Annual Financial Report and Final Dividend

Henderson Smaller Cos Inv Tst PLC

03 August 2023

 

JANUS HENDERSON FUND MANAGEMENT UK LIMITED

THE HENDERSON SMALLER COMPANIES INVESTMENT TRUST PLC

LEGAL ENTITY IDENTIFIER: 213800NE2NCQ67M2M998

THE HENDERSON SMALLER COMPANIES INVESTMENT TRUST PLC

ANNUAL FINANCIAL RESULTS FOR THE YEAR ENDED 31 MAY 2023

This announcement contains regulated information.

KEY HIGHLIGHTS

§ Final dividend increased to 19.0p per ordinary share (2022: 17.0p)

§ 20th consecutive year of growth in the annual dividend

§ Over the ten years to 31 May 2023, the Company has outperformed the benchmark by 34.1%

§ Outperformed the benchmark in 16 of the last 20 years

Neil Hermon, Fund Manager, said:

"Despite it being a poor year for performance, as growth stocks de-rated following the increase in interest rates, the long-term record of the Company remains strong…"

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

Total Return Performance for the years ended 31 May
	1 year %	3 years %	5 years %	10 years %
NAV1	-13.8	12.4	-3.4	108.0
Benchmark2	-6.5	30.4	3.1	73.9
Average sector NAV3	-7.4	26.1	5.5	100.8
Share price4	-12.0	8.8	-7.9	118.7
Average sector share price5	-5.5	31.4	5.6	107.2
FTSE All-Share Index	0.4	33.9	15.2	67.5

Performance	Year ended 31 May 2023	Year ended 31 May 2022
NAV per share at year end	904.1p	1,074.4p
Share price at year end	785.0p	917.5p
Discount at year end6	13.2%	14.6%
Gearing at year end	12.6%	11.2%
Dividend for the year	26.00p7	24.00p
Revenue return per share	29.38p	24.57p
Dividend yield8	3.3%	2.6%
Total net assets	£675m	£803m
Ongoing charge9	0.44%	0.42%

1 Net asset value ("NAV") per ordinary share total return with income reinvested

2 Numis Smaller Companies Index (excluding investment companies) total return

3 Average NAV total return of the Association of Investment Companies ("AIC") UK Smaller Companies sector

4 Share price total return using mid-market closing price with income reinvested

5 Average share price total return of the AIC UK Smaller Companies sector

6 Calculated using the NAV and mid-market share price at year end

7 This represents an interim dividend of 7.00p and a proposed final dividend of 19.00p, subject to shareholder approval at the AGM

8 Based on the ordinary dividends paid and payable for the year and the mid-market share price at year end

9 No performance fee is included in this calculation as no performance fee was paid in 2023 or 2022

A glossary of terms and explanations of alternative performance measures are included in the Annual Report.

Sources: Morningstar Direct, Janus Henderson, Refinitiv Datastream

CHAIR'S STATEMENT

Dear Shareholder

Performance

The year under review was disappointing: UK equity markets experienced difficult and volatile conditions and the Company suffered negative absolute returns. The Company also underperformed its benchmark, largely caused by growth stocks remaining out of favour. In the financial year to 31 May 2023, the Company's net asset value ("NAV") fell by 13.8% and the share price fell by 12.0%, versus a 6.5% fall in the Numis Smaller Companies Index benchmark, all on a total return basis. The AIC UK Smaller Companies NAV sector average total return declined by 7.4%. Over the longer term, however, your Company's NAV total return remains well ahead of the benchmark index; over the ten-year period to 31 May 2023 your Company outperformed the benchmark by 34.1%. The Fund Manager's Report provides a detailed review of the year.

Smaller companies underperformed the wider market in a turbulent environment of rising interest rates and higher bond yields. High-quality smaller growth stocks suffered as investors favoured larger liquid stocks. Some of our cyclical investments saw earnings downgrades, leading to de-ratings, although the majority of our companies continued to post strong results and saw no material change in their investment thesis, trading or outlook.

Dividend and earnings

Positively, the total revenue received from your Company's portfolio rose from £20.7 million to £24.4 million over the year, and our earnings per share rose from 24.6p at 31 May 2022 to 29.4p at 31 May 2023. This reflects the strong financial performance of the majority of our portfolio companies, which were able to increase their dividends.

The Board is pleased to recommend an increased final dividend of 19.0p per share which, subject to shareholder approval at the Annual General Meeting, will be paid on 9 October 2023 to shareholders on the register at 25 August 2023. When added to the interim payment of 7.0p, this brings the full-year dividend to 26.0p per share, an 8.3% increase from the 2022 full-year distribution of 24.0p per share. This will be fully funded from current-year revenue. I am delighted to report that this will be our 20th consecutive year of growth in the annual dividend; the annualised increase in dividends paid since 2003 equates to 21.8%. Your Company will now gain the AIC accolade of 'Dividend Hero'.

During the year we commenced a tracing and engagement programme to locate shareholders who have not claimed their dividends for long periods of time. We believe it is important to reunite shareholders with their lost assets, and our project is designed to help them resolve the obstacles that may have hindered claims to ownership and to take the required action.

Share rating

Your Company's share price discount to NAV fluctuated over the year between 17.4% and 8.2%, averaging 12.4% and closing the year at 13.2%. The share price over the year fell from 917p to 785p, giving a total return of -12.0% and reflecting a slight narrowing of the discount to net asset value.

During the year to 31 May 2023 no shares were issued or bought back. Your Board continues to monitor the discount and regularly discusses the merits of buying back shares. We do not currently believe that share buy-backs represent the most effective way of generating long-term shareholder value.

Responsible investing

Our Fund Manager's approach to ESG investing has been embedded in the Company's investment process for over 20 years. With the awareness that ESG investment activities are increasingly important, I would refer shareholders to our 'ESG Matters' report in the Annual Report for more information on how the Company positions itself and for a report on engagement case studies undertaken during the year.

Board developments

David Lamb, Senior Independent Director and marketing representative, retired from the Board on 30 September 2022. I would like to thank David for his many years of service and wise counsel on the Company's affairs. Kevin Carter has taken on the role of Senior Independent Director and Michael Warren is the Board's new marketing representative.

I am delighted that Yen Mei Lim joined the Board in April 2023 as our newest non-executive director, in line with our long-term succession planning. With over 20 years of experience in the financial services industry, and as a qualified lawyer and accountant, Mei brings deep insight and expertise across merger and acquisition activity, corporate development and finance, particularly in the field of growth potential for smaller businesses committed to resiliency, accessibility and sustainability.

We meet the national targets on gender and ethnic diversity, including the targets set by the FCA's Listing Rules for all FTSE 350 members. According to these targets, at least 40% of board members should be women, at least one woman should hold a senior position, and at least one director should be from an ethnic minority. As such we also meet the FTSE Women Leaders Review and Parker Review recommendations. Please refer to the Annual Report for a fuller disclosure about Board composition in the Governance report.

Annual General Meeting ("AGM")

We are pleased to invite shareholders to attend the AGM in person at our registered office on Thursday, 5 October 2023 at 11.30 am. We encourage shareholders to attend for the opportunity to meet the Board, the Fund Manager Neil Hermon, and Deputy Fund Manager Indriatti van Hien. Neil and Indriatti will give a presentation on the year under review and will discuss their outlook for the year ahead. There will be an opportunity to ask questions and debate, and to meet the Fund Manager, Deputy Fund Manager and directors after the formal proceedings. Shareholders unable to join in person will be able to join the meeting by Zoom.

