Smaller Companies Value Trust PLC
Smaller Companies Value Trust plc
Preliminary announcement of the results for the half-year ended
31 October 2007
Smaller Companies Value Trust plc is registered in England and Wales no. 4388908
and is an investment company within the meaning of section 266 of the Companies
Act 1985.
Registered office: 10 Fleet Place, London, EC4M 7RH
Smaller Companies Value Trust plc
Chairman's Statement
The period under review has been a challenging one for UK equity markets, and
smaller companies in particular. During the period, concern over the quality of
US subprime mortgage lending escalated into a credit squeeze and then a
full-blown global liquidity crisis. While the actions of the Federal Reserve in
cutting the discount rate and later the Fed funds interest rate, together with
the provision of massive liquidity by all of the Western central banks, helped
to ease conditions in the money markets, concerns over the credit situation
remain, and are unlikely to return to normal soon. Smaller companies in
particular have been strongly affected by this tightening of conditions, with
nervous investors seeking refuge in the perceived safety of large-capitalisation
stocks.
Over the six months to 31 October 2007, the Trust's benchmark, the Hoare Govett
Smaller Companies (excluding investment companies) index (capital only), fell by
4.99%. The performance of this index contrasts sharply with the performance of
the FTSE 100 index, which on a total return basis rose nearly 6% over the
period. The share price of smaller companies is often more closely allied to the
market's appetite for risk than to company performance, so the figures offer
graphic evidence of the change in investor mood.
Over the period, the net asset value (NAV) of the Company's capital shares fell
by 9.81% (or 8.29% on an ungeared basis). The underperformance of your Trust
over the last six months was partially due to underweight positions in the oil
and gas producers and mining sectors which performed particularly well, but they
have low or no dividend yield. In addition, there were company specific issues
from Erinaceous, Paragon Group and Imprint which led to significant share price
falls of these companies.
Dividend
Your Board is pleased to announce an interim dividend of 3.00 pence per income
share.
Outlook
It seems likely that the UK economy will slow as business investment declines
and a weaker housing market begins to affect consumer spending. At the same
time, corporate balance sheets remain healthy, with companies continuing to
highlight opportunities for acquisitions and/or cash returns. While the
performance of smaller companies relative to the market is unlikely to improve
until the extent of the subprime problem is known, the market's flight to
large-capitalisation stocks has left many smaller companies at attractive
valuations. I am confident in the manager's ability to identify these
opportunities and take advantage of them.
A F Bushell
Chairman
7 December 2007
Investment Manager's Review
Global and market background
Not since the start of the current bull run more than four years ago have UK
equities experienced such a turbulent run, with investors increasingly concerned
that difficulties associated with US subprime mortgage lending would begin to
affect global growth prospects. On August 16, the FTSE 100 experienced its
largest one-day loss since March 2003 - over 4% - as anxieties increased. The
next day, encouraged by the US Federal Reserve's surprise decision to cut the
discount rate by half a percentage point, it rebounded by over 3%, another
four-year record.
The tightening of credit conditions had a negative effect on money markets and
led to the first run on a British bank in more than a century. The extraordinary
implosion at Northern Rock reflected the increasing difficulty faced by many
institutions in accessing financial markets. With the Bank of England initially
deciding against any intervention, interbank lending rates rose to more than one
percentage point above the bank's base rate. Only after a blanket guarantee on
deposits in Northern Rock and the central bank's offer of short-term lending -
an apparent about-face to its original hands-off approach - did a degree of
normality return to the money markets.
Against such a difficult backdrop, it is hardly surprising that many investors
have retreated to the more defensive areas of the market. The credit market
volatility soon cooled the level of merger & acquisition activity, as the cost
of finance for private equity players increased. Such activity, both rumoured
and actual, had been one of the key drivers of markets in 2006 and early 2007.
It was also part of the reason why mid-cap shares had performed robustly
relative to the rest of the market. The change in sentiment has seen shares in
the mega-caps outperform those of smaller companies.
The overall decline in the UK equity market masked a wide range of performances
at sector level. The robust performance of the global economy, led by China and
India, helped many industrial stocks to significant gains. On the other hand,
areas of the market more sensitive to changes in interest rates, including
financials and real estate, struggled.
