Half Yearly Report

RNS Number : 1407N

Standard Life UK Small.Co's Tst PLC

11 February 2009

 



STANDARD LIFE UK SMALLER COMPANIES TRUST PLC

Investment Objective

To achieve long term capital growth by investment in UK quoted smaller companies.

Investment Policy

The Company's investment objective is to achieve long-term capital growth by investment in UK quoted smaller companies.

The Company intends to achieve its investment objective by investing in a diversified portfolio consisting mainly of UK quoted smaller companies. The portfolio will normally comprise around 50 individual holdings representing the Investment Manager's highest conviction investment ideas. In order to reduce risk in the Company without compromising flexibility, no holding within the portfolio should exceed 5 per cent. of total assets at the time of acquisition.

The Directors expect that, in normal market conditions, gearing will not exceed 20 per cent. of net assets. The Directors have delegated responsibility to the Investment Manager for the operation of the gearing level within the above parameters.

The Investment Manager's investment process combines asset allocation, stock selection, portfolio construction, risk management and dealing. The investment process is research intensive and is driven by the Investment Manager's distinctive 'focus on change' which recognises that different factors drive individual stocks and markets at different times in the cycle. This flexible, but disciplined, process ensures that the Investment Manager has the opportunity to perform in different market conditions.

The investment strategy in respect of the Continuation Fund will be to realign the assets comprised in the Continuation Fund in accordance with the investment policy of the Company in an orderly manner over a period of up to 12 months.

HALF-YEARLY FINANCIAL REPORT FOR THE SIX MONTHS ENDED 31 DECEMBER 2008

For further information, please contact:

Richard England

Press Manager, Standard Life Investments                                      Tel. [phone]

-END-

  STANDARD LIFE UK SMALLER COMPANIES TRUST PLC

INTERIM MANAGEMENT REPORT FOR THE SIX MONTHS ENDED 31 DECEMBER 2008

CHAIRMAN'S STATEMENT

The Board was pleased to announce, on 10 November 2008, the proposed merger with Gartmore Smaller Companies Trust p.l.c. ('Gartmore'). As I had indicated in my previous statements the Board had for some time continued to examine opportunities to increase the size of the Trust. The Board looks forward to working with the new directors and the Manager to integrate Gartmore's assets of for the benefit of shareholders. Shareholders approved the transaction on 26 January 2009 and the effective date of the merger was 3 February 2009.

Issue of Continuation Shares

On 4 February 2009, 31,189,825 Continuation ('C') Shares were issued to former Gartmore shareholders that elected to, or were deemed to have elected to, continue their investment in UK smaller companies. The Board was very pleased that 68% of the Gartmore shareholders elected to continue their investment resulting in additional assets being received by the Company of £31.2million. The C Shares will convert into Ordinary Shares over a period of up to 12 months from 3 February 2009 as the C share portfolio is realigned with the Share portfolio. Following the merger of the Company with Gartmore on 3 February 2009 the total assets of the Company will have doubled to £63million. The Board would like to formally welcome its new C shareholders who should now be in receipt of their recently issued C share certificates.

Earnings and dividend

The revenue return per share was 0.79p (2007: 0.60p) for the six months ended 31 December 2008. The Board declared on 7 January 2009 an interim dividend of 0.5p per share which was paid on 23 January 2009 prior to the effective date of the merger with Gartmore. The ex-dividend date was 14 January 2009 and the record date was 16 December 2008.

Performance

The first six months of the current financial year proved to be a difficult period for stock markets in general and smaller companies in particular. The FTSE All-Share Index fell by 22.6% over this period while the Trust's benchmark, the Extended Hoare Govett Smaller Companies Index (excluding investment trusts), fell by 32.4% The share prices of UK smaller companies have been marked down severely in anticipation of a major slowdown in the domestic economy. The Trust's net asset value per share decreased by 33.4% to 95.02 pence per share while the share price fell 32.0% over the period. 

The Trust out-performed from August to September as the overall market fell sharply. Our risk-averse focus on high quality businesses was helpful. However in July and December the highly cyclical stocks that had been hit hard rallied strongly, resulting in under-performance against the benchmark index. The Trust's overweight position in oil and gas at the start of the period in question was unhelpful.