We encourage all shareholders to submit their votes on the resolutions, all of which come with the Board's endorsement, ahead of the deadline of Tuesday, 3 October 2023 to ensure that their vote counts at the AGM. Please see the AGM Notice in the Annual Report for more information on joining and voting.

The Fund Manager discusses these results and performance during the year in a video available from 9.00 am on the date of release of this announcement at www.hendersonsmallercompanies.com. If you have any questions for the Board or the Fund Manager in advance of the AGM, please contact us at [e-mail].

Outlook

It has been a difficult year and we remain cautious about the outlook, but are confident in the ability of our Fund Manager and his team and in the investment philosophy applied to the portfolio. The portfolio is weighted towards companies with well-capitalised balance sheets and entrepreneurial management teams, and as such we believe your Company is well positioned and prepared to take advantage of the investment opportunities that lie ahead despite the current uncertain market. In closing I would like to thank shareholders for your continued support.

Penny Freer

Chair of the Board

FUND MANAGER'S REPORT

Fund performance

The Company had a disappointing year in performance terms, falling in absolute terms and underperforming its benchmark. The share price fell by 12.0% and the net asset value by 13.8% on a total return basis. This compared with a decrease by 6.5% in the Company's benchmark total return, the Numis Smaller Companies Index (excluding investment companies). The underperformance came from a combination of the negative contributions from stock selection, gearing and expenses. Negative contributions from stock selection were principally a function of the underperformance of growth companies as they de-rated in valuation terms due to market concerns about the impact of rising interest rates and higher bond yields. In most cases, this was independent of the operational and financial performance of these businesses, which remained, on the whole, strong. Additionally, some of our cyclically exposed positions suffered as the global economy weakened, leading to selective earnings downgrades and consequent de-ratings. Despite it being a poor year for performance, as growth stocks de-rated following the increase in interest rates, the long-term record of the Company remains strong, outperforming its benchmark in 16 of the last 20 years.

Market - year under review

The year under review was a volatile and ultimately negative one for UK equity markets. Markets faced a number of challenges including a zero-tolerance policy to Covid in China which suppressed economic growth and exacerbated supply chain challenges, the ongoing conflict in Ukraine which kept energy prices high, particularly in Western Europe, the persistent cost-of-living crisis fuelled by high inflation and political instability in the UK, primarily focused around the short-lived tenure of Liz Truss as Prime Minister.

The principal driver of market returns, however, has remained central bank policy. Inflation projections continued to worsen throughout the initial part of the year and central banks, led by the Federal Reserve, European Central Bank and Bank of England, raised interest rates aggressively. Despite indications that headline inflation has peaked, core inflation has remained sticky. Whilst goods inflation has started to ease, services inflation, driven by supply side pressures and a tight labour market, has remained elevated. Consequently, the messaging from central banks has remained hawkish regarding the future path of interest rates. Rising interest rates and a move from quantitative easing to quantitative tightening led to a weakening in global economic growth in the period, putting pressure on corporate earnings.

The markets saw a continued flight to safety by investors who have taken refuge from uncertain macroeconomic conditions by investing in larger, more liquid and more international stocks. This has led to another year of underperformance by smaller companies versus larger companies.

Gearing

Gearing started the year at 11.2% and ended at 12.6%. Debt facilities are a combination of £30 million 20-year unsecured loan notes at an interest rate of 3.33% issued in 2016, £20 million 30-year unsecured loan notes at 2.77% 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 year. Gearing, however, has made a significant positive contribution to investment performance over the 20 years I have managed the investment portfolio.

Attribution analysis

The  following tables show the top five contributors to, and the top five detractors from, the Company's relative performance.

Principal contributors	12-month return %	Relative contribution %
Balfour Beatty	+45.0	+0.9
National Express1	-58.1	+0.6
Oxford Instruments	+25.0	+0.6
RPS Group	+114.5	+0.5
John Wood1	-41.1	+0.4

1 Not owned by the Company

Balfour Beatty is an international contractor and infrastructure investor. New management has transformed the business over the last few years, driving margins higher across all operational activities in the UK, US and Hong Kong whilst maintaining the significant value of the infrastructure investment portfolio. Significantly improved cashflow has allowed the business to accelerate returns to shareholders through ongoing share buybacks and increased dividends. Given likely increased infrastructure investment in its key markets, the company looks well placed to continue to deliver growth in earnings, cashflow and returns to investors.

National Express (now Mobico) is an international operator of bus and rail services. The business has struggled to rebuild profitability post-Covid as weaker demand and higher wage costs have impacted the business. Additionally, the business suffers from high levels of debt. The Company did not own a position in this stock.

Oxford Instruments is a manufacturer of advanced instrumentation equipment. The company benefits from servicing a number of high-growth industries such as semiconductors, quantum computing, life sciences and advanced materials. In addition, its 'Horizon' programme of business improvement is driving sales, profit and margin growth. The company has a very strong balance sheet and, given a positive outlook for its end markets, the company is well placed for the future.

RPS Group is an independent environmental, health, safety and risk consulting group, which provides scientific, planning and design advice to customers in the commercial and government sectors. Formed by a series of acquisitions, the group has gone through significant change, with self-help improvement, a refreshed management team and tighter strategic focus. The group is benefiting from buoyant infrastructure, renewables and energy markets. The business was acquired by a US competitor, Tetra Tech, during the year at a significant premium to the undisturbed share price.

John Wood is an international engineering, procurement and construction ("EPC") contractor for the oil and gas industry. Despite selling its 'Built Environment' business, the company still suffers from the perception of a weak balance sheet caused by provisions relating to historic loss-making contracts. The company was the subject of an abandoned takeover approach from Apollo. The Company did not own a position in this stock.

Principal detractors	12-month return %	Relative contribution %
Future	-63.6	-1.3
Synthomer	-70.7	-0.9
GB Group	-46.2	-0.7
Bank of Georgia1	+102.3	-0.6
RWS Holdings	-40.5	-0.6

1 Not owned by the Company

Future is a tech-enabled global platform for specialised media which targets consumers and business-to-business ("B2B") brands across Europe, America and Asia Pacific. The company creates specialised content to attract and grow high-value audiences. These audiences are then monetised through memberships and subscriptions, print and digital advertising, e-commerce sales and events. Future has both an organic and inorganic growth strategy. Management is focused on purchasing new brands and titles to leverage its scalable technology and drive digital growth using its revenue optimisation model. The shares have suffered from both earnings downgrades and a material de-rating during the year. Downgrades have been driven by greater-than-expected normalisation of spending in consumer technology post-pandemic, while the de-rating has been driven by concerns around advertising volumes and yields in an uncertain macroeconomic environment. There have also been more existential concerns around potential disruption to its business model from artificial intelligence ("AI"). Poorly handled communications around the retirement of the long-standing CEO in the period only added to investor nervousness. Whilst we cannot be certain the downgrade cycle has ended, we believe the rating has discounted much of this. A new CEO is now in place and the company has retained and, in some cases, improved on its leading market positions which gives us confidence that earnings can recover in improved macroeconomic conditions.