Portfolio activity
The Trust's performance against the benchmark can be explained partly by its
lack of exposure to the oil and mining sectors, which turned out to be among the
strongest performers. During the period we increased our exposure by
establishing a holding in Abbot Group, an oil-rig fabricator and operator. The
company delivered a strong set of first-half results and its share price gained
considerably on the back of two takeover proposals.
Our disposal of shares in Unite, Savills and Workspace Group proved beneficial
to performance and reflected our cautious outlook for the UK property market. We
also reduced our holding in Mapeley, a specialist property company. Our approach
to transactions, though, remains stock-specific. We reduced our holding in Axon
Group, a consultancy, following a strong run in its share price. We also took
profits in foundry products manufacturer Foseco after its bid approach from
Cookson, and in Spectris, a manufacturer of precision instruments and controls.
On the downside, the poor performance of Carter & Carter, a training provider,
prompted us to dispose of our holding, with the company's entry into the
government-funded vocational training arena having proved more difficult than
expected. We also sold our shares in facilities management company Erinaceous
after a period of disappointing trading and concerns over the quality of its
earnings.
Among the purchases, we established a new holding in Hilton Food Group, a
specialist meat-packing business, and were encouraged by the company's strong
underlying half-year figures. We also participated in several initial floats,
including CVS Group, which we believe will profit from the consolidation of the
fragmented yet growing veterinary services industry; and Cineworld, a multiplex
cinema operator which benefited from better than expected summer trading.
Though we are mindful of the outlook for consumer spending in the UK, some
companies in this sector are trading at attractive valuations. We have also
minimised our exposure to companies susceptible to a downturn in the US economy,
given the cautious outlook over the next several months. We remain optimistic
over areas of the domestic UK market where long term funding is in place.
Outlook
The global economy now shows a mixed picture. A shadow still hangs over the
advanced economies because of US housing market difficulties and the uncertainty
in financial markets. But developing countries continue to push ahead,
reflecting structural economic improvement.
In the UK, things seem to be at a turning point. The turmoil in the credit
markets has conspired with other factors to produce a significant change in
thinking over the outlook for interest rates. While there is no clear evidence
yet of a significant economic slowdown, a recent fall in UK Consumer Price
Inflation proved unexpectedly sharp. There have also been early signs of weaker
activity in the housing market. Where in early August sentiment pointed toward a
rise in interest rates, the next change now looks likely to be a cut.
We expect a modest slowdown in growth over the months to come, but a more
serious setback is possible if consumers become markedly more cautious.
Meanwhile, the fallout from the subprime situation is likely to continue for
some months to come, pointing to a further period of market volatility. While
this is not likely to be good news for smaller companies, the balance sheets of
mid-caps in particular are currently in a much healthier state than they were
during the last economic downturn. As a rule, the companies in our portfolio
have agreed borrowing facilities at explicit rates that will facilitate
expansion and/or acquisitions. The outlook over the long term is broadly
favourable. Corporate profitability and dividend growth remain encouraging,
suggesting that plenty of opportunities in the market remain.
Gregor Macdonald
Scottish Widows Investment Partnership Limited
7 December 2007
Smaller Companies Value Trust plc
Investment objective and policy
The Company invests in a diversified portfolio of quoted UK smaller companies
with the objective of providing income shareholders with a dividend yield,
together with the potential for dividend growth and capital shareholders with
the benefit of geared capital growth.
The Board seeks to balance the interests of the holders of the income shares and
capital shares at all times and the investment policy is such that the Company
is a qualifying investment trust under the Income and Corporation Taxes Act 1988
(as amended).
Smaller Companies Value Trust plc has a life of seven years, ending on 30 April
2009.
Financial calendar
Ex-dividend date 19 December 2007
Record date 21 December 2007
Final dividend payable 9 January 2008
Financial highlights
Period ended Period ended Year ended
31 October 2007 31 October 30 April 2007
2006
(unaudited) (unaudited) (audited)
Net asset value per package unit (Articles basis)(a) 253.88p 239.90p 274.53p
Share price per package unit (b) 223.00p 212.00p 248.25p
Net asset value per income share (Articles basis) 56.75p 53.43p 55.96p
Share price per income share (b) 62.75p 64.25p 64.75p
Net asset value per capital share (Articles basis) 197.13p 186.47p 218.57p
Share price per capital share (b) 157.50p 148.50p 183.50p
Hoare Govett Smaller Companies Index (excluding investment
companies)(c) 9,041.75 8,008.52 9,401.67
Dividend per income share 3.00p 1.95p 5.47p
(a) A package unit consists of one capital share and one
income share.