Awards

The Trust was recognised as the best UK Smaller companies trust for 2008 by Investment Week and the Board is confident that the Manager can continue to deliver excellent long term returns for shareholders.

Gearing

The Manager has been given discretion to vary the level of the net gearing up to 20% of net assets depending on the view of the outlook for smaller companies. The level of gearing over the reporting period ranged from -3% to 5%. Actual gearing as at 31 December 2008 stood at -3% although since the year end the gearing level has been increased to 4% and reflects the Manager's cautiously optimistic outlook for the portfolio. Currently £1.0m of the £10m banking facility is drawn down.

Share Buy Backs and Discount Level

The discount to net asset value widened over the reporting period for UK smaller company investment trusts with the size-weighted average discount moving from 16.2% at 30 June 2008 to 21.9% at 31 December 2008. Against this background, the Trust's discount to net asset value narrowed from 16.2% to 14.5% over the same period. The Trust's shares are therefore on a premium rating to the average UK smaller companies trust reflecting the consistent long term investment performance record of the Standard Life Investments UK smaller companies team led by Harry Nimmo. No shares were bought back during the period.

Warrants

A total of 1,164,545 warrants (40% of the outstanding warrants in issue) were exercised on the final subscription date and an equivalent number of ordinary shares were issued on 14 October 2008. The remaining warrants in issue have now expired.

Marketing

The level of marketing activity has continued with particular focus upon private client managers as well as institutional investors. Further details about investing in the Trust through the Manager's ISA or Share Plan may be found at www.standardlifeinvestments.com

The Board

Two Gartmore directors, Carol Ferguson and Lynn Ruddick, joined the Board on 4 February 2009, after the effective date of the Trust's merger with Gartmore while Neil Dunn stepped down from the Board. The Board would like to thank Neil for his significant contribution over the last fifteen years.

Prospects

A bout of optimism towards the end of 2008 was brought to a close by the second government bailout of the Royal Bank of Scotland. A wide-ranging and accelerating increase in profit warnings by UK listed companies underlined the severity of the downturn. In the light of this development, progress in smaller companies markets is unlikely in the short term. However, I share the Manager's optimism for the long term outlook for UK smaller companies. In the mean time the Trust will persist with a process which emphasises quality, growth and risk-aversion.

Donald MacDonald

Chairman

11 February 2009

  PRINCIPAL RISKS AND UNCERTAINTIES

The Board regularly reviews the major strategic risks which the Board and the Manager have identified and the Board sets out delegated controls designed to manage those risks. Key risks within investment and strategy, for example, inappropriate stock selection or gearing, are managed through investment policy, guidelines and restrictions and by the process of oversight at each Board meeting, as outlined below.

The Board has identified the key risks, which will affect its business in the second half of the financial year, as follows:

• Resource risk: in common with most investment trusts, the Company has no employees. The Company therefore relies upon services provided by third parties, including the Manager in particular, to whom responsibility for the management of the Company has been delegated under an investment management agreement. The Board reviews the performance of the Manager on a regular basis.

• Investment and market risk: The Company is exposed to the effect of variations in share prices due to the nature of its business. A fall in the value of its investment portfolio will have an adverse effect on the value of shareholders' funds. Uncertainty over market prices and the Manager's ability to outperform the Company's benchmark and peer group with due attention given to the preservation of shareholders' funds are prerequisites to the continued existence of the Company.

• Capital structure and gearing risk: The Company's capital structure at 31 December 2008 consisted of equity share capital comprising ordinary shares. The Company operates a revolving credit facility with Lloyds TSB Bank plc for up to £10m at an interest rate of 0.35% above LIBOR. In rising markets, the effect of the borrowings would be beneficial but in falling markets the gearing effect would adversely affect returns to shareholders. The Manager is able to increase or decrease the gearing level by repaying or drawing down periodically from the bank facility subject to Board restrictions on gearing not exceeding 20% of net assets in normal market conditions.

