Annual Financial Report

RNS Number : 8308U

Henderson Smaller Cos Inv Tst PLC

04 August 2022

 

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 2022

This announcement contains regulated information.

19^th consecutive year of dividend increase and outperformed in 16 of the last 19 years

KEY HIGHLIGHTS

The Henderson Smaller Companies Investment Trust plc is increasing its final dividend to 17.00p per ordinary share (2021:16.75p), leading to an increase of 1.5% over last year's final dividend.

Neil Hermon, Fund Manager, said:

"Despite it being a poor year for performance, as growth stocks de-rated following the increase in interest rates and a spike in inflation, the long-term record of the Company remains strong and we remain confident in our ability to generate significant value from a consistent and disciplined investment approach."

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 year ended 31 May 2022
	1 year %	3 years %	5 years %	10 years %
Average sector NAV1	-8.9	18.6	20.3	186.9
NAV2	-17.8	19.8	29.9	255.2
Benchmark3	-9.5	17.3	16.0	159.0
Average sector share price4	-13.1	14.8	19.0	205.4
Share price5	-27.0	15.0	29.5	303.2
FTSE All-Share Index	8.3	18.4	22.2	117.0

Performance	Year ended 31 May 2022	Year ended 31 May 2021
NAV per share at year end	1,074.4p	1,329.1p
Share price at year end	917.5p	1,280.0p
Discount at year end6	14.6%	3.7%
Gearing at year end	11.2%	8.8%
Dividend for the year	24.00p7	23.75p
Revenue return per share	24.57p	13.86p
Dividend yield8	2.6%	1.9%
Total net assets	£803m	£993m
Ongoing charge excluding performance fee	0.42%	0.39%
Ongoing charge including performance fee	0.42%	0.98%

1 Average NAV total return of the AIC UK Smaller Companies sector

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

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

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

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

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 17.00p, 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

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

It has been a disappointing year for your Company with the net asset value falling in absolute terms and underperforming its benchmark. The market background has been volatile with Covid-19 continuing to dominate the news headlines during the first part of the financial year while the recent conflict in Ukraine has added to the pressure on equity markets. Concerns over rising inflation have led to increased bond yields and a severe de-rating in the valuation of growth companies, despite often strong underlying operational and financial performance. The report from your Fund Manager in the Annual Report provides a detailed insight into how this has impacted the performance of the portfolio.

Performance

Smaller companies have materially underperformed larger companies during the year as investors favoured the defensive and liquid characteristics of larger stocks. The Company's underperformance in the past year is largely due to the de-rating of growth companies with the characteristics of the underlying portfolio remaining strong. The Board closely monitors the Company's investment strategy and process to ensure that we are continuing to meet shareholder expectations. Your Company has outperformed in 16 out of the last 19 years and continues to show strong returns over the medium and longer term.

In the financial year to 31 May 2022, the Company's NAV total return fell by 17.8% (2021: +58.5%), underperforming our Numis Smaller Companies Index benchmark by 8.3% (2021: outperformance of 4.4%), in what has been a very challenging year for UK smaller companies. The AIC UK Smaller Companies sector average returned -8.9% (2021: +49.4%). The share price total return was -27.0% (2021: +69.3%), reflecting a widening of the share price discount to NAV. Over the longer term, the NAV total return remains well ahead of the benchmark index on three, five, seven and ten-year periods to 31 May 2022. The price per ordinary share over the period fell from 1,280p at 31 May 2021 to 917p at the end of our 2022 financial year.

No performance fee will be payable this year (2021: £4,537,000).

Dividend and earnings

The total revenue received from your Company's portfolio rose from £12.3 million to £20.7 million over the year, and our earnings per share rose from 13.9p at 31 May 2021 to 24.6p at 31 May 2022. This reflects the rapid recovery of dividends from our portfolio companies as the impact of Covid-19 waned and corporate profitability and cashflow recovered.

The Board is pleased to recommend an increased final dividend of 17.00p per share (2021: 16.75p) which, subject to shareholder approval at the Annual General Meeting, will be paid on 10 October 2022 to shareholders on the register at 26 August 2022. When added to the interim payment of 7.00p (2021: 7.00p), this brings the full year dividend to 24.00p per share, a 1.1% increase from the 2021 full year distribution of 23.75p per share. This will be fully funded from current year revenue. This will be our 19th consecutive year of growth in the annual dividend.

Share rating

Your Company's share price discount to NAV fluctuated widely over the year with highs and lows of 17.8% and 3.2% respectively, averaging 9.1%. This compares favourably with the sector average of 13.1%. The Company ended the year at a 14.6% discount compared with 3.7% on 31 May 2021.

Your Board continues to monitor the discount and to discuss 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. During the year to 31 May 2022, therefore, no shares were bought back.

Responsible Investing

We believe that integrating Environmental, Social and Governance ("ESG") factors into our investment decision-making and ownership practices is fundamental to delivering our investment objective. We also recognise that the ESG landscape is still maturing and influencing our people, our culture and our choices in various ways. We are confident that our focus on integrating best-in-class ESG practices as they continue to evolve will help us to meet our stated investment objective. For more information on the work undertaken on ESG by the Manager please refer to the Annual Report.

