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Henderson Smllr Cos (HSL)

  Print      Mail a friend       Annual reports

Thursday 30 July, 2009

Henderson Smllr Cos

Final Results

RNS Number : 5697W
Henderson Smaller Cos Inv Tst PLC
30 July 2009
 



THE HENDERSON SMALLER COMPANIES INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 May 2009


30 July 2009


This announcement contains regulated information


MANAGEMENT REPORT


Financial Highlights 




31 May 2009 


31 May  2008


Total net assets

£156 million

£255 million


Net asset value per ordinary share

202.1p 


 317.6p


Net asset value per ordinary share on an alternative basis*

196.9p 


 310.9p


Market price per ordinary share

167.0p 


 252.0p


Total return per ordinary share

(115.4)p 


 (79.3)p


Revenue return per ordinary share

6.3p 


 4.6p


  Dividend per ordinary share

3.0p 


 2.2p


  Special dividend per ordinary share

2.6p 


 1.6p


Total dividend per ordinary share

5.6p 

 3.8p



Gearing†


11.4% 

 

12.3%



*Calculated by deducting from the net assets the debt at its market value.  


†Defined here as the total market value of the Group's investments less shareholders' funds as a percentage of shareholders' funds.








MANAGEMENT REPORT continued 


Chairman's Statement


In the past year, global markets faced their biggest crisis since 1929 and smaller British companies in particular suffered turbulence and loss on the markets. Against this background, your Company has had a very disappointing year. Our net asset value fell 35.5%, compared to a drop in our benchmark of 19.5%.  


Although our gearing was a factor, poor stock selection played the major part in our bad performance. Paradoxically it was our larger, safer companies that were worst hit, though none has failed as a business. For this reason, we face the coming year with much greater confidence. A full attribution analysis is given below.    


As you can imagine, your Board has actively and repeatedly examined its own performance as well as that of our fund manager and, indeed, investment house. We have met a number of our shareholders. We have bought back stock.  When making our assessments, we have reflected that for five years out of six our fund manager, Neil Hermon, has outperformed our benchmark index. Between 2003 and 2008 his performance added 170% to the value of our shares. But there is no hiding the fact that this year has eradicated most of those gains. Your Board, after due consideration, retains confidence in Neil's abilities and his commitment to our fund, as well as the role of Henderson. We look forward to a return to form in the coming year.  


Our income has held up well.  The revenue return per share was 6.3p, ahead of the 4.6p of the previous year.  The investment income per share fell slightly, from 8.5p to 8.0p, reflecting the fact that some of the companies in our portfolio have cut their dividends, but our costs have fallen, in particular short-term borrowing costs and the management fee (which is based on the value of the portfolio). We have received a further refund of VAT, together with interest, and, as required by the accounting rules, we have recognised the amounts for earlier periods (1990 to 1996) that we now expect to receive. In aggregate the benefit to the Income Statement is more than it was last year.  We propose a final dividend for the year of 3.00p per share, which excludes the VAT refund and the related interest, and a special dividend of 2.60p per share in respect of the VAT refund and interest Both payments are subject to shareholder approval at the Annual General Meeting in October.


During the year we bought back 3.1 million shares, equivalent to about 4of those in issue at 31 May 2008, at an average discount (calculated by valuing the debenture stock at par) of around 27%.  We have bought back a further 2.2 million shares since the year end.  


  

MANAGEMENT REPORT continued 


In conclusion, we have suffered through some dreadful markets. I look forward to reporting on a better year in twelve months' time.

    

J Dudley Fishburn

Chairman

30 July 2009




Performance Attribution




Year ended 

31 May 2009




Net asset value per share total return


(35.5)

Benchmark total return 


(19.5)



--------

Relative performance 


(16.0)



--------

Made up:



Stock selection 


(13.0)

Gearing 


(5.0)

Share buy-backs


1.2

Expenses 


(0.7)

Write-back of VAT and related interest


1.5



---------



(16.0)



---------

Notes:

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

  • Source: Henderson Global Investors Limited. The table sets out the Manager's understanding of the movement, relative to the benchmark,

    between the net asset value per share at 31 May 2008 (317.6p) and the net asset value per share at 31 May 2009 (202.1p).




