Henderson Smllr Cos - Half-year Report
26/01/2023 07:00
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RNS Number : 8887N Henderson Smaller Cos Inv Tst PLC 26 January 2023
THE HENDERSON SMALLER COMPANIES INVESTMENT TRUST PLC
JANUS HENDERSON FUND MANAGEMENT UK LIMITED
LEGAL ENTITY IDENTIFIER: 213800NE2NCQ67M2M998
26 January 2023
THE HENDERSON SMALLER COMPANIES INVESTMENT TRUST PLC
Unaudited Results for the Half-Year Ended 30 November 2022
This announcement contains regulated information.
"We believe your portfolio is both well positioned to withstand the current
uncertain environment and has the scope to exploit the opportunities that will
emerge progressively as current conditions improve."
Penny Freer
Chair of the Board
INVESTMENT OBJECTIVE
The Company aims to maximise shareholders' total returns (capital and income)
by investing in smaller companies that are quoted in the United Kingdom.
PERFORMANCE SUMMARY
· Net asset value ("NAV") total return(1) of -12.5% compared to a
total return from the benchmark(2) of ‑6.5%
· Share price(3) total return of -8.4%
· Interim dividend(4) of 7.0p (30 November 2021: 7.0p)
TOTAL RETURN PERFORMANCE (including dividends reinvested)
6 Months 1 Year 3 Years 5 Years 10 Years
% % % % %
NAV(1) -12.5 -26.5 -2.5 7.4 162.5
Benchmark(2) -6.5 -12.9 4.6 6.1 109.7
Share price(3) -8.4 -27.4 -9.2 12.1 191.3
Average sector NAV(5) -7.6 -17.0 7.7 6.7 136.6
Average sector share price(6) -6.8 -18.6 3.4 6.5 145.1
FTSE All-Share Index 0.3 6.5 12.2 22.8 92.8
Sources: Morningstar Direct, Janus Henderson, Refinitiv Datastream
1 Net asset value ("NAV") per ordinary share total return with income
reinvested
2 Numis Smaller Companies Index (excluding investment companies) total return
3 Share price total return using mid-market closing price
4 Interim dividend of 7.0p (30 November 2021: 7.0p) to be paid to shareholders
on 6 March 2023
5 Average NAV total return of the AIC UK Smaller Companies sector
6 Average share price total return of the AIC UK Smaller Companies sector
FINANCIAL SUMMARY
(Unaudited) (Unaudited) (Audited)
30 November 30 November 31 May
2022 2021 2022
Net assets £689.8m £960.8m £802.6m
NAV per ordinary share 923.4p 1,286.2p 1,074.4p
Share price per ordinary share 823.0p 1,164.0p 917.5p
Total return per ordinary share (134.0p) (26.2p) (231.0p)
Revenue return per ordinary share 12.54p 9.30p 24.57p
Dividend per ordinary share 7.00p 7.00p 24.00p
Gearing 11.6% 10.6% 11.2%
CHAIR'S STATEMENT
The period under review saw challenging global geopolitics, with increasing
inflation and rising interest rates. In the UK, political turmoil led to
volatility in sterling and turbulent bond markets, although by the end of
November the domestic situation had calmed considerably. Your Company was not
immune to the consequences of these challenges.
Performance
Your Company's net asset value ("NAV") total return fell during the period
under review by 12.5%, underperforming the Numis Smaller Companies
ex-Investment Companies Index which fell by 6.5%. It also underperformed the
AIC UK Smaller Companies sector average NAV, which fell by 7.6%. Your
Company's share price total return fell by 8.4% with the discount to NAV
narrowing from 14.6% at 31 May 2022 to 10.9% at 30 November 2022.
The underperformance during the period was due to a combination of the
de-rating of growth companies as they were negatively impacted by rising
interest rates and higher bond yields, as well as the impact of gearing in the
portfolio as markets fell. In most cases, the de-rating of our portfolio
companies was not representative of the robust underlying operational and
financial performance of the businesses.
The longer-term performance record of the Company remains consistently strong,
reflecting an unchanged strategy adopted by the Fund Manager and his team.
Dividend
Your Board has decided to pay an unchanged interim dividend at 7.0p per
ordinary share (30 November 2021: 7.0p). This will be paid on 6 March 2023
from the Company's revenue account to shareholders on the register at 10
February 2023. The shares will be marked ex-dividend on 9 February 2023.
Board changes and succession planning
After serving for nine years as director, David Lamb retired from the Board on
30 September 2022. David had been the Board's marketing representative, and
for three years, Senior Independent Director. Kevin Carter has now been
appointed as the Board's Senior Independent Director and Michael Warren has
taken on the role of marketing representative. In the 2022 Annual Report we
commented that we intend to appoint an additional non-executive director
during the current year, in line with our long-term succession programme and
to meet the FCA's diversity targets. We are well advanced in this process and
expect to make an appointment before the year end.