Board

David Lamb, our Senior Independent Director and marketing representative, who has been a board member for nine years, will retire at the conclusion of the 2022 AGM. During 2021 we appointed two new directors: Kevin Carter will take on the role of Senior Independent Director and Michael Warren will become the Board's marketing representative.

The Board intends to make a further appointment during the coming year in line with our long-term succession programme and to meet the FCA's diversity targets.

Annual General Meeting ("AGM")

We are pleased to invite shareholders to attend the AGM in person at our registered office on Friday, 30 September 2022 at 11.30 am. We encourage shareholders to attend for the opportunity to meet the Board and the Fund Manager, Neil Hermon, who will give a presentation reviewing the year and looking forward to the year ahead, and to ask questions and debate with Neil and the Board. For any shareholders unable to travel, we will also be welcoming you to join by conferencing software Zoom. As is our normal practice, there will be live voting for those physically present at the AGM. We are not able to offer live voting by Zoom, and we therefore request all shareholders, and particularly those who cannot attend physically, to submit their votes by proxy, ahead of the deadline of 28 September 2022, to ensure that their vote counts at the AGM.

Continuation

Our shareholders are asked every three years to vote for the continuation of the Company, and a resolution to this effect will be put to the AGM this year. Your Company has shown that active investment management, well executed within the transparent and low-cost structure of an investment trust, is a highly effective means of gaining exposure to this class of equity. The Board's deliberations on the Company's continuation are explained in more detail in the Viability Statement. We therefore recommend that shareholders vote for the Company to continue.

Outlook

Your portfolio is based on our long-term approach to investing with a focus on stocks which we believe will show good growth, have strong financial characteristics and strong management but trade at a valuation level that does not reflect these strengths. Your fund management team has an excellent long-term track record and we are optimistic that their disciplined approach will continue to generate value.

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 27.0% and the net asset value by 17.8% on a total return basis. This compared with a decrease of 9.5% total return by the Numis Smaller Companies Index (excluding investment companies). The underperformance came from a combination of negative contribution from stock selection, gearing and expenses. Negative contribution from stock selection was principally a function of the significant underperformance of growth companies as they de-rated in valuation terms due to rising interest rates and higher bond yields. In the vast majority of cases, this was independent of the operational and financial performance of these businesses, which remained strong. 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 19 years.

Market - year under review

The year under review was a volatile and ultimately negative one for equity markets. Covid-19 continued to dominate the minds of investors and news headlines for the initial part of the year. Restrictions were gradually relaxed with life returning to some sort of normal even though new variants such as Delta and Omicron threatening to derail progress.

Global bond yields oscillated during the period which resulted in changing factor leadership in equity markets. Inflation projections continued to worsen throughout the year and after an initial view that inflation was transitory, central banks, led by the Federal Reserve, became increasingly hawkish. By the end of the year,  bond yields had spiked, interest rates were climbing globally and quantitative tightening had replaced quantitative easing. The increase in bond yields led to a severe de-rating of growth companies, irrespective of their operational and financial performance.

Conflict in Ukraine added to pressure on equity markets. Although direct exposure of Western corporates to the Russian and Ukrainian economies is limited, the indirect impacts of the conflict were significant. Oil and other commodity prices increased significantly and the pressure on global supply chains intensified. All of this added to the inflationary pressures being seen globally.

Smaller companies materially underperformed larger companies over the year. This was due to a general flight to the safety, defensiveness and liquidity of large capitalisation stocks and the higher weighting of oil and gas and mining sectors in the FTSE 100 which benefited from a spike in commodity prices.

Gearing

Gearing started the year at 8.8% and ended it at 11.2%. 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% which were issued in February 2022, and £85 million short-term bank borrowings. As markets fell, the use of gearing was a negative contributor to performance in the year. Gearing, however, has made a significant positive contribution to investment performance over the 19 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 %
Serica Energy	+131.3	+0.6
Petropavlosk1	-93.7	+0.6
Trustpilot1	-70.8	+0.5
Cineworld1	-72.2	+0.5
Ultra Electronics	+58.4	+0.5

1 Not owned by the Company

Serica Energy is a North Sea oil and gas producer. After significant acquisitions in 2017 the company accounts for around 5% of total UK gas production. The company has benefited from the significant rise in gas prices in the last year. Even though the company will be subject to the new windfall tax on North Sea operators it is generating significant cashflow and has a very strong balance sheet. This will allow Serica the opportunity to make further value-enhancing acquisitions.

Petropavlosk is a Russian gold explorer and producer. The Ukrainian conflict severely constrained the company's ability to trade and finance its borrowings. The Company did not own a position in this stock.

Trustpilot provides a digital platform for consumer insights and reviews. The shares have declined as the market has rotated away from growth companies in addition to the company guiding to increased investment and a consequent delay in reaching profitability. The Company did not own a position in this stock.