  

MANAGEMENT REPORT continued


Fund Manager's Review 


Analysis of the portfolio by sector






31 May 2009

%




31 May 2008

%

Industrials

41.1


47.9

Consumer Services 

15.8


10.6

Financials

12.0


11.5

Technology

9.3


9.7

Oil & Gas

6.2


7.4

Basic Materials

6.1


6.6

Consumer Goods

5.7


3.0

Health Care

3.8


3.3


-------


-------


100.0


100.0


-------


-------


Market - year in review

The year has clearly been a traumatic one for the world economy and equity markets.  The downturn in the US housing market and the sub-prime mortgage crisis evident last summer spiralled into a fully fledged credit crisis.  The subsequent collapse of Lehman Brothers heralded an unprecedented period when it felt as if no financial institution was safe and that the whole financial system was close to collapse. Massive government intervention brought us back from the brink but the effect on business and consumer confidence was significant.  The global economy went into a sharp slowdown and most Western economies have now fallen into recession. Corporate profitability has been under significant pressure and financing has been increasingly difficult as banks are looking to de-leverage their own balance sheets.  Stock markets fell sharply around the world and at the low point in early March 2009 had nearly halved from earlier peaks.  Although 2009 has seen a progressive stabilisation of markets, they have remained nervous and volatile.  After under-performing in 2008 smaller companies have enjoyed a resurgence in 2009 ensuring that over the year they performed comparably to larger companies.


Fund performance

The Trust had a poor year in performance terms - falling in absolute terms and under-performing on a relative basis.  The net asset value fell 35.5%, on a total return basis, which comes after a 163% rise in the previous five years.  This compares to falls of 19.5% (total return) from the Hoare Govett Smaller Companies Index (excluding investment companies) and 27.1% (total return) from the FTSE SmallCap Index (excluding investment companies).  The underperformance came from underlying negative portfolio performance and, to a lesser extent, gearing in the Trust.  The year under review was the first year of underperformance after five consecutive years of out-performance of our benchmark, the Hoare Govett Smaller Companies Index (excluding investment companies).







MANAGEMENT REPORT continued 


It was a disappointing year for a number of the larger stocks in our portfolio.  Of particular note WSP and WS Atkins, the consulting engineers, and Interserve, the international contractor, all fell sharply.  This was not due to the underlying performance of these companies, which was generally very respectable, but to a de-rating by the market in regard to their future profitability.  We believe that all three of these companies are now materially undervalued and that their future earnings will be more resilient than the market fears.  Additionally the widespread downturn in industrial markets in the latter part of 2008 meant we saw profit warnings from our holdings in e2v technologies, the sensors and tubes manufacturer, and Laird Group, the electronic component manufacturer.  Both these companies have fallen sharply but we continue to believe that their scope for recovery is significant.


In terms of positive contributors to fund performance, we saw excellent performances from Bellway, the UK housebuilder, and Balfour Beatty, the international contracting and support services group. Both of these companies showed their qualities by outperforming their immediate peer group in profit terms.  Fidessa, the software provider to the securities market, performed strongly as the company maintained its growth record despite its customer base experiencing difficult trading conditions. 


Portfolio Activity

Trading activity in the portfolio reflected an average holding period of 7 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 Bluebay Asset Management, the fixed interest fund manager, where we believe the recent recovery in bond markets and their strong relative fund performance heralds the prospect of a significant recovery in earnings. Additionally we increased our exposure to stocks involved in the UK housing market. We believe that after the recent fall in house prices the housing market is showing signs of stabilisation.  Companies exposed to the housing market have had a torrid time and a recovery in housing demand from very depressed levels could see profits move strongly ahead.  To this end we added positions in Persimmon and Taylor Wimpey, both UK housebuilders, whilst increasing our holding in LSL Property Services, the estate agent.


Other new additions to our portfolio included:


CareTech - provides residential care services for adults with learning disabilities, physical disabilities, mental health problems and autism.  Since its IPO (initial public offering)in 2005 the company has established a flawless growth record through organic bed development supplemented by sensible acquisitions. CareTech still has a small share of what is a very fragmented market and there appears to be plenty of opportunity for future growth.






MANAGEMENT REPORT continued 


Debenhams - the department store retailer has struggled since its IPO in 2006, not because operationally it has underperformed, but because it was saddled with too high a debt burden from its former private equity owner.  We initiated a holding in early 2009 as we felt the valuation had reached a level that more than reflected the balance sheet concerns.  Strong trading, which has outperformed the retail sector, and a recent fund raising has restored company credibility and the share price has risen accordingly.


