Interim Management Statement

RNS Number : 1064H

Standard Life UK Small.Co's Tst PLC

14 May 2014

 

Standard Life UK Smaller Companies Trust PLC        

Interim Management Statement

Three months ended 31 March 2014

To the members of Standard Life UK Smaller Companies Trust plc ('the Company')

This Interim Management Statement ('IMS') has been produced solely to provide additional information to shareholders as a body to meet the relevant requirements of the UK Listing Authority's Disclosure and Transparency Rules. It should not be relied upon by any other party or for any other purpose.

This IMS relates to the period from 1 January to 31 March 2014 and contains information that covers this period and up to the date of publication of this IMS, unless otherwise specified.

Investment objective

The objective of the Company is to achieve long term capital growth by investment in UK quoted smaller companies.

Benchmark

Numis Smaller Companies Index (excluding Investment Companies). 

Material events

On 27 February 2014, the Company announced its Half-Yearly Financial Report for the 6 months ended 31 December 2014.

An interim dividend of 1.27 pence per Ordinary share was paid on 7 April 2014 to those shareholders on the register as at 14 March 2014 with an associated ex-dividend date of 12 March 2014.

On 3 January 2014, the Company was granted a blocklisting of 3,370,000 ordinary shares of 25 pence each ("January 2014 blocklisting"). This blocklisting may only be used to issue new shares to satisfy demand that cannot be satisfied in the secondary market.

During the period, the Company issued a total of 1,050,000 new Ordinary shares at a premium to net asset value under the Company's annual non pre-emptive authorities in response to market demand for its shares. These new Ordinary shares were listed under the Company's April 2011 and January 2014 blocklisting authorities as detailed in the table below:

Date	Blocklisting Authority	No. of Shares Allotted
03/01/2014	28/04/2011 - Blocklisting	100,000
06/01/2014	28/04/2011 - Blocklisting	100,000
09/01/2014	28/04/2011 - Blocklisting	50,000
14/01/2014	28/04/2011 - Blocklisting	75,000
15/01/2014	28/04/2011 - Blocklisting	100,000
16/01/2014	28/04/2011 - Blocklisting	75,000
20/01/2014	28/04/2011 - Blocklisting	100,000
23/01/2014	03/01/2014 - Blocklisting	100,000
14/02/2014	03/01/2014 - Blocklisting	50,000
07/03/2014	03/01/2014 - Blocklisting	50,000
11/03/2014	03/01/2014 - Blocklisting	100,000
14/03/2014	03/01/2014 - Blocklisting	100,000
20/03/2014	03/01/2014 - Blocklisting	50,000
Total		1,050,000

As at 31 March 2014, the Company had a capital structure comprising £22,433,225 nominal amount of Convertible Unsecured Loan Stock 2018 ("CULS") and 70,604,370 Ordinary shares of 25 pence each, with voting rights.  There were no Ordinary shares held in treasury.

On 8 April 2014, the Company issued 779,216 new Ordinary shares further to the conversion date of 31 March 2014 in relation to the CULS.

As at the date of this IMS the capital structure of the Company comprises £20,584,450 nominal amount of CULS and 71,383,586 Ordinary shares in issue, with voting rights. 

Manager's Investment Review and Outlook for the three months ended 31 March 2014

Market Review

UK smaller companies delivered good, high single-digit returns during the quarter. Smaller companies continued to outperform large-cap stocks. More sensitive to the domestic economy, the asset class remains well supported by improving economic data.

Environment

UK small-cap stocks recorded further strong returns during the fourth quarter, again outperforming larger-cap peers. Positive news worldwide,  including a deal to lift the US debt ceiling, stronger Chinese economic data and market speculation that the Federal Reserve would maintain quantitative easing, buoyed equities generally. Smaller companies' outperformance relative to larger-cap stocks grew as the quarter progressed, as the latter proved to be more sensitive to renewed uncertainties worldwide, such as the concerns over the potential reduction in US monetary stimulus.

Smaller companies' greater domestic focus ensured the asset class continued to benefit from ongoing strength in UK economic data. October's announcement of a 0.8% increase in third quarter GDP was further welcome indication that the recovery remains on track. The data also revealed that all sectors of the economy saw improvement, demonstrating that the recovery is increasingly broad based. Better-than-expected economic demand has also seen unemployment fall faster than the Bank of England's forecasts. This has led to some speculation that interest rates may rise sooner than the Bank has previously suggested, but this nevertheless highlights further the strong underlying economic recovery underway.