• Income and dividend risk: In view of the Company's investment objective, to achieve long term capital growth by investment in UK quoted smaller companies, the Manager is required to strike a balance more in favour of capital growth than income return. The Board continues to adopt an accounting policy which permits 75% of the aggregate of the finance costs and investment management fees to be charged to the capital account within the Income Statement as opposed to the revenue account. This policy, which is reviewed regularly by the Board in light of the expected long term split of returns between income and capital, enables a higher dividend per share to be paid to shareholders than would otherwise be the case. The Board receives frequent updates as to the progress made by the Manager towards the achievement of the income requirements of the Company.

• Regulatory risk: The Company operates in a complex regulatory environment and faces a number of regulatory risks. A breach of Section 842 of the Income and Corporation Taxes Act 1988 would result in the Company being subject to capital gains tax on portfolio investments. Breaches of other regulations, including the UKLA Listing Rules or the UKLA Disclosure and Transparency Rules, could lead to a number of detrimental outcomes and reputational damage. Breaches of controls by service providers such as the Manager and Company Secretary could also lead to reputational damage or loss.

The Directors have adopted a robust framework of controls which is designed to monitor the principal risks facing the Company and to provide a monitoring system to enable the Directors to mitigate these risks as far as possible.

  DIRECTORS' RESPONSIBILITY STATEMENT

The Directors are responsible for preparing the Half-Yearly Financial Report in accordance with applicable law and regulations. The Directors confirm that to the best of their knowledge -

• the condensed set of Financial Statements have been prepared in accordance with the Accounting Standards Board's statement 'Half-Yearly Financial Reports'; and

• the Interim Management Report includes a fair review of the general conditions required by 4.2.7R and 4.2.8R of the Financial Services Authority's Disclosure and Transparency Rules.

The Half-Yearly Financial Report, for the six months ended 31 December 2008, comprises an Interim Management Report in the form of the Chairman's Statement, the Directors' Responsibility Statement and a condensed set of Financial Statements and has not been audited or reviewed by the auditors pursuant to the APB guidance on Review of Interim Financial Information.

For and on behalf of the Directors of Standard Life UK Smaller Companies Trust PLC

Donald MacDonald

Chairman

11 February 2009

  MANAGER'S REPORT

Investment Manager's Review

The UK smaller companies sector, as represented by the Extended Hoare Govett Index (HG), fell by 32.4% over the period. This compares with a 33.4% fall in the net asset value of the Trust (fully diluted with debt at fair value). The share price fell by 32.0% over the period. 

UK economy and equity market 

UK smaller companies endured heavy losses over the last six months, underperforming their large cap counterparts. The financial sector dominated headlines, with the banking crisis coming to a head following the collapse of US investment bank Lehman Brothers. In the UK, the Government moved to avert a collapse in confidence in the financial system by announcing a £400 billion rescue plan. However, smaller companies continued to suffer as the economy slid towards recession before oversold sectors, such as oil & gas and construction, enjoyed a rally into the calendar year end.

Economic data over the period painted a bleak picture. House prices continued to fall, unemployment increased and a range of companies announced job cuts. The pain also extended to the high street, with a steady stream of retailers entering administration including Woolworths, Zavvi, MFI and Whittards. The slowing global economy also fed through to spectacularly lower oil and commodity prices over much of the period, sending the share prices of oil and mining stocks into sharp decline.

As a result of the economic and financial turmoil, merger and acquisition activity turned lower, with a number of finance-backed deals being withdrawn. Deals that did go ahead tended to be for distressed banks or strictly for cash trade bids such as Axon Group and Expro, both of which were held by the Trust.

Performance review

The Trust under-performed the benchmark during the period under review. The NAV of the Trust fell by 33.4% while the share price return was -32.0% in the period under review (source: Thomson Financial Datastream and Standard Life Investments). In the period in question there were two 'false dawns' where low quality cyclicals rallied sharply, in July and December. Our emphasis on quality and reliability was unhelpful in those months.

The Trust generally benefited from the outperformance of 'flight to quality' stocks from August to November. For example, antibodies distributor Abcam delivered strong results, with double-digit earnings figures. Bookmaker Paddy Power benefited from its robust balance sheet and the scale of its online offering. Meanwhile, utilities provider Telecom Plus issued a positive trading statement and enterprise software company Autonomy continued to win major contracts. 