Heritage Oil - an oil exploration business with interests in Uganda and Kurdistan In both areas Heritage has been extremely successful with the drillbit and has discovered significant oil reserves. Recently Heritage has announced a potential merger with Genel, a large Turkish oil company, which would significantly boost Heritage's operations in Kurdistan and propel the combined company into the FTSE 100.


Kentz - provides engineering services to the oil, gas, petrochemical and power industries.  The company has a strong reputation for engineering excellence and safety and has a very strong position in the Middle East. With a large and secure order book and significant net cash reserves, Kentz is well placed to grow in the coming years.


To balance the additions to our portfolio we have disposed of positions in companies which we felt were set for poor price performance. In particular, sales were made where we felt the business had become over borrowed and trading remained difficult, such as UTV Media, the TV and radio broadcasting company, and DTZ, the property agent. We also disposed of our holding in Robert Walters, the recruitment consultant, where we believe prospects are poor given the decline in economic activity and the lack of new jobs being created by the banking industry.

 

After a number of years of strong IPO and takeover activity, the year under review has been relatively quiet. Given the economic backdrop, poor equity market conditions and the lack of bank finance available, this lack of activity is hardly surprising. The only notable bid we had in the portfolio was Imperial Energy, which was taken over by ONGC, the Indian oil company. We did not participate in any IPOs in the year.


Market outlook

The last year has been a difficult one for world economies and equity markets. More recently there have been encouraging signs that the world economy is stabilising. Recent economic data are pointing to a situation that, if not getting better, is at least not getting worse. Equity markets have rebounded from the lows of March. Banking markets are returning to some form of normality and credit is becoming available again, albeit that banks are charging significantly more for their services.


In the UK, although economic conditions remain difficult, the UK consumer has remained remarkably resilient, helped specifically by lower mortgage costs. The UK housing market is showing definite signs of life, with mortgage approvals and housing transactions picking up and house prices stabilising.






MANAGEMENT REPORT continued 


Corporate earnings remain under pressure as global demand remains weak, with cost cutting the primary method of maintaining profitability. However, earnings downgrades, which were particularly savage in early 2009, have eased recently. Even with the downgrades in earnings that we have seen, equity valuations are cheap. Earnings multiples are well below long term averages and offer substantial upside when the economy recovers.


However, a smooth path to economic recovery is not guaranteed. Unemployment is likely to continue to rise well into 2010, putting pressure on a UK consumer who is likely to be suffering from rising taxation and potentially higher mortgage costs. It is also acknowledged that government debt levels and spending are unsustainable and need to be cut. Whatever the shape of the new government, public spending is likely to be under severe pressure.


In conclusion, the year under review has been a difficult one for the equity market and even more for the Trust. Performance has been disappointing and our portfolio has not held up as well as we expected in these difficult economic times. An improvement is an absolute priority for the coming year and we are confident this can be achieved. 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.



Neil Hermon

Fund Manager

30 July 2009



THE HENDERSON SMALLER COMPANIES INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 May 2009


MANAGEMENT REPORT continued 


Investment Portfolio

as at 31 May 2009



Valuation 

as at





Valuation as at




31 May 2009


% of



31 May 2009


% of


£'000


portfolio



£'000


portfolio

Informa

6,286

 

3.61


Restaurant Group

2,227


1.28

WS Atkins 

5,180

 

2.97


Heritage Oil

2,208


1.27

WSP

4,708

 

2.70


Greene King

2,190


1.26

Bellway

4,583

 

2.63


BSS Group

2,152


1.23

Carillion

4,123

 

2.37


Mouchel Parkman

2,110


1.21

Balfour Beatty

4,074

 

2.34


Paragon

2,067


1.19

Spectris

3,844

 

2.21


Charter

2,061


1.18

Premier Oil

3,635

 

2.09


International Ferro Metals

1,951


1.12

Domino Printing

3,285

 

1.88


*RWS Holdings

1,938


1.11

Interserve

3,141

 

1.80


Keller Group

1,875


1.08

10 largest

42,859


24.60


30 largest

89,269


51.24










Victrex

3,138


1.80


Laird

1,872


1.08

Croda

2,843


1.63


Big Yellow

1,869


1.07

Costain

2,668


1.53


CSR

1,831


1.05

Fidessa

2,556


1.47


Melrose

1,825


1.05

Intermediate Capital

2,525


1.45


EAGA

1,782


1.02

Rotork

2,479


1.42


Shaftesbury

1,767


1.01

Chemring

2,408


1.38


*Playtech

1,764


1.01

Ultra Electronic

2,365


1.36


Phoenix

1,743


1.00

Anite

2,327


1.34


SIG

1,696


0.97

VT Group

2,322


1.33


Persimmon

1,638


0.94

20 largest

68,490


39.31


40 largest

107,056


61.44



































There were no convertible or fixed interest securities at either 31 May 2009 or 31 May 2008.


