Henderson Smllr Cos - Half-Year Report and Interim Dividend
31/01/2024 07:00
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RNS Number : 4202B Henderson Smaller Cos Inv Tst PLC 31 January 2024
THE HENDERSON SMALLER COMPANIES INVESTMENT TRUST PLC
JANUS HENDERSON FUND MANAGEMENT UK LIMITED
LEGAL ENTITY IDENTIFIER: 213800NE2NCQ67M2M998
THE HENDERSON SMALLER COMPANIES INVESTMENT TRUST PLC
Unaudited Results for the Half Year Ended 30 November 2023
This announcement contains regulated information.
"The period under review was a challenging one for the Company, but we do
believe that inflation is moderating and expect interest rates to decline
during 2024. Our portfolio of quality companies is well positioned to prosper
in this environment. The Board is encouraged by the strong performance seen in
the final months of the period under review and since the period end."
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 (for the six months ended 30 November 2023)
· Net asset value ("NAV") total return(1) of -7.7% compared to a
total return from the benchmark(2) of -0.2%
· Share price(3) total return of -5.8%
· Interim dividend(4) of 7.5p (30 November 2022: 7.0p)
TOTAL RETURN PERFORMANCE (including dividends reinvested)
6 Months 1 Year 3 Years 5 Years 10 Years
% % % % %
NAV(1) -7.7 -8.9 -13.9 5.0 67.3
Benchmark(2) -0.2 -0.3 7.7 14.4 51.7
Share price(3) -5.8 -9.4 -19.8 6.8 79.6
Average sector NAV(5) -3.7 -3.6 1.2 10.4 68.6
Average sector share price(6) -3.3 -0.1 6.3 14.7 74.1
FTSE All-Share Index 1.6 1.8 27.3 26.8 63.8
Sources: Morningstar Direct, Janus Henderson, LSEG 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 7.5p (30 November 2022: 7.0p) to be paid to shareholders
on 5 March 2024
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
2023 2022 2023
Net assets £609.5m £689.8m £675.4m
NAV per ordinary share 815.9p 923.4p 904.1p
Share price per ordinary share 720.0p 823.0p 785.0p
Total return per ordinary share (69.21p) (134.00p) (146.30p)
Revenue return per ordinary share 15.11p 12.54p 29.38p
Dividend per ordinary share 7.5p 7.0p 26.0p
Gearing 13.0% 11.6% 12.6%
CHAIR'S STATEMENT
The Company continued to face significant headwinds during the six months
ended 30 November 2023, with performance being disappointing in both relative
and absolute terms. The broader UK equity market was affected by continuing
concerns surrounding inflation and high interest rates; this and a challenging
geopolitical backdrop led to significant market volatility and ultimately a
broadly flat performance over the period.
Performance
Your Company's net asset value ("NAV") total return fell by 7.7% during the
six months ended 30 November 2023, while the Numis Smaller Companies
ex-Investment Companies Index (the "Benchmark") was almost flat, and the AIC
UK Smaller Companies sector average NAV declined by 3.7%. Your Company's share
price total return fell by 5.8% during the six months. The underperformance
during the period was largely due to compressed valuations and deratings in
the challenging market environment for smaller UK businesses. Growth stocks
continued to remain out of favour.
On a more positive note, it does seem as though October 2023 may have marked a
low point of sentiment towards the UK equity market. Since then, we have had a
well-received Autumn Statement from the UK Chancellor and the performance in
the second quarter showed a marked improvement compared with returns achieved
in the first quarter. The longer-term performance record of the Company
remains consistently strong, reflecting an unchanged and proven investment
strategy adopted by the Fund Manager and his team.
Dividend
Reflecting our confidence in the underlying portfolio and underpinned by
performance since the period end, your Board has decided to pay a higher
interim dividend of 7.5p per ordinary share (30 November 2022: 7.0p) due to
strong income growth, and with a view to balancing interim and final
dividends. This will be paid on 5 March 2024 from the Company's revenue
account to shareholders on the register at 9 February 2024. The shares will be
marked ex-dividend on 8 February 2024.
Share rating and discount
During the period, the Company's shares remained at a discount to NAV, but the
discount narrowed from 13.2% at 31 May 2023 to 11.8% at 30 November 2023.
