Half Year Results

Henderson Smaller Cos Inv Tst PLC 21 January 2008 Page 1 of 12 21 January 2008 THE HENDERSON SMALLER COMPANIES INVESTMENT TRUST PLC Unaudited results for the half year ended 30 November 2007 Interim Management Report Results and performance The results for the half year ended 30 November 2007 are disappointing, with the net asset value per share, including half year adjustments, falling by 16.8% from 392.1p to 326.2p. By comparison, the total return of the benchmark index was a negative 15.0%. The Manager's attribution of performance for the period shows that the underperformance was attributable to the gearing; stock selection made a positive contribution to the total return, as did share buy-backs. The performance over the five year period ended 30 November 2007 remains strong, showing substantial outperformance of the benchmark index. The increase in the revenue earnings per share reflects the exceptional write-back of VAT on management fees. Refund of VAT on management fees HM Revenue & Customs has now accepted the judgement of the European Court of Justice, made in response to the test case initiated by the Association of Investment Companies (the 'AIC'). As a result, investment management fees paid by investment trust companies are now exempt from VAT and in due course the Company will receive, via the Manager, refunds of some of the VAT borne in past years and up to September 2007. To the extent that recovery is certain, the Company is required by the accounting rules to recognise the amount in the Income Statement and Balance Sheet. This has been done by including the amount that the Company is certain of receiving in due course, £1,749,000, as a negative cost, allocated between capital and revenue in the proportions in which it was originally expensed. Eventually the Company may recover more of the VAT borne in past years but there are currently many uncertainties and the timetable to conclusion of this issue will be a long one. Note 2 to the financial statements explains the position in more detail. Page 2 of 12 THE HENDERSON SMALLER COMPANIES INVESTMENT TRUST PLC Unaudited results for the half year ended 30 November 2007 +*Interim Management Report, continued Share buy-backs During the half year a total of 2.8 million shares were bought back and cancelled, representing 3.2% of the issued share capital at 31 May 2007. The Board will continue to buy back shares when to do so helps to maintain an orderly market and is in the interests of the shareholders generally. Risks and uncertainties The principal risks and uncertainties facing the Company relate to its activity of investing in the shares of smaller companies. 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 Company is exposed to gearing risk in that its borrowings, £20 million of which are fixed debt, increase the shareholders' exposure to equities. The Company is also exposed to the operational risk that one or more of its suppliers may not provide the required level of service. Investment activity and outlook The 60 largest companies in the portfolio are listed on page 11. Most of the corporate news from the investments has remained good and the reporting season has been generally positive, although by definition company results are a backwards looking indicator. The stockmarket's strong start to the year evaporated in the summer as the 'credit crunch' took hold and confidence over the prospects for the global economy steadily worsened. Markets have become increasingly volatile in recent months, with individual share prices prone to large swings. There has been a move by investors away from smaller and mid cap companies to larger companies and more defensive investment areas. The short-term outlook is uncertain and investor confidence is low. However, real pockets of value are starting to appear, even though corporate profitability will be under pressure in 2008. Careful stock selection will be of paramount importance in the coming year. Page 3 of 12 THE HENDERSON SMALLER COMPANIES INVESTMENT TRUST PLC Unaudited results for the half year ended 30 November 2007 Consolidated Income Statement for the half year ended 30 November 2007 (Unaudited) (Unaudited) (Audited) Half