16 Jun 2014 07:00
DUNEDIN SMALLER COMPANIES INVESTMENT TRUST PLC
HALF YEARLY REPORT FOR THE SIX MONTHS ENDED 30 APRIL 2014
The objective of Dunedin Smaller Companies Investment Trust PLC is the achievement of long-term growth from a portfolio of smaller companies in the United Kingdom.
· Net asset value per share up by 1.7%.
· The Board is declaring an increase in the interim dividend to 2.10p (2013 - 2.05p).
For further information, please contact:-
Ed Beal
Aberdeen Asset Managers Limited 0131 528 4000
Andrew Leigh
Aberdeen Asset Managers Limited 0207 463 6312
Please note that past performance is not necessarily a guide to the future and 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.
CHAIRMAN'S STATEMENT
During the six months to the end of April 2014 the net asset value increased by 1.65%. This compares to an increase of 5.19% from the FTSE Small Cap Index (excluding Investment Companies). The Board and your Manager take a long term approach to investing and regard six months as too short a timescale to make meaningful judgments regarding performance. The Company aims to deliver growth in income as well as capital and the revenue return per share showed a pleasing increase, rising from 2.06p to 2.51p. An element of this was due to the timing of investment decisions and ex dividend dates. However, the portfolio did deliver underlying growth in earnings and this has enabled the Board to declare an increased interim dividend of 2.10p (2013 - 2.05p). This will be paid on 25 July 2014 to shareholders on the register on 4 July 2014.
Both absolute and relative valuations of UK smaller companies have moved ahead strongly over the last year and, through the period, equity markets generally moved higher as the economic recovery in developed markets has strengthened. Growth in profits, however, has been rather more anaemic and, for Europe as a whole, it has been negative for the last three years. Although 2014 started the year with an expectation of near double digit earnings growth, such expectations have reduced in recent months as analysts have factored in the increasing strength of sterling across the market.
Whilst capital markets have been very active, many IPOs during the period are now trading below their flotation prices. Despite this, there continues to be ample evidence of rising corporate confidence especially among larger companies with so called mega deals back in vogue. Having had the Vodafone and Verizon deal, the GSK/Novartis asset rearrangement is in prospect and until recently the possibility of Pfizer bidding for AstraZeneca has been in the public eye. Although this interest in corporate activity could be as a result of muted earnings growth, it is interesting that many management teams have remained disciplined with respect to the prices they are prepared to pay, for instance, in the Company's portfolio, Weir Group stepped away from their bid for Metso.
The Company did not repurchase any ordinary shares during the period. The Directors will continue to monitor the Company's discount with that of its peer group and will use the Company's share buyback powers, subject to market conditions, when it feels this to be appropriate. The price per ordinary share as at 30 April 2014 was 215p per share and the net asset value at such date (inclusive of income) was 229.73p, representing a discount of 6.4% which compares with an average of 7.5% for the Association of Investment Companies UK Smaller Companies sector.
Economic recovery is happening and whilst it could be de-railed by the resurgence of concerns about sovereign debt that issue seems to have moved out of focus for the time being. However, a move to some form of quantitative easing by the European Central Bank might serve to return it to the fore.
There are also signs that investors are becoming more discerning with respect to the businesses they want to invest in. Such an environment should suit your Manager's bottom-up approach even if it does take time for earnings to catch up with valuations.
Referendum on Scottish Independence
The Company is registered in Scotland and the Board notes the uncertainty arising in relation to the forthcoming referendum on Scottish independence. In the event of a "Yes" vote in favour of independence this uncertainty may be prolonged until the implications for the Company are clearer, especially relating to the economic, legislative and regulatory backdrop.
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 within the half-yearly financial report has been prepared in accordance with the statement "Half-Yearly Financial Reports" issued by the UK Accounting Standards Board;
- the Chairman's Statement (constituting the interim management report) includes a fair review of the information required by rule 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 financial year) and 4.2.8R (being related party transactions that have taken place during the first six months of the financial year and that have materially affected the financial position of the Company during that period; and any changes in the related party transactions described in the last annual report that could so do).
The Half-Yearly Financial Report for the six months to 30 April 2014 comprises the Interim Board Report, the Directors' Responsibility Statement and a condensed set of financial statements. The Independent Review Report of the Auditor is attached.
Risks and Uncertainties
The Board has adopted a matrix of the key risks that affect its business. The principal risks associated with the Company are:
(i) Performance risk: The performance of the portfolio relative to the benchmark (FTSE SmallCap Index (ex Investment Companies)) and the underlying stock weightings in the portfolio against their index weightings are monitored closely by the Board.