Outlook
These are challenging times in the UK with the ongoing conflict in Ukraine and
the tension between the USA and China having both immediate and longer-term
implications. High inflation and the consequent fiscal tightening and rises in
interest rates have sapped consumer confidence. It is noteworthy, however,
that in the corporate sector conditions are intrinsically stronger than during
the Global Financial Crisis of 2008/9 particularly in terms of balance sheet
strength. We are seeing a strong recovery in dividend payments and evidence of
companies buying back shares. Valuations are now well below long-term
averages, although 2023 earnings growth is likely to be muted. Your fund
management team continues to follow a disciplined, long-term approach focused
on bottom-up stock selection through the assessment of each company's market
proposition, balance sheet strength and management. We believe your portfolio
is both well positioned to withstand the current uncertain environment and has
the scope to exploit the opportunities that will progressively emerge as
current conditions improve.
Penny Freer
Chair of the Board
FUND MANAGER'S REPORT
Market Review
The broad UK equity market was flat over the period. Market concerns focused
around inflation, monetary policy tightening and the increasing likelihood of
a global economic downturn with a consequent corporate earnings contraction.
In the UK, GDP fell by 0.3% over the third quarter of 2022 following 0.2%
growth in the second quarter, while business confidence slumped and consumer
confidence remained close to an all-time low. It is possible the UK economy
will have entered recession in the fourth quarter of 2022. The UK annual
inflation rate rose to 11.1% in October 2022, a 40-year high. Central banks
across the world, led by the Federal Reserve, European Central Bank and Bank
of England, continued to raise interest rates. Despite indications that
headline inflation had peaked in the US and was peaking elsewhere, the
messaging from central banks remained hawkish regarding the future path of
interest rates. The bond market turmoil in the UK caused by the Truss/Kwarteng
'mini' budget put a spotlight on the country's fiscal position, pushing
sterling to lows against the US dollar. The replacement of Liz Truss by Rishi
Sunak as Prime Minister and Jeremy Hunt's fiscally restrictive Autumn
Statement calmed bond markets and saw sterling retrace earlier losses.
Smaller companies underperformed their larger counterparts, with the Numis
Smaller Companies ex-Investment Companies Index down 6.5% against a rise in
the FTSE All-Share Index of 0.3%. This was driven principally by concerns over
the economic sensitivity of small caps in a recession.
Fund Performance
The Company had a disappointing period in performance terms, falling in
absolute terms and underperforming its benchmark. The share price fell by 8.4%
and the net asset value by 12.5% on a total return basis. This compared with a
decrease of 6.5% (total return) by the Numis Smaller Companies Index
(excluding investment companies). The underperformance came from a combination
of the negative contribution from stock selection, gearing and expenses. The
negative contribution from stock selection principally reflected the
underperformance of growth companies as they de-rated in valuation terms due
to rising interest rates and higher bond yields. In the vast majority of
cases, this was independent of the operational and financial performance of
these businesses, which remained robust.
Gearing
Gearing started the period at 11.2% and ended at 11.6%. Debt facilities are a
combination of £30 million 20-year unsecured loan notes at an interest rate
of 3.33% issued in 2016, £20m 30-year unsecured loan notes at 2.77% which
were issued in February 2022 and £85 million short-term bank borrowings. As
markets fell, the use of gearing was a negative contributor to performance in
the period.
Attribution Analysis
The following tables show the top five contributors to, and detractors from,
the Company's relative performance at 30 November 2022. Some of the stocks
were included in the benchmark index but not held by the Company. These had an
effect on relative performance.
Top five contributors 6-month return % Relative contribution %
Balfour Beatty +25.6 +0.5
RPS +114.5 +0.5
John Wood* -45.3 +0.5
Alpha Financial Markets +25.1 +0.4
Euromoney +33.1 +0.4
Top five detractors 6-month return % Relative contribution %
Synthomer -56.6 -0.8
GB Group -41.1 -0.6
Future -29.1 -0.6
Network International* +55.0 -0.6
Telecom Plus* +50.1 -0.6
* In benchmark index but not held by the Company.
Principal Contributors
Balfour Beatty is an international construction and infrastructure group; RPS
is an international consulting engineer; John Wood is an oil and gas EPC
group; Alpha Financial Markets is a provider of consulting services to the
asset management industry; and Euromoney is a global B2B information services
business.
Principal Detractors
Synthomer is a speciality chemicals group; GB Group is a provider of software
and services to identity verification and fraud prevention markets; Future is
a special interest media group; Network International is a Middle Eastern
payments business; and Telecom Plus is a provider of telecommunications, gas
and electricity services.