year ended Half year ended Year ended 30 November 2007 30 November 2006 31 May 2007 Revenue Capital Revenue Capital Revenue Capital return return Total return return Total return return Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Investment income 3,069 - 3,069 3,202 - 3,202 6,654 - 6,654 Other income 60 - 60 99 - 99 148 - 148 (Losses)/gains on investments held at fair value through profit - (58,408) (58,408) - 38,181 38,181 - 97,162 97,162 or loss ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- --------- Total income 3,129 (58,408) (55,279) 3,301 38,181 41,482 6,802 97,162 103,964 Expenses Management fees (666) - (666) (660) - (660) (1,342) - (1,342) Provision for performance fee - - - - (1,167) (1,167) - (2,350) (2,350) Write-back of VAT (note 2) 1,312 437 1,749 - - - - - - Other expenses (197) - (197) (182) - (182) (371) - (371) --------- ---------- ---------- --------- ---------- ---------- ---------- ---------- ---------- Profit/(loss) before finance costs and taxation 3,578 (57,971) (54,393) 2,459 37,014 39,473 5,089 94,812 99,901 Finance costs (1,670) - (1,670) (1,552) - (1,552) (3,133) - (3,133) --------- -------- -------- --------- -------- -------- --------- --------- --------- Profit/(loss) before taxation 1,908 (57,971) (56,063) 907 37,014 37,921 1,956 94,812 96,768 Taxation - - - - - - - - - --------- ---------- ---------- --------- ---------- ---------- --------- --------- --------- Profit/(loss) for the period 1,908 (57,971) (56,063) 907 37,014 37,921 1,956 94,812 96,768 ========= ========== ========== ========= ========== ========== ========= ========= ========= Earnings/(loss) per ordinary 2.28p (69.26)p (66.98)p 0.94p 38.40p 39.34p 2.12p 102.59p 104.71p share (note 3) ========= ========== ========== ========= ========== ========== ========= ========= ========= The total column of this statement represents the Group's Income Statement, prepared in accordance with IFRS. The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies. All items in the above statement derive from continuing operations. All income is attributable to the equity holders of The Henderson Smaller Companies Investment Trust plc, the parent company. There are no minority interests. Page 4 of 12 THE HENDERSON SMALLER COMPANIES INVESTMENT TRUST PLC Unaudited results for the half year ended 30 November 2007 Consolidated Statement of Changes in Equity for the half year ended 30 November 2007 (Unaudited) Half year ended 30 November 2007 Ordinary Capital Other share redemption capital Revenue capital reserve reserves reserve Total £'000 £'000 £'000 £'000 £'000 Balance at 31 May 2007 21,657 23,759 287,650 6,634 339,700 Buy-backs of ordinary shares (689) 689 (8,597) - (8,597) (Loss)/profit for the period after taxation - - (57,971) 1,908 (56,063) Ordinary dividend paid - - - (1,433) (1,433) ---------- ---------- ---------- ---------- ---------- Balance at 30 November 2007 20,968 24,448 221,082 7,109 273,607 ========== ========== ========== ========== ========== (Unaudited) Half year ended 30 November 2006 Ordinary Capital Other share redemption capital Revenue capital reserve reserves reserve Total £'000 £'000 £'000 £'000 £'000 Balance at 31 May 2006 25,047 20,369 229,525 6,012 280,953 Buy-backs of ordinary shares (2,716) 2,716 (28,109) - (28,109) Profit for the period after taxation - - 37,014 907 37,921 Ordinary dividend paid - - - (1,337) (1,337) ---------- ---------- ---------- ---------- ---------- Balance at 30 November 2006 22,331 23,085 238,430 5,582 289,428 ========== ========== ========== ========== ========== (Audited) Year ended 31 May 2007 Ordinary Capital Other share redemption capital Revenue capital reserve reserves reserve Total £'000 £'000 £'000 £'000 £'000 Balance at 31 May 2006 25,047 20,369 229,525 6,012 280,953 Buy-backs of ordinary shares (3,390) 3,390 (36,687) - (36,687) Profit for the year after taxation - - 94,812 1,956 96,768 Ordinary dividend paid - - - (1,334) (1,334) ---------- ---------- ---------- ---------- ---------- Balance at 31 May 2007 21,657 23,759 287,650 6,634 339,700 ========== ========== ========== ========== ========== Page 5 of 12 THE HENDERSON SMALLER COMPANIES INVESTMENT TRUST PLC Unaudited results for the half year