Final Results
SMALL COMPANIES DIVIDEND TRUST PLC
PRELIMINARY ANNOUNCEMENT OF UNAUDITED RESULTS
The Directors announce the unaudited statement of results for the year
1 May 2006 to 30 April 2007 as follows:
INCOME STATEMENT
for the year ended 30 April 2007
1 May 2006 to 30 April 1 May 2005 to 30 April 2006
2007
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investments
Gains on investments - 5,306 5,306 - 13,946 13,946
Investment income 2,846 - 2,846 2,623 - 2,623
Expenses
Investment management (177) (531) (708) (237) (355) (592)
fee
Investment management - - - - (1,346) (1,346)
performance fee
Other expenses (233) - (233) (215) - (215)
Exceptional item (note - (268) (268) - - -
3)
(410) (799) (1,209) (452) (1,701) (2,153)
Net return before 2,436 4,507 6,943 2,171 12,245 14,416
finance costs and
taxation
Finance costs (note 4) (127) (1,283) (1,410) (217) (1,164) (1,381)
Net return before 2,309 3,224 5,533 1,954 11,081 13,035
taxation
Taxation (11) - (11) - - -
Net return after 2,298 3,224 5,522 1,954 11,081 13,035
taxation
Return per: pence pence pence pence pence pence
Ordinary share (note 14.14 19.84 33.98 12.20 69.21 81.41
5)
The total column of this statement is the income statement of the Company
prepared in accordance with IFRS.
All items in the above statement derive from continuing operations. No
operations were acquired or discontinued during the period.
These financial statements have been prepared under International Financial
Reporting Standards (`IFRS'). Applicable accounting policies are included in
the notes.
STATEMENT OF CHANGES IN NET EQUITY
for the year ended 30 April 2007
Share Share Capital Revenue Total
capital premium reserve reserve
account
£'000 £'000 £'000 £'000 £'000
Year ended 30 April 2007
30 April 2006 4,063 11,917 22,212 1,635 39,827
Net return after taxation - - 3,224 2,298 5,522
for the year
Dividends paid - - - (2,072) (2,072)
30 April 2007 4,063 11,917 25,436 1,861 43,277
Year ended 30 April 2006
30 April 2005 3,938 11,126 11,131 1,470 27,665
Issue of shares 125 - - - 125
Premium on issue of shares - 795 - - 795
Cost of issue of shares - (4) - - (4)
Net return after taxation - - 11,081 1,954 13,035
for the year
Dividends paid - - - (1,789) (1,789)
30 April 2006 4,063 11,917 22,212 1,635 39,827
BALANCE SHEET
as at 30 April 2007
30 April 30 April
2007 2006
£'000 £'000
Non-current assets
Fair value through profit or loss 59,001 59,739
investments
Current assets
Debtors 877 745
Cash and cash equivalents 247 259
1,124 1,004
Total assets 60,125 60,743
Current liabilities
Other creditors (5,276) (5,175)
Bank loan - (5,000)
Loan Note (6,258) (6,226)
Commitment to subscribe for shares (5,315) -
(16,849) (16,401)
Total assets less current liabilities 43,276 44,342
Non current liabilities
Provision for liabilities and charges
Commitment to subscribe for shares - (4,515)
- (4,515)
Total liabilities (16,849) (20,916)
Net assets 43,276 39,827
Represented by:
Share capital 4,063 4,063
Share premium account 11,917 11,917
Capital reserve 25,435 22,212
Revenue reserve 1,861 1,635
Issued capital and reserves 43,276 39,827
Net asset value per:
Ordinary share 266.32p 245.09p
Net asset values per share have been calculated in accordance with entitlements
as at the year end and in accordance with the Company's Articles of Association
and include current period revenue.