*quoted on the Alternative Investment Market


# unquoted 







MANAGEMENT REPORT continued 


Valuation 

as at





Valuation as at




31 May 2009


% of



31 May 2009


% of


£'000


portfolio



£'000


portfolio

Synergy Healthcare

1,620

 

0.93


RM

870

 

0.50

Halfords

1,618

 

0.93


Senior

864

 

0.50

Taylor Wimpey

1,605

 

0.92


Morgan Sindall

858

 

0.49

William Hill

1,583

 

0.91


*Kentz

841

 

0.48

Babcock International 

1,479

 

0.85


*Goals Soccer Centres

792

 

0.45

Aveva Group

1,470

 

0.84


Wellstream Holdings

784

 

0.45

Savills

1,455

 

0.84


Tribal 

776

 

0.45

Bluebay Asset Management

1,379

 

0.79


Ted Baker

763

 

0.44

Chloride 

1,370

 

0.79


Hansard

751

 

0.43

NCC Group

1,365

 

0.78


*CareTech Holdings

732

 

0.42

50 largest

122,000


70.02


90 largest

162,268


93.13










Grainger

1,353


0.78


Hochschild Mining

720


0.42

Talvivaara Mining

1,334


0.77


*Majestic Wine 

703


0.40

Southern Cross Healthcare

1,297


0.74


GlobeOp Financial Services

691


0.40

Telecity Group

1,220


0.70


Hampson Industries

680


0.39

LSL Property Services

1,210


0.70


Gem Diamonds

669


0.39

Care UK

1,207


0.69


Chrysalis Group

650


0.38

Debenhams

1,199


0.69


*The Clapham House Group

616


0.36

Pace

1,169


0.67


*CVS Group

588


0.32

Oxford Instruments

1,136


0.65


*Just Retirement

548


0.31

Northgate

1,136


0.65


Ricardo

548


0.31

60 largest

134,261


77.06


100 largest

168,681


96.81










ITE Group

1,080


0.62


*Next Fifteen Communications Group

539


0.31

*Valiant Petroleum 

1,079

 

0.62


*Proximagen Neuroscience

525

 

0.30

Topps Tiles

1,071

 

0.62


Capital & Regional

507

 

0.29

Headlam

1,071

 

0.62


*Carluccio's

506

 

0.29

Aberdeen Asset Management

1,069

 

0.61


Kofax

470

 

0.27

Rathbone Brothers

1,054

 

0.61


Speedy Hire 

445

 

0.26

Bovis Homes Group

1,050

 

0.60


*Powerleague 

438

 

0.25

Renishaw

1,015

 

0.58


*Numis Corporation

422

 

0.24

Derwent London 

1,012

 

0.58


*ACP Capital

380

 

0.22

*Shed Media 

1,009

 

0.58


*Augean

370

 

0.21

70 largest

144,771


83.10


110 largest

173,283


99.45










Venture Productions

1,001


0.57


*Abcam 

332


0.19

Meggitt

999


0.57


Falkland Oil and Gas

251


0.14

Chime Communications 

990


0.57


Intec Telecom Systems

167


0.10

John Wood

986


0.56


#Langbar International

119


0.07

Psion

935


0.54


Raymarine 

80


0.05

Euromoney Institutional Investor

925


0.53



-----------


----------

Consort Medical 

925


0.53


TOTAL

174,232


100.00

Forth Ports

916


0.52



======


=====

e2v technologies

900


0.52






*Hansteen Holdings

889


0.51






80 largest

154,237


88.52







MANAGEMENT REPORT continued 



Principal Risks and Uncertainties

The principal risks and uncertainties facing the Company relate to the activity of investing in the shares of smaller companies that are listed (or quoted) in the United Kingdom.  Although the Company invests almost entirely in securities that are quoted on recognised markets, share prices may move rapidly and it may not be possible to realise an investment at the Manager's assessment of its value.  The companies in which investments are made may operate unsuccessfully, or fail entirely, such that shareholder value is lost.  The Company is also exposed to the operational risk that one or more of its suppliers may not provide the required level of service. The Board considers regularly the principal risks facing the Company in order to mitigate them as far as practicable.