Synthomer is a diversified chemicals group. The group has expanded through acquisition which has diversified the company's end markets. The group enjoyed extremely buoyant market conditions in its nitrile latex market as demand for gloves rapidly expanded during the pandemic. A marked cooling in demand in this market in the last year combined with a cyclical downturn in the coatings, adhesives and general chemicals markets has led to a significant fall in profitability. Additionally, previous acquisition activity has left the company with elevated financial leverage. A new management team is in the process of reducing debt by disposals and other balance sheet measures. We believe the business is well placed to benefit from a recovery in the nitrile latex market as demand recovers.

GB Group is a data identity, fraud prevention and address verification business. The company provides a combination of software and data to clients to help onboard their customers in an efficient and accurate manner whilst also reducing the risk of fraud. The company's end markets are growing rapidly as services move from offline to online channels, a trend which is expected to continue as new business models are formed. GB Group has grown both organically and through acquisition. The shares have fallen in the year due to weaker trading conditions for some of the group's financial service and internet economy customers as well as being impacted by the general market de-rating of growth companies.

Bank of Georgia is a leading retail and commercial bank in Georgia. Robust economic growth in the region has led to strong growth in profitability and an improving capital position for the business. The Company did not own a position in this stock.

RWS Holdings is a leading provider of translation software and services. Although the company is extracting the expected synergies from its acquisition of SDL plc, regulation change in its patent translation services business, weakness in demand from its large technology customers and a shift to SaaS from licence sales in its software division has led to modest falls in profitability. This has led to a de-rating in the valuation of the company. The business retains a strong net cash balance sheet and has significant potential for recovery once the negative drivers on profitability abate.

Portfolio activity

Trading activity in the portfolio was consistent with an average holding period of over five years. 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 cut out stocks that fail to meet these criteria.

Acquisitions

During the year we have added a number of new positions to our portfolio. These include the following:

Ergomed provides specialised services to the pharmaceuticals industry in its operations as both a clinical research outsourcer ("CRO") and provider of pharmacovigilance services. It is a global business which operates 24 offices and services 140 countries although its main exposure comes from the US and Europe. The CRO business specialises in drug development for oncology and rare diseases, while its pharmacovigilance services benefit from the high burden of drug regulation. It is a capital-light business which generates high returns. The business has a net cash balance sheet which it is looking to deploy on acquisitions to further augment strong organic growth trends.

GlobalData is a leading business information and data provider. The business was formed by Mike Danson, who had previously founded and then sold Datamonitor, a comparative business. He remains a majority shareholder of GlobalData. The company provides high-level data intelligence, analytics and insights across a wide range of industries principally to executive level customers at major organisations. The key product differentiator is the focus on live and real-time updated datasets and analysis rather than big reference 'big book reports'. The business is set to deliver strong growth through high retention rates, upselling to existing customers, price increases and new customer adds. With a cost base under control, margins are set to expand from current levels.

JTC is a global professional services firm operating in 20 jurisdictions covering fund, corporate and private client product offerings. It operates two divisions: Institutional Client Services, which focuses on the provision of fund, corporate, and banking solutions to institutional clients, primarily fund managers, listed companies and multinationals; and Private Client Services, which provides trust, corporate and banking services for global wealth management firms, family offices and ultra-high-net-worth individuals. Our investment provides exposure to the growth in fund regulation and the continued trend of outsourcing fund administration. The business is still run by its founder so an entrepreneurial spirit prevails and there is a strong ethos of share ownership and alignment throughout the business.

Morgan Advanced Materials is a thermal and ceramic products business. The DNA of the business is knowledge of material science around ceramics and carbon. It services a wide range of end markets, customers and applications. The company is operating at the forefront of material science applications, making materials that need extreme precision in highly challenging operating environments such as extreme temperatures, high altitudes or high winds. We think the company has materially improved its portfolio over recent years and recent organic growth has exceeded expectations. We felt that the low valuation the company was trading on did not reflect these positives. In addition, the company's balance sheet is strong which gives it the scope to supplement growth with accretive acquisitions.

Trainline is a global ticketing platform operating in the rail and coach industry. It has a leading position in the UK and Europe as an e-commerce player that sells rail and coach tickets on behalf of carriers to both consumers and businesses. The platform is accessible through its highly rated mobile and desktop app. The investment case provides exposure to growth trends in online purchasing of e-tickets and the increased liberalisation of European rail. Earnings are being depressed by continued investment in Europe, while the valuation multiple is currently being impacted by the uncertainty surrounding UK rail regulation. Both factors provided a good entry point to buy the shares.

Wilmington is a training, events and education business. Based in the UK, the group is split into two units: Intelligence which provides a combination of risk and compliance data to insurance, pension and healthcare customers globally, and Training & Education which offers bespoke technical support for customers across the financial services and healthcare sectors. The group has attractive business fundamentals with high profit margins, operating in defensive areas of corporate spend with growth opportunities as businesses expand on training and development activities. With a positive market backdrop and the potential for future value-enhancing acquisitions, Wilmington has a strong earnings outlook.

Disposals

To balance the additions to our portfolio, we have disposed of positions in companies which we felt were set for poor price performance. We sold our holding in De La Rue, a provider of currency and security products. Overcapacity in the market is leading to pressure on prices and capacity utilisation and earnings expectations have been guided down significantly. We also disposed of our holding in Alphawave, a semiconductor licensing and manufacturing company. Since its initial public offering ("IPO") the business has had a poor record of meeting market expectations and the acquisition of Banias Labs, a loss-making Israeli semiconductor company, further depressed profitability and pushed the group into a net debt position. We sold our position in Gym Group, a low-cost gym operator, as membership recovery from Covid had been disappointing and may indicate a structural shift in the market. We also sold our position, in line with our stated policy, in Dechra Pharmaceuticals, a veterinary products supplier, as it was elevated to the FTSE 100.

Takeover activity

There was a decent level of takeover activity in the portfolio. This was consistent with the wider mid and small-cap equity markets aided by continued levels of interest from private equity. A number of takeover bids were received: for Euromoney, a B2B information provider, from a private equity consortium; for RPS Group, an international engineering consultancy, from Tetra Tech; for EMIS, an IT healthcare company, from United Health Group; and for Hyve, an exhibitions organiser, from Providence Equity Partners.

Top ten positions

The following table shows the Company's top ten stock positions and their active positions versus the Numis Smaller Companies Index (excluding investment companies):

Top ten positions at 31 May 2023	Portfolio %	Index weight %	Active weight %
Oxford Instruments	3.7	1.2	2.5
Impax Asset Management	3.0	-	3.0
Bellway	2.8	-	2.8
Balfour Beatty	2.8	-	2.8
OSB Group	2.5	-	2.5
Paragon Banking	2.3	0.9	1.4
Vesuvius	2.3	0.8	1.5
Mitchells and Butlers	2.2	0.9	1.3
Team17	1.9	-	1.9
Watches of Switzerland	1.8	-	1.8

A brief description of the largest positions (excluding Oxford Instruments and Balfour Beatty which were covered earlier) follows:

Impax Asset Management is an environmentally and socially responsible focused asset manager based in the UK. The company was formed in 1998 by the current CEO Ian Simm, and has several funds spanning public equities, bonds and private equity assets. Demand for these strategies is growing as sustainability agendas have become top priorities for governments, consumers and investors alike. As a result, the business has seen rapid growth in assets under management which we expect to continue as the group's strong performance track record and global distribution agreements should lead to further inflows.

