Half-year Report

DUNEDIN SMALLER COMPANIES INVESTMENT TRUST PLC

 

HALF YEARLY REPORT FOR THE SIX MONTHS ENDED 30 APRIL 2016

 

 

The objective of Dunedin Smaller Companies Investment Trust PLC is to achieve long-term growth from a portfolio of smaller companies in the United Kingdom.

 

 

 

Financial Highlights

	30 April 2016	31 October 2015	% change
Total assetsA (£'000)	116,681	117,823	-1.0
Equity shareholders' funds (£'000)	111,681	112,823	-1.0
Net asset value per Ordinary shareB	233.36p	235.75p	-1.0
Share price per Ordinary share (mid)	196.25p	200.38p	-2.1
Interim dividend per share	2.15p	2.15pC	-
Discount to net asset value	15.9%	15.0%	​
​A Represents total assets less current liabilities (before deducting bank loan).
B Including undistributed revenue for the period.	​	​	​
C For six months ended 30 April 2015.	​	​	​

 

 

 

Performance (total return)*

	Six months ended 30 April 2016	Year ended 31 October 2015
Net asset value per Ordinary share	+0.7%	+10.7%
Share price per Ordinary share	-0.1%	+13.7%
FTSE SmallCap Index (ex Investment Companies)	+1.3%	+13.1%
*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

 

 

 

 

 

For further information, please contact:

 

Ed Beal

Aberdeen Asset Managers Limited                                             0131 528 4000

 

Andrew Leigh

Aberdeen Asset Managers Limited                                             0207 463 6312

 

 

 

 

INTERIM BOARD REPORT - CHAIRMAN'S STATEMENT

 

The Company's net asset value ("NAV") total return for the six month ended 30 April 2016 saw a small increase of 0.7%. This compares to a marginally higher total return of 1.3% from the benchmark index, the FTSE SmallCap Index (excluding investment companies).

 

Although markets increased over the period as a whole, there was significant volatility, with sentiment dominated by concerns over slowing growth in China and the weakness of commodity prices, in particular oil, which fell to below $30 per barrel for the first time in 12 years. Towards the end of the period, sentiment improved as the Chinese authorities and European Central Bank announced further measures to stimulate their economies, resulting in an increase in investor appetite for risk.

 

The portfolio's better performers during the period included; plastics and packaging business RPC, specialist power convertor XP Power, industrial transportation company James Fisher, linen and textile rental manager Berendsen and a recent introduction to the portfolio, Smart Metering Systems. All of these companies traded well during the period. Conversely, as commodity prices staged something of a recovery during 2016, the portfolio's lack of exposure to small company mining stocks hurt performance.  The Manager continues to be wary of the risks inherent in many of their business models.  Other factors that have had a negative effect on performance have been the portfolio's secondary exposure to oil and gas markets where, for example, speciality chemicals producer Victrex saw reduced demand for its products that are sold into these end markets.  In addition, Mothercare and The Restaurant Group both issued profits warnings and Aveva, the software company, saw its share price fall after a mooted deal with Schneider failed to complete. 

 

Earnings and Dividends

The Company's revenue earnings per share for the period were 2.97p, a slight reduction compared to the amount of 3.17p recorded in the equivalent period last year. There are a number of one-off factors that caused the decline in earnings per share, including a lower level of special dividends.

 

As stated in last year's Annual Report, whilst the Company's objective is to achieve long term growth, the Board recognises the importance of income to shareholders and, in order to grow or maintain the dividend in future years, the Board intends, if necessary, to use the Company's substantial revenue and capital reserves to support any portion of the dividend not covered by the year's earnings.  The Board has declared an unchanged interim dividend of 2.15p per share which will be paid on 29 July 2016 to shareholders on the register on 8 July 2016. Subject to unforeseen circumstances, in respect of the current financial year it is the intention of the Board to at least maintain last year's total dividends of 6.0p per share.

 

Discount

The discount at the end of the period was 15.9%, reflecting a slight widening over the period, from 15.0%. The movement was consistent with a general widening of discounts within the investment trust sector and is reviewed by the Board on an ongoing basis.

