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 *â€
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:
â— the condensed set of financial statements has been prepared in
compliance with the IAS34 "Interim Financial Reporting".
â— 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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