Repayment of Preference shares - - (58) Repayment of Loan Note - (6,258) - Repayment of commitment to subscribe - (5,316) - for shares Net cash outflow from financing (6,178) (3,784) (2,767) activities Increase/(decrease) in cash and cash 410 4,744 (947) equivalents for period Cash and cash equivalents at start 79 (4,665) (4,665) of period Cash and cash equivalents at end of 489 79 (5,612) period Notes to the condensed half-yearly report for the six months ended 31 October 2008 1 General information The financial information contained in this Half-yearly report does not constitute statutory financial statements as defined in Section 240 of the Companies Act 1985. The statutory financial statements for the year ended 30 April 2008, which contained an unqualified auditors' report, have been lodged with the Registrar of Companies and did not contain a statement required under Section 237(2) or (3) of the Companies Act 1985. These statutory financial statements were prepared under International Financial Reporting Standards (`IFRS') and in accordance with the Statement of Recommended Practice: Financial Statements of Investment Trust Companies, revised December 2005. This Half-yearly report has been prepared using the accounting policies adopted in the audited financial statements for the year ended 30 April 2008 and in compliance with IAS 34 `Interim Financial Reporting'. This report has not been reviewed by the Company's Auditors. 2 Return per share The return per share is based on 31 October 2008: 16,250,000, (30 April 2008: 16,250,000, 31 October 2007: 16,250,000) Ordinary shares. 3 Net asset values Net asset values per share have been calculated in accordance with entitlements as at the period end and in accordance with the Company's Articles of Association and include current period revenue. The net asset value per Ordinary share is based on assets attributable of £ 10,957,000 (30 April 2008: £24,265,000, 31 October 2007: £35,628,000) and on 16,250,000 (30 April 2008: 16,250,000, 31 October 2007: 16,250,000) Ordinary shares, being the number of Ordinary shares in issue at the period end. 4 Taxation 31 October 30 April 31 October 2008 2008 2007 £'000 £'000 £'000 Based on the revenue return for the year Current tax 8 7 4 The current tax charge for the year is lower than the averaged standard rate of corporation tax in the UK of 29% (2007: 30%). The differences are explained below: 31 October 30 April 31 October 2008 2008 2007 £'000 £'000 £'000 Revenue on ordinary activities before 939 2,192 1,235 taxation Theoretical tax of UK corporation rate of 272 658 371 29% (30 April 2008: 30%, 31 October 2007: 30%) Effects of: UK dividends which are not taxable (327) (817) (461) Excess expenses in the year 55 159 90 Withholding tax suffered on unfranked 8 7 4 foreign dividend income Actual current tax charged to the revenue 8 7 4 account The Company has unrelieved excess expenses of £15,403,000 at 31 October 2008 (30 April 2008: £14,729,000, 31 October 2007: £12,494,000). It is unlikely that the Company will generate sufficient taxable profits in the future to utilise these expenses and therefore no deferred tax asset has to been recognised. 5 Reconciliation of net return before and after taxation to net cash flow from operating activities 31 October 30 April 31 October 2008 2008 2007 £'000 £'000 £'000 Net return before taxation (12,039) (16,503) (6,474) Taxation (8) (7) (4) Net return after taxation (12,047) (16,510) (6,478) Net capital return 12,977 18,695 7,709 Decrease in debtors 503 71 477 Increase/(decrease) in creditors 159 (190) 3 Interest and expenses charged to the capital (484) (1,050) (653) reserve Net cash flow from operating activities 1,108 1,016 1,058 6 Related party transactions The Investments are managed by Chelverton Asset Management Limited, a company in which Mr van Heesewijk, a Director of the Company, has an interest. The amounts paid to the Investment Manager in the period to 31 October 2008 were £ 104,000 (year ended 30 April 2008: £466,000, period to 31 October 2007: £ 302,000). 