ended 30 November 2007 Consolidated Balance Sheet at 30 November 2007 (Unaudited) 30 (Unaudited) (Audited) November 2007 30 November 2006 31 May 2007 £'000 £'000 £'000 Non-current assets Investments held at fair value through profit or loss 307,619 331,409 380,616 ----------- ----------- ----------- Current assets Sales for future settlement 553 1,027 474 Taxation recoverable 12 12 12 Prepayments and accrued income 479 549 1,441 Cash and cash equivalents 362 614 1,360 Other debtors 1,754 7 5 ---------- ---------- ---------- 3,160 2,209 3,292 ---------- ---------- ---------- Total assets 310,779 333,618 383,908 ---------- ---------- ---------- Current liabilities Purchases for future settlement (379) (969) (1,531) Accruals (269) (1,712) (2,622) Bank loans and overdrafts (16,520) (21,500) (20,046) ---------- ---------- ---------- (17,168) (24,181) (24,199) ---------- ---------- ---------- Total assets less current liabilities 293,611 309,437 359,709 Non-current liabilities (20,004) (20,009) (20,009) ---------- ----------- ----------- Net assets 273,607 289,428 339,700 ========== =========== =========== Equity attributable to equity shareholders Called up share capital 20,968 22,331 21,657 Capital redemption reserve 24,448 23,085 23,759 Retained earnings: Other capital reserves 221,082 238,430 287,650 Revenue reserve 7,109 5,582 6,634 ---------- ---------- ---------- Total equity 273,607 289,428 339,700 ========== =========== =========== Net asset value per ordinary share (note 6) 326.2p 324.0p 392.1p ========== =========== =========== Page 6 of 12 THE HENDERSON SMALLER COMPANIES INVESTMENT TRUST PLC Unaudited results for the half year ended 30 November 2007 Consolidated Cash Flow Statement for the half year ended 30 November 2007 (Unaudited) (Unaudited) (Audited) Half year ended Half year ended Year 30 November 2007 30 November 2006 ended 31 May 2007 £'000 £'000 £'000 Net cash inflow from operating activities (note 7) 12,541 26,240 37,309 ---------- ---------- ---------- Net cash inflow before use of financing 12,541 26,240 37,309 Net cash outflow from financing activities (13,539) (26,582) (36,903) ---------- ---------- ----------- Net (decrease)/increase in cash and cash equivalents (998) (342) 406 Cash and cash equivalents at the start of the period 1,360 958 958 Exchange movements - (2) (4) --------- --------- --------- Cash and cash equivalents at the period end 362 614 1,360 ========= ========= ========= Page 7 of 12 THE HENDERSON SMALLER COMPANIES INVESTMENT TRUST PLC Unaudited results for the half year ended 30 November 2007 Notes to the Finanical Statements 1. Accounting policies - basis of preparation The condensed set of financial statements has been prepared using the same accounting policies as are set out in the Company's Report and Accounts for the year ended 31 May 2007 and in accordance with IAS 34. The condensed set of financial statements has not been either audited or reviewed by the Company's auditors. 2. VAT on management fees In 2004 the Association of Investment Companies (the 'AIC'), together with JPMorgan Claverhouse Investment Trust plc, launched a case against HM Revenue & Customs ('HMRC') to challenge whether Value Added Tax ('VAT') should be charged on fees paid for management services provided to investment trust companies. On 28 June 2007 the European Court of Justice delivered its judgement on the case in favour of the AIC. Since then HMRC has accepted that the provision of investment management services to investment trust companies is VAT exempt and has acknowledged its liability to pay claims in respect of VAT borne by investment companies. The Manager (Henderson Global Investors Limited) will now be able to reclaim from HMRC the amount of VAT charged to the Company in respect of investment management services from 1 October 2000 to 30 September 2007, to the extent that such VAT was paid by the Manager to HMRC. VAT has not been applied to investment management fees invoiced since September 2007. Accordingly, VAT borne by the Company on investment management fees invoiced in the period from 1 October 2000 to 30 September 2007 has been written back, in accordance with an agreement reached between the Manager and the Company. An