Bellway is a national UK housebuilder. The company has an excellent long-term track record of controlled expansion whilst maintaining a strong balance sheet. Although the company has delivered strong operational and financial performance, the share price has fallen due to the weakness in the housing market, caused by the economic downturn and rising interest rates. Although future short-term profitability is likely to fall as house prices soften and volumes contract, the business remains well placed to benefit from any recovery. Additionally, valuation support is provided by the large discount to net asset value at which the shares currently trade.

OSB Group is a speciality lender with a primary focus on providing buy-to-let mortgages to professional landlords. Regulations on complex underwriting and the sophistication of its underwriting capability have allowed OSB to grow market share and, with landlord demand remaining robust, the business is poised to see further growth. The company has built a very strong capital position, and this is allowing the company to return significant cash to shareholders through share buy-backs and increased dividends.

Paragon Banking is a speciality lender with a primary focus on providing buy-to-let mortgages to professional landlords. The company has changed its structure in the last few years by obtaining a banking licence allowing the company to diversify its funding sources into the retail market. The company enjoys a very strong capital position, enabling it to pay higher dividends whilst buying back some of its own stock. Regulations on complex underwriting and the sophistication of its underwriting capability have allowed Paragon to grow market share from non-bank lenders which have suffered in this rising rate environment.

Vesuvius is a materials technology company. The company offers steel flow control, foundry technologies, advanced refractories and metal processing products and services to customers around the world. The business has gone through significant rationalisation over recent years removing excess capacity and improving returns on capital and margins. The company has demonstrated excellent pricing power during the recent inflationary period, validating its leading market position and high value add of its products. Although the steel industry is seeing the impact of global economic weakness, the business is well positioned to enjoy strong growth once markets recover.

Mitchells & Butlers is a national owner and operator of pubs in the UK. Its major brands include All Bar One, Browns, Harvester, Toby Carvery, O'Neill's, Miller & Carter, Nicholson and Ember Inns. The vast majority of its pubs are owned freehold, meaning it has substantial asset value backing. After a difficult trading period impacted by lockdowns and restricted trading during Covid and more recently pressures from significant inflation in energy, food prices and labour costs, the outlook is looking brighter especially as consumer demand remains strong and cost pressures are starting to ease. The company is steadily repaying its securitised debt, enabling a transfer of value from debt to equity. Additionally, with its pension deficit now cleared, cashflow is improving, allowing the possibility of a resumption in dividends to shareholders.

Team17 is a developer and publisher of video games for PCs, consoles and mobile devices. The company focuses on the independent games market and selectively works with developers and third parties to launch new content on multiple platforms. The business listed in 2018 and has had a strong record of growth driven by well-received new releases, the monetisation of new content and improved profitability as the portfolio has expanded. With strong internal intellectual property and the balance sheet in a net cash position, the company is well set for future growth.

Watches of Switzerland is a leading retailer of luxury watches and jewellery in the UK and US. The group trades under the banner of four prestigious retail brands: Watches of Switzerland, Mappin & Webb, Goldsmiths and Mayors. The group has a 40% share of the UK luxury watch market and a 10%+ share of the US luxury watch market. Over 50% of revenues are generated from the sale of Rolex watches. In addition to driving sales densities across existing stores through improved marketing and stock availability, management's growth strategy is centred around expansion in the US and Europe where there is significant potential for market share gains.

Portfolio weightings

As at 31 May 2023, the portfolio was weighted by company size as follows:

	Weighting %
	31 May 2023	31 May 2022
FTSE 100	0.0	1.9
FTSE 250	70.2	63.5
FTSE Small Cap	14.3	16.5
FTSE AIM	28.1	29.3
Gearing	(12.6)	(11.2)

Market outlook

With inflation staying 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 modest rises in interest rates globally although it is clear we are much closer to the end rather than the start of the monetary policy tightening cycle. Oscillating confidence levels in central bankers' willingness and ability to strike the right balance between containing inflation and supporting economic growth are driving heightened levels of uncertainty and volatility in global bond and equity markets.

The rapid rise of inflation, driven by energy prices but also by a wider number of other components, and rising interest rates are putting pressure on consumers and businesses alike. Although the labour market is strong and wages are rising, real net disposable income is falling and consumer confidence is low. The delayed transmission mechanism of rising interest rates and their impact on the economy mean that economic conditions are likely to worsen in the short term.

Geopolitics remain challenging with the ongoing conflict in Ukraine and heightened tensions between China, the US and Europe. The longer-term economic implications of these 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. We expect capital spending to increase as a result and pockets of inflation to remain as bottlenecks appear in the process of supply chain reorganisation.

In the UK 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 been recovering strongly and we are seeing an increasing number of companies buying back their own stock.

After an active 2021, the 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 activity ("M&A") 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 now trading below long-term averages. Corporate earnings rebounded sharply following the pandemic-induced shock in 2020. Lead indicators suggest this rebound is likely to continue to fade as economic activity weakens further. Rising interest costs and increasing tax burdens are putting further pressure on corporate earnings growth. 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 it presents. 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.

In conclusion, the year under review has been a disappointing one for the Company. Absolute performance was negative and the Company underperformed its benchmark. The operating performance of our portfolio companies, however, has been robust. The companies are soundly financed and attractively valued. Additionally, the smaller companies market continues to throw up exciting growth opportunities in which the Company can invest. We remain confident in our ability to generate significant value from a consistent and disciplined investment approach.