Cineworld is an international cinema operator. The company has significant financial liabilities and, with cinema box office receipts still well below pre-pandemic levels, the business is failing to generate any free cashflow. Its financial position appears very tenuous. The Company did not own a position in this stock.

Ultra Electronics is a supplier of electronic equipment and systems which are primarily used for defence and security applications globally. The company has a unique set of products with high levels of intellectual property in the marine, aerospace and communications sectors. During the year, the company received a bid approach from Cobham Limited,  which is ultimately controlled by Advent International, a private equity vehicle. The deal is currently going through a review by the UK Government and conclusion of the transaction is expected in 2022.

Principal detractors	12-month return %	Relative contribution %
Energean1	+73.4	-0.8
Future	-30.2	-0.6
Team17	-37.1	-0.6
Bellway	-31.6	-0.6
Gamma Communications	-39.4	-0.6

1 Not owned by the Company

Energean is an oil and gas producer and developer with particular focus in the Mediterranean. The company benefited from a rise in the gas price and continued progress in its large offshore Israeli development. The Company did not own a position in this stock.

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 fallen in the last year, even though management has upgraded their earnings expectations on a number of occasions, as growth companies have de-rated and the market has become bearish on the outlook for digital advertising and e-commerce spend.

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 expands. With a balance sheet in a net cash position, the company has made a number of acquisitions of complementary assets. The decline in the share price in the last year was mostly due to the de-rating of growth companies and some small pressure on profitability from wage inflation.

Bellway is a national UK housebuilder. The housing market has remained very robust in the last year and demand for new houses is strong. House price inflation has offset materials and labour cost increases and margins have improved. 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 requirement for Bellway to take a large provision to cover the cost of remediating all fire safety deficiencies on buildings it has constructed over 11 metres high in the last 30 years. Additionally, the housebuilding sector has seen reduced investor confidence due to rising interest rates and potential economic slowdown.

Gamma Communications provides voice, data, mobile and internet-based telecoms to small and medium-sized enterprises in the UK and Europe. The company is focused on selling cloud-based telephony solutions, a market which is rapidly growing as users switch to more flexible services. The company has been highly successful with this approach in the UK and has recently expanded through acquisitions in Germany, Netherlands and Spain to replicate this strategy. We expect this positive growth to continue both organically and through further acquisitions in Europe. The share price decline in the year under review is due to the wider market de-rating of growth companies.

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:

Harworth is a brownfield land developer. Its sites are focused in the Midlands and North of England and around half the portfolio comes from ex-British Coal sites. The core skills of the business are in assembling land, undertaking remediation and achieving planning success. Principal end markets are industrial and logistics sectors and land for housebuilders, all of which are currently seeing strong demand. The company has an objective to double net asset value in the next 5 to 7 years and has made a strong start to achieving this goal.

Qinetiq is an engineering, research and development services company for the defence industry. The company was formed out of the Ministry of Defence in 2001 and has operations in the UK, US, Germany and Australia. Following the invasion of Ukraine, the outlook for the defence industry has materially changed as nations reconsider the priority of defence budgets. Whilst this demand will take time to filter into revenues, we expect to see expanding order books as new budgets are formed. Qinetiq should be a beneficiary of this market environment and with its net cash balance sheet, the company is in a strong position to take advantage of this positive backdrop.

Rathbones is a private client wealth manager. It operates in a structurally growing market with drivers including wealth growth and ageing demographics leading to increasing demand for wealth management and financial advice. The sector is seeing increased interest from larger financial institutions as evidenced by the recent bid for Brewin Dolphin from Royal Bank of Canada. Rathbones' profitability is currently being depressed by elevated IT investment but margins should trend higher as this comes to an end. Growth is also likely to be supplemented by bolt-on acquisitions, an area in which Rathbones has been active in recent years.

RPS 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 and inward reflection over the last four years. Much of the required self-help improvement has been made and it is now a much more joined-up business with a refreshed management team and tighter strategic focus. The group is well placed to benefit from buoyant infrastructure, renewables and energy markets and is seeing strong growth in profitability as it works towards its medium-term margin targets. In a sector which has seen significant consolidation, the company is increasingly vulnerable to acquisition from a larger peer.

SigmaRoc is an aggregates and concrete business. Since formation in 2016, it has been expanding by buying a series of businesses with geographic focus around countries bordering the North Sea. The business is focused around local hubs serving local customers in well-structured markets with defendable positions. Management intends to continue with an acquisition focus and the recent purchase of Nordkalk has given the company the scale and cashflow to accelerate this process. With synergies extracted from acquisitions and strong end markets the company is well placed to continue to replicate its historic success.