 

Gearing

The Company remained ungeared during the period. It has a £5 million revolving credit facility in addition to a three year term loan of £5 million, which matures in November 2017 and has a fixed rate of interest of 2.171% per annum. The £5 million term loan is more than offset by cash balances held.

 

Outlook

The prospects for global economic growth remain uncertain, with China central to the outcome. The Chinese authorities have tilted policy away from reform and towards fiscal stimulus and for the time being this looks set to support growth. In the UK, although the recovery is continuing, it remains fragile and the timing of interest rate increases keeps moving further out. The uncertainty caused by the referendum on EU membership has been unhelpful in the context of both investor and corporate sentiment.

 

With so much uncertainty, stockmarkets are likely to remain volatile and, at current levels, equity valuations appear reasonably full, especially when expectations of slower corporate profit growth are taken into account. Smaller companies are, however, more attractively valued at the current time although investors are paying a premium for quality businesses, and this is evident in the valuation of the Company's holdings.

 

The Board continues to believe that the portfolio comprises high quality businesses that, notwithstanding the shorter term uncertainties, will prosper over the longer term.

 

Norman Yarrow

Chairman

17 June 2016

 

 

INTERIM BOARD REPORT - OTHER

 

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 Financial Reporting Standard 104 "Interim Financial Reporting";

·   the Interim Board Report (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).

 

Principal Risks and Uncertainties

The Board regularly reviews the principal risks and uncertainties which it has identified, together with the mitigation actions it has established to manage the risks. These are set out within the Strategic Report contained within the Annual Report for the year ended 31 October 2015 and comprise the following risk headings:

 

·   Investment strategy and objectives

·   Investment portfolio and investment management

·   Financial obligations

·   Financial and regulatory

·   Operational

 

The Company's principal risks and uncertainties have not changed materially since the date of the Annual Report and are not expected to change materially for the remaining six months of the Company's financial year.

 

Going Concern

The Company's assets consist substantially of equity shares in companies listed on the London Stock Exchange which are, in most circumstances, 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 £10 million are committed to the Company until 24 November 2017. As such, the Directors believe that the Company has adequate financial resources to continue in operational existence for the foreseeable future and at least 12 months from the date of this Report. For this reason, they continue to adopt the going concern basis of accounting in preparing the financial statements.

 

Norman Yarrow

Chairman

17 June 2016

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 2016 which comprises the Statement of Comprehensive Income, Statement of Financial Position, Statement of Changes in Equity and Statement of Cash Flows 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 Half-Yearly Financial Statements of the Company are prepared in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice), including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland. The condensed set of financial statements included in this Half-Yearly Financial Report has been prepared in accordance with FRS 104 Interim Financial Reporting.

 

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 2016 is not prepared, in all material respects, in accordance with FRS 104 Interim Financial Reporting and the DTR of the UK FCA.

 

Philip Merchant

For and on behalf of KPMG LLP

Chartered Accountants

Saltire Court

20 Castle Terrace

Edinburgh EH1 2EG

17 June 2016

 

 

CONDENSED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED) 

 

		Six months ended
		30 April 2016
		Revenue	Capital	Total
	Note	£'000	£'000	£'000
Losses on investments		-	(489)	(489)
Currency gains		-	6	6
Income	2	1,730	-	1,730
Management fee		(56)	(194)	(250)
Administrative expenses		(236)	-	(236)
		__________	__________	__________
Net return before finance costs and taxation		1,438	(677)	761
Finance costs		(15)	(47)	(62)
		__________	__________	__________
Net return on ordinary activities before taxation		1,423	(724)	699
Taxation		-	-	-
		__________	__________	__________
Return attributable to equity shareholders		1,423	(724)	699
		__________	__________	__________
Return per Ordinary share (pence)	4	2.97	(1.51)	1.46
		__________	__________	__________
The total column of the Condensed Statement of Comprehensive Income is 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 Condensed Statement of Comprehensive Income.
All revenue and capital items in the above statement derive from continuing operations.
The accompanying notes are an integral part of this condensed set of interim financial statements.