Performance

Telecom Plus was a major contributor to performance during the quarter. The low-cost multi-utility service provider was a particular beneficiary of the ongoing political scrutiny of the energy sector, as investors speculated the business may win market share from its larger, embattled competitors. Investment broker Hargreaves Lansdown also featured strongly, outperforming in the wake of good results and strong markets. Elsewhere, First Derivatives was another notable contributor. The software and services business is focused on the niche area of markets and regulation and is benefiting from strong contract flows from regulators and stock exchanges.

On the downside, engineering software business Aveva was the largest detractor from returns. The company issued results that disappointed investors and led to earnings downgrades. Lighting business Dialight suffered poor trading in December, which dragged the shares lower, while not owning AZ Electronic Materials also hurt returns as the company was subject to a takeover bid.

Activity

We added a new holding in Clinigen during the month. The diversified healthcare business provides services to the drug research industry and also specialises in acquiring competitors' mature drug products in order to reinvigorate sales. We also acquired more shares in Telecom Plus in the rights issue designed to buy out licences from npower - a deal we believe will secure attractive growth in the coming years. Lastly, we bought shares in healthcare specialist BTG. The US regulator's approval of its key varicose vein drug Varithena considerably enhances its growth profile.

Sales included Dialight as we grew concerned over the trading outlook. Our fears were later confirmed as the company issued a profit warning in January. Elsewhere, we sold shares in data centre firm Telecity due to concerns about the sustainability of margins and trends in its international markets. Otherwise, sales were largely related to profit taking and position size reduction for portfolio risk purposes. This included reductions in the holdings in Telecom Plus

and ASOS.

Outlook

Following the improvement in the domestic economy and strong performance of the asset class, smaller company valuations have risen in recent months. We expect the strengthening economic environment to boost market earnings and therefore support valuations in general. However, this strong year-to-date performance means a more selective approach is warranted and we prefer to focus on underappreciated businesses in control of their own destinies. In particular, those demonstrating durable earnings trends and strong cashflow generation whatever the market environment should prove more resilient and outperform in the long term.

(Source: Standard Life Investments)

Largest Ten holdings and Changes in Period

Ranking as at 31 March 2014	Ranking as at 31 December 2013	Investment	Total Investments (%)
1	2	Telecom Plus	5.5
2	1	Asos	5.1
3	3	Rightmove	4.7
4	6	Supergroup	4.3
5	4	Xaar	3.7
6	5	Hargreaves Lansdown	3.5
7	7	Ted Baker	3.2
8	8	Abcam	3.2
9	9	Dunelm	2.9
10	11	Paypoint	2.8
			38.9

Net assets breakdown as at 31 March 2014

	%
Consumer Services	26.1
Industrials	19.9
Financials	14.2
Information Technology	12.9
Consumer Goods	11.0
Telecommunications	5.4
Health Care	5.2
Oil & Gas	2.8
Basic Materials	0.9
Net Borrowings	1.6
Total	100.0

General description of Company's financial position and performance as at 31 March 2014

Trust Managers	Standard Life Investments (Since 01/09/2003)
Market Capitalisation	£244.0m
Gross Assets	£274.2m
Share Price	347.0p
Net Asset Value*	343.7p
(Discount)/Premium of Ordinary Share Price to Net Asset Value                                                                         12 Month High                                                                         12 Month Low	1.0% 6.2% (Source: Datastream) -6.4% (Source: Datastream)
Yield (net) - (note: level of yield changes on a daily basis)	1.2%
Current equity gearing (note: level of gearing changes on a daily basis)	1.6%
3.5% Convertible Unsecured Loan Stock 2018 Conversion Price	237.2542p
3.5% Convertible Unsecured Loan Stock 2018 Price	135.5p
CULS Conversion and Interest Payment Dates	31 March and 30 September
Trust Annual Management Fee	0.85% of Gross Assets
Dividends Semi Annually	April/October

* Diluted net asset value including income

Source: Standard Life Investments unless indicated otherwise

Performance

	Q1 2014 (%)	1 year (%)	2 years (%)	3 years (%)	4 years (%)	5 years (%)
Share price	-1.9	27.3	56.0	53.1	138.8	273.6
Net asset value	1.5	27.3	58.5	60.4	129.6	252.8
NSCI (ex Investment Companies)	3.0	22.7	47.1	51.0	77.4	190.7

Source: Thomson Datastream, capital returns. The percentage growth figures above are calculated over periods to 31 March 2014 on a mid to mid basis.

For the Manager's current Investment Review & Outlook, please refer to the latest Trust Quarterly Update which is available via the Company's web-page at www.standardlifeinvestments.com/its

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

For Standard Life UK Smaller Companies Trust PLC

Maven Capital Partners UK LLP, Secretaries

14 May 2014

 

END

 

 

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