Workspace is a provider of flexible office space in London. The group primarily caters to small and medium sized businesses which are in the early stages of growth and are looking for dynamic office solutions to cater for their changing space needs. Following the pandemic, the London office environment has changed as both employees and businesses are more receptive to a hybrid work environment. This should benefit Workspace as they are able to offer flexible office solutions through their well-located asset network. Over the medium term, we expect to see strong growth in utilisation and new asset development to lead to a positive 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 Frontier Developments, a computer games publisher and developer. The company has had a number of disappointing new title releases and earnings expectations have been revised down. The company is also under pressure from rising labour inflation. We also disposed of our holding in Knights, the legal services firm. A profit warning citing reduced staff utilisation due to Covid-19 and lower business confidence was out of kilter with its peer group and could indicate more intrinsic problems with integrating a series of acquisitions. We sold our positions in Rotork, an actuation company, and Johnson Service Group, a workwear and line rental business, as strong recoveries in both companies' share prices left them fully valued. We also sold most of 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 good level of takeover activity in the portfolio. This was consistent with the wider mid and small-cap equity market aided by heightened levels of interest from private equity. A number of takeover bids were received: for Brewin Dolphin, a private client wealth manager, from Royal Bank of Canada; for Clinigen, a pharmaceutical products and services group, from Triton Advisors: for Marshall Motors, an automotive retailer, from Constellation Automotive; for Sanne, a fund administrator, from Apex; and for Ultra Electronics, a defence equipment manufacturer, from Advent International.

Portfolio outlook

The following table shows the Company's top 10 stock positions and their active positions versus the Numis Smaller Companies Index (excluding investment companies):

Top ten positions at 31 May 2022	Holding %	Index weight %	Active weight %
Impax Asset Management	2.7	-	2.7
Oxford Instruments	2.7	1.0	1.7
Future	2.5	-	2.5
Bellway	2.3	-	2.3
OSB Group	2.3	-	2.3
Watches of Switzerland	2.1	-	2.1
Paragon Banking	2.0	0.9	1.1
Learning Technologies	1.9	-	1.9
Ultra Electronics	1.8	-	1.8
Synthomer	1.7	-	1.7

A brief description of the largest positions (excluding Future, Bellway and Ultra Electronics 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 types of funds is growing as sustainability agendas have become top priorities for governments, consumers and investors alike. Consequently, the business has seen continued rapid growth in assets under management, and we expect this to continue

as the group's strong performance track record and distribution agreements should lead to further inflows.

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. With a very strong balance sheet and a positive outlook for its end markets the company is well placed for the future.

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 has allowed OSB to grow market share and with landlord demand remaining strong, the business is poised to see further growth. The company has built a very strong capital position and, once new capital adequacy rules are in place, the company will be in a good position to return significant cash to shareholders.

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 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.

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 has allowed

Paragon to grow market share and with landlord demand remaining strong, the business is poised to see further growth.

Learning Technologies is a provider of e-learning services and learning software platforms. The company has grown strongly over the last few years through a combination of organic and acquisitive growth with the most recent acquisition, GP Strategies, providing significant opportunity to accelerate earnings growth. It operates in a growth market as corporate learning transitions from the classroom to online, a trend likely to accelerate post-Covid. With an ambitious management team and strong balance sheet, one can expect additional earnings-accretive merger and acquisition ("M&A") activity in the future.

Synthomer is a diversified chemicals group. The group has expanded through acquisition which has diversified the company's end markets and allowed for the extraction of significant financial and operational benefits. The group enjoyed extremely buoyant market conditions in its nitrile latex market as demand for gloves rapidly expanded during the pandemic. Although this demand has now cooled, the nitrile market remains an attractive long-term growth opportunity.

As at 31 May 2022, the portfolio was weighted by company size as follows :

	Weighting %
	31 May 2022	31 May 2021
FTSE 100	1.9	1.6
FTSE 250	63.5	63.0
FTSE Small Cap	16.5	13.4
FTSE AIM	29.3	30.8
Gearing	(11.2)	(8.8)

Market outlook

Just as the impact of the Covid-19 pandemic on the global economy was starting to abate, the world is faced with a new crisis. The conflict between Russia and Ukraine has dramatically shifted the balance of global geopolitics. In the short term, this has led to a significant jump in oil and other commodity prices, sanctions on the Russian economy and a humanitarian crisis in Ukraine. The longer-term implications are probably as material, with the isolation of Russia as a pariah state, a stronger, more unified Europe and NATO, materially higher defence spending and an urgent need to reduce European dependence on Russian oil and gas supplies. This has exacerbated inflation, added to the burden on government spending, dampened animal spirits and hurt economic growth.

With inflation pointers continuing to remain elevated against both official targets and market forecasts, central banks, led by the Federal Reserve, have become increasingly hawkish. The market is now forecasting further significant rises in interest rates globally and a move from quantitative easing to tightening. Oscillating confidence levels in central bankers' willingness and ability to strike the right balance between containing inflation and supporting economic growth is driving heightened levels of uncertainty and volatility in global equity markets.

The rapid rise of inflation driven particularly by energy prices but also by a wider number of other components is putting pressure on consumers. Although the labour market is strong and wages are rising, real net disposable income is falling and consumer confidence is low. Higher energy prices particularly impact lower income households, prompting the UK Government to bring in measures to help this socio-economic

group. Sectors exposed to consumer spending are likely to face tougher trading as we move through 2022 and into 2023.