Neil Hermon

Fund Manager

INVESTMENT PORTFOLIO at 31 May 2023

Company	Principal activities	Valuation £'000	Portfolio %
Oxford Instruments	Advanced instrumentation equipment	27,826	3.66
Impax Asset Management1	ESG-focused investment manager	22,801	3.00
Bellway	Housebuilder	21,338	2.81
Balfour Beatty	International contractor	21,274	2.80
OSB Group	Buy-to-let mortgage provider	19,258	2.53
Paragon Banking	Buy-to-let mortgage provider	17,232	2.27
Vesuvius	Ceramic engineering	17,140	2.25
Mitchells & Butlers	Hospitality operator	16,710	2.20
Team171	Games software developer	14,438	1.90
Watches of Switzerland	Luxury watch retailer	13,897	1.83
10 largest		191,914	25.25
Ascential	Exhibition organiser and data services	13,688	1.80
Alpha Financial Markets1	Investment management consultancy	13,233	1.74
Learning Technologies1	E-learning	12,806	1.68
Spectris	Electronic control and process instrumentation	12,693	1.67
Renishaw	Precision measuring and calibration equipment	12,638	1.66
Gamma Communications1	Telecommunications	12,628	1.66
Computacenter	IT reseller	12,528	1.65
Volution	Producer of ventilation products	12,505	1.65
Softcat	Software reseller	11,671	1.54
Future	Specialist internet, website and magazine company	11,552	1.52
20 largest		317,856	41.82
IntegraFin	B2B financial platform	11,196	1.47
Just Group	Enhanced annuity provider	11,043	1.45
Bytes Technology	Software reseller	10,965	1.44
Victrex	Speciality chemicals	10,062	1.32
Serco	Outsourcing services	9,996	1.31
Rathbones	Private client wealth manager	9,970	1.31
Bodycote	Engineering group	9,889	1.30
Workspace	Real estate investment and services	9,809	1.29
Moneysupermarket.Com	Price comparison website	9,789	1.29
Foresight	Specialist fund manager	9,680	1.27
30 largest		420,255	55.27
Savills	Property transactional consulting services	9,555	1.26
Serica Energy1	Oil & gas exploration and production	9,448	1.24
GB Group1	Data intelligence services	9,379	1.23
Tyman	Building products	9,095	1.20
Chemring	Technology products and services	9,070	1.19
RWS Holdings1	Patent translation services	8,809	1.16
Crest Nicholson	Housebuilder	8,719	1.15
Redde Northgate	Commercial vehicle hire	8,672	1.14
Hollywood Bowl	Ten pin bowling operator	8,137	1.07
SigmaRoc1	Aggregates supplier	8,098	1.07
40 largest		509,237	66.98
Midwich1	Audio-visual equipment distributor	7,788	1.02
Qinetiq	Defence services	7,543	0.99
Next Fifteen Communications1	PR and media services	7,430	0.98
Burford Capital1	Litigation finance	7,324	0.96
Liontrust Asset Management	Specialist fund management	7,163	0.94
Auction Technology	Online auction software provider	6,720	0.88
Morgan Advanced Materials	Engineering group	6,670	0.88
Pagegroup	Recruitment company	6,199	0.82
Genuit	Building products	6,176	0.81
Bridgepoint	Private equity fund manager	6,110	0.80
50 largest		578,360	76.06
CLS	Real estate investment and services	5,952	0.78
Trainline	Online ticket retailer	5,936	0.78
Luceco	Electrical products	5,913	0.78
Wickes	DIY retailer	5,856	0.77
Harworth	Urban regeneration and property investment	5,421	0.71
Videndum	Broadcast and camera systems	5,239	0.69
SThree	Recruitment company	5,081	0.67
XP Power	Electrical power products	5,056	0.67
Smart Metering Systems1	Energy smart meters	5,030	0.66
AB Dynamics1	Automotive testing and measurement products	4,925	0.65
60 largest		632,769	83.22
Restore1	Office service provider	4,778	0.63
DFS	Furniture retailer	4,748	0.62
Harbour Energy	Oil and gas exploration and production	4,663	0.61
Synthomer	Speciality chemicals	4,582	0.60
Howden Joinery	Kitchen manufacturer and retailer	4,459	0.59
Moonpig	Online card and gift retailer	4,387	0.58
Gresham House1	Specialist fund manager	4,322	0.57
Stelrad	Radiator manufacturer	4,271	0.56
Capricon Energy	Oil and gas exploration and production	3,961	0.52
Empiric	Student accommodation	3,865	0.51
70 largest		676,805	89.01
Wilmington	B2B information provider	3,836	0.51
Hunting	Oil equipment and services	3,832	0.50
Helical	Office property investor and developer	3,766	0.50
Avon Protection	Defence products	3,690	0.49
Pebble1	Promotional products and services	3,689	0.49
Alliance Pharma1	Pharmaceutical products	3,438	0.45
GlobalData1	B2B information provider	3,402	0.45
RM	Education software and services	3,330	0.44
Spirent Communications	Telecom testing services	3,276	0.43
JTC	Fund administrator	3,121	0.41
80 largest		712,185	93.68
Young & Co's share class A1	Pub operator	3,009	0.40
Grainger	Residential property investor	2,981	0.39
Advanced Medical Solutions1	Medical supplies manufacturer	2,912	0.38
Aptitude Software	Software retailer	2,880	0.38
Young & Co's share class NV1	Pub operator	2,851	0.38
Halfords	Cycling and automative products retailer	2,727	0.36
Headlam	Floor coverings distributor	2,651	0.35
Benchmark Holdings1	Aquaculture services	2,630	0.35
Restaurant Group	Restaurant and pub operator	2,611	0.34
Blancco Technology1	Data erasure software	2,600	0.34
90 largest		740,037	97.35
Severfield	Structural steel products	2,488	0.33
Essentra	Industrial distributor	2,374	0.31
Clarkson	Shipping services	2,302	0.30
Access Intelligence1	Marketing services software provider	2,238	0.29
Tribal1	Educational support services and software	2,232	0.29
Eurocell	Building products	2,072	0.27
Ergomed1	Clinical trial services	2,028	0.27
Thruvision1	Detection technology	1,800	0.24
Safestyle1	Window and door retailer	1,710	0.23
Focusrite1	Audio production equipment	875	0.12
100 largest		760,156	100.00
Total Equity Investments		760,156	100.00

¹ Quoted on the Alternative Investment Market

There were no convertible or fixed interest securities at 31 May 2023 (2022: None)

PRINCIPAL RISKS AND UNCERTAINTIES

The Board, with the assistance of the Manager, has carried out a robust assessment of the principal and emerging risks facing the Company which relate to the activity of investing in the shares of smaller companies that are listed (or quoted) in the United Kingdom.

The directors seek assurance that the risks are appropriately evaluated, their possible outcomes considered, and that effective mitigating controls are in place. To support this process, the Audit and Risk Committee ("ARC") maintains a detailed risk matrix which identifies the substantial risks to which the Company is exposed and methods of mitigating against them as far as practicable. The ARC considers the Company's principal and emerging risks at each meeting, with a thorough review at least once per year, using heat maps derived from the detailed risk matrix. Every year each director undertakes an individual assessment of each risk. The individual ratings are collated and reviewed at a meeting, which triggers fresh critical debate. The Board regularly considers these and does not consider the principal risks to have changed during the course of the reporting period and up to the date of this report.

Throughout the year the Board has considered the impact of macroeconomic events with a global impact and heightened market volatility, including the aftermath of Covid-19 and the ongoing ramifications of the Russia/Ukraine conflict. The Board has assessed the impact of mitigation measures on manufacturing supply lines and on heightened uncertainty in the business environment. The Board has also considered the wider consequences of the recent specific problems in the US and Swiss banking sectors, and continues to monitor economic uncertainty and the cost-of-living crisis in the UK, and the UK banks' appetite for lending to the corporate sector.

While uncertainty remains around short-term economic conditions, the Board has concluded that the Company's portfolio and the Manager's investment approach should prove resilient. The Fund Manager's long-standing philosophy is that, over the long term, smaller companies are able to deliver superior returns than the broader market, driven by his fund management team's fundamental, qualitative analysis, engagement with management teams and strong valuation discipline.

The principal risks fall broadly under the following categories:

Risk	Controls and mitigation
Investment activity and strategy Poor long-term investment performance (significantly below agreed benchmark or market/industry average) Loss of the Fund Manager or management team Impact of political, environmental, health or other emergencies (e.g. Covid-19, war and a changing macroeconomic environment) on the Company's investments Approach to ESG matters Material climate-related impacts (both physical and transition risks) Market appetite - investment objective and/or policy not appropriate in the current market or not sought by investors resulting in a wide discount	The Board reviews investment strategy at each board meeting. 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 and the companies in its peer group; it may also result in the Company's shares trading at a wider discount to net asset value ("NAV") per share. 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 analysis. The Board monitors the implementation and results of the investment process with the Fund Manager, and regularly reviews data that monitor portfolio risk factors. The Fund Manager reports to each board meeting on his close oversight of the portfolio, and more frequently in the event of a crisis. Performance is monitored by JHI's internal teams, any of which would escalate directly to the Board in the event of matters of concern. At each meeting, the Board reviews the Fund Manager's ESG engagement with portfolio companies and their governance structures, ESG risks reports, and votes cast against management. The Board also reviews JHI's ESG-related marketing activity specific to the Company. The performance of the Company relative to its benchmark and its peers and the discount/premium to NAV per share are key performance indicators measured by the Board on a continual basis and are reported on in the Annual Report. The Board obtains assurances from the Manager that the UK Smaller Companies team is suitably resourced, and the Fund Manager is appropriately remunerated and incentivised in this role. The Board also considers the succession plan for the fund management team on an annual basis. See the Annual Report for a description of the engagement with shareholders and potential investors undertaken by the Board and Manager to keep the market informed about Company developments.
Legal and regulatory Loss of investment trust status Breach of company law or Listing Rules resulting in suspension	In order to qualify as an investment trust the Company must comply with s1158 Corporation Tax Act 2010 ("s1158"). A breach of s1158 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 s1158 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 2006 (the "Act") and, as the Company has a premium listing on the London Stock Exchange, the Company must comply with the Listing, Prospectus and Disclosure Guidance and Transparency Rules of the FCA. A breach of the Act could result in the Company and/or the directors being fined or becoming the subject of criminal proceedings. A breach of the FCA Rules could result in the suspension of the Company's shares which would in turn lead to a breach of s1158. The Board relies on its corporate secretary and its professional advisers to ensure compliance with the Act and FCA Rules.
Operational Failure of, disruption to or inadequate service levels by key third-party service provider Cyber-crime leading to loss of confidential data Breach of internal controls Impact of political, environmental, health or other emergencies (e.g. Covid-19, war and a changing macroeconomic environment) on the Company's operations and those of its service providers	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 Manager has contracted some of its operational functions, principally those relating to trade processing, investment administration and accounting, to BNP Paribas. Details of how the Board monitors the services provided by Janus Henderson and its other suppliers, and the key elements designed to provide effective internal control and risk management, such as review of service providers' assurance reports, are explained further in the Annual Report. Cybersecurity is closely monitored by the ARC as part of quarterly internal controls reports, and the ARC receives an annual presentation from Janus Henderson's Chief Information Security Officer. The Board monitors effectiveness and efficiency of service providers' processes through ongoing compliance and operational reporting. There were no disruptions to the services provided to the Company in the year under review.
Financial instruments and the management of risk	By its nature as an investment trust, the Company is exposed in varying degrees to market risk (comprising market price risk, currency risk and interest rate risk), liquidity risk and credit and counterparty risk. An analysis of these financial risks and the Company's policies for managing them are set out in note 15 in the Annual Report.

EMERGING RISKS

At each meeting, the Board considers emerging risks which it defines as potential trends, sudden events or changing risks which are characterised by a high degree of uncertainty in terms of occurrence probability and possible effects on the Company. Once emerging risks become sufficiently clear, they may be treated as specific risks and enter the Company's matrix of significant risks. During the year, the directors agreed that emerging risks would include disruption to markets, the global economy and society through artificial intelligence ("AI") such as ChatGPT, and UK banks' appetite for lending to the UK corporate sector, including investment trusts. The directors also considered the trend for UK-listed companies to de-list from the London Stock Exchange and seek an alternative listing in the US, and agreed that potentially more relevant for smaller UK-focused companies would be a de-listing and move to private equity.

The Board receives reporting on risks from the Manager and other service providers in addition to any ad hoc reports on specialist topics from professional advisors. The Board monitors effectively the changing risk landscape and potential threats to the Company with the support of regular reports and ad hoc reports as required, the directors' own experience and external insights gained from industry and shareholder events.

BORROWINGS

The Company has borrowed £30 million by its issue in 2016 of 3.33% unsecured loan notes 2036 and a further £20 million by its issue in 2022 of 2.77% unsecured loan notes 2052. The Company is able to draw short-term borrowings of up to £85 million from its committed borrowing facility with BNP Paribas, London branch (2022: £85 million with Industrial and Commercial Bank of China Limited, London branch ("ICBC")). There were borrowings of £50.7 million drawn down under the facility at 31 May 2023 (2022: £50.3 million).

Accordingly, the Company has access to borrowings of up to £135 million: the £50 million of fixed debt represented by the issue of unsecured loan notes and a committed bank facility of £85 million.

VIABILITY STATEMENT AND CONTINUATION VOTE

The Company is a long-term investor. The Board believes it is appropriate to assess the Company's viability over a five-year period in recognition of the Company's long-term horizon and what the Board believes to be investors' horizons, taking account of the Company's current position and the potential impact of the principal risks and uncertainties as documented in the Strategic Report.

The assessment has considered the impact of the likelihood of the principal risks and uncertainties facing the Company, in particular investment strategy and performance against benchmark, whether from asset allocation or the level of gearing, and market risk, in severe but plausible scenarios, and the effectiveness of any mitigating controls in place.

The Board took into account the liquidity of the portfolio and the borrowings in place when considering the viability of the Company over the next five years and the Company's ability to meet liabilities as they fall due. This included consideration of the duration of the Company's loan and borrowing facilities and how a breach of any covenants could impact the Company's NAV and share price, recognising the current strength of the covenants, liquidity of the portfolio and capital reserves available. The Board used a five-year cash-flow forecast and sensitivity analysis to support its deliberations.

The Board considers revenue and expense forecasts at each meeting, with additional focus at the time of reviewing half-year and year-end results. At the same time the Board discusses the impact on the Company of decreases in revenue and the impact that would have on revenue and capital reserves available to pay dividends.

The Board does not expect there to be any significant change in the principal risks and adequacy of the mitigating controls in place, nor does the Board envisage any change in strategy or objective or any events that would prevent the Company from continuing to operate over the next five years; the Company's assets are liquid, its commitments are limited and the Company intends to continue to operate as an investment trust. In coming to this conclusion, the Board has considered rigorously the aftermath of the Covid-19 pandemic, the continued macroeconomic and geopolitical uncertainty following Russia's invasion of Ukraine and impact on global supply chains, and the current cost-of-living crisis. The Board considers that these events have highlighted the advantages of holding an investment trust.

The Board does not believe that these factors will have a long-term impact on the viability of the Company and its ability to continue in operation, notwithstanding the short-term uncertainty these events have caused in the markets and specific shorter-term issues, such as supply chain disruption, inflation and labour shortages.

The continuation vote at the 2022 AGM was passed with support of 99.2% of votes cast and the Board expects shareholders to support continuation at the 2025 AGM which is within the viability assessment period.

Based on their assessment, the directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next five years to 31 May 2028.

FUTURE DEVELOPMENTS

The future success of the Company is dependent primarily on the performance of its investment portfolio, which will, to a significant degree, reflect the performance of the stock market and the skill of the Manager. While the Company invests in companies that are listed (or quoted) in the United Kingdom, the underlying businesses of those companies are affected by external factors, many of an international nature. The Board's intention is that the Company will continue to pursue its stated investment objective and strategy as explained in the Annual Report. The Chair's Statement and the Fund Manager's Report in the Annual Report give commentary on the outlook for the Company. Other information on recommended dividends and financial risks is detailed in the Strategic Report and in notes 9 and 15 to the financial statements in the Annual Report.

RELATED-PARTY TRANSACTIONS

The Company's transactions with related parties in the year were with the directors and the Manager. There were no material transactions between the Company and its directors, and the only amounts paid to them were in respect of remuneration. Remuneration is paid quarterly in arrears and amounts for April and May 2023 were therefore accrued as at the year end. There were no other outstanding amounts payable at the year end. The directors did not claim any expenses during the years to 31 May 2023 or 31 May 2022. Directors' shareholdings are listed in the Annual Report.

