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Henderson Smllr Cos (HSL)

  Print      Mail a friend       Annual reports

Wednesday 13 August, 2008

Henderson Smllr Cos

Final Results

RNS Number : 2896B
Henderson Smaller Cos Inv Tst PLC
13 August 2008
 




13 August 2008



MANAGEMENT REPORT

Chairman's Statement:


The year has been a difficult one. The net asset value per share at our year-end was 317.6p. This represents a negative total return of 18.6%. By comparison, our benchmark index returned a negative 21.2%. These figures are disappointing. However, our out-performance of the benchmark shows the strength of our management team, who have beaten the benchmark for five consecutive years.


The attribution of performance is estimated as follows:




Year ended 

31 May 2008




Net asset value per share total return


(18.6)%

Benchmark total return (note 1)


(21.2)%



--------

Relative performance 


2.6%



--------

Made up:



Stock selection 


4.9%

Gearing 


(3.5)%

Share buy-backs


1.1%

Expenses 


(0.5)%

Write-back of VAT


0.6%



---------



2.6%



---------

Notes:

  • The benchmark is the Hoare Govett Smaller Companies (excluding investment companies) Index.

  • Source: Henderson Global Investors Limited.


It shows that stock selection was strongly positive, but was partially offset by the effect of gearing.

Revenue and dividend

The revenue return per share was 4.64p, more than double the 2.12p of the previous year. In part, this reflects the growth in income from our investments but, as I reported at the half-year stage, the most significant factor has been the expected refund of VAT borne on management fees. We propose a final dividend for the year of 2.20p per share (an increase of 29%) excluding the VAT refund and a special dividend of 1.60p per ordinary share in respect of the VAT refund. Both payments are subject to shareholder approval at the Annual General Meeting in September.

Share buy-backs

During the year we bought back 6.2 million shares, equivalent to about 7% of those in issue at 31 May 2007, at an average discount (calculated by valuing the debenture stock at par) of just over 18%. Despite the volume of share buy-backs, our Company remains one of the larger constituents of its sector.


MANAGEMENT REPORT, continued 

Board composition

As announced last year, Max Taylor will retire as a director at the conclusion of the Annual General Meeting. With his business expertise, broad interests and alert attention to detail, he has contributed to the Board for fifteen years; we shall miss him and wish him well for the future. I am pleased to report that James Nelson has agreed to take on the role of Senior Independent Director.


Mary Ann Sieghart was appointed to the Board in July 2008. She is well known as a journalist and commentator and was Assistant Editor of The Times until last year. I am delighted that she has joined us. She is new to investment trusts and so brings a fresh, independent and enquiring mind that adds diversity to the Board.   

Investment policy

The UKLA Listing Rules now allow investment trust companies to use short selling to enhance portfolio returns. The Board has concluded that the Company should be positioned to benefit from this.


The primary benefits of using these instruments will result from selling short the shares of companies that the Manager believes are overvalued or which have flawed business models and are likely to fall in value. Additionally, it will allow more flexibility in managing the Company's gearing.


We are therefore proposing that the Company's investment policy be modified to allow the Manager to invest in short positions, including financial derivative instruments such as CFDs (contracts for difference). This will enhance the range of tools that the Manager has available with which to maximise returns for shareholders. In the near term at least, this will be an enabling measure: our future will continue to be based on a portfolio of long term investments, actively managed to outperform the market. Shareholder approval of the new policy will be sought by means of an ordinary resolution at the Annual General Meeting. 

Management and performance fees

The Board and the Manager have reviewed the management fee arrangements for the three-year period beginning on 1 June 2008. We have agreed to leave the base management fee unchanged (at 0.35% per annum of the assets under management) but will increase the incentive that the performance fee arrangements are intended to provide. The changes are an increase in the cap on the total management fees payable in any one accounting year, from 1.0% to 1.5% of the Company's average net assets, and an increase in the cash cap from £2 million to £4 million. We have also agreed to pay a performance fee for out-performance in years when absolute performance is negative (but at two thirds of the rate that would otherwise apply and subject to a cap of 1.2% of average net assets). These changes reflect the Board's focus on long term out-performance of the benchmark. Shareholder approval of these changes will be sought by means of an ordinary resolution at the Annual General Meeting.





MANAGEMENT REPORT, continued 

Articles of Association

We are proposing to adopt new Articles of Association that reflect the changes to company law made by the Companies Act 2006, some important provisions of which come into effect on 1 October 2008. Shareholder approval of the new Articles will be sought by means of a special resolution at the Annual General Meeting. 