In the corporate sector, conditions are intrinsically stronger than they were during the financial crisis of 2008-2009. In particular, balance sheets are more robust. Dividends are recovering strongly and we are seeing an increasing number of companies buying back their own stock.

We saw a noticeable pick-up in corporate activity last year. However, after an active 2021, the initial public offering ("IPO") market has become considerably quieter as equity market confidence has diminished. M&A activity has remained robust as private equity in particular looks to exploit opportunities thrown up by Covid and the recent equity market pull-back. 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 were sharply down in 2020 although we have seen a sharp recovery in 2021. We think it is likely to continue into 2022, although a weakening economic environment is likely to dampen expectations.

Although uncertainty remains around short-term economic conditions, we think that the portfolio is well positioned to deal with the likely issues this will create. 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. However, our portfolio companies have performed robustly, 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 2022

Company	Principal activities	Valuation £'000	Portfolio %
Impax Asset Management1	SRI investment management company	24,108	2.70
Oxford Instruments	Advanced instrumentation equipment	23,696	2.66
Future	Specialist internet, website and magazine company	22,759	2.55
Bellway	Housebuilder	20,790	2.33
OSB Group	Buy-to-let mortgage provider	20,261	2.27
Watches of Switzerland	Luxury watch retailer	18,806	2.11
Paragon Banking	Buy-to-let mortgage provider	17,877	2.00
Learning Technologies1	E-learning	16,695	1.87
Ultra Electronics	Defence and aerospace products	15,714	1.76
Synthomer	Speciality chemicals	15,425	1.73
10 largest		196,131	21.98
Team171	Games software developer	15,353	1.72
Euromoney Institutional Investor	B2B Information	15,225	1.71
Mitchells & Butlers	Hospitality operator	15,155	1.70
Balfour Beatty	International contractor	15,103	1.69
RWS1	Patent translation services	14,979	1.68
GB Group1	Data intelligence services	14,317	1.60
Savills	Property transactional consulting services	13,665	1.53
Computacenter	IT reseller	13,314	1.49
Gamma Communications1	Telecommunication	13,080	1.47
Renishaw	Precision measuring and calibration equipment	13,005	1.46
20 largest		339,327	38.03
Vesuvius	Ceramic engineering	12,877	1.44
Ascential	Exhibition organiser and data services	12,432	1.39
Serco	Outsourcing services	12,334	1.38
Chemring	Technology products and services	12,191	1.37
Softcat	Software reseller	12,150	1.36
TI Fluid Systems	Automotive supplier	11,823	1.32
Volution	Producer of ventilation products	11,470	1.29
Alpha Financial Markets1	Investment management consultancy	11,469	1.29
Serica Energy1	Oil and gas exploration and production	10,701	1.20
Just Group	Enhanced annuity provider	10,677	1.20
30 largest		457,451	51.27
Midwich1	Audio-visual equipment distributor	10,325	1.16
Spectris	Electronic control and process instrumentation	10,258	1.15
Next Fifteen Communications1	PR and media services	10,241	1.15
Vitec	Broadcast and camera systems	10,067	1.13
CLS	Real estate investment and services	9,804	1.10
Tyman	Building products	9,792	1.10
Bytes Technology	Software reseller	9,553	1.07
Wickes	DIY retailer	9,475	1.06
Hunting	Oil equipment and services	9,384	1.05
IntegraFin	B2B financial platform	9,331	1.05
40 largest		555,681	62.29
Victrex	Speciality Chemicals	9,188	1.03
Redde Northgate	Commercial vehicle hire	8,935	1.00
Crest Nicholson	Housebuilder	8,867	0.99
Bodycote	Engineering group	8,755	0.98
Foresight Group	Specialist fund manager	8,460	0.95
Moonpig	Online card and gift retailer	8,398	0.94
Inspecs1	Eyewear maker and designer	8,288	0.93
Restore1	Office service provider	8,213	0.92
Capricorn Energy	Oil and gas exploration and production	8,153	0.91
Auction Technology	Online auction software provider	8,090	0.91
50 largest		641,028	71.85
Liontrust Asset Management	Specialist fund management	8,062	0.90
Genuit	Building products	7,829	0.88
DFS	Furniture retailer	7,675	0.86
Rathbones	Private client wealth manager	7,655	0.86
XP Power	Electrical power products	7,626	0.85
Hollywood Bowl Group	Ten pin bowling operator	7,332	0.82
Alliance Pharma1	Pharmaceutical products	7,319	0.82
Moneysupermarket.Com	Price comparison website	6,929	0.78
Helical	Office property investor and developer	6,626	0.74
Qinetiq	Defence services	6,410	0.72
60 largest		714,491	80.08
Luceco	Electrical products	5,631	0.63
Harworth	Urban regeneration and property investment	5,591	0.62
Tribal Group1	Educational support services and software	5,512	0.62
Howden Joinery	Kitchen manufacturer and retailer	5,456	0.61
SThree	Recruitment company	5,450	0.61
Gym Group	Gym operator	5,427	0.61
Smart Metering Systems1	Energy smart meters	5,357	0.60
Stelrad Group	Radiator manufacturer	5,291	0.59
Gresham House1	Specialist fund manager	5,280	0.59
Avon Protection	Defence products	5,247	0.59
70 largest		768,733	86.15
Dechra Pharmaceuticals	Veterinary pharmaceuticals	5,082	0.57
Harbour Energy	Oil and gas exploration and production	4,991	0.56
SigmaRoc1	Aggregates supplier	4,949	0.55
Workspace Group	Real estate investment and services	4,784	0.54
RPS	Engineering consultant	4,638	0.52
Alphawave IP	Semiconductor IP	4,522	0.51
Bridgepoint Group	Private equity fund manager	4,427	0.50
Hyve	Exhibition and conference organiser	4,188	0.47
Eurocell	Building products	4,120	0.46
Advanced Medical Solutions1	Medical supplies manufacturer	4,063	0.45
80 largest		814,497	91.28
Burford Capital1	Litigation Finance	3,993	0.45
Empiric	Student accommodation	3,984	0.45
Grainger	Residential property investor	3,706	0.42
EMIS1	Healthcare software	3,705	0.42
Safestyle1	Window and door retailer	3,699	0.41
Pebble Group1	Promotional products and services	3,685	0.41
Halfords Group	Cycling and automotive products retailer	3,587	0.40
Headlam	Floor coverings distributor	3,440	0.38
Pagegroup	Recruitment company	3,326	0.37
Benchmark Holdings1	Pharmaceuticals and  Biotechnology	3,287	0.37
90 largest		850,909	95.36
Young & Co's share class A1	Pub operator	3,266	0.37
Aptitude Software	Software retailer	3,217	0.36
RM	Education software and services	3,184	0.36
Access Intelligence1	Marketing services software provider	3,121	0.35
Volex1	Power products	3,106	0.35
Restaurant	Restaurant and pub operator	2,955	0.33
AB Dynamics1	Automotive testing and measurement products	2,900	0.32
Blancco Technology1	Data erasure software	2,828	0.31
De La Rue	Currency and authentication products	2,650	0.30
Young & Co's share class NV1	Pub operator	2,646	0.30
100 largest		880,782	98.71

