Half Yearly Report

RNS Number : 3833G

Henderson Smaller Cos Inv Tst PLC

29 January 2010

Page 1 of 13

29 January 2010

THE HENDERSON SMALLER COMPANIES INVESTMENT TRUST PLC

Financial Report for the half year ended 30 November 2009

Directors' Responsibility Statement

We confirm that to the best of our knowledge:

(a) the condensed set of financial statements has been prepared in accordance with the IAS 34;

(b) the Interim Management Report includes a fair review of the information required by Disclosure and Transparency Rules 4.2.7R (an indication of important events that have occurred during the first six months of the financial year and a description of the principal risks and uncertainties for the remaining six months of the financial year); and

(c) the Interim Management Report includes a fair review of the information required by Disclosure and Transparency Rules 4.2.8R (disclosure of related party transactions and changes therein).

By order of the Board

J Dudley Fishburn

Chairman

29 January 2010

Page 2 of 13

THE HENDERSON SMALLER COMPANIES INVESTMENT TRUST PLC

Financial Report for the half year ended 30 November 2009

Interim Management Report

Results and performance

The results for the half year ended 30 November 2009 are encouraging, with the net asset value per share rising from 202.1p to 248.1p. The net asset value total return for the period was 27.9%. By comparison, the total return of the benchmark index was 20.7%. On 9 October 2009 the Company paid both a final and a special dividend, amounting in total to 5.6p per share, in respect of the year ended 31 May 2009.

Equity markets have recovered strongly since March 2009. The shares of smaller companies have performed particularly well and are now rated in line with those of larger companies. The Manager's attribution of the performance for the period shows that the outperformance was attributable to both stock selection and to gearing; other positive factors were the further recovery of VAT on management fees (and the related interest) and share buy-backs. The attribution to stock selection reflects the fact that many of the holdings in the Company's portfolio were unduly marked down in the previous period; the strengths of the underlying businesses are now better appreciated.

The revenue earnings per share were 2.30p (2008: 2.47p); both figures reflect the exceptional write-back of VAT on management fees and the related interest.

Share buy-backs

During the half year a total of 2.3 million shares were bought back and cancelled, representing 3% of the issued share capital as at 31 May 2009. 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.

Investment activity and outlook

The 60 largest companies in the portfolio, which account for 76% of the portfolio by value, are listed on page 12. Almost all the investments were held throughout the period.

The global economic situation remains difficult but there are signs of stabilisation. Corporate profitability is proving robust, with companies cutting costs to offset lower turnover. After the strong recovery in the period under review, and into the New Year, valuations in the UK market have returned to more normal levels with the FTSE All-Share Index priced at about 13 times forward earnings. However, there remain plenty of excellent investment opportunities.

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.

Page 3 of 13

THE HENDERSON SMALLER COMPANIES INVESTMENT TRUST PLC

Financial Report for the half year ended 30 November 2009

Interim Management Report continued

Related party transactions

During the first six months of the current financial year, no transactions with related parties have taken place which have materially affected the financial position or performance of the Company during the period. Details of related party transactions are contained in the annual report and financial statements.

Going concern

The directors believe that it is appropriate to adopt the going concern basis in preparing the financial statements. The assets of the Company consist of securities that are readily realisable and, accordingly, the Company has adequate financial resources to continue in operational existence for the foreseeable future. The directors consider this to be the case, notwithstanding the continuation vote to be held at the Annual General Meeting in 2010 and every third year thereafter.

Page 4 of 13

THE HENDERSON SMALLER COMPANIES INVESTMENT TRUST PLC

Financial Report for the half year ended 30 November 2009

Consolidated Income Statement

for the half year ended 30 November 2009

	(Unaudited) Half year ended 30 November 2009			(Unaudited) Half year ended 30 November 2008			(Audited) Year ended 31 May 2009
	Revenue return	Capital return	Total	Revenue return	Capital return	Total	Revenue return	Capital return	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000

Investment income	2,647	-	2,647	3,280	-	3,280	6,271	-	6,271
Other income (note 2)	606	-	606	275	-	275	947	-	947
Gains/(losses) on investments held at fair value through profit or loss	-	36,204	36,204	-	(127,353)	(127,353)	-	(95,301)	(95,301)
	----------	----------	----------	----------	----------	----------	----------	----------	---------
Total income/(loss)	3,253	36,204	39,457	3,555	(127,353)	(123,798)	7,218	(95,301)	(88,083)