It is our intention to offer investors an attractive and efficient means of investing in UK smaller companies. We have a good track record with a 162.8% total return over the past five full years that our Fund Manager has been in place. In bad times we aim to do better than our competitors; and likewise in good times. That is why you invest in this Trust.


Fund Manager's Review


Market - year in review

After four years of excellent returns, both in a relative and an absolute sense, the year under review turned out to be a difficult oneThe emergence of a global credit crunch, a run on and subsequent nationalisation of a major UK High Street bank, rapidly escalating oil and food prices and faltering Western economies provided a poor backdrop for equity markets. Unsurprisingly in this environment smaller companies had a tough time and underperformed large companies by over 12%.


Fund performance

The Trust had a mixed year in performance terms - falling in absolute terms but outperforming on a relative basis. The net asset value fell 18.6%, on a total return basis, which comes after a 224.4% rise over the previous four years. This compares to a fall of 21.2% (total return) from the Hoare Govett Smaller Companies Index (exluding investment companies) and 30.6% (total return) from the FTSE SmallCap Index (exluding investment companies). The Trust benefited from a combination of underlying positive portfolio performance and net asset value enhancing buy-backs. Gearing in the Trust was a negative contributor. The year under review was the fifth consecutive year of outperformance of our benchmark, the Hoare Govett Smaller Companies Index (excluding investment companies), during which period the Trust has produced total returns of 162.8% and outperformance of 48.5%.


In terms of positive contributors to fund performance, we saw excellent performances from Wellstream, the manufacturer of flexible pipes for the oil industry, Playtech, a provider of software for the on-line gaming industry, and John Wood Group, the oil service company. These companies all produced strong earnings growth above market expectationsOur holdings in Expro International, the oil service company, and Enodis, the catering equipment manufacturer, also saw big gains after takeover bids. W S Atkins, the engineering consultancy, performed strongly after it removed itself from running part of the London Underground, which allowed the market to appreciate strong trading at its core operations. International Ferro Metals rose 49% after the company began production and the price of ferro-chrome, its key output, rose sharply.

MANAGEMENT REPORT, continued 


Our exposure to stocks involved in the UK housing market proved to be a negative drag on performance. Housebuilders Bellway and Bovis, as well as buy to let mortgage provider Paragon and residential property investor Grainger Trust, all had disappointing years. The housing market has clearly deteriorated farther and faster than we expected and the outlook is for further price declines. The share prices of these companies, in our view, now reflect much of the potential downside and we intend holding on for the recovery. Additionally Informa, the business to business information provider and publisher, fell 32% as the market grew concerned over the vulnerability of profitability in a cyclical downturn and the company's high level of debt. We believe these fears are overstated and Informa will prove far more resilient than feared. 

                    

Portfolio Activity

Trading activity in the portfolio implies an average holding period of five years. This is consistent with our approach which is to consider our investments as long term in nature and to avoid unnecessary turnover. The focus has been on adding stocks to the portfolio that have good growth prospects, sound financial characteristics and strong management, at a valuation level that does not reflect these strengths. Likewise we have been employing strong sell disciplines to cut out stocks that fail to meet these criteria.


In the year we have added to a number of existing positions in our portfolio. These include Melrose, the engineering conglomerate, Intermediate Capital, a provider of mezzanine finance to the LBO market, Victrex, a manufacturer of speciality chemicals, and WSP, an international engineering consultancy. All these companies have strong prospects which should lead to strong share price performance in the coming year.


New additions to our portfolio included:-


Care UK - this company provides health and social care services. The company develops and operates purpose-built nursing homes for the frail, elderly, mentally ill and for those with learning disabilities under long term contracts with Health Authorities and Social Services. This is a company we have tracked for some time, attracted by its strong and steady growth, defensive earnings profile and asset backing. A U-turn by the Government on the award of independent sector treatment centre contracts caused its share price to fall and provided us with an attractive entry point.


Croda - this company manufactures a diverse range of chemical and chemical products, including oleo and industrial chemicals. Croda acquired Uniqema in June 2006 from ICI which significantly boosted its position in oleo chemicals (used in personal care products). This deal has been a huge success, with Croda's excellent management team improving returns at Uniqema significantly. More synergy benefits from the deal are anticipated, boosting growth.

  


MANAGEMENT REPORTcontinued


Oxford Instruments - this company produces advanced instrumentation equipment. Its products are used for scientific research, industrial and chemical analysis and diagnostic imaging. The company has always had an excellent reputation for technical excellence and innovation but had failed to translate this into financial success. A recent change of management has re-invigorated the business and has set an ambitious five year plan to grow sales significantly whilst improving margins materially. We believe these targets are achievable, providing material upside to the share price.