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 

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 Securities Services SA. The Board monitors the services provided by the Manager and its other suppliers, and the key elements designed to provide effective internal control. 


Financial

As an investment trust the Company invests for the long term in equity securities, in accordance with its investment objective.  In pursuing its investment objective, the Company is exposed to a variety of risks that could result in either a reduction in the Company's net assets or a reduction in the revenue available for distribution by way of dividends. The main risks are identified as market risk (comprising market price risk, currency risk and interest rate risk), liquidity risk and credit and counterparty risk. The Manager, in close co-operation with the Board, co-ordinates the Company's risk management.



Future Developments

The future success of the Company is dependent primarily on the performance of its investments, which will to a significant degree reflect the performance of the stock market.  Although the Company invests in companies that are listed or quoted in the United Kingdom, the underlying businesses of those companies are affected by many economic factors, many of an international nature.  The Board's intention is that the Company will continue to pursue its investment objective in accordance with its investment policy.  Further comment on the outlook for the Company is given in the Chairman's Statement and in the Fund Manager's Review.



Related Party Transactions 

Investment management, UK custodial, accounting, administrative and company secretarial services are provided to the Company by Henderson Global Investors (Holdings) plc and its subsidiaries ('Henderson') and by BNP Paribas Securities Services SA (formerly BNP Paribas Fund Services UK Limited).  The Board has appointed JPMorgan Chase Bank, N.A. as the Company's custodian.  During the year there have not been any material transactions with these related parties affecting the financial position or performance of the Company.


 

MANAGEMENT REPORT continued 


Statement of Directors' Responsibilities (under DTR 4.1.12)

 

The directors of the Company each confirm, to the best of their knowledge, that:


• the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and loss of the Group; and


• the management report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.




For and on behalf of the Board

J D Fishburn

Chairman

30 July 2009

 

THE HENDERSON SMALLER COMPANIES INVESTMENT TRUST PLC
THE HENDERSON SMALLER COMPANIES INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 May 2009

 

Consolidated Income Statement (audited)

    for the year ended 31 May 2009




Year ended 31 May 2009


Year ended 31 May 2008


Revenue

return

Capital

return


Total

Revenue

return

Capital

return


Total


£'000

£'000

£'000

£'000

£'000

£'000

Investment income (note 2)

6,271

-

6,271

7,086

-

7,086

Other income (note 3)

947

-

947

108

-

108

Losses on investments held at fair  value  through

 profit or loss


 

-


 

(95,301)


 

(95,301)


 

-


 

(70,417)


 

(70,417)


----------

----------

----------

----------

----------

----------

Total income/(loss)

7,218

(95,301)

(88,083)

7,194

(70,417)

(63,223)








Expenses







Management fees (note 4)

(687)

-

(687)

(1,156)

-

(1,156)

Write-back of VAT

1,150

-

1,150

1,312

437

1,749

Other expenses 

(360)

-

(360)

(373)

-

(373)


---------

----------

---------

---------

----------

---------

Profit/(loss) before finance costs 

  and taxation


7,321


(95,301)


(87,980)


6,977


(69,980)


(63,003)








Finance costs

(2,376)

-

(2,376)

(3,109)

-

(3,109)


---------

---------

----------

---------

----------

---------

Profit/(loss) before taxation

4,945

(95,301)

(90,356)

3,868

(69,980)

(66,112)

Taxation

(9)

-

(9)

-

-

-


---------

----------

----------

---------

----------

----------

Profit/(loss) for the year

4,936

(95,301)

(90,365)

3,868

(69,980)

(66,112)


======

======

======

=====

======

======








Earnings/(loss) per ordinary    share (note 5)


6.30p


(121.71)p


(115.41)p


4.64p


(83.96)p


(79.32)p


======

=======

=======

=====

======

=====


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. 