We did not buy back shares during the period and no new shares were issued.
The Board regularly reviews this position; we continue to believe that, with
the small and mid-cap market returning to favour, an increase in investor
confidence in the UK and strong performance by the Company are all likely to
be key factors in narrowing the discount.
Outlook
The period under review was a challenging one for the Company, but we do
believe that inflation is moderating and expect interest rates to decline
during 2024. Our portfolio of quality companies is well positioned to prosper
in this environment and we share our Fund Manager's belief that we have the
potential to deliver strong total returns as the economic background improves.
The Fund Manager has continued to follow a disciplined and unchanged long-term
approach which is focused on bottom-up stock selection through a thorough
assessemnet of a company's market proposition, balance sheet strength and
management. The Board is encouraged by the strong performance seen in the
final months of the period under review and since the period end. In December
2023 your Company's NAV rose by 12.4% compared with the Benchmark return of
9.4%, while the three-month NAV performance to 31 December 2023 was 12.5%
compared with the Benchmark return of 8.3%, all on a total return basis.
The Board remains confident in the Fund Manager's ability to create a
portfolio which will benefit from the opportunities that will progressively
emerge as conditions continue to improve.
Penny Freer
Chair of the Board
FUND MANAGER'S REPORT
Market review - six months to 30 November 2023
The broad UK equity market was flat over the period. Market concerns focused
around inflation, monetary policy tightening and the potential for a global
economic downturn with a consequent corporate-earnings contraction. In the UK,
GDP fell by 0.1% over the third quarter following 0.2% growth in the second
quarter. There is a reasonable probability the UK economy will enter a
technical recession in the fourth quarter of 2023. The UK annual inflation
rate fell to a two-year low of 4.6% in October. Central banks across the
world, led by the Federal Reserve, European Central Bank and Bank of England,
held interest rates over the period, although messaging on their future path
remained generally hawkish. However, global economic indicators continued to
point to a slowdown in economic activity which supported the building
consensus view that the monetary policy tightening cycle was complete.
Investor debate is now focused on when, and how quickly, rates will be cut.
Sterling gained modestly against the US dollar. Oil prices rose, with the
market focusing on the conflict in the Middle East potentially impacting
supply, even though the short-term demand picture looks unclear.
Smaller companies underperformed their larger counterparts, with the Numis
Smaller Companies ex-Investment Companies Index down 0.2% against a rise in
the FTSE All-Share Index of 1.6%.
Fund performance
The Company had a disappointing period in performance terms, falling in
absolute terms and underperforming its benchmark. The share price fell by 5.8%
and NAV by 7.7% on a total return basis. This compared with the Numis Smaller
Companies Index (excluding investment companies) fall of 0.2% in total return
terms. The underperformance came from a combination of negative contribution
from stock selection, gearing and expenses. Negative contribution from stock
selection was a function of the underperformance of growth companies as they
de-rated in valuation terms due to rising interest rates and higher bond
yields. In addition, negative company-specific issues impacted a number of our
larger holdings. We believe these issues are temporary or more than fully
reflected in the underlying share price and expect these companies to recover
over time.
Gearing
Gearing started the period at 12.6% and ended at 13.0%. Debt facilities are a
combination of £30 million 20-year unsecured loan notes at an interest rate
of 3.33%, £20m 30-year unsecured loan notes at 2.77% 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. Some of the stocks are included in the
benchmark index but not held by the Company. These have an effect on relative
performance.
Top five contributors 6-month return % Relative contribution %
Playtech* -31.6 +0.4
Computacenter +19.7 +0.3
S4 Capital* -61.9 +0.3
Aston Martin Lagonda* -20.1 +0.3
Ascential +22.6 +0.3
Top five detractors 6-month return % Relative contribution %
Team17 -57.0 -1.1
Impax Asset Management -34.8 -1.0
Oxford Instruments -22.5 -0.5
OSB Group -21.6 -0.5
Deliveroo* +35.6 -0.5
* In benchmark index but not held by the Company.
Principal contributors
Playtech is a software and services provider to the gaming industry.