Senior - this company manufactures specialist engineering products for use in the aerospace, automotive and industrial markets. Products include flexible tubing, fluid transfer devices, de-icing systems and components for jet engines. Senior has an impressive track record and with strong trading momentum, full order books and exposure to growing aerospace programmes the future looks bright.


As well as making new investments we sold positions in companies that no longer fit our stringent quality threshold. In particular sales were made where our expectations for the company have not been fulfilled, such as Carter and Carter where a shock profit warning raised concerns over management control of the business, the pace of acquisitive activity and cashflow. The sale proved timely as the company subsequently went into receivership. We also sold our holding in Game Group, the electronic games retailer, where, although current trading is very buoyant, we are concerned that an increase in competition and a turndown in the games cycle will hit profitability.


Strong IPO (initial public offering) activity has been a feature of the UK market in the past few years. This reflects a desire for venture capitalists to trade on their more successful investments and a rush of new, young companies looking to raise capital for expansion. In the past year IPO activity has tailed off, especially as market conditions have become more difficult. IPOs that the Trust participated in included Eaga, a company which helps cut energy poverty among the most economically disadvantaged portion of the UK population, CVS Holdings, a veterinary chain, GlobeOp Financial Services, a provider of back office services to the hedge fund industry, and Valiant Petroleum, a North Sea oil and gas explorer and developer.


Although market conditions and the ability to raise debt have worsened over the year, take-over activity has remained strong across the small and mid cap space. This has come from a combination of foreign and UK corporates and private equity and reflects, to some extent, the openness of the UK stock market. The Trust benefited from the following completed bids during the year:-


Coda (acquired by Unit 4 Aggresso -  Holland)

Fun Technologies (acquired by Liberty Media - US)

Glotel (acquired by Spring Group - UK)

Gyrus (acquired by Olympus - Japan)

Inspicio (acquired by 3i - UK Private Equity)

Sondex (acquired by GE - US)

Umbro (acquired by Nike - US)


MANAGEMENT REPORT, continued 


Market outlook

In last year's market outlook we expressed some concern over the short term outlook for the market. However, we were clearly not cautious enough. As the year progressed the newsflow became steadily worse, with the US sub-prime mortgage crisis progressing to a fully fledged credit crisis. This combined with rampant commodity prices, a weakening housing market and a consumer under significant pressure has led to a steadily weakening economic environment. US and UK economic growth is slowing rapidly. Western European economies are holding up better (with the exceptions of Spain and Ireland) whist the emerging economies of Asia PacificIndia and Eastern Europe so far remaining relatively unscathed.


It is difficult to be positive about the economic situation in the short term. The rise in inflation is limiting central banks' ability to cut interest rates. Therefore there is little prospect of relief for the hard pressed consumer, especially given the weakness of the housing market and the rise in input costs. In addition there is little ability for the UK Government to provide a fiscal stimulus given the poor state of public finances. The UK economy is therefore likely to remain weak for the foreseeable future. In this environment, with weakening demand and input cost rises, corporate profitability will be under pressure. We will continue to ensure that the investments we make are in sound companies with strong balance sheets. Areas such as healthcare, exporters that are exposed to emerging economies and companies with long visible order books will be prime areas of focus. 


However there are reasons to be positive. The fundamentals for smaller companies remain sound. Valuations are attractive and certainly a lot cheaper than a year ago, although not at a discount to large capsCorporate balance sheets and cashflows are in generally good order. Meanwhile there continues to be corporate activity, with foreign corporates in particular looking to pick up bargains in the quoted sector. 


In conclusion, whilst recognising this may be a difficult year for the economy, a well selected portfolio of UK smaller companies will provide a reasonable return. Our investments are generally trading well, are soundly financed and attractively valued. Additionally the small cap market continues to throw up exciting growth opportunities into which the Trust can invest. Whilst it is right to be cautious over short term prospects, I am optimistic on a medium term view.