Portfolio Activity
Our approach 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 dispose of stocks
that fail to meet these criteria.
During the period, we have added to a number of positions in our portfolio and
increased exposure to those stocks which we feel have further catalysts to
drive strong performance.
New additions to the portfolio include: Essentra, an international
manufacturer and distributor of speciality products; Morgan Advanced
Materials, a manufacturer of advanced ceramic and composite products; and
Trainline, an online platform for the provision of rail and coach tickets.
To balance the additions to our portfolio, we have disposed of positions in
companies which we felt were set for poor price performance or where the
valuation had become extended, including the holdings in Alphawave, De La Rue,
James Fisher, Gooch & Housego, Inspecs and Joules. Additionally we sold
our holdings in Euromoney, RPS and Ultra Electronics, after these companies
received agreed takeover bids.
Market Outlook
Global geopolitics remain challenging, particularly with the ongoing conflict
in Ukraine and heightened tensions between China and USA. The longer-term
implications of this are material, with the isolation of Russia as a pariah
state, a stronger and more unified Europe and NATO, materially higher defence
spending and an urgent need to reduce European dependence on Russian oil and
gas supplies. This has exacerbated inflation, particularly in Europe, added to
the burden on government spending, dampened animal spirits and hurt economic
growth.
With inflation prints continuing to remain elevated against official targets,
central banks, led by the US Federal Reserve, have remained hawkish. We have
seen significant rises in interest rates globally and a move from quantitative
easing to tightening. The market is forecasting further global rises in
interest rates although it is clear we are nearer to the end rather than the
start of the monetary-policy tightening phase. Oscillating confidence levels
in central bankers' willingness and ability to strike the right balance
between containing inflation and supporting economic growth is driving
heightened levels of uncertainty and volatility in global bond and equity
markets.
The rapid rise of inflation, particularly driven by energy prices but also by
a wider number of other components, is putting pressure on consumers. Although
the labour market is strong and wages are rising, real net disposable income
is falling and consumer confidence is low. Sectors exposed to consumer
spending are likely to face tougher trading as we move further into 2023.
In the corporate sector, conditions are intrinsically stronger than they were
during the Global Financial Crisis of 2008-2009. In particular, balance sheets
are more robust. Dividends have been recovering strongly and we are seeing an
increasing number of companies buying back their own stock.
After an active 2021, the initial public offering ("IPO") market has become
considerably quieter as equity market confidence has diminished. There are no
signs this is likely to change in the short term. Merger and acquisition
("M&A") activity has remained robust as acquirers look to exploit
opportunities thrown up by the recent equity market pullback. We expect this
to continue in the coming months as UK equity market valuations remain
markedly depressed versus other developed markets although recent moves in the
bond market are causing a pause in activity.
In terms of valuations, the equity market is now trading below long-term
averages. Corporate earnings were sharply down in 2020 although we saw a sharp
recovery in 2021 and 2022. This is likely to fade in 2023 as a weakening
economic environment starts to bite.
Although uncertainty remains around short-term economic conditions, we believe
that the portfolio is well positioned to withstand an economic downturn and
exploit any opportunities it presents. The movements in equity markets have
thrown up some fantastic buying opportunities. However, it will be important
to be selective as the strength of franchise, market positioning and balance
sheets will likely determine the winners from the losers.
Neil Hermon
Fund Manager
PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks and uncertainties associated with the Company's business
fall broadly under the following categories:
• investment activity and strategy;
• legal and regulatory;
• operational; and
• financial instruments and the management of risk.
Detailed information on these risks is given in the Strategic Report and in
the Notes to the Financial Statements in the Company's Annual Report for the
year ended 31 May 2022.
In the view of the Board, these principal risks and uncertainties are as
applicable to the remaining six months of the financial year as they were to
the six months under review.
DIRECTORS' RESPONSIBILITY STATEMENT
The directors confirm that, to the best of their knowledge:
· the condensed set of financial statements has been prepared in accordance with
International Accounting Standard 34 Interim Financial Reporting;
· the Interim Management Report includes a fair review of the information
required by Disclosure Guidance and Transparency Rule 4.2.7R (indication of
important events during the first six months and description of the principal
risks and uncertainties for the remaining six months of the year); and
· the Interim Management Report includes a fair review of the information
required by Disclosure Guidance and Transparency Rule 4.2.8R (disclosure of
related-party transactions and changes therein).