On the downside, the main negatives were associated with stocks with some association with the oil & gas and resource sectors. The engineering software firm Aveva fell back, despite good results, as it was perceived as being vulnerable to problems in shipbuilding and petro-chemicals. Oil & gas exploration companies Bowleven and JKX were impacted by the collapse of oil prices. Likewise, mining company Aquarius Platinum was hit by lower metal prices. Elsewhere, ITE, an exhibition company operating in Russia, was adversely impacted by the perception of a rapid economic slowdown in that country. 

Dealing and activity

In an extremely volatile environment, we concentrated on our highest conviction ideas and stuck with our investment process, which emphasises quality growth and momentum stocks, with high levels of recurring revenue.

Five key new holdings were added to the portfolio during the period. Firstly SDL, a software company involved in machine language translation. Later in the period, purchases included sausage & bacon specialist Cranswick and soft drinks maker AG Barr. Both have resilient business models that tend to do well in difficult economic environments. In December nuclear engineering services firm Redhall Group and household products company PZ Cussons were added to the portfolio.

As oil and commodity prices fell back, we reduced our exposure to the oil & gas and mining sectors. In the former, this involved selling our holdings in Bowleven and Wellstream, and reducing our holdings in JKX Oil & Gas and Emerald Energy. We also completely sold our positions in Russian oil producer Imperial Energy and Expro International, which received a cash bid. In the mining sector, we sold Aquarius Platinum and First Quantum.

Elsewhere, we top sliced some of our shares in online retailer Asos and engineering software group Aveva due to the size of the holdings as a proportion of total assets. In addition, we took profits in Autonomy after strong performance which resulted in the share entering the FTSE100 Index. Consultancy Axon Group received a cash bid from HCL of India.

Outlook

A brief rally towards the end of December and into January has given way to further negative sentiment as corporate results in the UK and US worsened. Further government assistance for Citigroup in the US and the recent further bail-out of Royal Bank of Scotland have also cast more doubt on the stability of the global financial system. In addition, serious market and economic questions remain, mainly surrounding areas such as private equity, the auto industry and real estate. Smaller companies are more exposed in the UK, particularly to cyclical sectors.

As a result, UK equity market volatility is set to continue, with a further bout of risk aversion in the short term.

Given this environment, we will stick solidly to our process, backing stocks that will make it through to the other side in good shape. In particular, our investment process will continue to emphasise growth, international businesses, repeatable business models, and companies with strong balance sheets. Therefore, we remain confident that our portfolio will do relatively well in tough market conditions.

Overall, we remain cautious in the short term, as another market downturn looks increasingly likely. While we still expect some recovery in 2009, this is more likely to come in the second half of the year. In the next few months some very strong companies will be available for purchase at extremely low valuations. It is clear to me that some time in 2009 there will be a once in a generation opportunity to invest in the UK smaller companies market. I thus continue to be extremely positive about the long-term outlook for smaller companies. 

Harry Nimmo

Standard Life Investments

Manager

11 February 2009

  INCOME STATEMENT

		Six months ended 31 December 2008
		(unaudited)
		Revenue	Capital	Total
	Notes	£'000	£'000	£'000
Net losses on investments at fair value		-	(14,942)	(14,942)
Income	2	464	-	464
Investment management fee		(27)	(103)	(130)
Administrative expenses		(171)	-	(171)
		__________	__________	__________
NET RETURN BEFORE
FINANCE COSTS AND TAXATION		266	(15,045)	(14,779)
Finance Costs		(8)	(24)	(32)
		__________	__________	__________
RETURN ON ORDINARY ACTIVITIES
BEFORE TAXATION		258	(15,069)	(14,811)
Taxation		(2)	-	(2)
		__________	__________	__________
RETURN ON ORDINARY ACTIVITIES
AFTER TAXATION		256	(15,069)	(14,813)
		__________	__________	__________
Return per ordinary share
Basic	4	0.79p	(46.32p)	(45.53p)
		__________	__________	__________
Diluted	4	0.79p	(46.32p)	(45.53p)
		__________	__________	__________

The total column of this statement represents the profit and loss account of the Company.