THE HENDERSON SMALLER COMPANIES INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 May 2009



Consolidated and Parent Company Statements of Changes in Equity (audited)

for the year ended 31 May 2009


Consolidated

Year ended 31 May 2009


Called up share 

capital

£'000

Capital

 redemption 

reserve

 £'000

Other 

capital 

reserves 

£'000


Revenue

reserve 

£'000



Total

£'000

Balance at 31 May 2008

20,113

25,303

200,986

9,069

255,471

Buy-backs of ordinary shares

(770)

770

(5,750)

-

(5,750)

Buy-back of preference stock 

(in 2008)


-


5


(5)


-


-

(Loss)/profit for the year

-

-

(95,301)

4,936

(90,365)

Ordinary dividend paid (note 6)

-

-

-

(3,007)

(3,007)


----------

----------

----------

----------

----------

Balance at 31 May 2009

19,343

26,078

99,930

10,998

156,349


======

======

======

======

======


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 (note 6)

-

-

-

(1,433)

(1,433)


----------

----------

----------

----------

----------

Balance at 31 May 2008

20,113

25,303

200,986

9,069

255,471


======

======

======

======

======


Company

Year ended 31 May 2009


Called up share 

capital

£'000

Capital

 redemption 

reserve

 £'000

Other 

capital 

reserves 

£'000


Revenue

reserve

£'000



Total

£'000

Balance at 31 May 2008

20,113

25,303

203,251

6,804

255,471

Buy-backs of ordinary shares

(770)

770

(5,750)

-

(5,750)

Buy-back of preference stock 

(in 2008)


-


5


(5)


-


-

(Loss)/profit for the year 

-

-

(95,302)

4,937

(90,365)

Ordinary dividend paid (note 6)

-

-

-

(3,007)

(3,007)


----------

----------

----------

----------

----------

Balance at 31 May 2009

19,343

26,078

102,194

8,734

156,349


======

======

======

======

======


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

-

-

(69,982)

3,870

(66,112)

Ordinary dividend paid (note 6)

-

-

-

(1,433)

(1,433)


----------

----------

----------

----------

----------

Balance at 31 May 2008

20,113

25,303

203,251

6,804

255,471


======

======

======

======

======


 

THE HENDERSON SMALLER COMPANIES INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 May 2009


Consolidated and Parent Company Balance Sheets (audited)

at 31 May 2009



Consolidated

2009

£'000

Consolidated

2008

£'000

Company

2009

£'000

Company 2008

£'000

Non current assets





Investments held at fair value through profit or loss


174,232


286,819


176,496


289,084

   

----------

----------

----------

-----------






Current assets





Other receivables

2,854

3,290

2,854

3,290

Cash and cash equivalents 

234

672

234

672


----------

----------

---------

----------


3,088

3,962

3,088

3,962


----------

----------

---------

----------






Total assets 

177,320

290,781

179,584

293,046


----------

----------

----------

----------






Current liabilities 





Other payables

(967)

(1,806)

(3,231)

(4,071)

Bank loans 

-

(13,500)

-

(13,500)


--------

----------

---------

----------


(967)

(15,306)

(3,231)

(17,571)


--------

----------

---------

----------






Total assets less current liabilities 

176,353

275,475

176,353

275,475






Non current liabilities





Financial liabilities 

(20,004)

(20,004)

(20,004)

(20,004)


----------

----------

----------

----------

Net assets

156,349

255,471

156,349

255,471


======

======

======

======

Equity attributable to equity   shareholders





Called up share capital (note 7)

19,343

20,113

19,343

20,113

Capital redemption reserve

26,078

25,303

26,078

25,303

Retained earnings





  Other capital reserves

99,930

200,986

102,194

203,251

  Revenue reserve

10,998

9,069

8,734

6,804


----------

----------

-----------

----------

Total equity

156,349

255,471

156,349

255,471


======

======

======

======






Net asset value per ordinary share (note 8)


202.1p


317.6p


202.1p


317.6p


=====

======

=====

======


 

THE HENDERSON SMALLER COMPANIES INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 May 2009

 

Consolidated and Parent Company Cash Flow Statements (audited)

for the year ended 31 May 2009 



Year ended

31 May 2009

Year ended

31 May 2008


Consolidated

£'000

Company

£'000

Consolidated

£'000

Company

£'000

Operating activities 





Loss before taxation

(90,356)

(90,356)

(66,112)

(66,112)

Add: interest paid

2,376

2,376

3,110

3,110

Addlosses on investments held at fair value  

  through profit or loss


95,301


95,302


70,417


70,417

Add: net sales of investments held at fair value 

  though profit or loss


17,286


17,286


23,409


23,409

Decrease/(increase) in other receivables 

893

893

(1,752)

(1,752)

Increase/(decrease) in amounts due from brokers

(443)

(443)

405

405

Decrease in other payables 

(106)

(107)