On behalf of the Board
Penny Freer
Chair of the Board
INVESTMENT PORTFOLIO
at 30 November 2022
Valuation £'000 Portfolio % Valuation £'000 Portfolio %
Company Company
Impax Asset Management* 24,929 3.24 Just Group 9,694 1.26
Oxford Instruments 22,951 2.98 GB Group* 9,564 1.24
Watches Of Switzerland 20,777 2.70 Victrex 9,502 1.23
Balfour Beatty 18,769 2.44 Vitec 9,134 1.19
OneSavings Bank 18,626 2.42 Bodycote 8,998 1.17
Bellway 18,054 2.35 Bytes Technology 8,858 1.15
Future 17,844 2.32 Redde Northgate 8,742 1.14
Paragon Banking 17,070 2.22 Crest Nicholson 8,280 1.08
Learning Technologies* 16,588 2.15 Foresight Group 8,031 1.04
Team17* 16,133 2.10 Trainline 7,634 0.99
----------- ---------- ----------- ----------
10 largest 191,741 24.92 40 largest 510,254 66.29
Vesuvius 15,392 2.00 Midwich* 7,525 0.98
Alpha Financial Markets* 14,115 1.83 TI Fluid Systems 7,513 0.98
Serica Energy* 13,357 1.73 Auction Technology 7,499 0.97
IntegraFin 12,965 1.68 Tyman 7,497 0.97
RWS* 12,595 1.64 QinetiQ 7,304 0.95
Gamma Communications* 12,034 1.56 Workspace Group 7,085 0.92
Serco 11,977 1.56 Moneysupermarket.Com 7,019 0.91
Renishaw 11,531 1.50 SigmaRoc* 6,829 0.89
Ascential 11,211 1.46 CLS 6,757 0.88
Spectris 10,871 1.41 Wickes 6,658 0.86
----------- ---------- ----------- ----------
20 largest 317,789 41.29 50 largest 581,940 75.60
Softcat 10,833 1.41 DFS 6,412 0.83
Computacenter 10,708 1.39 Restore* 6,353 0.83
Mitchells & Butlers 10,688 1.39 Hollywood Bowl Group 6,337 0.82
Chemring 10,652 1.38 Synthomer 6,251 0.81
Next Fifteen Communications* 10,460 1.36 Harbour Energy 5,972 0.78
Savills 10,401 1.35 Genuit 5,859 0.76
Liontrust Asset Management 10,397 1.35 SThree 5,711 0.74
Rathbones 10,315 1.34 Hunting 5,304 0.69
Volution 9,847 1.28 Pagegroup 5,212 0.68
Capricorn Energy 9,727 1.26 Helical 5,193 0.67
----------- ---------- ----------- ----------
30 largest 421,817 54.80 60 largest 640,544 83.21
Remaining 41 129,320 16.79
------------ ----------
Total 769,864 100.00
======= ======
* Quoted on the Alternative Investment Market ("AIM")
STATEMENT OF COMPREHENSIVE INCOME
(Unaudited) (Unaudited) (Audited)
Half-year ended Half-year ended Year ended
30 November 2022 30 November 2021 31 May 2022
Revenue Capital Revenue Capital Revenue Capital
return return Total return return return Total return return return Total return
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Investment income 10,553 - 10,553 8,088 - 8,088 20,648 - 20,648
Other income 23 - 23 - - - 2 - 2
Losses on investments held at fair value through profit or loss - (107,690) (107,690) - (24,756) (24,756) - (187,266) (187,266)
Currency losses - - - - - - - (1) (1)
--------- ------------ ----------- --------- ----------- ---------- --------- ------------ ------------
Total income/(loss) 10,576 (107,690) (97,114) 8,088 (24,756) (16,668) 20,650 (187,267) (166,617)
Expenses
Management and performance fees (note 3) (362) (844) (1,206) (506) (1,182) (1,688) (1,004) (2,343) (3,347)
Other expenses (365) - (365) (366) - (366) (728) - (728)
--------- --------- ---------- --------- --------- ---------- ---------- ---------- ----------
Profit/(loss) before finance 9,849 (108,534) (98,685) 7,216 (25,938) (18,722) 18,918 (189,610) (170,692)
costs and taxation
Finance costs (476) (931) (1,407) (249) (579) (828) (562) (1,310) (1,872)
--------- ------------ ----------- --------- --------- ---------- --------- ----------- -----------
Profit/(loss) before taxation 9,373 (109,465) (100,092) 6,967 (26,517) (19,550) 18,356 (190,920) (172,564)
Taxation (5) - (5) (1) - (1) (1) - (1)
--------- ------------ ----------- --------- --------- ---------- --------- ----------- -----------
Profit/(loss) for the period and total comprehensive income 9,368 (109,465) (100,097) 6,966 (26,517) (19,551) 18,355 (190,920) (172,565)
===== ======= ======= ===== ====== ====== ===== ======= =======
Earnings per ordinary 12.54p (146.54p) (134.00p) 9.33p (35.50p) (26.17p) 24.57p (255.58p) (231.01p)
share (note 4)
====== ======= ======= ===== ======= ====== ====== ======= =======
The total column of this statement represents the Statement of Comprehensive
Income, prepared in accordance with UK adopted international accounting
standards.