 

 

CONDENSED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED) (Cont'd)

 

		Six months ended
		30 April 2015
		Revenue	Capital	Total
	Note	£'000	£'000	£'000
Gains on investments		-	11,060	11,060
Currency gains		-	-	-
Income	2	1,825	-	1,825
Management fee		(57)	(259)	(316)
Administrative expenses		(232)	-	(232)
		__________	__________	__________
Net return before finance costs and taxation		1,536	10,801	12,337
Finance costs		(19)	(57)	(76)
		__________	__________	__________
Net return on ordinary activities before taxation		1,517	10,744	12,261
Taxation		-	-	-
		__________	__________	__________
Return attributable to equity shareholders		1,517	10,744	12,261
		__________	__________	__________
Return per Ordinary share (pence)	4	3.17	22.45	25.62
		__________	__________	__________

 

 

CONDENSED STATEMENT OF FINANCIAL POSITION (UNAUDITED)

 

		As at	As at
		30 April 2016	31 October 2015
	Note	£'000	£'000
Non-current assets
Investments at fair value through profit or loss		110,864	113,158
		__________	__________
Current assets
Debtors and prepayments		973	305
Cash and short term deposits		5,208	5,529
		__________	__________
		6,181	5,834
		__________	__________
Creditors: amounts falling due within one year
Other creditors		(364)	(1,169)
		__________	__________
		(364)	(1,169)
		__________	__________
Net current assets		5,817	4,665
		__________	__________
Total assets less current liabilities		116,681	117,823
		__________	__________
Creditors: amounts falling due after more than one year
Bank loan	5	(5,000)	(5,000)
		__________	__________
Net assets		111,681	112,823
		__________	__________
Capital and reserves
Called-up share capital	7	2,393	2,393
Share premium account		30	30
Capital redemption reserve		2,233	2,233
Capital reserve	8	102,611	103,335
Revenue reserve		4,414	4,832
		__________	__________
Equity shareholders' funds		111,681	112,823
		__________	__________
Net asset value per Ordinary share (pence)	9	233.36	235.75
		__________	__________
The accompanying notes are an integral part of this condensed set of interim financial statements.

 

 

CONDENSED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

 

Six months ended 30 April 2016
			Share	Capital
		Share	premium	redemption	Capital	Revenue
		capital	account	reserve	reserve	reserve	Total
	Note	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 October 2015		2,393	30	2,233	103,335	4,832	112,823
Return on ordinary activities after taxation		-	-	-	(724)	1,423	699
Dividends paid	3	-	-	-	-	(1,841)	(1,841)
		_____	______	_______	______	______	______
Balance at 30 April 2016		2,393	30	2,233	102,611	4,414	111,681
		_____	______	_______	______	______	______
Six months ended 30 April 2015
			Share	Capital
		Share	premium	redemption	Capital	Revenue
		capital	account	reserve	reserve	reserve	Total
		£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 October 2014		2,393	30	2,233	95,188	4,414	104,258
Return on ordinary activities after taxation		-	-	-	10,744	1,517	12,261
Dividends paid	3	-	-	-	-	(1,507)	(1,507)
		_____	______	_______	______	______	______
Balance at 30 April 2015		2,393	30	2,233	105,932	4,424	115,012
		_____	______	_______	______	______	______
The accompanying notes are an integral part of this condensed set of interim financial statements.

 

 

CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)

 

	Six months ended	Six months ended
	30 April 2016	30 April 2015
	£'000	£'000
Operating activities
Net return ordinary activities before finance costs and taxation	761	12,337
Adjustment for:
Losses/(gains) on investments	489	(11,060)
Increase in accrued dividend income	(653)	(687)
Decrease/(increase) in other debtors	15	(6)
(Decrease)/increase in creditors	(19)	96
	__________	__________
Net cash flow from operating activities	593	680
Investing activities
Purchases of investments	(12,534)	(5,354)
Sales of investments	13,524	8,138
	__________	__________
Net cash used in investing activities	990	2,784
Financing activities
Interest paid	(63)	(57)
Equity dividends paid	(1,841)	(1,507)
	__________	__________
Net cash flow used in financing activities	(1,904)	(1,564)
	__________	__________
(Decrease)/increase in cash and cash equivalents	(321)	1,900
	__________	__________
Analysis of changes in cash and cash equivalents during the period
Opening balance	5,529	1,342
(Decrease)/increase in cash above	(321)	1,900
	__________	__________
Closing balance	5,208	3,242
	__________	__________