(b) Source : Bloomberg
(c) Source : Datastream. The index includes both capital and
income.
Smaller Companies
Value Trust plc
Income Statement
For the period ended For the period ended For the year ended
31 October 2007 (unaudited) 31 October 2006 (unaudited) 30 April 2007 (audited)
Revenue Capital Total Revenue Capital Total Revenue Capital Total
�' 000 �' 000 �' 000 �' 000 �' 000 �' 000 �' 000 �' 000 �' 000
------------------- --------- ------------- -------- --------- -------------- ------- --------- ----------- --------
Gains on
investments
(Losses)/gains on
investments - (4,043) (4,043) - 1,638 1,638 - 9,186 9,186
Transaction costs - (173) (173) - (143) (143) - (330) (330)
--------- ------------- -------- --------- -------------- ------- --------- ----------- --------
- (4,216) (4,216) - 1,495 1,495 - 8,856 8,856
Income 989 - 989 831 - 831 1,510 - 1,510
Investment
management fee + 21 63 84 (65) (195) (260) (138) (412) (550)
Other expenses (83) - (83) (65) - (65) (135) - (135)
--------- ------------- -------- --------- -------------- ------- --------- ----------- --------
Net return/(loss)
before finance
costs and taxation 927 (4,153) (3,226) 701 1,300 2,001 1,237 8,444 9,681
Finance costs
Interest payable (64) (191) (255) (64) (191) (255) (126) (378) (504)
Income share
dividends and
other
appropriations (863) - (863) (637) - (637) (1,111) - (1,111)
--------- ------------- -------- --------- -------------- ------- --------- ----------- --------
Total finance costs (927) (191) (1,118) (701) (191) (892) (1,237) (378) (1,615)
(Loss)/return on
ordinary
activities
before taxation - (4,344) (4,344) - 1,109 1,109 - 8,066 8,066
Taxation on
ordinary
activities - - - - - - - - -
--------- ------------- -------- --------- -------------- ------- --------- ----------- --------
(Loss)/return on
ordinary
activities
after taxation - (4,344) (4,344) - 1,109 1,109 - 8,066 8,066
--------- ------------- -------- --------- -------------- ------- --------- ----------- --------
(Loss)/return per
capital share (21.38p) 5.46p 39.70p
------------- -------------- -----------
The total column of this statement is the profit and loss account of the
Company.
No operations were acquired or discontinued during the period.
All revenue and capital items in the above statement derive from continuing
operations.
A Statement of Total Recognised Gains and Losses is not required as all gains
and losses of the Company have been reflected in the above statement.
+ The investment management fee for the period is shown as a credit, following
an announcement by HM Revenue and Customs that management fees paid by
investment trusts, which were previously subject to VAT, are now exempt. This
exemption has a retrospective effect.
Smaller Companies Value Trust plc
Balance Sheet
At At At
31 October 31 October 30 April
2007 2006 2007
(unaudited) (unaudited) (audited)
�' 000 �' 000 �' 000
------------------------------------------------ -------------- -------------- --------------
Non current assets
Investments at fair value through profit and
loss 58,426 52,185 63,085
Current assets
Debtors 608 1,084 1,505
Cash at bank and in hand 998 4,563 432
-------------- -------------- --------------
Total current assets 1,606 5,647 1,937
-------------- -------------- --------------
Current liabilities
Creditors: amounts falling due within one year (325) (964) (1,119)
-------------- -------------- --------------
Net current assets 1,281 4,683 818
-------------- -------------- --------------
Total assets less current liabilities 59,707 56,868 63,903
-------------- -------------- --------------
Creditors: amounts falling due after more than
one year
Bank loan (8,127) (8,127) (8,127)
Income shares (13,260) (13,034) (13,112)
-------------- -------------- --------------
(21,387) (21,161) (21,239)
-------------- -------------- --------------
Total net assets 38,320 35,707 42,664
-------------- -------------- --------------
Capital and reserves: equity interests
Called up share capital 203 203 203
Special reserve 19,408 19,408 19,408
Capital reserve 18,709 16,096 23,053
-------------- -------------- --------------
Shareholders' funds 38,320 35,707 42,664
-------------- -------------- --------------
Net asset value per share (Accounts basis):
Income share 65.27p 64.15p 64.54p
-------------- -------------- --------------
Capital share 188.61p 175.75p 209.99p
-------------- -------------- --------------
Net asset value per share (Articles basis):
Income share 56.75p 53.43p 55.96p
-------------- -------------- --------------
Capital share 197.13p 186.47p 218.57p
-------------- -------------- --------------
The net asset values per share (Accounts basis) shown above, have been
calculated in accordance with Financial Reporting Standard 25 (Financial
Instruments: Disclosure and Presentation).