The revenue return and capital return columns are supplementary to this and
are prepared under guidance published by the Association of Investment
Companies.
The accompanying notes are an integral part of these financial statements.
STATEMENT OF CHANGES IN EQUITY
Half-year ended 30 November 2022 (unaudited) Share Capital reserves Revenue reserve Total equity
capital £'000 Capital redemption reserve £'000 £'000 £'000
£'000
Total equity at 1 June 2022 18,676 26,745 744,044 13,134 802,599
Total comprehensive income: - - (109,465) 9,368 (100,097)
(Loss)/profit for the period
Transactions with owners recorded directly to equity:
Ordinary dividend paid - - - (12,699) (12,699)
---------- ---------- ------------ ----------- ------------
Total equity at 30 November 2022 18,676 26,745 634,579 9,803 689,803
====== ====== ======= ====== =======
Half-year ended 30 November 2021 (unaudited) Share Capital reserves Revenue reserve Total equity
capital £'000 Capital redemption reserve £'000 £'000 £'000
£'000
Total equity at 1 June 2021 18,676 26,745 935,307 12,170 992,898
Total comprehensive income: - - (26,517) 6,966 (19,551)
(Loss)/profit for the period
Transactions with owners, recorded directly to equity:
Ordinary dividend paid - - (343) (12,170) (12,513)
---------- ---------- ----------- ----------- ------------
Total equity at 30 November 2021 18,676 26,745 908,447 6,966 960,834
====== ====== ======= ====== =======
Share Capital
capital redemption Capital Revenue
£'000 reserve reserves reserve Total equity
£'000 £'000 £'000 £'000
Year ended 31 May 2022 (audited)
Total equity at 1 June 2021 18,676 26,745 935,307 12,170 992,898
Total comprehensive income: - - (190,920) 18,355 (172,565)
(Loss)/profit for the year
Transactions with owners, recorded directly to equity:
Ordinary dividend paid - - (343) (17,391) (17,734)
---------- ---------- ------------ ----------- ------------
Total equity at 31 May 2022 18,676 26,745 744,044 13,134 802,599
====== ====== ======= ====== =======
The accompanying notes are an integral part of these financial statements.
BALANCE SHEET
(Unaudited) (Unaudited) (Audited)
Half-year ended Half-year ended 30 November 2021 Year ended
30 November 2022 31 May
2022
£'000 £'000 £'000
Non-current assets
Investments held at fair value through 769,864 1,062,598 892,397
profit or loss
------------ -------------- -------------
Current assets
Securities sold for future settlement - 4,730 4,229
Prepayments and accrued income 1,047 1,340 -
Cash and cash equivalents 2,192 5,262 8,991
------------- ------------- -------------
3,239 11,332 13,220
------------- ------------- -------------
Total assets 773,103 1,073,930 905,617
------------- -------------- -------------
Current liabilities
Securities purchased for future settlement (634) (2,221) (2,990)
Accruals and deferred income (810) (876) -
Bank loans (32,092) (80,162) (50,268)
------------- ------------ ------------
(33,536) (83,259) (53,258)
------------- ------------ ------------
Total assets less current liabilities 739,567 990,671 852,359
Non-current liabilities (49,764) (29,837) (49,760)
-------------- ------------ ------------
Net assets 689,803 960,834 802,599
======== ======= =======
Equity attributable to equity shareholders
Called up share capital (note 6) 18,676 18,676 18,676
Capital redemption reserve 26,745 26,745 26,745
Retained earnings:
Capital reserves (note 7) 634,579 908,447 744,044
Revenue reserve 9,803 6,966 13,134
------------ ------------ ------------
Total equity 689,803 960,834 802,599
======= ======= =======
Net asset value per ordinary share (note 8) 923.4p 1,286.2p 1,074.4p
======= ======= =======
The accompanying notes are an integral part of these financial statements.