Expenses
Management fees	(303)	-	(303)	(419)	-	(419)	(687)	-	(687)
Write-back of VAT (note 2)	45	-	45	305	-	305	1,150	-	1,150
Other expenses	(209)	-	(209)	(187)	-	(187)	(360)	-	(360)
	---------	----------	----------	---------	----------	----------	----------	----------	----------
Profit/(loss) before finance costs and taxation	2,786	36,204	38,990	3,254	(127,353)	(124,099)	7,321	(95,301)	(87,980)
Finance costs	(1,060)	-	(1,060)	(1,309)	-	(1,309)	(2,376)	-	(2,376)
	---------	----------	----------	---------	----------	----------	----------	----------	---------

Profit/(loss) before taxation	1,726	36,204	37,930	1,945	(127,353)	(125,408)	4,945	(95,301)	(90,356)
Taxation	(1)	-	(1)	(7)	-	(7)	(9)	-	(9)
	---------	----------	----------	---------	----------	----------	---------	---------	---------
Profit/(loss) for the period	1,725	36,204	37,929	1,938	(127,353)	(125,415)	4,936	(95,301)	(90,365)
	=====	======	======	=====	======	======	=====	=====	======

Earnings/(loss) per ordinary share (note 3)	2.30p	48.45p	50.75p	2.47p	(162.40)p	(159.93)p	6.30p	(121.71)p	(115.41)p
	=====	======	======	=====	======	======	======	======	======

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 5 of 13

THE HENDERSON SMALLER COMPANIES INVESTMENT TRUST PLC

Financial Report for the half year ended 30 November 2009

Consolidated Statement of Changes in Equity

for the half year ended 30 November 2009

	(Unaudited) Half year ended 30 November 2009
	Called up share capital	Capital redemption reserve	Other capital reserves	Revenue reserve	Total
	£'000	£'000	£'000	£'000	£'000
Balance at 31 May 2009	19,343	26,078	99,930	10,998	156,349
Buy-backs of ordinary shares	(578)	578	(3,814)	-	(3,814)
Profit for the period	-	-	36,204	1,725	37,929
Ordinary dividend paid	-	-	-	(4,204)	(4,204)
	----------	----------	----------	----------	----------
Balance at 30 November 2009	18,765	26,656	132,320	8,519	186,260
	======	======	======	=====	======

	(Unaudited) Half year ended 30 November 2008
	Called up share capital	Capital redemption reserve	Other capital reserves	Revenue reserve	Total
	£'000	£'000	£'000	£'000	£'000
Balance at 31 May 2008	20,113	25,303	200,986	9,069	255,471
Buy-backs of ordinary shares	(613)	613	(5,079)	-	(5,079)
(Loss)/profit the period	-	-	(127,353)	1,938	(125,415)
Ordinary dividend paid	-	-	-	(3,007)	(3,007)
	----------	----------	----------	----------	----------
Balance at 30 November 2008	19,500	25,916	68,554	8,000	121,970
	======	======	======	=====	======

	(Audited) Year ended 31 May 2009
	Called up share capital	Capital redemption reserve	Other capital reserves	Revenue reserve	Total
	£'000	£'000	£'000	£'000	£'000
Balance at 31 May 2008	20,113	25,303	200,986	9,069	255,471
Buy-backs of ordinary shares	(770)	770	(5,750)	-	(5,750)
Buy-back of preference stock (in 2008)	-	5	(5)	-	-
(Loss)/profit for the year	-	-	(95,301)	4,936	(90,365)
Ordinary dividend paid	-	-	-	(3,007)	(3,007)
	----------	----------	----------	----------	----------
Balance at 31 May 2009	19,343	26,078	99,930	10,998	156,349
	======	======	======	=====	======