Analysis of the portfolio by sector



31 May 2008

%




31 May 2007

%

Industrials

47.9


44.7

Financials

11.5


15.2

Consumer Services

10.6


13.8

Technology

9.7


9.5

Oil & Gas

7.4


5.0

Basic Materials

6.6


2.8

Health Care

3.3


3.8

Consumer Goods

3.0


5.2


100.0


100.0










Investment Portfolio


Valuation as at




Valuation as at



31 May 2008


% of


31 May 2008


% of


£'000


portfolio



£'000


portfolio










WSP

10,650

 

3.71


ITE Group

1,768

 

0.62

W S Atkins  

9,794

 

3.41


Southern Cross Healthcare

1,747

 

0.61

Informa

9,414

 

3.28


Robert Walters

1,735

 

0.60

Interserve

7,875

 

2.75


Euromoney Institutional Investor

1,723

 

0.60

Domino Printing 

7,224

 

2.52


Senior

1,673

 

0.58

Spectris

6,772

 

2.36


Venture Production

1,663

 

0.58

Balfour Beatty

6,217

 

2.17


Consort Medical

1,650

 

0.58

International Ferro Metals

6,080

 

2.12


Rathbone Brothers

1,625

 

0.56

Laird 

5,704

 

1.99


Speedy Hire

1,592

 

0.55

Intermediate Capital

5,689

 

1.98


Greene King

1,566

 

0.55

10 largest

75,419

 

  26.29 


70 largest

240,913

 

  83.99 










Carillion

5,348

 

1.86


Ricardo

1,517

 

0.53

Wellstream 

4,879

 

1.70


Halford

1,515

 

0.53

Mouchel

4,767

 

1.66


* ACP Capital

1,483

 

0.52

Victrex

4,707

 

1.64


Bluebay Asset Management

1,435

 

0.50

Premier Oil

4,647

 

1.62


EAGA

1,400

 

0.49

Bellway

4,230

 

1.48


John Menzies

1,384

 

0.48

Aviva 

4,100

 

1.43


Hampson Industries

1,349

 

0.47

Phoenix

3,910

 

1.36


Chrysalis

1,314

 

0.46

Expro International

3,878

 

1.36


* Valiant Petroleum

1,304

 

0.45

Rotork

3,859

 

1.35


Telecity

1,265

 

0.44

20 largest

119,744

 

  41.75 


80 largest

254,879

 

  88.86 










Anite

3,856

 

1.34


* CVS

1,265

 

0.44

* Synergy Healthcare

3,715

 

1.30


Morgan Sindall

1,250

 

0.44

SIG

3,685

 

1.29


* Just Retirement

1,248

 

0.44

E2V Technologies

3,625

 

1.26


GlobeOp Financial Services

1,213

 

0.42

VT Group

3,597

 

1.25


* Hansteen

1,212

 

0.42

Charter

3,537

 

1.23


UTV Media

1,199

 

0.42

RPS

3,496

 

1.22


Kofax

1,129

 

0.39

BSS Group

3,411

 

1.19


Tribal 

1,119

 

0.39

Croda

3,295

 

1.15


* Shed Media

1,117

 

0.39

* Playtech

3,163

 

1.10


* Goals Soceer Centres

1,117

 

0.39

30 largest

155,124

 

  54.08 


90 largest

266,748

 

  93.00 










Ultra Electronic

3,055

 

1.06


Oxford Instruments

1,102

 

0.38

Enodis

3,040

 

1.06


* The Clapham House

1,099

 

0.38

Costain

2,943

 

1.03


RM

1,055

 

0.37

Chemring

2,934

 

1.02


Hansard

1,044

 

0.37

Chloride

2,899

 

1.01


Kenmare Resources

983

 

0.34

Melrose

2,720

 

0.95


* Carluccios

979

 

0.34

Shaftesbury

2,634

 

0.92


Psion

959

 

0.33

Capital & Regional Properties

2,514

 

0.88


Aberdeen Asset Management

937

 

0.33

Grainger

2,408

 

0.84


Jarvis

875

 

0.31

Imperial Energy

2,401

 

0.84


Raymarine

859

 

0.30

40 largest

182,672

 

  63.69 


100 largest

276,640

 

  96.45 

  

Investment Portfolio, continued:











Bovis Homes

2,398

 

0.83


Chime Communications

839

 

0.29

* RWS Holdings

2,359

 

0.82


* Majestic Wine

836

 

0.29

NCC Group

2,310

 

0.81


DTZ Holdings

834

 

0.29

Big Yellow

2,272

 

0.79


Ted Baker

834

 

0.29

John Wood

2,230

 

0.78


Hargreaves Landsdown

824

 

0.29

Restaurant Group

2,171

 

0.76


* Augean

774

 

0.27

Paragon 

2,113

 

0.74


LSL Property Services

707

 

0.24

Meggitt

2,087

 

0.73


* Next Fifteen Communications

686

 

0.24

Fidessa

2,078

 

0.72


New Star Asset Management

677

 

0.24

Savills

2,050

 

0.71


Northgate

676

 

0.24

50 largest

204,740

 

  71.38 


110 largest

284,327

 