Computacenter is a global supplier of IT equipment and services. S4 Capital is
a digital advertising and marketing services group. Aston Martin Lagonda is a
luxury car manufacturer. Ascential is a diversified media group.
Principal detractors
Team17 is a computer games developer and publisher. Impax Asset Management is
an ESG-focused asset manager. Oxford Instruments is a manufacturer of advanced
scientific equipment. OSB Group is a specialist provider of buy-to-let
mortgages. Deliveroo is an online food delivery platform.
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: Bloomsbury Publishing, a leading
consumer and educational publisher; and Hill and Smith, a provider of
fabricated metal products and services. In addition we added to our existing
positions in: Clarkson, a leading global provider of services to the shipping
industry; Genuit, a diversified building materials group; and PageGroup, a
global recruitment consultancy.
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 holding in Safestyle.
Additionally we sold our holdings in Blancco Technology, Ergomed, Gresham
House and Restaurant Group after these companies received agreed takeover
bids.
Market outlook
Whilst inflation has fallen significantly over the last year, it remains
elevated against official targets. Central banks led by the US Federal Reserve
have, therefore, retained their hawkish stance. However, it is clear we are at
the end of the monetary policy tightening cycle and even the Chair of the
Federal Reserve conceded that rate cuts were being debated by the committee.
What is not clear is the timing of when rates start to fall and the speed of
their decrease. In the meantime, the delayed transmission mechanism of rising
interest rates and their impact means that economic conditions are likely to
remain difficult in the short term. Notwithstanding this, the prospect of a
monetary easing cycle is likely to support global equity markets and allow
valuation multiples to expand.
Geopolitics remain challenging, with the ongoing conflicts in Ukraine and Gaza
and continued tensions between China and the US. The longer-term economic
implications of this are material. There is an urgent need to reduce European
dependence on Russian oil and gas supplies and a requirement to decrease
China's influence on the global supply chain through investment in nearshoring
capability. In addition, domestic politics are likely to be an area of
volatility with up to half of the global population going to the polls in the
coming 12 months in key elections in UK, USA, India, Mexico, South Korea and
the EU.
In the corporate sector we are encouraged by the fact that conditions are
intrinsically stronger than they were during the Global Financial Crisis of
2008-2009. In particular, balance sheets are more robust. Dividends have
recovered 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 acquirors, particularly private
equity, look to exploit opportunities thrown up by the recent equity market
falls. We expect this to continue in the coming months as UK equity market
valuations remain markedly depressed versus other developed markets.
In terms of valuations, the equity market is trading below long-term averages.
In addition, smaller companies are trading at a historically high discount to
their larger counterparts. A sharp rebound in corporate earnings following the
pandemic-induced shock in 2020 has now faded. Weak economic activity has led
to subdued corporate earnings growth in 2023 compounded by rising interest
costs and a higher corporate tax burden. These dynamics are unlikely to change
in 2024. However, the view that the UK economy is entering a moderate
recession is now consensual and the debate is now focused on whether the
trough will be deeper than expected.
Although uncertainty remains around short-term economic conditions, we think
that the portfolio is well positioned to withstand an economic downturn and
exploit any opportunities this would present. The movements in equity markets
have thrown up some fantastic buying opportunities. However, it is 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 2023.