amount of £1,749,000 has been recognised, reflecting the extent to which recovery by the Company is considered to be certain. The write-back has been allocated between revenue return and capital return according to the allocation of the amounts originally paid. The Company may be able to recover further amounts of the VAT charged on investment management fees back to 1990, in particular in respect of the period from 1 January 1990 to 4 December 1996 (and subject to the outcome of a different case currently before the UK courts). However, the Board considers that currently there are too many uncertainties for any reasonable estimate of the amounts potentially recoverable to be calculated. The Company will receive from the Manager any interest paid by HMRC on the amounts eventually recovered. Page 8 of 12 THE HENDERSON SMALLER COMPANIES INVESTMENT TRUST PLC Unaudited results for the half year ended 30 November 2007 Notes to the Financial Statements, continued 3. Earnings per ordinary share The earnings per ordinary share figure is based on the net loss for the half year of £56,063,000 (half year ended 30 November 2006: gain of £37,921,000; year ended 31 May 2007: gain of £96,768,000) and on 83,696,713 (half year ended 30 November 2006: 96,379,521; year ended 31 May 2007: 92,418,217) ordinary shares, being the weighted average number of ordinary shares in issue during the period. The earnings per ordinary share figure detailed above can be further analysed between revenue and capital, as below. (Unaudited) (Unaudited) (Audited) 30 November 2007 30 November 2006 31 May 2007 £'000 £'000 £'000 Net revenue profit 1,908 907 1,956 Net capital (loss)/profit (57,971) 37,014 94,812 ---------- ---------- ---------- Net total (loss)/profit (56,063) 37,921 96,768 ========== ========== ========== Weighted average number of ordinary shares in issue during the period 83,696,713 96,379,521 92,418,217 Pence Pence Pence Revenue earnings per ordinary share 2.28 0.94 2.12 Capital (loss)/earnings per ordinary share (69.26) 38.40 102.59 --------- --------- --------- Total (loss)/earnings per ordinary share (66.98) 39.34 104.71 ========== ========== ========== Page 9 of 12 THE HENDERSON SMALLER COMPANIES INVESTMENT TRUST PLC Unaudited results for the half year ended 30 November 2007 Notes to the Financial Statements, continued 4. Dividends The Company has not declared an interim dividend (2006: nil). The final dividend of 1.70p per ordinary share, paid in respect of the year ended 31 May 2007, has been recognised as a distribution in the period. 5. Ordinary share capital At 30 November 2007 there were 83,871,030 ordinary shares in issue (30 November 2006: 89,323,030; 31 May 2007: 86,626,030). During the half year ended 30 November 2007 the Company bought 2,755,000 of its own issued ordinary shares in the market for cancellation (half year ended 30 November 2006: 10,863,252; year ended 31 May 2007: 13,560,252). The cost of the share buy-backs, including stamp duty, amounted to £8,597,000 (half year ended 30 November 2006: £28,109,000; year ended 31 May 2007: £36,687,000). 6. Net asset value per share The net asset value per ordinary share is based on the net assets attributable to equity shareholders of £273,607,000 (30 November 2006: £289,428,000; 31 May 2007: £339,700,000) and on 83,871,030 (30 November 2006: 89,323,030; 31 May 2007: 86,626,030) ordinary shares, being the number of ordinary shares in issue at the period end. 7. Reconciliation of the profit before taxation to net cash inflow from operating activities (Unaudited) (Unaudited) (Audited) Half year ended Half year ended Year ended 30 November 2007 30 November 2006 31 May 2007 £'000 £'000 £'000 (Loss)/profit before taxation (56,063) 37,921 96,768 Losses/(gains) on investments held at fair value through profit or loss 58,408 (38,181) (97,162) (Decrease)/increase in purchases for future settlement creditor (1,152) 801 1,363 (Increase)/decrease in sales for future settlement debtor (79) (59) 494 Net sales of investments 14,587 24,437 34,213 Decrease/(increase) in other receivables 962 739 (158) Increase in other debtors (1,749) - - (Decrease)/increase in accruals (2,373) 584 1,793 Taxation on investment income - (2) (2) --------- --------- --------- 12,541 26,240 37,309 ========= ========= ========= Page 10 of 12 THE HENDERSON SMALLER COMPANIES INVESTMENT TRUST PLC Unaudited results for the half year ended 30 November 2007 Notes to the Financial Statements, continued 8. Transaction costs Purchase transaction costs for the half year ended 30 November 2007 were £144,000 (half year ended 30 November 2006: £109,000; year ended 31 May 2007: £273,000). These comprise mainly stamp duty and commission. Sale transaction costs for the half year ended 30 November 2007 were £72,000 (30 November 2006: £67,000; year ended 31 May 2007: £138,000). 