STATEMENT OF CASH FLOWS
for the year ended 30 April 2007
1 May 2006 to 1 May 2005 to
30 April 2007 30 April 2006
£'000 £'000
Operating activities
Investment income received 2,858 2,592
Bank deposit interest received 8 12
Investment management fee paid (709) (536)
Investment management performance fee (243) (2,801)
paid
Administration and secretarial fees paid (57) (55)
Exceptional expenses paid (note 3) (195) -
Other cash payments (169) (149)
Cash generated from /(absorbed by) 1,493 (937)
operations
Loan interest paid (532) (542)
Net cash inflow/ (outflow) from operating 961 (1,479)
activities
Investing activities
Purchases of investments (14,502) (21,547)
Sales of investments 20,110 23,360
Net cash inflow from investing activities 5,608 1,813
Financing activities
Issue of shares - 920
Cost of issues of shares - (4)
Dividends paid (2,072) (1,789)
Loan repaid (5,000) -
Net cash outflow from financing (7,072) (873)
activities
Decrease in cash and cash equivalents for (503) (539)
year
Cash and cash equivalents at start of (4,162) (3,623)
year
Cash and cash equivalents at end of year (4,665) (4,162)
Notes
for the year ended 30 April 2007
1 General information
The financial information contained in this announcement 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 2006,
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 IFRS and in accordance with the Statement of Recommended
Practice: Financial Statements of Investment Trust Companies.
2 Accounting policies
Small Companies Dividend Trust PLC is a company domiciled in the United
Kingdom.
Basis of preparation
The financial statements of the Company have been prepared in conformity with
International Financial Reporting Standards ("IFRS") issued by the
International Accounting Standards Board (as adopted by the EU) and
Interpretations issued by the International Financial Reporting Interpretations
Committee, and applicable requirements of United Kingdom company law, and
reflect the following policies which have been adopted and applied
consistently.
In previous years the company presented consolidated financial statements for
the company and its subsidiary company, Small Companies plc ("SC"). SC was
placed into liquidation on 30 April 2007, such that at the end of the financial
year the company had no subsidiary companies and therefore consolidated
financial statements are not required. The results and comparative amounts
therefore relate to the company only.
As at 30 April 2007, the company had not settled its loan note or its
obligation to subscribe for new shares. A payment of £11,539,375 was made to
the liquidator of SC on 3 May 2007 on account of these obligations. A provision
has been made for anticipated further costs of the liquidation which is
underwritten by the company and is included in other creditors.
All accounting policies are consistent with the policies used in the previous
audited financial statements.
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. Where
presentational guidance set out in the Statement of Recommended Practice
regarding the Financial Statements of Investment Trust Companies (`SORP'),
issued in 2003 and revised in December 2005, 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 Company is engaged in a single
segment of business, being investment business. The Company invests in
companies listed in the United Kingdom.
Investments
All investments held by the Company are classified as `fair value through
profit or loss'. Investments are initially recognised at cost, being the fair
value of the consideration given. Interest accrued on fixed interest rate
securities at the date of purchase or sale is accounted for separately as
accrued income or as an income receipt, so that the value or purchase price or
sale proceeds is shown net of such items.
After initial recognition, investments are measured at fair value, with
unrealised gains and losses on investments and impairment of investments
recognised in the income statement 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 at
the close of business on the balance sheet date, without adjustment for
transaction costs necessary to realise the asset.
Financial instruments
It is the Company's policy not to trade in derivative financial instruments.
Trade date accounting
All "regular way" purchases and sales of financial assets are recognised on the
"trade date" i.e., the day that the entity 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 Company'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 income statement 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 investments; and
- expenses are charged to capital reserve where a connection with the
maintenance or enhancement of the value of the investments can be demonstrated.
The Company's investment management fees, bank interest and all other expenses
are allocated to revenue with the exception of 75% (2006: 60%) of the
investment manager's fee, 75% (2006: 60%)of bank interest and 100% of the
provision for the investment manager's performance fee, all of which are
allocated to capital. In respect of the investment management fee and bank
interest allocation to revenue and capital this is in line with the Board's
expected long term split of returns in the form of income and capital gains
respectively, from the investment portfolio of the Company. This expectation
was revised in the current financial year based on a review of historical
performance which the Board believe is the best current indication of future
returns.