The shareholders' funds attributable to each class of share have also been
calculated in accordance with the articles of association. The difference
between these figures relates to the rights, under the articles of association,
of the shareholders on a return of assets, which gives rise to an adjustment in
the finance cost of those shares.
Smaller Companies Value Trust plc
Reconciliation of Movements in
Shareholders' Funds
For the period ended 31 October 2007
Issued Special Capital
Capital Reserve Reserves Total
�' 000 �' 000 �' 000 �' 000
------------------------------------- ------------- ---------- ---------- ----------
Shareholders' funds at 1 May 2006 203 19,408 14,987 34,598
Return on ordinary activities after
taxation - - 1,109 1,109
------------- ---------- ---------- ----------
Shareholders' funds at 31 October
2006 203 19,408 16,096 35,707
------------- ---------- ---------- ----------
Shareholders' funds at 1 November
2006 203 19,408 16,096 35,707
Return on ordinary activities after
taxation - - 6,957 6,957
------------- ---------- ---------- ----------
Shareholders' funds at 30 April 2007 203 19,408 23,053 42,664
------------- ---------- ---------- ----------
Shareholders' funds at 1 May 2007 203 19,408 23,053 42,664
Loss on ordinary activities after
taxation - - (4,344) (4,344)
------------- ---------- ---------- ----------
Shareholders' funds at 31 October
2007 203 19,408 18,709 38,320
------------- ---------- ---------- ----------
Smaller Companies Value Trust plc
Cash Flow Statement
Period ended Period ended Year ended
31 October 31 October 30 April
2007 2006 2007
(unaudited) (unaudited and (audited)
restated)(a)
�' 000 �' 000 �' 000
--------------------------------------------- --------------- ------------------ --------------
Operating activities
Investment income received 1,037 995 1,418
Other income received 2 3 14
Deposit interest received 50 20 80
Investment management fees paid (290) (258) (535)
Other cash payments (101) (99) (150)
--------------- ------------------ --------------
Net cash inflow from operating activities 698 661 827
--------------- ------------------ --------------
Servicing of finance
Interest paid on bank loan (255) (257) (504)
Dividends paid on income shares (715) (569) (965)
--------------- ------------------ --------------
Net cash outflow from servicing of finance (970) (826) (1,469)
--------------- ------------------ --------------
Investing activities
Purchases of investments (22,619) (15,719) (37,445)
Disposals of investments 23,305 20,131 38,203
--------------- ------------------ --------------
Net cash inflow from investing activities 686 4,412 758
--------------- ------------------ --------------
Increase in cash 414 4,247 116
--------------- ------------------ --------------
Reconciliation of net cash flow to movement
in net debt
Increase in cash in the period 414 4,247 116
Increase in income share liability (148) (68) (146)
Opening net debt (20,807) (20,777) (20,777)
--------------- ------------------ --------------
Closing net debt (20,541) (16,598) (20,807)
--------------- ------------------ --------------
Financial statements
These half-yearly financial statements do not represent full financial
statements in accordance with section 240 of the Companies Act 1985.
The financial information for the year ended 30 April 2007 has been extracted
from the annual report and accounts of the Company which have been filed with
the Registrar of Companies. The auditors' report on those accounts was
unqualified.
(a) The figures for the period ended 31 October 2006 have been restated to
reflect the recognition of the income shares as a liability.