(ii) Discount volatility: The Company's shares can trade at a discount to the underlying net asset value per share. The Company operates a share buyback programme, and any shares repurchased may be either cancelled or held in treasury. The programme is reviewed on an ongoing basis.
(iii) Regulatory risk: The Company operates in a complex regulatory environment and faces a number of regulatory risks. Breaches of regulations, such as Sections 1158-1159 of the Corporation Tax Act 2010, the UKLA Listing Rules and the Companies Act, could lead to a number of detrimental outcomes and reputational damage. The Audit Committee monitors compliance with regulations by reviewing risk and internal control reports from the Manager.
(iv) Gearing risk: The Company has the ability to utilise gearing in the form of a three year credit facility. Gearing has the effect of accentuating market falls and market gains. The Board is responsible for determining the gearing policy of the Company. The current guidelines from the Board authorise the Manager to invest up to £5 million of borrowings without reference to the Board. The Board has stated previously that the maximum level of gearing is 20%.
Going Concern
The Company's assets consist substantially of equity shares in companies listed on the London Stock Exchange and in most circumstances are realisable within a short timescale. The Board has set limits for borrowing and regularly reviews actual exposures, cash flow projections and compliance with banking covenants. Borrowings of £5 million are committed to the Company until 26 November 2014. The Directors believe that the Company has adequate resources to continue in operational existence for the foreseeable future and for the above reasons, they continue to adopt the going concern basis in preparing the accounts.
The Earl of Dalhousie
Chairman
13 June 2014
Performance to 30 April 2014
1 year return | 3 year return | 5 year return | 10 year return | |
Total return | % | % | % | % |
Share price | 15.9 | 66.2 | 218.8 | 303.5 |
Net asset value per share | 21.8 | 50.6 | 186.7 | 207.0 |
FTSE SmallCap Index (ex IC's) | 31.8 | 64.7 | 150.1 | 105.9 |
\* The total return for share price and net asset value is calculated on the basis of reinvesting dividends to shareholders on the ex-dividend date.
Source: Aberdeen Asset Management, Morningstar & Factset
INDEPENDENT REVIEW REPORT TO DUNEDIN SMALLER COMPANIES INVESTMENT TRUST PLC
Introduction
We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 April 2014 which comprises the Income Statement, Balance Sheet, Reconciliation of Movements in Shareholders' Funds, Cash Flow Statement and the related explanatory notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the Disclosure and Transparency Rules (the "DTR") of the UK's Financial Conduct Authority (the "UK FCA"). Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA.
As disclosed in note 1, the annual financial statements of the Company are prepared in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice). The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with the Statement Half-Yearly Financial Reports as issued by the UK Accounting Standards Board.
Our Responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
Scope of Review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 April 2014 is not prepared, in all material respects, in accordance with the Statement Half-Yearly Financial Reports as issued by the UK Accounting Standards Board and the DTR of the UK FCA.
Philip Merchant
For and on behalf of KPMG LLP
Chartered Accountants
Edinburgh
13 June 2014
INCOME STATEMENT
Six months ended | |||
30 April 2014 | |||
(unaudited) | |||
Revenue | Capital | Total | |
£'000 | £'000 | £'000 | |
Gains on investments | - | 2,285 | 2,285 |
Income (note 2) | 1,486 | - | 1,486 |
Investment management fee | (58) | (174) | (232) |
Administrative expenses | (216) | - | (216) |
__________ | __________ | __________ | |
Net return before finance costs and taxation | 1,212 | 2,111 | 3,323 |
Finance costs | (12) | (36) | (48) |
__________ | __________ | __________ | |
Return on ordinary activities before taxation | 1,200 | 2,075 | 3,275 |
Taxation | - | - | - |
__________ | __________ | __________ | |
Return on ordinary activities after taxation | 1,200 | 2,075 | 3,275 |
__________ | __________ | __________ | |
Return per Ordinary share (pence)(note 4) | 2.51 | 4.33 | 6.84 |