Severfield	Industrial engineering	2,326	0.26
Devolver Digital1	Games software developer	2,264	0.25
Fisher (James) & Sons	Marine, oil and gas specialised services provider	2,256	0.25
Gooch & Housego1	Optical components manufacturer	1,811	0.20
Thruvision1	Detection technology	1,723	0.19
Joules1	Clothing retailer	1,235	0.14
Total Equity Investments		892,397	100.00

There were no convertible or fixed interest securities at 31 May 2022 (2021: None)

¹ Quoted on the Alternative Investment Market

PRINCIPAL RISKS AND UNCERTAINTIES

The Board, with the assistance of Janus Henderson as 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 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 Board regularly considers these and it does not consider the principal risks to have changed during the course of the reporting period and up to the date of the report. The impact of Brexit is now no longer considered as a separate legal/regulatory risk, but incorporated within the wider review of the potential impact of political change or emergencies on the Company's investments or operations.

Throughout the year the Board has considered the impact of macroeconomic events, notably Covid-19 and the broader ramifications of the Russian invasion of Ukraine. Although the Company invests entirely in securities that are quoted on recognised markets, share prices may move rapidly and it may not be possible to realise an investment at the Manager's assessment of its value. The companies in which investments are made may operate unsuccessfully, or fail entirely, such that shareholder value is lost.

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)	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, who attends all board meetings, 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 whom would escalate directly to the Board in the event of matters of concern regarding political or economic events. 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.
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	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 Securities Services. 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 a rapidly changing macroeconomic environment, exacerbated by the Russian invasion of Ukraine, which rapidly became a fully developed risk, and the heightened alert of major cybersecurity attacks on the national and international infrastructure.

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.

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 in the Annual 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 its 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 on the Company's NAV and share price.

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 and heightened macroeconomic uncertainty following Russia's invasion of Ukraine, and considers that these events have highlighted the advantages of holding an investment trust. The Board does not believe that they 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.

As explained in the Chair's Statement in the Annual Report, the triennial continuation vote is to be held at the AGM on 30 September 2022 and the Board recommends to shareholders that they support the continuation of the Company. The continuation vote at the 2019 AGM was passed with support of 99.7% of votes cast and the Board expects shareholders to support continuation at the 2022 AGM.

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 2027.

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 Chairman's Statement and the Fund Manager's 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.