Cash and cash equivalents
Cash in hand and in banks and short-term deposits which are held to maturity
are carried at cost. Cash and cash equivalents are defined as cash in hand,
demand deposits and short-term, highly liquid investments readily convertible
to known amounts of cash and subject to insignificant risk of changes in value.
Bank overdrafts that are repayable on demand which form an integral part of the
Company's cash management are included as a component of cash and cash
equivalents for the purpose of the statement of cash flows.
Bank loans and borrowings
All bank loans and borrowings are initially recognised at cost, being the fair
value of the consideration received, less issue costs where applicable. After
initial recognition, all interest-bearing loans and borrowings are subsequently
measured at amortised cost. Any difference between cost and redemption value
being recognised in the income statement over the period of the borrowings on
an effective interest basis.
Preference and Zero Dividend Preference shares
The Company entered into a subscription agreement with its former subsidiary
company, Small Companies PLC ("SC"), to subscribe for one new ordinary share in
that company at a premium sufficient to enable SC to meet in full its
redemption obligations to the holders of its Zero Dividend Preference shares
and Preference shares. This created an obligation in excess of the fair value
of the one new ordinary share which is in substance a finance cost attributable
to the loan note issued to SC out of the proceeds of issue of such preference
shares. SC was placed into liquidation on 30 April 2007 and the subscription
for the new share and redemption of the loan note made on 3 May 2007.
The appropriations in respect of the Preference shares and Zero Dividend
Preference shares necessary to increase the Company's liabilities to the
redemption values are allocated to capital in the income statement (see note
4). This treatment reflected the Board's long-term expectations that the
entitlements of the Preference and Zero Dividend Preference shareholders would
be satisfied out of gains arising on investments held primarily for capital
growth.
Share issue costs
Costs incurred by the Company in relation to the issue of its own Ordinary
shares and the issue by SC of Zero Dividend Preference shares are apportioned
between the two issues based on the relative proceeds of issue. Costs regarded
as relating to the issue of the Company's own Ordinary shares are deducted from
the share premium account.
Costs regarded as relating to the issue of Zero Dividend Preference shares
which in substance are attributable to the loan note of the company were
amortised through the capital reserve, at a constant rate over the period from
issue until maturity on 30 April 2007.
Dividends payable to shareholders
Dividends to shareholders are recognised as a liability in the period in which
they are paid or approved in general meetings and are charged to the statement
of changes in equity. Dividends declared or approved by the Company after the
balance sheet date have not been recognised as a liability of the Company at
the balance sheet date.
3 Exceptional item
The exceptional item relates to professional fees incurred in respect of advice
and general meetings called to propose a deferral of the redemption date of the
Zero Dividend Preference shares of the former subsidiary company.
4 Finance costs
1 May 2006 to 30 April 2007 1 May 2005 to 30 April
2006
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Bank interest payable (127) (382) (509) (217) (325) (542)
Finance costs in
respect of
former subsidiary
Appropriations in
respect of:
- Zero Dividend - (855) (855) - (791) (791)
Preference
shares
- Preference shares - (4) (4) - (4) (4)
Amortisation of Zero - (32) (32) - (32) (32)
Dividend Preference
share
issue costs
Provision for loss in - (10) (10) - (12) (12)
former
subsidiary company
(127) (1,283) (1,410) (217) (1,164) (1,381)
5 Return per Ordinary share
Revenue return per Ordinary share is based on the net revenue return of £
2,298,000 (2006: £1,954,000) and on 16,250,000 (2006: 16,013,013) shares, being
the weighted average number of Ordinary shares in issue during the year.
Capital return per Ordinary share is based on the capital return of £3,224,000
(2006: £11,081,000) and on 16,250,000 (2006: 16,013,013) shares, being the
weighted average number of Ordinary shares in issue during the year.