__________ | __________ | __________ | |
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 and losses have been reflected in the Income Statement. | |||
All revenue and capital items in the above statement derive from continuing operations. |
INCOME STATEMENT
Six months ended | |||
30 April 2013 | |||
(unaudited) | |||
Revenue | Capital | Total | |
£'000 | £'000 | £'000 | |
Gains on investments | - | 12,533 | 12,533 |
Income (note 2) | 1,225 | - | 1,225 |
Investment management fee | (47) | (141) | (188) |
Administrative expenses | (178) | - | (178) |
__________ | __________ | __________ | |
Net return before finance costs and taxation | 1,000 | 12,392 | 13,392 |
Finance costs | (12) | (36) | (48) |
__________ | __________ | __________ | |
Return on ordinary activities before taxation | 988 | 12,356 | 13,344 |
Taxation | - | - | - |
__________ | __________ | __________ | |
Return on ordinary activities after taxation | 988 | 12,356 | 13,344 |
__________ | __________ | __________ | |
Return per Ordinary share (pence)(note 4) | 2.06 | 25.82 | 27.88 |
__________ | __________ | __________ |
Year ended | |||
31 October 2013 | |||
(audited) | |||
Revenue | Capital | Total | |
£'000 | £'000 | £'000 | |
Gains on investments | - | 27,846 | 27,846 |
Income (note 2) | 3,092 | - | 3,092 |
Investment management fee | (101) | (302) | (403) |
Administrative expenses | (367) | - | (367) |
__________ | __________ | __________ | |
Net return before finance costs and taxation | 2,624 | 27,544 | 30,168 |
Finance costs | (25) | (73) | (98) |
__________ | __________ | __________ | |
Return on ordinary activities before taxation | 2,599 | 27,471 | 30,070 |
Taxation | - | - | - |
__________ | __________ | __________ | |
Return on ordinary activities after taxation | 2,599 | 27,471 | 30,070 |
__________ | __________ | __________ | |
Return per Ordinary share (pence)(note 4) | 5.43 | 57.40 | 62.83 |
__________ | __________ | __________ |
BALANCE SHEET
As at | As at | As at | ||
30 April 2014 | 30 April 2013 | 31 October 2013 | ||
(unaudited) | (unaudited) | (audited) | ||
Note | £'000 | £'000 | £'000 | |
Non-current assets | ||||
Investments at fair value through profit or loss | 112,853 | 95,528 | 111,846 | |
__________ | __________ | __________ | ||
Current assets | ||||
Debtors and prepayments | 808 | 571 | 286 | |
Cash and short term deposits | 1,521 | 1,530 | 1,387 | |
__________ | __________ | __________ | ||
2,329 | 2,101 | 1,673 | ||
__________ | __________ | __________ | ||
Creditors: amounts falling due within one year | ||||
Bank loan | (5,000) | (5,000) | (5,000) | |
Other creditors | (237) | (221) | (366) | |
__________ | __________ | __________ | ||
(5,237) | (5,221) | (5,366) | ||
__________ | __________ | __________ | ||
Net current liabilities | (2,908) | (3,120) | (3,693) | |
__________ | __________ | __________ | ||
Net assets | 109,945 | 92,408 | 108,153 | |
__________ | __________ | __________ | ||
Capital and reserves | ||||
Called-up share capital | 6 | 2,393 | 2,393 | 2,393 |
Share premium account | 30 | 30 | 30 | |
Capital redemption reserve | 2,233 | 2,233 | 2,233 | |
Capital reserve | 7 | 101,225 | 84,035 | 99,150 |
Revenue reserve | 4,064 | 3,717 | 4,347 | |
__________ | __________ | __________ | ||
Equity shareholders' funds | 109,945 | 92,408 | 108,153 | |
__________ | __________ | __________ | ||
Net asset value per Ordinary share (pence) | 8 | 229.73 | 193.09 | 225.99 |
__________ | __________ | __________ |
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
Six months ended 30 April 2014 (unaudited) | ||||||
Share | Capital | |||||
Share | premium | redemption | Capital | Revenue | ||
capital | account | reserve | reserve | reserve | Total | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
Balance at 31 October 2013 | 2,393 | 30 | 2,233 | 99,150 | 4,347 | 108,153 |
Return on ordinary activities after taxation | - | - | - | 2,075 | 1,200 | 3,275 |
Dividends paid A
| - | - | - | - | (1,483) | (1,483) |
_____ | ______ | _______ | ______ | ______ | ______ | |
Balance at 30 April 2014 | 2,393 | 30 | 2,233 | 101,225 | 4,064 | 109,945 |
_____ | ______ | _______ | ______ | ______ | ______ | |
Six months ended 30 April 2013 (unaudited) | ||||||
Share | Capital | |||||
Share | premium | redemption | Capital | Revenue | ||
capital | account | reserve | reserve | reserve | Total | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