STATEMENT OF CASH FLOWS
(Unaudited) (Unaudited) (Audited)
Half-year ended Half-year ended Year ended
30 November 2022 30 November 2021 31 May
2022
£'000 £'000 £'000
Loss before taxation (100,092) (19,550) (172,564)
Add back interest payable 1,330 828 1,872
Losses on investments held at fair value through profit or loss 107,690 24,756 187,266
Purchases of investments (62,139) (79,124) (165,877)
Sales of investments 76,981 72,129 166,572
(Increase)/decrease in receivables (11) 3 (1)
Decrease/(increase) in amounts due from brokers 1,899 (1,651) 1,179
Decrease/(increase) in accrued income 1,296 573 (412)
Decrease in payables (88) (4,402) (4,545)
(Decrease)/increase in amounts due to brokers (1,447) 1,747 1,607
Overseas withholding tax (5) - -
----------- ----------- -----------
Net cash inflow/(outflow) from operating activities before interest 25,414 (4,691) 15,097
----------- ----------- -----------
Interest paid (1,338) (798) (1,659)
----------- ----------- -----------
Net cash inflow/(outflow) from operating activities 24,076 (5,489) 13,438
======= ======= =======
Financing activities
Equity dividends paid (12,699) (12,513) (17,734)
(Drawdown)/repayment of bank loans (18,176) 20,302 (9,592)
Issue of unsecured private placement notes - - 20,000
Direct expenses on issue of unsecured private placement notes - - (82)
------------ ----------- -----------
Net cash (outflow)/inflow from financing activities (30,875) 7,789 (7,408)
(Decrease)/increase in cash and cash equivalents (6,799) 2,300 6,030
Currency losses - - (1)
Cash and cash equivalents at the start of the period 8,991 2,962 2,962
----------- ---------- ----------
Cash and cash equivalents at the period end 2,192 5,262 8,991
====== ====== ======
The accompanying notes are an integral part of these financial statements.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
1. Accounting policies - basis of preparation
The Henderson Smaller Companies Investment Trust plc (the "Company") is a
company incorporated and domiciled in the United Kingdom under the Companies
Act 2006. These condensed financial statements comprise the unaudited results
of the Company for the half-year ended 30 November 2022. They have been
prepared on a going concern basis and in accordance with UK adopted
international accounting standards and with the Statement of Recommended
Practice for Investment Trusts ("SORP") dated April 2021, where the SORP is
consistent with the requirements of UK adopted international accounting
standards. For the period under review the Company's accounting policies have
not varied from those described in the Annual Report for the year ended 31 May
2022. These financial statements have not been audited or reviewed by the
Company's auditor.
2. Going concern
The assets of the Company consist of securities that are readily realisable
and, accordingly, the directors believe that the Company has adequate
resources to continue in operational existence for at least twelve months from
the date of approval of the financial statements. The directors have also
considered the impact of Covid-19 and the risks arising from the wider
ramifications of the conflict between Russia and Ukraine, incorporating cash
flow forecasting, a review of covenant compliance including the headroom above
the most restrictive covenants and an assessment of the liquidity of the
portfolio. They have concluded that they are able to meet their financial
obligations, including the repayment of the bank loan, as they fall due for a
period of at least twelve months from the date of issuance. Having assessed
these factors, the principal risks and other matters discussed in connection
with the Viability Statement in the Annual Report for the year ended 31 May
2022, the directors confirm that the financial statements have been prepared
on a going concern basis. The Company's shareholders are asked every three
years to vote for the continuation of the Company. The last continuation vote
took place at the AGM on 30 September 2022 and was passed by a substantial
majority of shareholders. The next continuation vote will take place at the
AGM in 2025.
3. Expenses
Expenses, finance costs and taxation include provision for a performance fee
when the relevant criteria have been met. There was no performance fee
provision for the six months to 30 November 2022 (30 November 2021: £nil; 31
May 2022: £nil). Any provision for a performance fee is charged 100% to
capital. The actual performance fee, if any, payable to Janus Henderson for
the year to 31 May 2023 will depend on outperformance over the full financial
year, subject to a cap on the total fees paid to Janus Henderson of 0.9% of
the average value of the net assets of the Company during the year. No
performance fee is payable if on the last day of the accounting year the
Company's share price or net asset value ("NAV") is lower than the share price
and NAV at the preceding year end. Details of the performance fee arrangements
are set out in the Annual Report for the year ended 31 May 2022.
4. Earnings per ordinary share
The earnings per ordinary share figure is based on the net loss for the
half-year ended 30 November 2022 of £100,097,000 (half-year ended 30 November
2021: net profit of £19,551,000; year ended 31 May 2022: net loss of
£172,565,000) and on 74,701,796 (half-year ended 30 November 2021:
74,701,796; year ended 31 May 2022: 74,701,796) ordinary shares, being the
weighted average number of ordinary shares in issue during the period.
The earnings per ordinary share figure detailed above can be further analysed
between revenue and capital, as below.