Page 6 of 13

THE HENDERSON SMALLER COMPANIES INVESTMENT TRUST PLC

Financial Report for the half year ended 30 November 2009

Consolidated Balance Sheet

at 30 November 2009

	(Unaudited) 30 November 2009	(Unaudited) 30 November 2008	(Audited) 31 May 2009
	£'000	£'000	£'000
Non current assets
Investments held at fair value through profit or loss	207,906	143,538	174,232
	-----------	-----------	-----------
Current assets
Sales for future settlement	101	161	512
Taxation recoverable	38	29	37
Prepayments and accrued income	443	303	1,450
Cash and cash equivalents	1,162	514	234
Other debtors	-	2,266	855
	----------	----------	----------
	1,744	3,273	3,088
	----------	----------	----------

Total assets	209,650	146,811	177,320
	----------	----------	----------
Current liabilities
Purchases for future settlement	(198)	(143)	(880)
Accruals	(188)	(191)	(87)
Bank loans and overdrafts	(3,000)	(4,503)	-
	----------	----------	----------
	(3,386)	(4,837)	(967)
	----------	----------	----------

Total assets less current liabilities	206,264	141,974	176,353

Non current liabilities	(20,004)	(20,004)	(20,004)
	----------	----------	-----------
Net assets	186,260	121,970	156,349
	======	======	======

Equity attributable to equity shareholders
Called up share capital (note 5)	18,765	19,500	19,343
Capital redemption reserve	26,656	25,916	26,078
Retained earnings:
Other capital reserves	132,320	68,554	99,930
Revenue reserve	8,519	8,000	10,998
	----------	----------	----------
Total equity	186,260	121,970	156,349
	======	======	======

Net asset value per ordinary share (note 6)	248.1p	156.4p	202.1p
	======	======	======

Page 7 of 13

THE HENDERSON SMALLER COMPANIES INVESTMENT TRUST PLC

Financial Report for the half year ended 30 November 2009

Consolidated Cash Flow Statement

for the half year ended 30 November 2009

	(Unaudited) Half year ended 30 November 2009	(Unaudited) Half year ended 30 November 2008	(Audited) Year ended 31 May 2009
	£'000	£'000	£'000

Net cash inflow from operating activities (note 7)	5,946	16,923	21,819
	----------	----------	----------

Net cash inflow before use of financing	5,946	16,923	21,819

Net cash outflow from financing activities	(5,018)	(17,084)	(22,257)
	----------	----------	-----------
Net increase/(decrease) in cash and cash equivalents	928	(161)	(438)

Cash and cash equivalents at the start of the period	234	672	672

Exchange movements	-	3	-
	--------	--------	---------
Cash and cash equivalents at the period end	1,162	514	234
	====	====	=====

Page 8 of 13

THE HENDERSON SMALLER COMPANIES INVESTMENT TRUST PLC

Financial Report for the half year ended 30 November 2009

Notes to the Condensed Financial 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 Financial Statements for the year ended 31 May 2009 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 have been 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 in respect of much, but not all, of the period from 1 January 1990 to the point in 2007 from which VAT ceased to be applied to investment management fees. Accordingly, the Manager (Henderson Global Investors Limited) has been able, on behalf of the Company, to reclaim from HMRC the VAT borne, together with simple interest thereon. An aggregate amount of £2,055,000, in respect of the VAT on investment management fees borne by the Company in the period from October 2000 to October 2006, was written back in the years ended 31 May 2008 and 2009, in accordance with an agreement reached between the Manager and the Company. An aggregate amount of £844,000, in respect of the period from 1 January 1990 to 4 December 1996, was written back in the year ended 31 May 2009 and a further £45,000 has been recognised in the half year ended 30 November 2009. These amounts have been received in full by the Company. The write-backs of VAT have been allocated between revenue return and capital return according to the allocation of the amounts originally paid. The £45,000 recognised in the period has been allocated wholly to the revenue return (half year ended 30 November 2008: £305,000; year ended 31 May 2009: £1,150,000). The Company has also received from the Manager the interest paid by HMRC on the amounts of VAT recovered. Interest of £749,000 was recognised in the year ended 31 May 2009 (half year ended 30 November 2008: £200,000) and a further £236,000 has been recognised in the half year ended 30 November 2009. These amounts are included in other income.