Balance at 31 October 2012 | 2,393 | 30 | 2,233 | 71,679 | 4,164 | 80,499 |
Return on ordinary activities after taxation | - | - | - | 12,356 | 988 | 13,344 |
Dividends paid A | - | - | - | - | (1,435) | (1,435) |
_____ | ______ | _______ | ______ | ______ | ______ | |
Balance at 30 April 2013 | 2,393 | 30 | 2,233 | 84,035 | 3,717 | 92,408 |
_____ | ______ | _______ | ______ | ______ | ______ | |
Year ended 31 October 2013 (audited) | ||||||
Share | Capital | |||||
Share | premium | redemption | Capital | Revenue | ||
capital | account | reserve | reserve | reserve | Total | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
Balance at 31 October 2012 | 2,393 | 30 | 2,233 | 71,679 | 4,164 | 80,499 |
Return on ordinary activities after taxation | - | - | - | 27,471 | 2,599 | 30,070 |
Dividends paid A | - | - | - | - | (2,416) | (2,416) |
_____ | ______ | _______ | ______ | ______ | ______ | |
Balance at 31 October 2013 | 2,393 | 30 | 2,233 | 99,150 | 4,347 | 108,153 |
_____ | ______ | _______ | ______ | ______ | ______ | |
A See note 3. |
CASH FLOW STATEMENT
Six months ended | Six months ended | Yearended | |
30 April 2014 | 30 April 2013 | 31 October 2013 | |
(unaudited) | (unaudited) | (audited) | |
£'000 | £'000 | £'000 | |
Net cash inflow from operating activities | 448 | 537 | 2,315 |
Net cash outflow from servicing of finance | (48) | (49) | (100) |
Net cash inflow/(outflow) from financial investment | 1,217 | (965) | (1,854) |
Equity dividends paid | (1,483) | (1,435) | (2,416) |
_________ | _________ | _________ | |
Net cash inflow/(outflow) before financing | 134 | (1,912) | (2,055) |
_________ | _________ | _________ | |
Reconciliation of net cash flow to movements in net funds | |||
Increase/(decrease) in cash as above | 134 | (1,912) | (2,055) |
Opening net debt | (3,613) | (1,558) | (1,558) |
_________ | _________ | _________ | |
Closing net debt | (3,479) | (3,470) | (3,613) |
_________ | _________ | _________ | |
Represented by: | |||
Cash and cash equivalents | 1,521 | 1,530 | 1,387 |
Debt due within one year | (5,000) | (5,000) | (5,000) |
_________ | _________ | _________ | |
(3,479) | (3,470) | (3,613) | |
_________ | _________ | _________ |
Notes to the Financial Statements
1. | Accounting policies | |
(a) | Basis of preparation | |
The accounts have been prepared 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 'Financial Statements of Investment Trust Companies and Venture Capital Trusts'. 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'). | ||
The half-yearly financial statements have been prepared using the same accounting policies as the preceding annual accounts. | ||
(b) | Investments | |
Investments have been designated upon initial recognition as fair value through profit or loss. Investments are recognised at trade date where a purchase or sale is under a contract whose terms require delivery within the timeframe established by the market concerned, and are measured initially at fair value. Subsequent to initial recognition, investments are recognised at fair value through profit or loss. For listed investments, this is deemed to be bid market prices or closing prices for SETS stocks, sourced from the London Stock Exchange. SETS is the London Stock Exchange electronic trading service covering most of the market including all FTSE All-Share and the most liquid AIM constituents. Gains or losses arising from changes in the fair value are included in net profit or loss for the period as a capital item in the Income Statement and are ultimately recognised in the capital reserve. | ||
(c) | Dividends payable | |
Interim and final dividends are recognised in the period in which they are paid. |
Six months ended | Six months ended | Yearended | ||
30 April 2014 | 30 April 2013 | 31 October 2013 | ||
2. | Income | £'000 | £'000 | £'000 |
Income from investments A | ||||
UK dividend income | 1,325 | 1,117 | 2,859 | |
Overseas dividend income | 87 | 80 | 143 | |
UK stock dividend income | 65 | 22 | 66 | |
Property income distributions | 7 | - | 15 | |
_________ | _________ | _________ | ||
1,484 | 1,219 | 3,083 | ||
_________ | _________ | _________ | ||
Other income B | ||||
Deposit interest | 2 | 6 | 9 | |
_________ | _________ | _________ | ||
Total income | 1,486 | 1,225 | 3,092 | |
_________ | _________ | _________ | ||
A All investments have been designated fair value through profit or loss on initial recognition, therefore all investment income arises on investments at fair value through profit or loss. | ||||