A Statement of Total Recognised Gains and Losses has not been prepared as all gains or losses are recognised in the Income Statement.

No operations were acquired or discontinued in the year.

All revenue and capital items in the above statement derive from continuing operations.

The accompanying notes are an integral part of the financial statements.

____________________________________________________________________________________________ 

  INCOME STATEMENT (cont'd)

		Six months ended 31 December 2007
		(unaudited)
		Revenue	Capital	Total
	Notes	£'000	£'000	£'000
Net losses on investments at fair value		-	(4,529)	(4,529)
Income	2	398	-	398
Investment management fee		(47)	(141)	(188)
Administrative expenses		(165)	-	(165)
		__________	__________	__________
NET RETURN BEFORE
FINANCE COSTS AND TAXATION		186	(4,670)	(4,484)
Finance Costs		12	36	48
		__________	__________	__________
RETURN ON ORDINARY ACTIVITIES
BEFORE TAXATION		198	(4,634)	(4,436)
Taxation		(2)	-	(2)
		__________	__________	__________
RETURN ON ORDINARY ACTIVITIES
AFTER TAXATION		196	(4,634)	(4,438)
		__________	__________	__________
Return per ordinary share
Basic	4	0.60p	(14.22p)	(13.62p)
		__________	__________	__________
Diluted	4	0.59p	(14.03p)	(13.44p)
		__________	__________	__________

____________________________________________________________________________________________ 

  INCOME STATEMENT (cont'd)

		Year ended 30 June 2008
		(audited)
		Revenue	Capital	Total
	Notes	£'000	£'000	£'000
Net losses on investments at fair value		-	(2,697)	(2,697)
Income	2	868	-	868
Investment management fee		80	(89)	(9)
Administrative expenses		(303)	-	(303)
		__________	__________	__________
NET RETURN BEFORE
FINANCE COSTS AND TAXATION		645	(2,786)	(2,141)
Finance Costs		(14)	(2,833)	(2,847)
		__________	__________	__________
RETURN ON ORDINARY ACTIVITIES
BEFORE TAXATION		631	(5,619)	(4,988)
Taxation		(3)	-	(3)
		__________	__________	__________
RETURN ON ORDINARY ACTIVITIES
AFTER TAXATION		628	(5,619)	(4,991)
		__________	__________	__________
Return per ordinary share
Basic	4	1.94p	(17.36p)	(15.42p)
		__________	__________	__________
Diluted	4	1.92p	(17.14p)	(15.22p)
		__________	__________	__________

____________________________________________________________________________________________ 

  BALANCE SHEET

		As at	As at	As at
		31 December	31 December	30 June
		2008	2007	2008
		(unaudited)	(unaudited)	(audited)
	Notes	£'000	£'000	£'000
Non-current assets
Investments at fair value through profit or loss		30,645	47,053	47,846
Current assets
Debtors and prepayments		90	55	357
AAA money market funds		948	1,610	1,208
Cash and short term deposits		26	18	6
		__________	__________	__________
		1,064	1,683	1,571
Creditors: amounts falling due within one year
Other creditors		(159)	(1,323)	(3,706)
		__________	__________	__________
Net current assets/(liabilities)		905	360	(2,135)
		__________	__________	__________
Total assets less current liabilities		31,550	47,413	45,711
Creditors: amounts falling due after more than one year		-	(3,500)	-
		__________	__________	__________
Net assets		31,550	43,913	45,711
		__________	__________	__________
Capital and reserves
Called-up share capital		8,440	8,149	8,149
Share premium account		941	68	68
Capital redemption reserve		549	549	549
Warrant reserve		-	743	743
Special reserve		21,364	21,364	21,364
Capital reserve		(451)	12,509	13,875
Revenue reserve		707	531	963
		__________	__________	__________
Equity Shareholders' funds		31,550	43,913	45,711
		__________	__________	__________
Net asset value per Ordinary share
Basic	7	95.02p	135.44p	142.68p
		__________	__________	__________
Diluted	7	95.02p	132.54p	139.14p
		__________	__________	__________

  RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

Six months ended 31 December 2008 (unaudited)
		Share	Capital			Capital
	Share	premium	redemption	Warrant	Special	reserve -	Revenue
	capital	account	reserve	reserve	reserve	realised	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 30 June 2008	8,149	68	549	743	21,364	13,875	963	45,711
Return on ordinary activities after taxation	-	-	-	-	-	(15,069)	256	(14,813)
Dividends paid (see note 3)	-	-	-	-	-	-	(512)	(512)
Exercise and cancellation of warrants	291	873	-	(743)	-	743	-	1,164
	_______	_______	_______	_______	_______	_______	_______	_______
Balance at 31 December 2008	8,440	941	549	-	21,364	(451)	707	31,550
	_______	_______	_______	_______	_______	_______	_______	_______
Six months ended 31 December 2007 (unaudited)		Share	Capital			Capital
	Share	premium	redemption	Warrant	Special	reserve -	Revenue
	capital	account	reserve	reserve	reserve	realised	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 30 June 2007	8,146	58	549	746	21,364	20,109	596	51,568
Return on ordinary activities after taxation	-	-	-	-	-	(4,634)	196	(4,438)
Dividends paid (see note 3)	-	-	-	-	-	-	(261)	(261)
Exercise of warrants	3	10	-	(3)	-	3	-	13
Buyback of ordinary shares	-	-	-	-	-	(178)	-	(178)
Repayment of debenture	-	-	-	-	-	(2,791)	-	(2,791)
	_______	_______	_______	_______	_______	_______	_______	_______
Balance at 31 December 2007	8,149	68	549	743	21,364	12,509	531	43,913
	_______	_______	_______	_______	_______	_______	_______	_______
Year ended 30 June 2008 (audited)		Share	Capital			Capital
	Share	premium	redemption	Warrant	Special	reserve -	Revenue
	capital	account	reserve	reserve	reserve	realised	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 30 June 2007	8,146	58	549	746	21,364	20,109	596	51,568
Return on ordinary activities after taxation	-	-	-	-	-	(5,619)	628	(4,991)
Buyback of ordinary shares	-	-	-	-	-	(618)	-	(618)
Exercise of warrants	3	10	-	(3)	-	3	-	13
Dividends paid (see note 3)	-	-	-	-	-	-	(261)	(261)
	_______	_______	_______	_______	_______	_______	_______	_______
Balance at 30 June 2008	8,149	68	549	743	21,364	13,875	963	45,711
	_______	_______	_______	_______	_______	_______	_______	_______

  CASHFLOW STATEMENT

	Six months	Six months
	ended	ended	Year ended
	31 December	31 December	30 June
	2008	2007	2008
	(unaudited)	(unaudited)	(audited)
	£'000	£'000	£'000
Net return on ordinary activities before finance costs and taxation	(14,779)	(4,484)	(2,141)
Adjustment for:
Losses on investments	14,942	4,529	2,697
	__________	__________	__________
Revenue before finance costs and taxation	163	45	556
Decrease in accrued income	29	107	44
Decrease/(decrease) in other debtors	8	4	(3)
(Decrease)/increase in creditors	(68)	14	(59)
	__________	__________	__________
Net cash inflow from operating activities	132	170	538
Net cash outflow from servicing of finance	(30)	(389)	(491)
Net overseas tax	(3)	(3)	(9)
Net cash inflow from financial investment	2,509	6,454	6,220
Equity dividends paid	(512)	(261)	(261)
	__________	__________	__________
Net cash inflow before management of liquid resources and financing	2,096	5,971	5,997
Net cash inflow from management of liquid resources	260	12	414
	__________	__________	__________
Net cash inflow before financing	2,356	5,983	6,411
Financing
Share buy back	-	(177)	(615)
Share buy back expenses	-	(1)	(3)
Exercise of warrants	1,164	13	13
Repayment of debenture stock	-	(9,648)	(9,648)
Premium on repayment of debenture stock	-	(2,791)	(2,791)
Net drawdown of loan	(3,500)	3,500	3,500
	__________	__________	__________
Net cash outflow from financing	(2,336)	(9,104)	(9,544)
	__________	__________	__________
Increase/ (decrease) in cash	20	(3,121)	(3,133)
	__________	__________	__________
Reconciliation of net cash flow to movements in net debt
Increase/(decrease) in cash as above	20	(3,121)	(3,133)
Net change in liquid resources	(260)	(12)	(414)
Net change in debt due within one year	3,500	6,148	6,148
Other non-cash movements	-	244	244
	__________	__________	__________
Movement in net debt in the period	3,260	3,259	2,845
Opening net debt	(2,286)	(5,131)	(5,131)
	__________	__________	__________
Closing net funds/(debt)	974	(1,872)	(2,286)
	__________	__________	__________
Represented by:
Cash and short term deposits	26	1,628	6
AAA Money Market funds	948	-	1,208
Debt due within one year	-	(3,500)	(3,500)
	__________	__________	__________
	974	(1,872)	(2,286)
	__________	__________	__________