7 Dividends During the period, a fourth interim dividend of 4.05p per Ordinary share for the year ended 30 April 2008, together with a first interim dividend of 3.20p per Ordinary share for the year ended 30 April 2009 has been paid to shareholders. In addition, the Board has declared a second interim dividend of 1.20p per Ordinary share payable on 9 January 2009 to shareholders on the register at 12 December 2008. Principal portfolio investments as at 31 October 2008 Top 20 Holdings Market % of value Industrial classification £'000 portfolio Arbuthnot Banking Group General Financial 784 4.9 ATH Resources Mining 679 4.2 Dee Valley Group Gas, Water & Multi-utilities 659 4.1 Abacus Group Electronic & Electrical Equipment 634 3.9 THB Group Non Life Insurance 634 3.9 Clarke (T) Construction & Materials 631 3.9 Alumasc Group Construction & Materials 592 3.7 Brit Insurance Non Life Insurance 545 3.4 Hilton Food Group Food Producers 515 3.2 Dawson Holdings Support Services 497 3.1 Portmeirion Group Household Goods & Home 496 3.1 Construction Macfarlane Group Support Services 490 3.0 Victoria Household Goods & Home 486 3.0 Construction Zotefoams Chemicals 480 3.0 Stadium Group Electronic & Electrical Equipment 456 2.8 S&U General Financial 406 2.5 Nichols Beverages 401 2.5 Sanderson Group Software & Computer Services 400 2.5 Trifast Industrial Engineering 398 2.5 Jarvis Securities General Financial 345 2.1 Top 20 companies 10,528 65.3 Balance held in 37 5,581 34.7 holdings Total portfolio 16,109 100.0 Breakdown of portfolio by industry Travel & Leisure 6% Support Services 13% Software & Computer Services 2% Personal Goods 1% Non Life Insurance 7% Mining 4% Media 1% Life Insurance 3% Industrial Engineering 5% Household Goods 8% Beverages 3% Chemicals 3% Construction & Materials 12% Electronic & Electrical Equipment 9% Food Producers 4% Fixed Line Telecommunications 2% Gas, Water & Multi-utilities 4% General Financial 11% General Industrials 1% General Retailers 1% Shareholder Information Financial Calendar Company's year end 30 April Interim dividends paid March, June, September and December Annual results announced June Annual General Meeting September Company's half-year 31 October Half-yearly results announced December Share prices and performance information The Company's Ordinary shares are listed on the London Stock Exchange. The mid-market prices are quoted daily in the Financial Times under `Investment Companies'. The net asset values are announced weekly to the London Stock Exchange and published monthly via the Association of Investment Companies. Information about the Company can be obtained on the Chelverton internet site at www.chelvertonam.com. Any enquiries can also be e-mailed to cam@chelverton.com. Share register enquires The register for the Ordinary shares is maintained by Share Registrars Limited. In the event of queries regarding your holding, please contact the Registrar on 01252 821390. Changes of name and/or address must be notified in writing to the Registrar. Directors and Advisers Directors Lord Lamont of Lerwick (Chairman) Bryan Lenygon David Harris William van Heesewijk Investment Manager: Chelverton Asset Management Ltd 11 George Street Bath BA1 2EH Tel: 01225 483030 Secretary and Registered Office Capita Sinclair Henderson Limited Beaufort House 51 New North Road Exeter EX4 4EP Tel: 01392 412122 Registrar and Transfer Office Share Registrars Limited Suite E, First Floor 9 Lion and Lamb Yard Farnham Surrey GU9 7LL Tel: 01252 821390 www.shareregistrars.uk.com Bankers Lloyds TSB Bank Plc 25 Gresham Street London EC2 7HN Auditors Hazlewoods LLP Windsor House Barnett Way Barnwood Gloucester GL4 3RT Solicitors Maclay Murray & Spens One London Wall London EC2Y 5AB Stockbrokers Fairfax I.S. PLC 46 Berkeley Square London W1J 5AT
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