  99.13 










Babock International

2,028


0.71


Ennstone

609

 

0.21

Forth Ports

2,019


0.70


Superglass Holdings

474

 

0.17

Keller 

1,992


0.69


* Proximagen Neuroscience

457

 

0.16

Gem Diamonds

1,984


0.69


Topps Tiles

439

 

0.15

Renishaw

1,971


0.69


* Powerleague 

426

 

0.15

* IBS Opensystems

1,955


0.69


* Pure Wafer

87

 

0.03

Talvivaara Mining

1,900


0.67



 

 

 

CSR

1,890


0.66


TOTAL

286,819

 

100.00

Headlam

1,878


0.65



 

 

 

Care UK

1,814


0.63



 

 

 

60 largest

224,171


  78.16 







There were no convertible or fixed interest securities at either 31 May 2008 or 31 May 2007.


*quoted on the Alternative Investment Market


The ten largest holdings at 31 May 2008 were all constituents of the portfolio at 31 May 2007 but were not all among the ten largest holdings at that date. 


MANAGEMENT REPORT, continued


Related Party Transactions

During the year ended 31 May 2008, no transactions with related parties took place that have materially affected the financial position or performance of the Company.  However, since the year end the Board and the Manager (Henderson Global Investors Limited) have agreed changes to the terms of the arrangements by which the Manager is rewarded for investment outperformance. 


Subject to shareholder approval at the Annual General Meeting, these changes will apply from 1 June 2008. The remaining terms of the fee arrangements with the Manager are to remain unchanged.


Principal Risks and Uncertainties

With the assistance of the Manager the Board has drawn up a risk matrix which identifies the key risks to the Company. These key risks fall broadly under the following categories:


Investment Activity and Strategy

An inappropriate investment strategy (for example, in terms of asset allocation or the level of gearing) may lead to underperformance against the Company's benchmark index and the companies in its peer group; it may also result in the Company's shares trading on a wider discount.  The Board manages these risks by ensuring a diversification of investments and a regular review of the extent of borrowings. The Manager operates in accordance with investment limits and restrictions determined by the Board; these include limits on the extent to which borrowings may be used. The Board reviews its investment limits and restrictions regularly and the Manager confirms its compliance with them each month. The Manager provides the directors with management information, including performance data and reports and shareholder analyses. The Board monitors the implementation and results of the investment process with the Fund Manager, who attends all board meetings, and reviews regularly data that monitors risk factors in respect of the portfolio. The Board reviews investment strategy at each Board meeting.


Portfolio and Market

Market risk arises from uncertainty about the future prices of the Company's investments. 


Accounting, Legal and Regulatory 

In order to qualify as an investment trust the Company must comply with section 842 of the Income and Corporation Taxes Act 1988 ('section 842'). A breach of section 842 could result in the Company losing investment trust status and, as a consequence, capital gains realised within the Company's portfolio would be subject to Corporation Tax. The section 842 criteria are monitored by the Manager and the results are reported to the directors at each Board meeting. The Company must comply with the provisions of the Companies Act 1985, and the Companies Act 2006 as it becomes enacted ('the Companies Acts'), and, as the Company's shares are listed for trading on the London Stock Exchange, the Company must comply with the UK Listing Authority's Listing Rules and Disclosure Rules ('UKLA Rules'). A breach of the Companies Acts could result in the Company and/or the directors being fined or becoming the subject of criminal proceedings. Breach of the UKLA Rules could result in the suspension of the Company's shares which would in turn lead to a breach of section 842. The Board relies on its company secretary and its professional advisers to ensure compliance with the Companies Acts and UKLA Rules.


  


MANAGEMENT REPORT, continued


Corporate Governance and Shareholder Relations

The Board seeks to reduce the risks arising from poor corporate governance by complying with best practice in this respect. The Board seeks to maintain open communications with shareholders.  


Operational and Financial

Disruption to, or failure of, the Manager's accounting, dealing or payment systems or the Custodian's records could prevent the accurate reporting and monitoring of the Company's financial position.  The ManagerHenderson Global Investors Limited, has contracted some of its operational functions, principally those relating to trade processing, investment administration and accounting, to BNP Paribas Fund Services UK Limited. The Board monitors the services provided by the Manager and its other suppliers, and the key elements designed to provide effective internal control. 


Directors Responsibility Statement under DTR 4.1.12
The directors of the Company each confirm to the best of their knowledge that:


(a) the financial statements, prepared in accordance with applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the subsidiary undertaking included in the consolidation taken as a whole; and


(b) the management report includes a fair review of the development and performance of the business and the position of the Company and the subsidiary undertaking included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.