  NOTES:

1.	Accounting policies
	(a)	Basis of accounting
		The financial statements have been prepared under the historical cost convention, as modified to include the revaluation of investments and in accordance with applicable UK Accounting Standards, with pronouncements on half-yearly reporting issued by the Accounting Standards Board and with the Statement of Recommended Practice for 'Financial Statements of Investment Trust Companies' (December 2005). They have also been prepared on the assumption that approval as an investment trust will continue to be granted.
		The financial statements and the net asset value per share figures have been prepared in accordance with UK Generally Accepted Accounting Practice (UK GAAP) and using the same accounting policies as the preceding annual accounts.
	(b)	Dividends payable
		Dividends are recognised in the period in which they are paid.

		Six months	Six months	Year
		ended	ended	ended
		31 December	31 December	30 June
		2008	2007	2008
2.	Income	£'000	£'000	£'000
	Income from investments
	UK dividend income	339	287	685
	Unfranked investment income	53	31	76
		__________	__________	__________
		392	318	761
		__________	__________	__________
	Other income
	Interest from AAA Money Market funds	39	34	61
	Interest from Inland Revenue	33	-	-
	Deposit interest	-	46	46
		__________	__________	__________
		72	80	107
		__________	__________	__________
	Total income	464	398	868
		__________	__________	__________

		Six months	Six months	Year
		ended	ended	ended
		31 December	31 December	30  June
		2008	2007	2008
3.	Dividends	£'000	£'000	£'000
	Ordinary dividend on equity shares deducted from reserves:
	2008 final dividend of 1.00p per share (2007 - 0.80p)	320	261	261
	2008 special dividend of 0.60p per share (2007 - nil)	192	-	-
		__________	__________	__________
		512	261	261
		__________	__________	__________

		Six months	Six months	Year
		ended	ended	ended
		31 December	31 December	30  June
		2008	2007	2008
4.	Return per share	p	p	p
	Basic
	Revenue return	0.79	0.60	1.94
	Capital return	(46.32)	(14.22)	(17.36)
		__________	__________	__________
	Total return	(45.53)	(13.62)	(15.42)
		__________	__________	__________
	Weighted average number of Ordinary shares	32,531,251	32,577,980	32,375,153
	Diluted
	Revenue return	0.79	0.59	1.92
	Capital return	(46.32)	(14.03)	(17.14)
		__________	__________	__________
	Total return	(45.53)	(13.44)	(15.22)
		__________	__________	__________
	Weighted average number of Ordinary shares	32,531,251	33,030,804	32,786,549
	The figures above are based on the following:-
		Six months	Six months	Year
		ended	ended	ended
		31 December	31 December	30  June
		2008	2007	2008
		£'000	£'000	£'000
	Revenue return	256	196	628
	Capital return	(15,069)	(4,634)	(5,619)
		__________	__________	__________
	Total return	(14,813)	(4,438)	(4,991)
		__________	__________	__________
	In October 2008 the right of warrant holders to exercise their rights to subscribe for ordinary shares lapsed and all outstanding warrants were subsequently cancelled. For the six months ended 31 December 2007 and the year ended 30 June 2008 diluted returns have been calculated on the basis set out in Financial Reporting Standard 22 'Earnings per share' ('FRS 22').