 

 

Notes to the Financial Statements

 

1.	Accounting policies
	Basis of preparation
	The condensed financial statements have been prepared in accordance with Financial Reporting Standard 104 (Interim Financial Reporting) and with the Statement of Recommended Practice for 'Financial Statements of Investment Trust Companies & Venture Capital Trusts'.  They have also been prepared on a going concern basis and on the assumption that approval as an investment trust will continue to be granted.
	These condensed financial statements are the first since FRS 102 (The Financial Reporting Standard applicable in the UK & Republic of Ireland) came into effect for accounting periods beginning on or after 1 January 2015.  An assessment of the impact of adopting FRS 102 has been carried out and found that no restatement of balances as at the transition date, 1 January 2014, or comparative figures in the Condensed Statement of Financial Position or the Condensed Statement of Comprehensive Income is considered necessary.  The Company has early adopted Amendments to FRS 102 - Fair Value Hierarchy Disclosures, issued by the Financial Reporting Council in March 2016.

 

		Six months ended	Six months ended
		30 April 2016	30 April 2015
2.	Income	£'000	£'000
	Income from investmentsA
	UK dividend income	1,562	1,669
	Overseas dividend income	115	96
	Property income distributions	40	40
		__________	__________
		1,717	1,805
		__________	__________
	Other incomeB
	Deposit interest	7	2
	Underwriting commission	6	18
		__________	__________
	Total income	1,730	1,825
		__________	__________
	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
		30 April 2016	30 April 2015
3.	Dividends	£'000	£'000
	Amounts recognised as distributions to equity holders in the period:
	Final dividend for 2014 - 3.15p	-	1,508
	Final dividend for 2015 - 3.85p	1,842	-
	Unclaimed dividends	(1)	(1)
		__________	__________
	Dividends paid in the period	1,841	1,507
		__________	__________
	An interim dividend of 2.15p for the year to 31 October 2016 will be paid on 29 July 2016 to shareholders on the register on 8 July 2016. The ex-dividend date is 7 July 2016.

 

		Six months ended	Six months ended
		30 April 2016	30 April 2015
4.	Return per Ordinary share	p	p
	Revenue return	2.97	3.17
	Capital return	(1.51)	22.45
		__________	__________
	Total return	1.46	25.62
		__________	__________
	The figures above are based on the following attributable revenues:
		Six months ended	Six months ended
		30 April 2016	30 April 2015
		£'000	£'000
	Revenue return	1,423	1,517
	Capital return	(724)	10,744
		__________	__________
	Total return	699	12,261
		__________	__________
	Weighted average number of Ordinary shares in issue	47,857,317	47,857,317
		__________	__________

 

5.

Bank loan

The Company has a £5 million revolving facility agreement and a three year term loan facility of £5 million with Scotiabank Europe, which matures on 24 November 2017. £5 million is currently drawn down at a fixed interest rate of 2.171% until 24 November 2017. The terms of the loan facility contain covenants that the minimum net assets of the Company are £50 million and the percentage of borrowings against net assets to be less than 25%.

 

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 losses on investments in the Condensed Statement of Comprehensive Income. The total costs were as follows:
		Six months ended	Six months ended
		30 April 2016	30 April 2015
		£'000	£'000
	Purchases	52	25
	Sales	15	9
		__________	__________
		67	34
		__________	__________

 

7.	Called-up share capital
	As at 30 April 2016 there were 47,857,317 (31 October 2015 - 47,857,317) Ordinary shares of 5p each in issue.

 

8.	Capital reserves
	The capital reserve reflected in the Condensed Statement of Financial Position at 30 April 2016 includes losses of £5,743,000 (31 October 2015 - gains of £1,119,000) which relate to the revaluation of investments held at the reporting date.