CHAIRMAN'S STATEMENT
Results
The Company's net asset value per Ordinary share at 30 April 2007 was 266.32p
(2006 - 245.09p), an increase over the year of 8.7%. During this period the
FTSE All-Share Index increased by 9.1% and the FTSE Small-Cap Index increased
by 13.0%. Since Listing, on 12 May 1999, the FTSE All-Share has risen by 13.2%
and the net asset value per Ordinary share has risen by 166.4%. Over this
period the share price has increased by 122.25%.
The Company is currently invested in 71 companies across 26 sectors, this
spread provides a good diversification base and will assist the Company in
providing a stable platform from which to grow in both capital and revenue
terms.
Ongoing strong earnings and dividend growth by the underlying companies in the
portfolio during the past year is encouraging and it is pleasing to note that
this trend has continued into the current year.
Interest rates may have to rise for the fifth time since last August 2006 from
the present 5.5% to 5.75% for the Government to meet their inflation target.
Global concerns remain in terms of energy prices, leading to continued concerns
about rising inflation.
Capital Structure
The Zero Dividend Preference shares were repaid their full capital entitlement
of 184.63p on 3 May 2007. These shares enjoyed a good market rating and
consistently traded at a premium over their life. This reflected both the good
investment performance and the consequent strong net asset value over the
period.
Bank Facility
Until the 30 March 2007 the Company had borrowing facilities with Lloyds TSB
PLC ("the Bank") totalling £10.0 million, represented by a fixed term loan of £
5.0 million and an overdraft facility for the balance of £5.0 million.
The fixed term loan was repaid on 30 March 2007 and the Bank facility was
increased to a total of £16.5m represented by a new £10.0 million fixed loan
and an increased £6.5m overdraft facility. This was done in order to maintain a
similar level of gearing following the repayment of the Zero Dividend
Preference shares and Preference shares.
The Board intends to restrict the borrowing arrangements with the Bank, so as
to limit the total amount of borrowings, to below 30 per cent. of total assets
at the time of draw down.
Dividend
The Board has declared a final dividend of 4.00p per Ordinary share (2006 -
3.75p) which, when added to the three quarterly interim dividends of 3.00p,
equates to a total dividend for the year of 13.00p per Ordinary Share (2006 -
11.25p), an increase of 15.6% over the previous year. The Board is pleased that
since launch it has been able to increase the dividend every year by more than
the rate of inflation.
Discount Management
The Board intends to apply an active discount management policy, with a view to
establishing and supporting an improved rating in the Ordinary shares. At the
same time, shareholders will be asked at the Annual General Meeting, in
September 2007, to grant the Board authority to allow the Company to repurchase
shares available in the market at prices representing discounts greater than
5.0% to NAV, and to hold such shares in treasury to the extent permissible by
law, and to sell such treasury shares in response to market demand. Shares may
be sold out of treasury at a discount only if it is at a lower discount than
that at which they were bought and in order to produce a positive absolute
return, without income dilution to existing shareholders. The maximum number of
shares that would be held in treasury at any year end is 5.0%. Any shares in
excess of this limit will be cancelled and shares that are not reissued will be
cancelled at each year end.
Outlook
The Board believe that the adoption of a conventional capital structure,
combined with an effectively reduced level of gearing and consequent lower cost
to capital will enable the Company to continue generating a high and attractive
quarterly dividend yield in excess of 5.0%, will lead to the current discount
of around 8.0% narrowing over the short to medium term. Combined with an active
discount management policy in order to maintain the discount below 5.0% this
should lead to a re-rating of the Ordinary shares in the market place.
Mr John Chappell has decided to retire at the Annual General Meeting. On behalf
of shareholders I would like to thank him for his contribution to the Company
since its launch.
The Board is encouraged by the continued progress in the past year and believes
that if this growth continues that a dividend of no less than 13.65p will be
paid for the year ending 30 April 2008 an increase of 5.0% over the current
year in line with the targeted increase to be above the rate of inflation.
Lord Lamont of Lerwick
Chairman
15 June 2007
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