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 2023
Valuation £'000 Portfolio % Valuation £'000 Portfolio %
Company Company
Bellway 22,137 3.22 Tyman 8,942 1.30
Oxford Instruments 19,775 2.87 Softcat 8,869 1.29
Balfour Beatty 18,862 2.74 Alpha Financial Markets* 8,750 1.27
Mitchells & Butlers 18,321 2.66 Genuit 8,411 1.22
Vesuvius 17,901 2.60 Redde Northgate 8,100 1.18
Paragon Banking 17,125 2.49 GB Group* 8,041 1.17
Ascential 17,119 2.49 Rathbones 7,950 1.16
OSB Group 15,562 2.26 Savills 7,737 1.12
Impax Asset Management* 14,754 2.14 Hollywood Bowl 7,728 1.12
Future 14,254 2.07 Next Fifteen Communications* 7,663 1.11
----------- ---------- ----------- ----------
10 largest 175,810 25.54 40 largest 471,584 68.50
Computacenter 14,175 2.06 Crest Nicholson 7,606 1.11
Watches of Switzerland 13,464 1.96 Midwich* 7,442 1.08
Bytes Technology 11,599 1.69 Burford Capital* 6,988 1.01
Gamma Communications* 11,594 1.68 Trainline 6,702 0.97
IntegraFin 11,313 1.64 Team17* 6,560 0.95
Chemring 11,279 1.64 SigmaRoc* 6,519 0.95
Volution 11,026 1.60 Qinetiq 6,512 0.95
Serco 10,948 1.59 Bridgepoint 6,143 0.89
Moneysupermarket.Com 10,692 1.55 Wickes 6,118 0.89
Just Group 10,545 1.53 Morgan Advanced Materials 6,068 0.88
----------- ---------- ----------- ----------
20 largest 292,445 42.48 50 largest 538,242 78.18
Workspace 10,296 1.50 Hunting 5,850 0.85
Victrex 10,168 1.48 Luceco 5,765 0.84
Serica Energy* 10,010 1.45 SThree 5,366 0.78
Spectris 9,944 1.44 Moonpig 5,202 0.75
Pagegroup 9,830 1.43 Clarkson 5,110 0.74
Renishaw 9,722 1.41 Harworth 5,027 0.73
Foresight 9,696 1.41 JTC 4,428 0.64
Learning Technologies* 9,217 1.34 Harbour Energy 4,416 0.64
RWS Holdings* 9,090 1.32 Wilmington 4,401 0.64
Bodycote 8,975 1.30 Videndum 4,322 0.63
----------- ---------- ----------- ----------
30 largest 389,393 56.56 60 largest 588,129 85.42
Remaining 38 100,361 14.58
------------ ----------
Total 688,490 100.00
======= ======
* Quoted on the Alternative Investment Market ("AIM")
STATEMENT OF COMPREHENSIVE INCOME
(Unaudited) (Unaudited) (Audited)
Half-year ended Half-year ended Year ended
30 November 2023 30 November 2022 31 May 2023
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 12,414 - 12,414 10,553 - 10,553 24,295 - 24,295
Other income 105 - 105 23 - 23 95 - 95
Losses on investments held at fair value through profit or loss - (60,810) (60,810) - (107,690) (107,690) - (127,252) (127,252)
--------- ------------ ----------- --------- ----------- ---------- --------- ------------ ------------
Total income/(loss) 12,519 (60,810) (48,291) 10,576 (107,690) (97,114) 24,390 (127,252) (102,862)
Expenses
Management fees (note 3) (334) (780) (1,114) (362) (844) (1,206) (710) (1,657) (2,367)
Other expenses (301) - (301) (365) - (365) (731) - (731)
--------- --------- ---------- --------- --------- ---------- ---------- ---------- ----------
Profit/(loss) before finance 11,884 (61,590) (49,706) 9,849 (108,534) (98,685) 22,949 (128,909) (105,960)
costs and taxation
Finance costs (601) (1,401) (2,002) (476) (931) (1,407) (997) (2,325) (3,322)
--------- ------------ ----------- --------- --------- ---------- --------- ----------- -----------
Profit/(loss) before taxation 11,283 (62,991) (51,708) 9,373 (109,465) (100,092) 21,952 (131,234) (109,282)
Taxation 5 - 5 (5) - (5) (5) - (5)
--------- ------------ ----------- --------- --------- ---------- --------- ----------- -----------
Profit/(loss) for the period and total comprehensive income 11,288 (62,991) (51,703) 9,368 (109,465) (100,097) 21,947 (131,234) (109,287)
===== ======= ======= ===== ====== ====== ===== ======= =======
Earnings per ordinary 15.11p (84.32p) (69.21p) 12.54p (146.54p) (134.00p) 29.38p (175.68p) (146.30p)
share (note 4)
====== ======= ======= ===== ======= ====== ====== ======= =======
The total columns of this statement represent 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 2023 (unaudited) Share Capital redemption reserve Capital reserves Revenue reserve Total equity
capital £'000 £'000 £'000 £'000 £'000
Total equity at 1 June 2023 18,676 26,745 612,810 17,156 675,387
Total comprehensive income: - - (62,991) 11,288 (51,703)
(Loss)/profit for the period
Transactions with owners recorded directly to equity:
Ordinary dividend paid - - - (14,193) (14,193)
---------- ---------- ------------ ----------- ------------
Total equity at 30 November 2023 18,676 26,745 549,819 14,251 609,491
====== ====== ======= ====== =======
Half-year ended 30 November 2022 (unaudited) Share Capital redemption reserve Capital reserves Revenue reserve Total equity
capital £'000 £'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
====== ====== ======= ====== =======
Year ended 31 May 2023 Share capital Capital redemption reserve Capital Revenue reserve Total equity
(audited) £'000 £'000 reserves £'000 £'000
£'000
Total equity at 1 June 2022 18,676 26,745 744,044 13,134 802,599
Total comprehensive income: - - (131,234) 21,947 (109,287)
(Loss)/profit for the year
Transactions with owners, recorded directly to equity:
Ordinary dividend paid - - - (17,925) (17,925)
---------- ---------- ------------ ----------- ------------
Total equity at 31 May 2023 18,676 26,745 612,810 17,156 675,387
====== ====== ======= ====== =======
The accompanying notes are an integral part of these financial statements.