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, for which there were no outstanding amounts payable at the year end. The directors did not claim any expenses during the years to 31 May 2022 or 31 May 2021. 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 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 2022			Year ended 31 May 2021
Notes		Revenue return £'000	Capital return £'000	Total £'000	Revenue return £'000	Capital return £'000	Total £'000
2	Investment income	20,648	-	20,648	12,269	-	12,269
3	Other income	2	-	2	-	-	-
	(Losses)/gains on investments held at fair value through profit or loss	-	(187,266)	(187,266)	-	365,577	365,577
	Currency losses	-	(1)	(1)	-	-	-
	Total income/(loss)	20,650	(187,267)	(166,617)	12,269	365,577	377,846
	Expenses
4	Management and performance fees	(1,004)	(2,343)	(3,347)	(749)	(6,284)	(7,033)
	Other expenses	(728)	-	(728)	(726)	-	(726)
	Profit/(loss) before finance costs and taxation	18,918	(189,610)	(170,692)	10,794	359,293	370,087
	Finance costs	(562)	(1,310)	(1,872)	(427)	(995)	(1,422)
	Profit/(loss) before taxation	18,356	(190,920)	(172,564)	10,367	358,298	368,665
	Taxation	(1)	-	(1)	(14)	-	(14)
	Profit/(loss) for the year and total comprehensive income	18,355	(190,920)	(172,565)	10,353	358,298	368,651
5	Earnings/(loss) per ordinary share - basic and diluted	24.57p	(255.58p)	(231.01p)	13.86p	479.64p	493.50p

The total columns of this statement represent the Statement of Comprehensive Income, prepared in accordance with 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

		Year ended 31 May 2022
		Retained earnings
Notes		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
		Year ended 31 May 2021
		Retained earnings
Notes		Share capital £'000	Capital redemption reserve £'000	Capital reserves £'000	Revenue reserve £'000	Total equity £'000
	Total equity at 1 June 2020	18,676	26,745	577,009	19,366	641,796
	Total comprehensive income: Profit for the year	-	-	358,298	10,353	368,651
	Transactions with owners, recorded directly to equity:
6	Ordinary dividends paid	-	-	-	(17,549)	(17,549)
	Total equity at 31 May 2021	18,676	26,745	935,307	12,170	992,898

BALANCE SHEET

Notes			At 31 May 2022 £'000	At 31 May 2021 £'000
	Non-current assets
	Investments held at fair value through profit or loss		892,397	1,080,358
	Current assets
	Receivables		4,229	4,987
	Tax recoverable		-	9
	Cash and cash equivalents		8,991	2,962
			13,220	7,958
	Total assets		905,617	1,088,316
	Current liabilities
	Payables		(2,990)	(5,726)
	Bank loans		(50,268)	(59,860)
			(53,258)	(65,586)
	Total assets less current liabilities		852,359	1,022,730
	Non-current liabilities
	Financial liabilities		(49,760)	(29,832)
	Net assets		802,599	992,898
	Equity attributable to equity shareholders
7	Share capital		18,676	18,676
	Capital redemption reserve		26,745	26,745
	Retained earnings:
	Capital reserves		744,044	935,307
	Revenue reserve		13,134	12,170
	Total equity		802,599	992,898
8	Net asset value per ordinary share		1,074.4p	1,329.1p

STATEMENT OF CASH FLOWS

	Year ended
	31 May 2022 £'000	31 May 2021 £'000
Operating activities
(Loss)/gains before taxation	(172,564)	368,665
Add back interest payable	1,872	1,422
Losses/(gains) on investments held at fair value through profit or loss	187,266	(365,577)
Purchases of investments	(165,877)	(157,850)
Sales of investments	166,572	155,399
(Increase)/decrease in receivables	(1)	20
Decrease/(increase) in amounts due from brokers	1,179	(340)
Increase in accrued income	(412)	(1,546)
(Decrease)/increase in payables	(4,545)	4,743
Increase/(decrease) in amounts due to brokers	1,607	(2,527)
Net cash inflow from operating activities before interest and taxation1	15,097	2,409
Interest paid	(1,659)	(1,392)
Net cash inflow from operating activities	13,438	1,017
Financing activities
Equity dividends paid	(17,734)	(17,549)
(Repayment)/drawdown of bank loans	(9,592)	14,753
Issue of unsecured private placement notes	20,000	-
Direct expenses on issue of unsecured private placement notes	(82)	-
Net cash outflow from financing activities	(7,408)	(2,796)
Increase/(decrease) in cash and cash equivalents	6,030	(1,779)
Currency losses	(1)	-
Cash and cash equivalents at the start of the year	2,962	4,741
Cash and cash equivalents at the end of the year	8,991	2,962

1 In accordance with IAS 7.31, cash inflow from dividends was £20,243,000 (2021: £10,715,000) and cash inflow from interest was £2,000 (2021: £nil)