(2,423)

(2,423)

(Decrease)/increase in amounts due to brokers

(727)

(727)

76

76

Taxation on investment income

(23)

(23)

(11)

(11)


---------

---------

---------

----------

Net cash inflow from operating activities 

  before interest and taxation


24,201


24,201


27,119


27,119






Interest paid

(2,382)

(2,382)

(3,110)

(3,110)







---------

----------

---------

----------

Net cash inflow from operating activities

21,819

21,819

24,009

24,009


---------

----------

---------

----------

Financing activities 





Equity dividend paid

(3,007)

(3,007)

(1,433)

(1,433)

Buy-backs of ordinary shares

(5,750)

(5,750)

(16,739)

(16,739)

Repayment of loans

(13,500)

(13,500)

(6,546)

(6,546)

Repurchase of preference stock

-

-

(5)

(5)


----------

----------

----------

---------

Net cash outflow from financing 

(22,257)

(22,257)

(24,723)

(24,723)


----------

----------

----------

----------






Decrease in cash and cash equivalents 

(438)

(438)

(714)

(714)

Cash and cash equivalents at the start of the year 

672

672

1,360

1,360

Exchange movements

-

-

26

26


---------

--------

---------

--------

Cash and cash equivalents at the end of the year

 

234

 

234

 

672

 

672


=====

=====

=====

=====


THE HENDERSON SMALLER COMPANIES INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 May 2009

  

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 2009 have been prepared in accordance with International Financial Reporting Standards ('IFRS') and with those parts of the Companies Act 2006 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 and 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 Financial Statements for the year ended 31 May 2009. 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 January 2009 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.

Investment Income

2009

2008



£'000

£'000


Franked income from companies listed or quoted in the United Kingdom:




  Dividends

5,736

6,668


  Special dividends

39

118


Unfranked income from companies listed or quoted in the United Kingdom:




  Dividends

365

246


  Property income distributions

108

32


  Stock dividends

23

22



--------

--------


Total investment income

6,271

7,086



=====

=====

  

Notes to the Financial Statements continued


3.

Other income

2009

2008



£'000

£'000


Bank interest

22

61


Interest on the refund of VAT

749

-


Underwriting commission (allocated to revenue)*

176

47



-------

--------



947

108



-------

--------


A further £13,000 (2008: £2,000) of commission in respect of shares taken up has been allocated to capital.




4.

Management fees 



2009 

Revenue

£'000

2009

Capital

£'000

2009

Total

£'000

2008

Revenue

£'000

2008

Capital

£'000

2008

Total

£'000


Mangagement fee 

687

-

687

1,083

-

1,083


Irrecoverable VAT thereon

-

-

-

73

-

73



----------

--------

--------

---------

--------

--------



687

-

687

1,156

-

1,156


Write-back of VAT

(1,150)

-

(1,150)

(1,312)

(437)

(1,749)



---------

--------

--------

---------

-------

--------



(463)

-

(463)

(156)

(437)

(593)



=====

=====

=====

=====

====

====











VAT on management fees

Following a judgement of the European Court of Justice in June 2007, HM Revenue & Customs ('HMRC') accepted that the provision of investment management services to investment trust companies is VAT exempt and acknowledged its liability to pay claims in respect of VAT borne by investment trust companies.  The Manager (Henderson Global Investors Limited) has reclaimed from HMRC the amount of VAT charged to the Company in respect of investment management services in the period from 1 October 2000 to 30 September 2007.  An amount of £1,749,000 was recognised in the financial statements for the year ended 31 May 2008, reflecting the extent that recovery by the Company was then considered to be certain.  A further £306,000 was recognised in the year ended 31 May 2009, based on the settlement reached with HMRC in respect of this period. Interest of £347,000 was received in respect of these amounts during the year ended 31 May 2009 and is included in other income (see note 3 above).


The Manager (Henderson Global Investors Limited) is in the process of reclaiming from HMRC the amount of VAT charged to the Company in respect of investment management services in the period from 1 January 1990 to 4 December 1996.  An amount of £844,000 has been recognised in the year ended 31 May 2009, reflecting the extent that recovery by the Company is considered to be certain.  Similarly, interest on this amount of £402,000 has been recognised and is included in other income (see note 3 above).

 

Notes to the Financial Statements continued


The write-backs of VAT have been allocated between revenue return and capital return according to the allocation of the amounts originally paid.



VAT has not been applied to investment management fees invoiced since September 2007. 