For and on behalf of the Board


Dudley Fishburn

Chairman

12 August 2008

  

Consolidated Income Statement

for the year ended 31 May 2008




Year ended 31 May 2008


Year ended 31 May 2007


Revenue

return

Capital

return


Total

Revenue

return

Capital

return


Total


£'000

£'000

£'000

£'000

£'000

£'000

Investment income

7,086

-

7,086

6,654

-

6,654

Other income

108

-

108

148

-

148

(Losses)/gains on investments held at fair value through profit or loss


-


(70,417)


(70,417)


-


97,162


97,162


----------

----------

----------

----------

----------

----------

Total income/(loss)

7,194

(70,417)

(63,223)

6,802

97,162

103,964








Expenses







Management and performance fees

(1,156)

-

(1,156)

(1,342)

(2,350)

(3,692)

Write -back of VAT

1,312

437

1,749

-

-

-

Other expenses 

(373)

-

(373)

(371)

-

(371)


---------

----------

---------

---------

----------

---------

Profit/(loss) before finance costs and







  taxation

6,977

(69,980)

(63,003)

5,089

94,812

99,901








Finance costs

(3,109)

-

(3,109)

(3,133)

-

(3,133)


---------

---------

--------

---------

---------

--------

Profit/(loss) before taxation

3,868

(69,980)

(66,112)

1,956

94,812

96,768

Taxation

-

-

-

-

-

-


---------

----------

----------

----------

---------

--------

Profit/(loss) for the year

3,868

(69,980)

(66,112)

1,956

94,812

96,768


======

======

======

======

======

=====








Earnings/(loss) per ordinary share

 (note 2)

4.64p

(83.96)p

(79.32)p

2.12p

102.59p

104.71p


======

======

=====

======

======

=====


The total column of this statement represents the Group's Income Statement, prepared in accordance with IFRS.  

The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies. 


All items in the above statement derive from the continuing operations.


All income is attributable to the equity holders of The Henderson Smaller Companies Investment Trust plc, the parent company.  There are no minority interests. 






Consolidated and Parent Company Statements of Changes in Equity 

for the year ended 31 May 2008



Consolidated

Year ended 31 May 2008


Called up share 

capital

£'000

Capital

 redemption 

reserve

 £'000

Other 

capital 

reserves 

£'000


Revenue

reserve 

£'000



Total

£'000

Balance at 31 May 2007 

21,657

23,759

287,650

6,634

339,700

Buy-backs of ordinary shares

(1,544)

1,544

(16,684)

-

(16,684)

(Loss)/profit for the year

-

-

(69,980)

3,868

(66,112)

Ordinary dividend paid

-

-

-

(1,433)

(1,433)


----------

----------

----------

----------

----------

Balance at 31 May 2008

20,113

25,303

200,986

9,069

255,471


======

======

======

======

======


Consolidated

Year ended 31 May 2007


Called up share 

capital

£'000

Capital

 redemption 

reserve

 £'000

Other 

capital 

reserves 

£'000


Revenue

 reserve

£'000



Total

£'000

Balance at 31 May 2006 

25,047

20,369

229,525

6,012

280,953

Buy-backs of ordinary shares

(3,390)

3,390

(36,687)

-

(36,687)

Profit for the year

-

-

94,812

1,956

96,768

Ordinary dividend paid

-

-

-

(1,334)

(1,334)


----------

----------

----------

----------

----------

Balance at 31 May 2007

21,657

23,759

287,650

6,634

339,700


======

======

======

======

======


Company

Year ended 31 May 2008


Called up share 

capital

£'000

Capital

 redemption 

reserve

 £'000

Other 

capital 

reserves 

£'000


Revenue

reserve

£'000



Total

£'000

Balance at 31 May 2007 

21,657

23,759

289,917

4,367

339,700

Buy-backs of ordinary shares

(1,544)

1,544

(16,684)

-

(16,684)

(Loss)/profit for the year 

-

-

(69,980)

3,868

(66,112)

Ordinary dividend paid

-

-

-

(1,433)

(1,433)


----------

----------

----------

----------

----------

Balance at 31 May 2008

20,113

25,303

203,253

6,802

255,471


======

======

======

======

======


Company

Year ended 31 May 2007


Called up share 

capital

£'000

Capital

 redemption 

reserve

 £'000

Other 

capital 

reserves 

£'000


Revenue

reserve

£'000



Total

£'000

Balance at 31 May 2006 

25,047

20,369

231,792

3,745

280,953

Buy-backs of ordinary shares

(3,390)