BALANCE SHEET
(Unaudited) (Unaudited) (Audited)
Half-year ended Half-year ended 30 November 2022 Year ended
30 November 2023 31 May
2023
£'000 £'000 £'000
Non-current assets
Investments held at fair value through 688,490 769,864 760,156
profit or loss
------------ -------------- -------------
Current assets
Securities sold for future settlement 274 - 506
Prepayments and accrued income 2,367 1,047 2,681
Cash and cash equivalents 11,891 2,192 13,338
------------- ------------- -------------
14,532 3,239 16,525
------------- ------------- -------------
Total assets 703,022 773,103 776,681
------------- -------------- -------------
Current liabilities
Securities purchased for future settlement (2,528) (634) -
Accruals and deferred income (882) (810) (851)
Bank loans (40,344) (32,092) (50,672)
------------- ------------ ------------
(43,754) (33,536) (51,523)
------------- ------------ ------------
Total assets less current liabilities 659,268 739,567 725,158
Non-current liabilities (49,777) (49,764) (49,771)
-------------- ------------ ------------
Net assets 609,491 689,803 675,387
======== ======= =======
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) 549,819 634,579 612,810
Revenue reserve 14,251 9,803 17,156
------------ ------------ ------------
Total equity 609,491 689,803 675,387
======= ======= =======
Net asset value per ordinary share (note 8) 815.9p 923.4p 904.1p
======= ======= =======
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 2023 30 November 2022 31 May
2023
£'000 £'000 £'000
Loss before taxation (51,708) (100,092) (109,282)
Add back interest payable 2,002 1,330 3,322
Losses on investments held at fair value through profit or loss 60,810 107,690 127,252
Purchases of investments (32,066) (62,139) (109,395)
Sales of investments 42,922 76,981 114,384
Decrease/(increase) in receivables 39 (11) (38)
Decrease in amounts due from brokers 232 1,899 1,394
Decrease/(increase) in accrued income 279 1,296 (316)
Decrease in payables (36) (88) (66)
Increase/(decrease) in amounts due to brokers 2,528 (1,447) (2,081)
Overseas withholding tax - (5) -
----------- ----------- -----------
Net cash inflow from operating activities before interest 25,002 25,414 25,174
----------- ----------- -----------
Interest paid (1,928) (1,338) (3,303)
----------- ----------- -----------
Net cash inflow from operating activities 23,074 24,076 21,871
======= ======= =======
Financing activities
Equity dividends paid (14,193) (12,699) (17,928)
(Drawdown)/repayment of bank loans (10,328) (18,176) 404
------------ ----------- -----------
Net cash outflow from financing activities (24,521) (30,875) (17,524)
(Decrease)/increase in cash and cash equivalents (1,447) (6,799) 4,347
Cash and cash equivalents at the start of the period 13,338 8,991 8,991
----------- ---------- ----------
Cash and cash equivalents at the period end 11,891 2,192 13,338
====== ====== ======
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 2023. 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 July 2022, 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
2023. 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 further
considered the global economic and geopolitical environment, including the
ongoing war in Ukraine and conflict in the Middle East, the impact of these on
supply chains and the possible impact of climate change risk on the value of
the portfolio. The assessment incorporated 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. The directors
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 2023, 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 2023 (30 November 2022 £nil; 31
May 2023: £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 2024 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 2023.