In respect of the Manager's service provision during the year, other than fees payable by the Company in the ordinary course of business and the facilitation of marketing activities with third parties, there were no material transactions with the Manager affecting the financial position of the Company. More details on transactions with the Manager, including amounts outstanding at the year end, are in the Annual Report.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

Each director who is listed in the Annual Report confirms that, to the best of his or her knowledge:

·	the financial statements, which have been prepared in accordance with International Accounting Standards in conformity with the requirements of the Companies Act 2006 on a going concern basis, give a true and fair view of the assets, liabilities, financial position and profit/loss of the Company; and
·	the Strategic Report and financial statements include a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

On behalf of the Board

Penny Freer

Chair of the Board

STATEMENT OF COMPREHENSIVE INCOME

		Year ended 31 May 2023			Year ended 31 May 2022
Notes		Revenue return £'000	Capital return £'000	Total £'000	Revenue return £'000	Capital return £'000		Total £'000
2	Investment income	24,295	-	24,295	20,648	-		20,648
3	Other income	95	-	95	2	-		2
	Losses on investments held at fair value through profit or loss	-	(127,252)	(127,252)	-	(187,266)		(187,266)
	Currency losses	-	-	-	-	(1)		(1)
	Total income/(loss)	24,390	(127,252)	(102,862)	20,650	(187,267)		(166,617)
	Expenses
4	Management fees	(710)	(1,657)	(2,367)	(1,004)		(2,343)		(3,347)
	Other expenses	(731)	-	(731)	(728)		-		(728)
	Profit/(loss) before finance costs and taxation	22,949	(128,909)	(105,960)	18,918	(189,610)		(170,692)
	Finance costs	(997)	(2,325)	(3,322)	(562)	(1,310)		(1,872)
	Profit/(loss) before taxation	21,952	(131,234)	(109,282)	18,356	(190,920)		(172,564)
	Taxation	(5)	-	(5)	(1)	-		(1)
	Profit/(loss) for the year and total comprehensive income	21,947	(131,234)	(109,287)	18,355	(190,920)		(172,565)
5	Earnings/(loss) per ordinary share - basic and diluted	29.38p	(175.68p)	(146.30p)	24.57p	(255.58p)		(231.01p)

The total columns of this statement represent the Statement of Comprehensive Income, prepared in accordance with UK-adopted International Accounting Standards in conformity with the requirements of the Companies Act 2006.

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

STATEMENT OF CHANGES IN EQUITY

		Retained earnings
Notes	Year ended 31 May 2023	Share capital £'000	Capital redemption reserve £'000	Capital reserves £'000	Revenue reserve £'000	Total equity £'000
	Total equity at 1 June 2022	18,676	26,745	744,044	13,134	802,599
	Total comprehensive income: (Loss)/profit for the year	-	-	(131,234)	21,947	(109,287)
	Transactions with owners, recorded directly to equity:
6	Ordinary dividends paid	-	-	-	(17,925)	(17,925)
	Total equity at 31 May 2023	18,676	26,745	612,810	17,156	675,387
		Retained earnings
Notes	Year ended 31 May 2022	Share capital £'000	Capital redemption reserve £'000	Capital reserves £'000	Revenue reserve £'000	Total equity £'000
	Total equity at 1 June 2021	18,676	26,745	935,307	12,170	992,898
	Total comprehensive income: (Loss)/profit for the year	-	-	(190,920)	18,355	(172,565)
	Transactions with owners, recorded directly to equity:
6	Ordinary dividends paid	-	-	(343)	(17,391)	(17,734)
	Total equity at 31 May 2022	18,676	26,745	744,044	13,134	802,599

BALANCE SHEET

Notes		At 31 May 2023 £'000		At 31 May 2022 £'000
	Non-current assets
	Investments held at fair value through profit or loss	760,156		892,397
	Current assets
	Receivables	3,187		4,229
	Cash and cash equivalents	13,338		8,991
		16,525		13,220
	Total assets	776,681		905,617
	Current liabilities
	Payables	(851)		(2,990)
	Bank loans	(50,672)		(50,268)
		(51,523)		(53,258)
	Total assets less current liabilities	725,158		852,359
	Non-current liabilities
	Financial liabilities	(49,771)		(49,760)
	Net assets	675,387		802,599
	Equity attributable to equity shareholders
7	Share capital	18,676		18,676
	Capital redemption reserve	26,745		26,745
	Retained earnings:
	Capital reserves	612,810		744,044
	Revenue reserve	17,156		13,134
	Total equity	675,387		802,599
8	Net asset value per ordinary share	904.1p		1,074.4p

STATEMENT OF CASH FLOWS

	Year ended
	31 May 2023 £'000	31 May 2022 £'000
Operating activities
Loss before taxation	(109,282)	(172,564)
Add back interest payable	3,322	1,872
Losses on investments held at fair value through profit or loss	127,252	187,266
Purchases of investments	(109,395)	(165,877)
Sales of investments	114,384	166,572
Increase in receivables	(38)	(1)
Decrease in amounts due from brokers	1,394	1,179
Increase in accrued income	(316)	(412)
Decrease in payables	(66)	(4,545)
(Decrease)/increase in amounts due to brokers	(2,081)	1,607
Net cash inflow from operating activities before interest and taxation	25,174	15,097
Interest paid	(3,303)	(1,659)
Net cash inflow from operating activities1	21,871	13,438
Financing activities
Equity dividends paid	(17,928)	(17,734)
(Repayment)/drawdown of bank loans	404	(9,592)
Issue of unsecured private placement notes	-	20,000
Direct expenses on issue of unsecured private placement notes	-	(82)
Net cash outflow from financing activities	(17,524)	(7,408)
Increase in cash and cash equivalents	4,347	6,030
Currency losses	-	(1)
Cash and cash equivalents at the start of the year	8,991	2,962
Cash and cash equivalents at the end of the year	13,338	8,991

¹ In accordance with IAS 7.31, cash inflow from dividends was £24,000,000 (2022: £20,243,000) and cash

inflow from interest was £74,000 (2022: £2,000)

NOTES TO THE 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 (the "Act"). The financial statements of the Company for the year ended 31 May 2023 have been prepared in accordance with UK-adopted International Accounting Standards in conformity with the requirements of the Act. 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 IFRS Interpretations Committee ("IFRS IC") that remain in effect, to the extent that IFRS have been adopted by the United Kingdom. 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 held at fair value through profit or loss. The principal accounting policies adopted are set out in the Annual Report. These policies have been applied consistently throughout the year. 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") 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. There have been no amendments to International Accounting Standards issued and effective for the year under review which are applicable to the Company's financial statements. There are no new standards or amendments to International Accounting Standards issued but not effective for the year under review or early adopted by the Company that are expected to have any impact on the Company's financial statements. 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. In coming to this conclusion, the directors have also considered the aftermath of the Covid-19 pandemic and its residual impact on the Company, the continued macroeconomic and geopolitical uncertainty following Russia's invasion of Ukraine and impact on supply chains, the nature of the Company's covenants, the strength of the Company's distributable reserves and the liquidity of the portfolio. They have concluded that the Company is able to meet its 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, the Board has therefore determined that it is appropriate for the financial statements to be prepared on a going concern basis. The Company's shareholders are asked every three years to vote for the continuation of the Company. An ordinary resolution to this effect was put to the Annual General Meeting ("AGM") held on 30 September 2022 and passed by a substantial majority of the shareholders. The next continuation vote will take place at the AGM in 2025.
2	Investment income
		2023 £'000	2022 £'000
	Income from companies listed or quoted in the United Kingdom:
	Dividends	22,553	18,939
	Special dividends	1,177	1,577
	Property income distributions	565	132
	Total investment income	24,295	20,648
3	Other income
		2023 £'000	2022 £'000
	Bank and other interest	95	2
		95	2