 

		As at	As at
9.	Net asset value per Ordinary share	30 April 2016	31 October 2015
	Equity shareholders' funds	£111,681,000	£112,823,000
	Number of Ordinary shares in issue	47,857,317	47,857,317
	Equity shareholders' funds per share	233.36p	235.75p

 

10.	Fair value hierarchy
	FRS 102 requires an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The Company has early adopted Amendments to FRS 102 - Fair Value Hierarchy Disclosures, issued by the Financial Reporting Council in March 2016. The fair value hierarchy shall have the following classifications:
	Level 1: unadjusted quoted prices in an active market for identical assets or liabilities that the entity can access at the measurement date.
	Level 2: inputs other than quoted prices included within Level 1 that are observable (ie developed using market data) for the asset or liability, either directly or indirectly.
	Level 3: inputs are unobservable (ie for which market data unavailable) for the asset or liability.
	The financial assets and liabilities measured at fair value in the Condensed Statement of Financial Position are grouped into the fair value hierarchy at the reporting date as follows:
				Level 1	Level 2	Level 3	Total
	As at 30 April 2016		Note	£'000	£'000	£'000	£'000
	Financial assets at fair value through profit or loss
	Quoted equities and preference shares		a)	110,864	-	-	110,864
				_______	_______	_______	_______
	Total			110,864	-	-	110,864
				_______	_______	_______	_______
				Level 1	Level 2	Level 3	Total
	As at 31 October 2015		Note	£'000	£'000	£'000	£'000
	Financial assets at fair value through profit or loss
	Quoted equities and preference shares		a)	113,158	-	-	113,158
				_______	_______	_______	_______
	Total			113,158	-	-	113,158
				_______	_______	_______	_______
	a)	Quoted equities and preference shares
		The fair value of the Company's investments in quoted equities and preference shares has been determined by reference to their quoted bid prices at the reporting date. Quoted equities and preference shares included in Fair Value Level 1 are actively traded on recognised stock exchanges.

 

11.	Transactions with the Manager
	The Company has agreements with Aberdeen Fund Managers Limited ("AFML" or the "Manager") for the provision of investment management, secretarial, accounting and administration and promotional services.
	The management fee is calculated at 0.4% per annum of the gross assets of the Company after deducting current liabilities and excluding commonly managed funds ('adjusted gross assets'). The management fee is chargeable 25% to revenue and 75% to capital. During the period £223,000 (30 April 2015 - £227,000) of investment management fees were earned by the Manager, with a balance of £115,000 (30 April 2015 - £118,000) being payable to AFML at the period end. There were no commonly managed funds held in the portfolio during the six months to 30 April 2016 (2015 - none).
	In addition, the Manager is entitled to a performance-related fee calculated quarterly in arrears at a rate of 0.1% per annum (up to a maximum of 0.5% per annum) of the adjusted gross assets for every 1% by which the Company's net asset value performance outperforms the capital performance of the FTSE SmallCap Index (ex Investment Companies) over the previous twelve month period. During the period £27,000 (30 April 2015 - £89,000) was earned by the Manager, with a balance of £nil (30 April 2015 - £89,000) being payable to AFML at the period end.
	The management agreement may be terminated by either party on the expiry of three months written notice. On termination the Manager would be entitled to receive fees which would otherwise have been due up to that date.
	The promotional activities fee is based on a current annual amount of £50,000 inclusive of VAT, payable quarterly in arrears. During the period £28,000 (30 April 2015 - £25,000) of fees were earned, with a balance of £5,000 (30 April 2015 - £17,000) being payable to AFML at the period end.
	The secretarial activities fee is based on a current annual amount of £101,000 inclusive of VAT, payable quarterly in arrears. During the period £51,000 (30 April 2015 - £50,000) of fees were earned, with a balance of £25,000 (30 April 2015 - £25,000) being payable to AFML at the period end.

 

12.	Related party disclosures
	There were no related party transactions during the period.

 

13.	Segmental information
	The Company is engaged in a single segment of business, which is to invest in equity securities. All of the Company's activities are interrelated, and each activity is dependent on the others. Accordingly, all significant operating decisions are based on the Company as one segment.

 

14.	This Half-Yearly Financial Report was approved by the Board on 17 June 2016.

 

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.