9. Comparative information The financial information contained in this half-yearly financial report does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The financial information for the half years ended 30 November 2007 and 30 November 2006 has not been audited. The information for the year ended 31 May 2007 has been extracted from the statutory accounts, which have been filed with the Registrar of Companies. The report of the auditors on those accounts was unqualified and contained no statement under either section 237(2) or (3) of the Companies Act 1985. 10. Financial Report for the half year ended 30 November 2007 The full half year report will be posted to shareholders in early February 2008 and copies will be available thereafter from the Secretary at the Company's Registered Office, 4 Broadgate, London EC2M 2DA. Page 11 of 12 THE HENDERSON SMALLER COMPANIES INVESTMENT TRUST PLC Unaudited results for the half year ended 30 November 2007 Notes to the Financial Statements, continued Investment Portfolio at 30 November 2007 Valuation at Valuation at 30 November 30 November 2007 % of 2007 % of £'000 portfolio £'000 portfolio W S Atkins 15,428 5.01 Grainger Trust 3,214 1.04 WSP 11,868 3.86 Big Yellow 3,203 1.04 Informa 10,422 3.39 Capital & Regional Interserve 7,792 2.53 Properties 3,187 1.04 Balfour Beatty 7,442 2.42 RPS Group 3,171 1.03 Laird 6,804 2.21 Ultra Electronic 2,970 0.96 Spectris 6,711 2.18 Babcock International 2,832 0.92 Domino Printing 6,143 2.00 Southern Cross Bellway 5,820 1.89 Healthcare 2,738 0.89 Intermediate Capital 5,430 1.77 Chemring 2,731 0.89 ---------- -------- Restaurant Group 2,725 0.89 10 largest 83,860 27.26 Meggitt 2,665 0.86 -------- ---------- 40 largest 191,164 62.13 Carillion 4,995 1.63 Aveva 2,602 0.85 VT Group 4,963 1.61 SIG 2,594 0.84 Mouchel Parkman 4,743 1.54 Dana Petroleum 2,584 0.84 Wellstream 4,502 1.46 Savills 2,451 0.80 CSR 4,423 1.44 Headlam 2,417 0.79 *Synergy Healthcare 4,409 1.43 *Playtech 2,326 0.76 BSS Group 4,114 1.34 John Wood 2,299 0.75 Enodis 4,011 1.31 Fidessa 2,249 0.73 Victrex 3,936 1.28 EAGA 2,128 0.69 Gyrus 3,760 1.22 NCC Group 2,118 0.69 --------- -------- ------------ ----------- 20 largest 127,716 41.52 50 largest 214,932 69.87 Anite 3,697 1.20 Forth Ports 2,093 0.68 Premier Oil 3,694 1.20 Euromoney Bovis Homes 3,479 1.13 Institutional 2,021 0.66 Investor Shaftesbury 3,435 1.12 Venture Productions 1,990 0.65 Charter 3,366 1.09 Croda International 1,980 0.64 Rotork 3,344 1.09 Chloride 1,942 0.63 Phoenix 3,273 1.06 Gem Diamonds 1,938 0.63 International Ferro *IBS Opensystems 1,920 0.62 Metals 3,256 1.06 Imperial Energy 1,894 0.62 Expro International 3,248 1.05 Keller 1,870 0.61 e2v Technology 3,220 1.05 Greene King 1,843 0.60 ----------- -------- ----------- ----------- 30 largest 161,728 52.57 60 largest 234,423 76.21 =========== =========== * quoted on the Alternative Investment Market Page 12 of 12 THE HENDERSON SMALLER COMPANIES INVESTMENT TRUST PLC Unaudited results for the half year ended 30 November 2007 For further information please contact: Neil Hermon The Henderson Smaller Companies Investment Trust plc Telephone: 020 7818 4351 or Theresa Wat The Henderson Smaller Companies Investment Trust plc Telephone: 020 7818 4644 or James de Sausmarez Head of Investment Trusts Henderson Global Investors Telephone: 020 7818 3349 or Sarah Gibbons-Cook Investor Relations and PR Manager Henderson Global Investors Telephone: 020 7818 3198 This information is provided by RNS The company news service from the London Stock Exchange

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