(Unaudited) (Unaudited) (Audited)
30 November 30 November 2021 31 May
2022 £'000 2022
£'000 £'000
Net revenue profit 9,368 6,966 18,355
Net capital loss (109,465) (26,517) (190,920)
------------- ------------ --------------
Net total loss (100,097) (19,551) (172,565)
======== ======= ========
Weighted average number of 74,701,796 74,701,796 74,701,796
ordinary shares in issue during
the period
Pence Pence Pence
Revenue earnings per ordinary share 12.54 9.33 24.57
Capital loss per ordinary share (146.54) (35.50) (255.58)
------------ ---------- ------------
Total loss per ordinary share (134.00) (26.17) (231.01)
======= ====== =======
5. Dividends
The Board has declared an interim dividend of 7.00p (30 November 2021: 7.00p)
to be paid on 6 March 2023 to shareholders on the register at the close of
business on 10 February 2023. The ex‑dividend date will be 9 February 2023.
No provision has been made for the interim dividend in these condensed
financial statements.
The final dividend of 17.00p per ordinary share, paid on 5 October 2022, in
respect of the year ended 31 May 2022, has been recognised as a distribution
in the period.
6. Share capital
At 30 November 2022 there were 74,701,796 ordinary shares in issue (30
November 2021: 74,701,796; 31 May 2022: 74,701,796). During the half-year
ended 30 November 2022 the Company did not buy back or issue any shares
(half-year ended 30 November 2021: nil; year ended 31 May 2022: nil). No
shares have been bought back or issued since the period end.
7. Capital reserves
Capital reserves include the capital reserve arising on investments sold of
£553,853,000 (30 November 2021: £515,498,000; 31 May 2022: £549,634,000)
and the capital reserve arising on revaluation of investments held of
£80,726,000 (30 November 2021: £392,949,000; 31 May 2022 £194,410,000). The
Company's capital reserve arising on investments sold (i.e. realised capital
profits) and revenue reserve may be distributed by way of a dividend.
8. Net asset value ("NAV") per ordinary share
The NAV per ordinary share is based on the net assets attributable to the
equity shareholders of £689,803,000 (30 November 2021: £960,834,000; 31 May
2022: £802,599,000) and on 74,701,796 (30 November 2021: 74,701,796; 31 May
2022: 74,701,796) ordinary shares, being the number of ordinary shares in
issue at the period end.
9. Transaction Costs
Purchase transaction costs for the half-year ended 30 November 2022 were
£284,000 (half year ended 30 November 2021: £204,000; year ended 31 May
2022: £605,000). These comprise mainly stamp duty and commission. Sale
transaction costs for the half year ended 30 November 2022 were £37,000 (half
year ended 30 November 2021: £34,000; year ended 31 May 2022: £76,000).
10. Financial Instruments
The investments are held at fair value through profit or loss. All the net
current liabilities are held in the Balance Sheet at a reasonable
approximation of fair value. At 30 November 2022 the fair value of the
Preference Stock was £4,000 (30 November 2021: £4,000; 31 May 2022:
£4,000). The fair value of the Preference Stock is estimated using the prices
quoted on the exchange on which the stock trades. The Preference Stock is
carried in the Balance Sheet at par.
The unsecured loan notes are carried in the Balance Sheet at par less the
issue costs which are amortised over the life of the notes. In order to comply
with fair value accounting disclosures only, the fair value of the unsecured
loan notes has been estimated to be £40,316,000 (30 November 2021:
£34,681,000; 31 May 2022: £46,255,000) and is categorised as Level 3 in the
fair value hierarchy as described below. However, for the purpose of the
daily NAV announcements, the unsecured loan notes are valued at par in the
fair value NAV because they are not traded and the directors have assessed
that par value is the most appropriate value to be applied for this purpose.
The fair value of the unsecured loan notes is calculated using a discount rate
which reflects the yield of a UK Gilt of similar maturity plus a suitable
credit spread.
Fair value hierarchy
The table below sets out the fair value measurements using the IFRS 13 fair
value hierarchy. Categorisation within the hierarchy has been determined on
the basis of the lowest level of input that is significant to the fair value
measurement of the relevant asset, as follows:
Level 1: valued using quoted prices in active markets for identical assets.
Level 2: valued by reference to valuation techniques using observable inputs
other than quoted prices.
Level 3: valued by reference to valuation techniques using inputs that are not
based on observable market data.
As at 30 November 2022 Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Equity investments 769,864 - - 769,864
------------- ------------- ------------- -------------
769,864 - - 769,864
======== ======== ======== ========
As at 30 November 2021 Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Equity investments 1,062,598 - - 1,062,598
------------- ----------- ----------- -------------
1,062,598 - - 1,062,598
======== ====== ====== ========
As at 31 May 2022 Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Equity investments 892,397 - - 892,397
------------- ----------- ----------- -------------
892,397 - - 892,397
======== ====== ====== ========
The valuation techniques used by the Company are explained in the accounting
policies note 1(c) of the Annual Report for the year ended 31 May 2022.