3,390

(36,687)

-

(36,687)

Profit for the year

-

-

94,812

1,956

96,768

Ordinary dividend paid

-

-

-

(1,334)

(1,334)


----------

----------

----------

----------

----------

Balance at 31 May 2007

21,657

23,759

289,917

4,367

339,700


======

======

======

======

======



Consolidated and Parent Company Balance Sheets

at 31 May 2008





Consolidated

2008

£'000



Consolidated

2007

£'000



Company

2008

£'000



Company 2007

£'000

Non current assets





Investments held at fair value through





  profit or loss 

286,819

380,616

289,084

382,883


-----------

-----------

-----------

-----------






Current assets





Other receivables

3,290

1,932

3,290

1,932

Cash and cash equivalents 

672

1,360

672

1,360


----------

----------

----------

----------


3,962

3,292

3,962

3,292


----------

----------

----------

----------






Total assets 

290,781

383,908

293,046

386,175


----------

----------

----------

----------






Current liabilities 





Other payables

(1,806)

(4,153)

(4,071)

(6,420)

Bank loans 

(13,500)

(20,046)

(13,500)

(20,046)


----------

----------

----------

----------


(15,306)

(24,199)

(17,571)

(26,466)


----------

----------

----------

----------






Total assets less current liabilities 

275,475

359,709

275,475

359,709






Non current liabilities





Financial liabilities 

(20,004)

(20,009)

(20,004)

(20,009)


----------

----------

----------

----------

Net assets

255,471

339,700

255,471

339,700


======

======

======

======

Equity attributable to equity shareholders





Called up share capital

20,113

21,657

20,113

21,657

Capital redemption reserve

25,303

23,759

25,303

23,759

Retained earnings





  Other capital reserves

200,986

287,650

203,253

289,917

  Revenue reserve

9,069

6,634

6,802

4,367


----------

----------

-----------

-----------

Total equity

255,471

339,700

255,471

339,700


======

======

======

======






Net asset value per ordinary share 

317.6p

392.1p

317.6p

392.1p


======

======

======

======


  

Consolidated and Parent Company Cash Flow Statements

for the year ended 31 May 2008 



Year ended

31 May 2008

Year ended

31 May 2007


Consolidated

£'000

Company

£'000

Consolidated

£'000

Company

£'000

Operating activities 





(Loss)/profit before taxation

(66,112)

(66,112)

96,768

96,768

Add: interest paid

3,110

3,110

3,128

3,128

Addlosses/(gains) on investments held at fair value  





   through profit or loss

70,417

70,417

(97,162)

(97,162)

Add: net sales of investments held





  at fair value though profit or loss

23,409

23,409

34,213

34,213

Increase in other receivables 

(1,752)

(1,752)

(158)

(158)

Decrease in amounts due from brokers

405

405

494

494

(Decrease)/increase in other payables 

(2,423)

(2,423)

1,793

1,793

Increase in amounts due to brokers

76

76

1,363

1,363

Taxation on investment income

(11)

(11)

(2)

(2)


Net cash inflow from operating 

---------

----------

---------

----------

  activities before interest and taxation

27,119

27,119

40,437

40,437






Interest paid

(3,110)

(3,110)

(3,128)

(3,128)







---------

----------

---------

----------

Net cash inflow from operating activities

24,009

24,009

37,309

37,309


---------

----------

---------

----------

Financing activities 





Equity dividend paid

(1,433)

(1,433)

(1,334)

(1,334)

Buy-backs of ordinary shares

(16,739)

(16,739)

(36,615)

(36,615)

(Repayment)/ drawn down of loans

(6,546)

(6,546)

1,046

1,046

Repurchase of preference stock

(5)

(5)

-

-


---------

--------

---------

--------

Net cash outflow from financing 

(24,723)

(24,723)

(36,903)

(36,903)


---------

----------

---------

----------

(Decrease/)increase in cash and cash equivalents 

(714)

(714)

406

406

Cash and cash equivalents at the start of the year 

1,360

1,360

958

958

Exchange movements

26

26

(4)

(4)


---------

--------

---------

--------

Cash and cash equivalents at the end of the year

672

672

1,360

1,360


=====

=====

=====

=====


  

Notes to the Financial Statements


1.

Accounting Policies



(a)

Basis of preparation

The consolidated and parent company financial statements for the year ended 31 May 2008 have been prepared in accordance with International Financial Reporting Standards ('IFRS') and with those parts of the Companies Act 1985 applicable to companies reporting under IFRS. These comprise standards and interpretations approved by the International Accounting Standards Board ('IASB'), together with interpretations of the International Accounting Standards and Standing Interpretations Committee approved by the International Accounting Standards Committee ('IASC') that remain in effect, to the extent that IFRS have been adopted by the European Union.