			Investment
			holding
		Realised	gains/ (losses)	Total
5.	Capital reserve	£'000	£'000	£'000
	Six months ended 31 December 2008 (unaudited)
	At 30 June 2008	553	13,322	13,875
	Movement in investment holdings fair value losses	-	(13,959)	(13,959)
	Losses on realisation of investments at fair value	(983)	-	(983)
	Exercise and cancellation of warrants	743	-	743
	Capital expenses and finance costs	(127)		(127)
		__________	__________	_________
	At 31 December 2008	186	(637)	(451)
		__________	__________	_________
	Six months ended 31 December 2007 (unaudited)
	At 30 June 2007	(2,015)	22,124	20,109
	Movement in investment holdings fair value losses	-	(9,582)	(9,582)
	Gains on realisation of investments at fair value	5,053	-	5,053
	Exercise of warrants	3	-	3
	Buyback of ordinary shares	(178)	-	(178)
	Repayment of debenture	(2,791)	-	(2,791)
	Capital expenses and finance costs	(105)	-	(105)
		__________	__________	_________
	At 31 December 2007	(33)	12,542	12,509
		__________	__________	_________
	Year ended 30 June 2008 (audited)
	At 30 June 2007	(2,015)	22,124	20,109
	Movement in investment holdings fair value losses	-	(8,802)	(8,802)
	Gains on realisation of investments at fair value	6,105	-	6,105
	Exercise of warrants	3	-	3
	Buyback of ordinary shares	(618)	-	(618)
	Capital expenses and finance costs	(2,922)	-	(2,922)
		__________	__________	_________
	At 30 June 2008	553	13,322	13,875
		__________	__________	_________

6.	Transaction costs
	During the period, expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within gains on investments in the Income Statement. The total costs were as follows:
		Six months	Six months	Year
		ended	ended	ended
		31 December	31  December	30  June
		2008	2007	2008
		£'000	£'000	£'000
	Purchases	36	70	109
	Sales	8	19	30
		__________	__________	_________
		44	89	139
		__________	__________	_________

7.	Net Asset Value Total Shareholders' funds have been calculated in accordance with the provisions of applicable accounting standards. The analysis of total shareholders' funds on the face of the Balance Sheet reflects the rights, under the Articles of Association of the ordinary shareholders on a return of assets.  These rights are reflected in the net asset value and the net asset value per share attributable to ordinary shareholders at the period end.
		Six months	Six months	Year
		ended	ended	ended
		31 December	31 December	30  June
		2008	2007	2008
	Total shareholders' funds	£31,550,000	£43,913,000	£45,711,000
	Number of ordinary shares in issue at the period end	33,202,130	32,421,760	32,037,585
	(excluding shares held in treasury)
	Basic net asset value per share	95.02p	135.44p	142.68p
		__________	__________	_________
	Diluted net asset value per share
	Total shareholders' funds	£31,550,000	£46,810,510	£48,609,000
	Number of ordinary shares in issue at the period end	33,202,130	35,319,270	34,935,095
	(excluding shares held in treasury)
	Diluted net asset value per share	95.02p	132.54p	139.14p
		__________	__________	_________

8.

The financial information in this report comprises non-statutory accounts as defined in Section 434-436 of the Companies Act 2006. The financial information for the year ended 30 June 2008 has been extracted from published accounts that have been delivered to the Registrar of Companies and on which the report of the auditors was unqualified under Section 235 of the Companies Act 1985. The interim accounts have been prepared using the same accounting policies as the preceding annual accounts.

9.	This Half-Yearly Report was approved by the Board on 11 February 2009.

10.

The Interim Report will be posted to shareholders in February 2009 and additional copies may be obtained by download from the Investment trusts section within 'Our Funds' on the website of the Company's Manager, Standard Life Investments (www.standardlifeinvestments.com) or by calling the Manager's Investor Services team on 0845 60 24 247 between 9am and 5pm, Monday to Friday.

For Standard Life UK Smaller Companies Trust plc

Aberdeen Asset Management PLC, Secretary

END

 

END

 

 

IR GUUPGPUPBGUG