11. Related-party transactions
During the first six months of the current financial year, no transactions
with related parties have taken place which have materially affected the
financial position of the Company during the period. Details of related-party
transactions are contained in the Annual Report for the year ended 31 May
2022.
12. Comparative information
The financial information contained in this half-year financial report does
not constitute statutory accounts as defined in section 434 of the Companies
Act 2006. The financial information for the half years ended
30 November 2022 and 30 November 2021 has not been audited.
The information for the year ended 31 May 2022 has been extracted from the
statutory accounts for that year, which have been filed with the Registrar of
Companies. The report of the auditor on those accounts was unqualified and
contained no statement under either section 498(2) or section 498(3) of the
Companies Act 2006.
13. Directors' interests in shares
The interests of the directors in the ordinary shares of the Company at 31 May
2022 and at 30 November 2022 are shown in the table below:
Ordinary shares of 25p
30 November 2022 31 May 2022
Penny Freer 2,400 2,400
Kevin Carter 10,500 8,500
Alexandra Mackesy 2,200 2,200
Victoria Sant 1,270 1,040
Michael Warren 5,000 3,000
David Lamb 1 n/a 5,802
1 Retired as director on 30 September 2022
Since 30 November 2022 and to the date of this report, no purchases in the
Company's shares were made. No director has an interest in the preference
stock of the Company.
14. General information
The Henderson Smaller Companies Investment Trust plc is registered in England
and Wales.
Company Number: 00025526.
Registered Office: 201 Bishopsgate, London EC2M 3AE
London Stock Exchange (TIDM) Code: HSL
SEDOL Number: 0906506
Global Intermediary Identification Number (GIIN): WZD8S7.99999.SL.826
Legal Entity Identifier (LEI): 213800NE2NCQ67M2M998
Directors and Corporate Secretary
The directors of the Company are Penny Freer (Chair of the Board), Kevin
Carter (Senior Independent Director), Alexandra Mackesy (Chair of the Audit
and Risk Committee), Victoria Sant and Michael Warren. The Corporate Secretary
is Janus Henderson Secretarial Services UK Limited, represented by Johana
Woodruff, ACG.
Website
Details of the Company's share price and NAV, together with general
information about the Company, monthly factsheets and data, copies of
announcements, reports and details of general meetings can be found at
www.hendersonsmallercompanies.com (http://www.hendersonsmallercompanies.com) .
15. Financial report for the half year ended 30 November 2022
The half-year report will shortly be available on the Company's website or
from the Company's registered office. An abbreviated version, the 'Update',
will be circulated to shareholders in February 2023 and will be available from
the Corporate Secretary at the Company's registered office, 201 Bishopsgate,
London EC2M 3AE.
1 Retired as director on 30 September 2022
Since 30 November 2022 and to the date of this report, no purchases in the
Company's shares were made. No director has an interest in the preference
stock of the Company.
14.
General information
The Henderson Smaller Companies Investment Trust plc is registered in England
and Wales.
Company Number: 00025526.
Registered Office: 201 Bishopsgate, London EC2M 3AE
London Stock Exchange (TIDM) Code: HSL
SEDOL Number: 0906506
Global Intermediary Identification Number (GIIN): WZD8S7.99999.SL.826
Legal Entity Identifier (LEI): 213800NE2NCQ67M2M998
Directors and Corporate Secretary
The directors of the Company are Penny Freer (Chair of the Board), Kevin
Carter (Senior Independent Director), Alexandra Mackesy (Chair of the Audit
and Risk Committee), Victoria Sant and Michael Warren. The Corporate Secretary
is Janus Henderson Secretarial Services UK Limited, represented by Johana
Woodruff, ACG.
Website
Details of the Company's share price and NAV, together with general
information about the Company, monthly factsheets and data, copies of
announcements, reports and details of general meetings can be found at
www.hendersonsmallercompanies.com (http://www.hendersonsmallercompanies.com) .
15.
Financial report for the half year ended 30 November 2022
The half-year report will shortly be available on the Company's website or
from the Company's registered office. An abbreviated version, the 'Update',
will be circulated to shareholders in February 2023 and will be available from
the Corporate Secretary at the Company's registered office, 201 Bishopsgate,
London EC2M 3AE.
For further information please contact:
Neil Hermon Nathan Brown
Fund Manager Corporate Broking
The Henderson Smaller Companies Investment Trust plc Numis Securities
Telephone: 020 7818 4351 Telephone: 020 7260 1426/1275
Dan Howe Harriet Hall
Head of Investment Trusts PR Manager Investment Trusts
Janus Henderson Investors Janus Henderson Investors
Telephone: 020 7818 4458 Telephone: 020 7818 2919
Neither the contents of the Company's website nor the contents of any website
accessible from hyperlinks on the Company's website (or any other website),
are incorporated into, or form part of, this announcement.
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