It is intended to send the half-yearly report to shareholders in December
2007.Smaller Companies Value Trust plc
Smaller Companies Value Trust plc
Sector Distribution at 31 October 2007
Basic Industries 8.65%
Cyclical Consumer Goods 3.30%
Cyclical Services 33.39%
Financials 16.02%
General Industrials 15.98%
Information Technology 7.41%
Non-Cyclical Consumer Goods 11.24%
Resources 1.86%
Net current assets 2.15%
-----------------
Total assets less current liabilities 100.00%
-----------------
Smaller Companies Value Trust plc
Fifty Largest Holdings at 31 October
2007
Percentage of
total assets
31 October 2007 less current
valuation liabilities
Investment �'000 % Business activity
1 Interserve 2,167 3.62 Support Services
2 Babcock International Group 1,818 3.04 Support Services
3 Fenner 1,725 2.89 Industrial Engineering
4 Hyder Consulting 1,723 2.89 Support Services
5 Dignity 1,682 2.82 General Retailers
6 Morgan Crucible Company 1,588 2.66 Electronic & Electrical Equipment
7 Kier Group 1,502 2.52 Construction & Materials
8 VT Group 1,445 2.42 Aerospace & Defense
9 Cranswick 1,412 2.36 Food Producers
10 Rok 1,384 2.32 Construction & Materials
Top ten investments 16,446 27.54
11 W S Atkins 1,363 2.28 Support Services
12 Highway Insurance Holdings 1,324 2.23 Non-life Insurance
13 Cookson Group 1,278 2.14 General Industrials
14 Ricardo 1,243 2.08 Support Services
15 Hilton Food Group 1,217 2.04 Food Producers
16 Beazley Group 1,216 2.04 Non-life Insurance
17 Caretec Holdings Inc 1,209 2.02 Health Care Equipment & Service
18 Intermediate Capital 1,209 2.02 General Financial
19 Headlam Group 1,174 1.97 Household Goods
20 Elementis 1,139 1.91 Chemicals
21 Croda International 1,133 1.90 Chemicals
22 Axon Group 1,121 1.88 Software & Computer Services
23 Venture Production 1,110 1.86 Oil & Gas Producers
24 Southern Cross Healthcare 1,090 1.83 Health Care Equipment & Service
25 Hansard Global 1,021 1.71 Life Insurance
26 Innovation Group 1,020 1.71 Software & Computer Services
27 Wilmington Group 1,016 1.70 Media
28 Topps Tiles 1,006 1.68 General Retailers
29 Chesnara 1,002 1.68 Life Insurance
30 Luminar Group Holding 994 1.66 Travel & Leisure
31 CVS Group 957 1.60 General Retailers
32 Fidessa Group 934 1.56 Software & Computer Services
33 Detica Group 932 1.56 Software & Computer Services
34 Euromoney Institutional Investor 930 1.56 Media
35 Abbot Group 925 1.55 Oil Equipment, Services & Dist
36 Cineworld Group 878 1.47 Travel & Leisure
37 Rathbone Brothers 855 1.43 General Financial
38 Hargreaves Service 831 1.39 Support Services
39 Mapeley 802 1.34 Real Estate
40 Bovis Homes Group 796 1.33 Household Goods
41 Holidaybreak 772 1.29 Travel & Leisure
42 Senior 766 1.28 Industrial Engineering
43 Bodycote Intl 764 1.28 Industrial Engineering
44 Paragon Group Of Cos 756 1.27 General Financial
45 Tenon Group 736 1.23 General Financial
46 Land Of Leather 736 1.23 General Retailers
47 Sthree 682 1.14 Support Services
48 Renovo Group 679 1.14 Pharmaceuticals & Biotechnology
49 Gyrus Group 654 1.10 Health Care Equipment & Service
50 Collins Stewart 641 1.07 General Financial
--------------- ----------------
55,357 92.70
Other equities (8) 3,069 5.15
Net current assets 1,281 2.15
--------------- ----------------
Total assets less current
liabilities 59,707 100.00
--------------- ----------------
Smaller Companies Value Trust (LSE:SVLC)
Historical Stock Chart
From Jun 2024 to Jul 2024
Smaller Companies Value Trust (LSE:SVLC)
Historical Stock Chart
From Jul 2023 to Jul 2024