B Other income on financial assets not designated fair value through profit or loss. |
Six months ended | Six months ended | Yearended | ||
30 April2014 | 30 April2013 | 31 October 2013 | ||
3. | Dividends | £'000 | £'000 | £'000 |
Amounts recognised as distributions to equity holders in the period: | ||||
Interim dividend for 2013 - 2.05p | - | - | 981 | |
Final dividend for 2013 - 3.10p (2012 - 3.00p) | 1,484 | 1,436 | 1,436 | |
Unclaimed dividends | (1) | (1) | (1) | |
_________ | _________ | _________ | ||
Dividends paid in the period | 1,483 | 1,435 | 2,416 | |
_________ | _________ | _________ | ||
An interim dividend of 2.10p for the year to 31 October 2014 will be paid on 25 July 2014 to shareholders on the register on 4 July 2014. The ex-dividend date is 2 July 2014. |
Six months ended | Six months ended | Year ended | ||
30 April2014 | 30 April2013 | 31 October 2013 | ||
4. | Return per Ordinary share | p | p | p |
Revenue return | 2.51 | 2.06 | 5.43 | |
Capital return | 4.33 | 25.82 | 57.40 | |
_________ | _________ | _________ | ||
Total return | 6.84 | 27.88 | 62.83 | |
_________ | _________ | _________ | ||
The figures above are based on the following attributable revenues: | ||||
Six months ended | Six months ended | Yearended | ||
30 April2014 | 30 April2013 | 31 October 2013 | ||
£'000 | £'000 | £'000 | ||
Revenue return | 1,200 | 988 | 2,599 | |
Capital return | 2,075 | 12,356 | 27,471 | |
_________ | _________ | _________ | ||
Total return | 3,275 | 13,344 | 30,070 | |
_________ | _________ | _________ | ||
Weighted average number of Ordinary shares in issue | 47,857,317 | 47,857,317 | 47,857,317 | |
_________ | _________ | _________ |
5. | Transaction costs | |||
During the period expenses were incurred in acquiring or disposing of investments at 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 ended | Six months ended | Yearended | ||
30 April2014 | 30 April2013 | 31 October 2013 | ||
£'000 | £'000 | £'000 | ||
Purchases | 25 | 31 | 89 | |
Sales | 6 | 6 | 14 | |
_________ | _________ | _________ | ||
31 | 37 | 103 | ||
_________ | _________ | _________ |
6. | Called-up share capital |
As at 30 April 2014 there were 47,857,317 (30 April and 31 October 2013 - 47,857,317) Ordinary shares of 5p each in issue. | |
No Ordinary shares of 5p each were bought back for cancellation during the six months to 30 April 2014 nor in the year to 31 October 2013. |
7. | Capital reserves |
The capital reserve reflected in the Balance Sheet at 30 April 2014 includes gains of £41,337,000 (30 April 2013 - gains of £30,732,000; 31 October 2013 - gains of £42,664,000) which relate to the revaluation of investments held at the reporting date. |
As at | As at | As at | ||
8. | Net asset value per Ordinary share | 30 April2014 | 30 April2013 | 31 October 2013 |
Equity shareholders' funds | £109,945,000 | £92,408,000 | £108,153,000 | |
Number of Ordinary shares in issue | 47,857,317 | 47,857,317 | 47,857,317 | |
Equity shareholders' funds per share | 229.73p | 193.09p | 225.99p |
9. | Interim Report |
The financial information contained in this Half-Yearly Financial Report does not constitute statutory accounts as defined in Sections 434 - 436 of the Companies Act 2006. The financial information for the six months ended 30 April 2014 and 30 April 2013 has not been audited. | |
The information for the year ended 31 October 2013 has been extracted from the latest published audited financial statements which have been filed with the Registrar of Companies. The report of the auditor on those accounts contained no qualification or statement under Section 498 of the Companies Act 2006. | |
The auditor has reviewed the financial information for the six months ended 30 April 2014 pursuant to the Auditing Practices Board guidance on Review of Interim Financial Information. The report of the auditor is attached. |
10. | This Half-Yearly Financial Report was approved by the Board on 13 June 2014 and the Half-Yearly Report will be posted to shareholders at the end of June 2014 and copies will be available from the Manager or the Company's website, wwwdunedinsmaller.co.uk. |
For Dunedin Smaller Companies Investment Trust PLC
Aberdeen Asset Management PLC SECRETARY
Please note that past performance is not necessarily a guide to the future and 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.