The Company may be able to recover further amounts of the VAT charged on investment management fees back to 1990.  However, the Board considers that currently there are too many uncertainties for any reasonable estimate of the total further amounts potentially recoverable to be calculated.

    

5.

Earnings/(loss) per ordinary share

The loss  per ordinary share figure is based on the net losses for the year of £90,365,000 (2008£66,112,000and on 78,298,336 (200883,350,298) ordinary shares, being the weighted average number of ordinary shares in issue during the year.


The loss 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.







2009 

2008



£'000

£'000


Net revenue profit

4,936

3,868


Net capital loss

(95,301)

(69,980)



----------

----------


Net total loss

(90,365)

(66,112)



======

======


Weighed average number of ordinary shares  in issue during the year


78,298,336


83,350,298



========

========







Pence

Pence


Revenue earnings per ordinary share

6.30

4.64


  




Capital losses per ordinary share

(121.71)

(83.96)



-----------

----------


Total losses per ordinary share

(115.41)

(79.32)



======

======








Notes to the Financial Statements continued


6.

Dividends

2009

£'000 

2008

£'000


Amounts recognised as distributions to equity holders in the year:




Final dividend for the year ended 31 May 2008 of 2.20p




  (2008: 1.70p per ordinary share)

1,741

1,433


Special dividend for the year ended 31 May 2008 of 1.60p

1,266

-



-------

----



3,007

1,433



====

====



The final dividend of 2.20p per ordinary share and the special dividend of 1.60p per ordinary share in respect of the year ended 31 May 2008 were paid on 3 October 2008 to shareholders on the register of members at the close of business on 29 August 2008. The total dividends paid amounted to £3,007,000. 


Subject to approval at the Annual General Meeting, the proposed final dividend of 3.00p per ordinary share and special dividend of 2.60p per ordinary share will be paid on 9 October 2009 to shareholders on the register of members at the close of business on 11 September 2009. 


No provision has been made for the final dividend and the special dividend in these accounts due to the adoption of IFRS. Under IFRS the final dividend is not recognised until approved by the shareholders. Previously dividends were recognised in respect of the period to which they related.



7.

Called up share capital

2009

£'000

2008

£'000






Authorised:




188,000,000 ordinary shares of 25p each (2008: 188,000,000)

47,000

47,000


 

======

======


Allotted, issued and fully paid:




77,370,296 ordinary shares of 25p each (2008: 80,449,030)

19,343

20,113



======

======


During the year the Company made market purchases for cancellation of 3,078,734 of its own issued ordinary shares (2008: 6,177,000) at a total cost of £5,750,000 (2008: £16,684,000). A further 2,200,000 shares were bought back for cancellation between 31 May 2009 and 29 July 2009.











Notes to the Financial Statements continued


8.

Net asset value per ordinary share (Group and Company)

The net asset value per ordinary share is based on the net assets attributable to the ordinary shares of £156,349,000 (2008: £255,471,000) and on the 77,370,296 ordinary shares in issue at 31 May 2009 (2008: 80,449,030).


An alternative net asset value per ordinary share can be calculated by deducting from the total assets less current liabilities of the Group the preference stock and the debenture stock at their market (or fair) values rather than at their par (or book) values. The net asset value per ordinary share at 31 May 2009 calculated on this basis was 196.9p (2008: 310.9p)


The Company has no securities in issue that could dilute the net asset value per ordinary share.


The movement during the year of the net assets attributable to the ordinary shares was as follows:



£'000


Net assets attributable to the ordinary shares at 1 June 2008

255,471


Loss for the year

(90,365)


Dividend paid in the year: 



  ordinary shares

(3,007)


Repurchase of 3,078,734 ordinary shares

(5,750)



----------


Net assets attributable to the ordinary shares at 31 May 2009

156,349



======





9.

2009 financial statements

This condensed set of financial statements for the year ended 31 May 2009 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 have not yet been delivered to the Registrar of Companies.


10.

2008 finanical statements

The figures and financial information for the year ended 31 May 2008 are 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.







  

Notes to the Financial Statements continued


11.

Annual report and AGM

The full annual report and accounts will be posted to shareholders in the second half of August 2009 and copies will be available thereafter from the Secretary at the Company's Registered Office, 201 BishopsgateLondon EC2M 3AE


The Annual General Meeting will be held on Friday 2 October 2009 at 11.30 am.



12.

Website 

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 -


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