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 2022 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 below. 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. Going concern The assets of the Company consist of securities that are readily realisable and, accordingly, the directors believe that the Company has adequate resources to continue in operational existence for at least twelve months from the date of approval of the financial statements. The directors have also considered the impact of Covid-19 and the risks arising from the wider ramifications of the conflict between Russia and Ukraine, including cash flow forecasting, a review of covenant compliance including the headroom above the most restrictive covenants and an assessment of the liquidity of the portfolio. They have concluded that they are able to meet their financial obligations, including the repayment of the bank loan, as they fall due for a period of at least twelve months from the date of issuance. Having assessed these factors, the principal risks and other matters discussed in connection with the Viability Statement in the Annual Report, the Board has 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 last put to the annual general meeting ("AGM") held on 4 October 2019 and passed by a substantial majority of the shareholders. The next continuation vote will take place at the AGM on 30 September 2022. The Board has discussed the upcoming vote and asked for feedback at meetings with shareholders. Following full consideration, the Board has concluded that the Company should continue.
2	Investment income
		2022 £'000	2021 £'000
	Income from companies listed or quoted in the United Kingdom:
	Dividends	18,939	11,669
	Special dividends	1,577	351
	Property income distributions	132	249
	Total investment income	20,648	12,269
3	Other income
		2022 £'000	2021 £'000
	Bank and other interest	2	-
		2	-

4	Management and performance fees
		2022			2021
		Revenue return £'000	Capital return £'000	Total return £'000	Revenue return £'000		Capital return £'000		Total return £'000
	Management fee	1,004	2,343	3,347	749		1,747		2,496
	Performance fee	-	-	-	-		4,537		4,537
		1,004	2,343	3,347	749		6,284		7,033
	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 £172,565,000 (2021: net gain of £368,651,000) and on 74,701,796 (2021: 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:
						2022 £'000		2021 £'000
	Net revenue profit					18,355		10,353
	Net capital (loss)/profit					(190,920)		358,298
	Net total (loss)/profit					(172,565)		368,651
	Weighted average number of ordinary shares in issue during the year					74,701,796		74,701,796
						2022		2021
	Revenue earnings per ordinary share					24.57p		13.86p
	Capital (loss)/earnings per ordinary share					(255.58p)		479.64p
	Total (loss)/earnings per ordinary share					(231.01p)		493.50p
	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	2022 £'000	2021 £'000
	Final dividend: 16.75 p (2021: 16.5p) for the year ended 31 May 2021	26 August 2021	11 October 2021	12,513	12,326
	Interim dividend: 7.0 p (2021: 7.0p) for the year ended 31 May 2022	10 February 2022	7 March 2022	5,229	5,229
	Unclaimed dividends over 12 years old			(8)	(6)
				17,734	17,549

Subject to approval at the AGM, the proposed final dividend of 17.0p per ordinary share will be paid on 10 October 2022 to shareholders on the register of members at the close of business on 26 August 2022. The shares will be quoted ex-dividend on 25 August 2022. The proposed final dividend for the year ended 31 May 2022 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:

			2022 £'000	2021 £'000
	Revenue available for distribution by way of dividends for the year		18,355	10,353
	Interim dividend for the year ended 31 May 2022: 7.00p (2021: 7.00p) per ordinary share		(5,229)	(5,229)
	Final dividend for the year ended 31 May 2021: 16.75p (based on 74,701,796 shares in issue at 3 August 2021)		-	(12,513)
	Proposed 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)	-
	Transfer to/(from) reserves		427	(7,389)
7	Share capital
			2022 £'000	2021 £'000
	Allotted, issued, authorised and fully paid:
	74,701,796 ordinary shares of 25p each (2021: 74,701,796)		18,676	18,676
	During the year the Company made no purchases of its own issued ordinary shares (2021: 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 £802,599,000 (2021: £992,898,000) and on the 74,701,796 ordinary shares in issue at 31 May 2022 (2021: 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:
		2022 £'000		2021 £'000
	Net assets attributable to the ordinary shares at 1 June	992,898		641,796
	Net (losses)/gains for the year	(172,565)		368,651
	Ordinary dividends paid in the year	(17,734)		(17,549)
	Net assets attributable to the ordinary shares at 31 May	802,599		992,898
9	2022 Financial information
	The figures and financial information for the year ended 31 May 2022 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 2022 have been audited but have not yet been delivered to the Registrar of Companies. The Independent Auditor's Report on the 2022 annual financial statements was unqualified, did not include a reference to any matter to which the auditor drew attention without qualifying the report, and did not contain any statements under s498(2) or s498(3) Companies Act 2006.

10

2021 Financial information

The figures and financial information for the year ended 31 May 2021 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, included the unqualified Independent Auditor's Report on the 2021 annual financial statements, did not include a reference to any matter to which the auditors drew attention without qualifying the report, and did 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 2022 will be sent to shareholders in August 2022 and will be available on www.hendersonsmallercompanies.com. Copies will be available thereafter 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 Friday, 30 September 2022. 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 sent with 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), Alexandra Mackesy (Audit and Risk Committee Chair), David Lamb (Senior Independent Director), Kevin Carter, Victoria Sant and Michael Warren.

The Corporate Secretary is Janus Henderson Secretarial Services UK Limited, represented by Johana Woodruff, ACG.

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

 

 

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