4	Management fees
		2023			2022
		Revenue return £'000	Capital return £'000	Total return £'000	Revenue return £'000		Capital return £'000		Total return £'000
	Management fee	710	1,657	2,367	1,004		2,343		3,347
		710	1,657	2,367	1,004		2,343		3,347
	A summary of the management agreement is given in the Annual Report.
5	(Loss)/earnings per ordinary share The earnings per ordinary share figure is based on the net loss for the year of £109,287,000 (2022: net loss of £172,565,000) and on 74,701,796 (2022: 74,701,796) ordinary shares, being the weighted average number of ordinary shares in issue during the year. The earnings per ordinary share figure detailed above is analysed between revenue and capital as below:
						2023 £'000		2022 £'000
	Net revenue profit					21,947		18,355
	Net capital loss					(131,234)		(190,920)
	Net total loss					(109,287)		(172,565)
	Weighted average number of ordinary shares in issue during the year					74,701,796		74,701,796
						2023		2022
	Revenue earnings per ordinary share					29.38p		24.57p
	Capital loss per ordinary share					(175.68p)		(255.58p)
	Total loss per ordinary share					(146.30p)		(231.01p)
	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.

6	Ordinary dividends
		Record Date	Pay date	2023 £'000	2022 £'000
	Final dividend: 17.0p (2022: 16.75p) for the year ended 31 May 2022	26 August 2022	10 October 2022	12,699	12,513
	Interim dividend: 7.0p (2022: 7.00p) for the year ended 31 May 2023	9 February 2023	6 March 2023	5,229	5,229
	Unclaimed dividends over 12 years old			(3)	(8)
				17,925	17,734

	Subject to approval at the AGM, the proposed final dividend of 19.00p per ordinary share will be paid on 9 October 2023 to shareholders on the register of members at the close of business on 25 August 2023. The shares will be quoted ex-dividend on 24 August 2023. The proposed final dividend for the year ended 31 May 2023 has not been included as a liability in these financial statements. Under IFRS, the final dividend is not recognised until approved by the shareholders. The total dividends payable in respect of the financial year which form the basis of the test under section 1158 Corporation Tax Act 2010 are set out below:
			2023 £'000	2022 £'000
	Revenue available for distribution by way of dividends for the year		21,947	18,355
	Interim dividend for the year ended 31 May 2023: 7.00p (2022: 7.00p)		(5,229)	(5,229)
	Final dividend for the year ended 31 May 2022: 17.00p (based on 74,701,796 shares in issue at 2 August 2022)		-	(12,699)
	Proposed final dividend for the year ended 31 May 2023: 19.00p (based on 74,701,796 shares in issue at 1 August 2023)		(14,193)	-
	Transfer to reserves		2,525	427
7	Share capital
			2023 £'000	2022 £'000
	Allotted, issued, authorised and fully paid:
	74,701,796 ordinary shares of 25p each (2022: 74,701,796)		18,676	18,676
	During the year the Company made no purchases of its own issued ordinary shares (2022: nil). Up to the date of this report, the Company has not purchased any ordinary shares.
8	Net asset value ("NAV") per ordinary share
	The NAV per ordinary share is based on the net assets attributable to the ordinary shares of £675,387,000 (2022: £802,599,000) and on the 74,701,796 ordinary shares in issue at 31 May 2023 (2022: 74,701,796). The Company has no securities in issue that could dilute the NAV per ordinary share. The movement during the year of the net assets attributable to the ordinary shares was as follows:
		2023 £'000		2022 £'000
	Net assets attributable to the ordinary shares at 1 June	802,599		992,898
	Net losses for the year	(109,287)		(172,565)
	Ordinary dividends paid in the year	(17,925)		(17,734)
	Net assets attributable to the ordinary shares at 31 May	675,387		802,599
9	2023 Financial information
	The figures and financial information for the year ended 31 May 2023 are extracted from the Company's annual financial statements for that period and do not constitute statutory accounts. The Company's annual financial statements for the year to 31 May 2023 have been audited but have not yet been delivered to the Registrar of Companies. The Independent Auditor's Report on the 2023 annual financial statements is unqualified, does not include a reference to any matter to which the auditor drew attention without qualifying the report, and does not contain any statements under s498(2) or s498(3) Companies Act 2006.

10

2022 Financial information

The figures and financial information for the year ended 31 May 2022 are compiled from an extract of the published financial statements for that year and do not constitute statutory accounts. Those financial statements have been delivered to the Registrar of Companies, include the unqualified Independent Auditor's Report on the 2021 annual financial statements, do not include a reference to any matter to which the auditors drew attention without qualifying the report, and do not contain any statements under s498(2) or s498(3) Companies Act 2006.

11	Annual Report
	The Annual Report for the year ended 31 May 2023 will be sent to shareholders in August 2023 and will be available on www.hendersonsmallercompanies.com. Thereafter copies will be available from the corporate secretary at the Company's registered office: 201 Bishopsgate, London EC2M 3AE.

12

Annual general meeting ("AGM") The Company's AGM will be held at 11.30 am on Thursday, 5 October 2023. The Board invites shareholders to attend the meeting at the registered office at 201 Bishopsgate, London EC2M 3AE, or via Zoom webinar connection if preferable. The Fund Manager will present his review of the year and thoughts on the future and will be pleased to answer your questions, as will the Board. Instructions on attending the meeting in person or virtually, and details of resolutions to be put to the AGM, are included in the Notice of AGM in the Annual Report and will be available at www.hendersonsmallercompanies.com. If shareholders would like to submit any questions in advance of the AGM, they are welcome to send these to the corporate secretary at [e-mail].

13. General Information

Company Status

The Henderson Smaller Companies Investment Trust plc is a UK domiciled investment trust company.

ISIN number/SEDOL Ordinary Shares: GB0009065060/0906506

London Stock Exchange (TIDM) Code: HSL

Global Intermediary Identification Number (GIIN): WZD8S7.99999.SL.826

Legal Entity Identifier (LEI): 213800NE2NCQ67M2M998

Registered Office

201 Bishopsgate, London EC2M 3AE

Directors and Secretary

The directors of the Company are Penny Freer (Chair of the Board), Alexandra Mackesy (Audit and Risk Committee Chair), Kevin Carter (Senior Independent Director), Victoria Sant, Michael Warren and Yen Mei Lim.

The Corporate Secretary is Janus Henderson Secretarial Services UK Limited.

For further information please contact:

Neil Hermon Fund Manager Janus Henderson Investors Telephone: [phone]	Dan Howe Head of Investment Trusts Janus Henderson Investors Telephone: [phone]
Harriet Hall Investment Trust PR Manager Janus Henderson Investors Telephone: [phone]

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.

 

END