The financial statements have been prepared on a going concern basis on the historical cost basis, except for the revaluation of certain financial instruments. The principal accounting policies adopted are set out in the Company's Report and Accounts for the year ended 31 May 2008. Where presentational guidance set out in the Statement of Recommended Practice ('the SORP') for investment trusts issued by the Association of Investment Companies ('the AIC') in December 2005 is consistent with the requirements of IFRS, the directors have sought to prepare the financial statements on a basis consistent with the recommendations of the SORP.




(b)

Basis of consolidation 

The Group accounts consolidate the accounts of the Company and of its sole wholly owned subsidiary undertaking, Henderson Smaller Companies Finance Limited. The inter-group balances are eliminated on consolidation. The investment in the subsidiary is recognised at fair value in the financial statements of the Company.



2.



(Loss)/earnings per ordinary share

The earnings per ordinary share figure is based on the net losses for the year of £66,112,000 (2007gains of £96,768,000and on 83,350,298 (200792,418,217) ordinary shares, being the weighted average number of ordinary shares in issue during the year.


The earnings per ordinary share figure detailed above can be further analysed between revenue and capital, as below.


The Company has no securities in issue that could dilute the return per ordinary share. Therefore the basic and diluted earnings per ordinary share are the same.



 




2008 

2007



£'000

    £'000


Net revenue profit

3,868

1,956


Net capital (loss)/profit

(69,980)

94,812



--------

--------


Net total (loss)/profit

(66,112)

96,768



=====

=====


Weighed average number of




ordinary shares in issue during




the year

83,350,298

92,418,217



========

========



pence

pence


Revenue earnings per ordinary




  share

4.64

2.12


Capital (losses)/earnings per ordinary




 share

(83.96)

102.59



---------

---------


Total (losses)/earnings per ordinary share


(79.32)


104.71



=====

=====


3.

Ordinary share capital 

At 31 May 2008 there were 80,449,030 ordinary shares in issue (200786,626,030). During the year ended 31 May 2008 the Company made market purchases for cancellation of 6,177,000 of its own issued ordinary shares (200713,560,252). 



4.

Net asset value per ordinary share

The net asset value per ordinary share is based on the net assets attributed to the ordinary shares of £255,471,000 (2007: £339,700,000) and on the 80,449,030 ordinary shares in issue at 31 May 2008 (2007: 86,626,030).


A further 998,984 shares were bought back for cancellation between 31 May 2008 and 12 August 2008.


 

5.

 

      Dividends
      Subject to approval at the annual general meeting, the recommended final dividend of 2.20p
      per ordinary share and the special dividend of 1.60p per ordinary share will be paid on 3
      October 2008 to shareholders on the register of members at the close of business on 29 August
      2008. 
 
  


6.

        2008 financial statements

        This condensed set of financial statements for the year ended 31 May 2008 does not
        constitute 
the statutory accounts for that period.  It is extracted from the Group's financial
        statements 
for the year, which have been audited but which not yet been delivered to the
        Registrar of Companies.




 

7.

 

       2007 Financal statements

      The figures and financial information for the year ended 31 May 200are an extract of the
      published 
financial statements and do not constitute the statutory accounts for that year. Those
      accounts have been delivered to the Registrar of Companies and included the report of the
      auditors which was unqualified and did not contain a statement under either section 237(2) or
      section 237(3) of the Companies Act 1985.


8.

      Annual report, circular and AGM

      The full annual report and accounts will be posted to shareholders in the second half of August
      2008
 and copies will be available thereafter from the Secretary at the Company's Registered
      Office, 4 Broadgate, 
London EC2M 2DA. 


      The Annual General Meeting will be held on Friday 26 September 2008 at 11.30 am.


      Website

   9.          This document, and the financial statements referred to in notes 6 and 7, will be available on the following
                website: 
www.itshenderson.com or www.hendersonsmallercompanies.com




For further information please contact:


Neil Hermon
Fund Manager
The Henderson Smaller Companies Investment Trust plc
Telephone: 020 7818 4351


James de Sausmarez

Head of Investment Trusts

Henderson Global Investors

Telephone: 020 7818 3349


Sarah Gibbons-Cook
Investor Relations and PR Manager
Henderson Global Investors
Telephone: 020 7818 3198


- ENDS -



This information is provided by RNS
The company news service from the London Stock Exchange
 
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