4. Earnings per ordinary share
The earnings per ordinary share figure is based on the net loss for the
half-year ended 30 November 2023 of £51,703,000 (half-year ended 30 November
2022: net loss of £100,097,000; year ended 31 May 2023: net loss of
£109,287,000) and on 74,701,796 (half-year ended 30 November 2022:
74,701,796; year ended 31 May 2023: 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 2022 31 May
2023 £'000 2023
£'000 £'000
Net revenue profit 11,288 9,368 21,947
Net capital loss (62,991) (109,465) (131,234)
------------- ------------ --------------
Net total loss (51,703) (100,097) (109,287)
======== ======= ========
Weighted average number of ordinary shares in issue during the period 74,701,796 74,701,796 74,701,796
Pence Pence Pence
Revenue earnings per ordinary share 15.11 12.54 29.38
Capital loss per ordinary share (84.32) (146.54) (175.68)
------------ ---------- ------------
Total loss per ordinary share (69.21) (134.00) (146.30)
======= ====== =======
5. Dividends
The Board has declared an interim dividend of 7.5p (30 November 2022: 7.0p) to
be paid on 5 March 2024 to shareholders on the register at the close of
business on 9 February 2024. The ex‑dividend date will be 8 February 2024.
No provision has been made for the interim dividend in these condensed
financial statements.
The final dividend of 19.0p per ordinary share, paid on 9 October 2023, in
respect of the year ended 31 May 2023, has been recognised as a distribution
in the period.
6. Share capital
At 30 November 2023 there were 74,701,796 ordinary shares in issue (30
November 2022: 74,701,796; 31 May 2023: 74,701,796). During the half-year
ended 30 November 2023 the Company did not buy back or issue any shares
(half-year ended 30 November 2022: nil; year ended 31 May 2023: 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
£538,498,000 (30 November 2022: £553,853,000; 31 May 2023: £542,034,000)
and the capital reserve arising on revaluation of investments held of
£11,321,000 (30 November 2022: £80,726,000; 31 May 2023 £70,776,000). 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 £609,491,000 (30 November 2022: £689,803,000; 31 May
2023: £675,387,000) and on 74,701,796 (30 November 2022: 74,701,796; 31 May
2023: 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 2023 were
£115,000 (half-year ended 30 November 2022: £284,000; year ended 31 May
2023: £479,000). These comprise mainly stamp duty and commission. Sale
transaction costs for the half-year ended 30 November 2023 were £18,000
(half-year ended 30 November 2022: £37,000; year ended 31 May 2023:
£53,000).
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 2023 the fair value of the
Preference stock was £4,000 (30 November 2022: £4,000; 31 May 2023:
£4,000). The fair value of the Preference stock is estimated using the prices
quoted on the exchange on which the investment 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 £35,875,000 (30 November 2022:
£40,316,000; 31 May 2023: £36,068,000) 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 2023 Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Equity investments 688,490 - - 688,490
------------- ------------- ------------- -------------
688,490 - - 688,490
======== ======== ======== ========
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 31 May 2023 Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Equity investments 760,156 - - 760,156
------------- ----------- ----------- -------------
760,156 - - 760,156
======== ====== ====== ========
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 2023.
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
2023.
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 2023
and 30 November 2022 has not been audited.
The information for the year ended 31 May 2023 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. 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, Michael Warren and Yen Mei Lim. The
Corporate Secretary is Janus Henderson Secretarial Services UK Limited,
represented by Johana Woodruff, FCG.
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) .
14. Financial report for the half year ended 30 November 2023
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 2024 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 Deutsche Numis Securities
Telephone: 020 7818 4351 Telephone: 020 7260 1426/1275
Dan Howe Harriet Hall
Head of Investment Companies PR Director, Investment Trusts
Janus Henderson Investors Janus Henderson Investors
Telephone: 020 7818 4458 Telephone: 020 7818 2919
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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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