Page 9 of 13

THE HENDERSON SMALLER COMPANIES INVESTMENT TRUST PLC

Financial Report for the half year ended 30 November 2009

Notes to the Condensed Financial Statements, continued

3.	Earnings/(loss) per ordinary share The earnings per ordinary share figure is based on the net loss for the half year of £37,929,000 (half year ended 30 November 2008: losses of £125,415,000; year ended 31 May 2009: losses of £90,365,000) and on 74,729,664 (half year ended 30 November 2008: 78,418,478; year ended 31 May 2009: 78,298,336) 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) 30 November 2009	(Unaudited) 30 November 2008	(Audited) 31 May 2009
		£'000	£'000	£'000
	Net revenue profit	1,725	1,938	4,936
	Net capital profit/(loss)	36,204	(127,353)	(95,301)
		-----------	-----------	-----------
	Net total profit/(loss)	37,929	(125,415)	(90,365)
		======	======	======
	Weighted average number of ordinary shares in issue during the period	74,729,664	78,418,478	78,298,336

		Pence	Pence	Pence

	Revenue profit per ordinary share	2.30	2.47	6.30

	Capital profit/(loss) per ordinary share	48.45	(162.40)	(121.71)
		---------	---------	---------

	Total profit/(loss) per ordinary share	50.75	(159.93)	(115.41)
		=====	=====	======

Page 10 of 13

THE HENDERSON SMALLER COMPANIES INVESTMENT TRUST PLC

Financial Report for the half year ended 30 November 2009

Notes to the Condensed Financial Statements, continued


4.	Dividends The Company has not declared an interim dividend (2008: nil). The final dividend of 3.00p per ordinary share and the special dividend of 2.60p per ordinary share, paid in respect of the year ended 31 May 2009, have been recognised as distributions in the period.

5.	Called up share capital At 30 November 2009 there were 75,060,296 ordinary shares in issue (30 November 2008: 77,997,046; 31 May 2009: 77,370,296). During the half year ended 30 November 2009 the Company bought 2,310,000 of its own issued ordinary shares in the market for cancellation (half year ended 30 November 2008: 2,451,984; year ended 31 May 2009: 3,078,734). The cost of the share buy-backs, including stamp duty, amounted to £3,814,000 (half year ended 30 November 2008: £5,079,000; year ended 31 May 2009: £5,750,000).

6.	Net asset value per share The net asset value per ordinary share is based on the net assets attributable to equity shareholders of £186,260,000 (30 November 2008: £121,970,000; 31 May 2009: £156,349,000) and on 75,060,296 (30 November 2008: 77,997,046; 31 May 2009: 77,370,296) ordinary shares, being the number of ordinary shares in issue at the period end.
7.	Reconciliation of the profit/(loss) before taxation to the net cash inflow from operating activities

		(Unaudited) Half year ended 30 November 2009	(Unaudited) Half year ended 30 November 2008	(Audited) Year ended 31 May 2009
		£'000	£'000	£'000

	Profit/(loss) before taxation	37,930	(125,408)	(90,356)
	(Profit)/losses on investments held at fair value through profit or loss	(36,204)	127,353	95,301
	Decrease in purchases for future settlement creditor	(682)	(1,464)	(443)
	Decrease/(increase) in sales for future settlement debtor	411	(92)	(727)
	Net sales of investments	2,529	15,926	17,286
	Decrease in other receivables	1,007	1,147	893
	Decrease/(increase) in other debtors	855	(518)	-
	Increase/(decrease) in accruals	101	(8)	(112)
	Taxation on investment income	(1)	(13)	(23)
		---------	---------	---------
		5,946	16,923	21,819
		=====	=====	=====

Page 11 of 13

THE HENDERSON SMALLER COMPANIES INVESTMENT TRUST PLC

Financial Report for the half year ended 30 November 2009

Notes to the Condensed Financial Statements, continued

8.	Transaction costs
	Purchase transaction costs for the half year ended 30 November 2009 were £60,000 (half year ended 30 November 2008: £48,000; year ended 31 May 2009: £126,000). These comprise mainly stamp duty and commission. Sale transaction costs for the half year ended 30 November 2009 were £35,000 (half year ended 30 November 2008: £30,000; year ended 31 May 2009: £55,000).

9.	Comparative information
	The financial information contained in this half-yearly financial report does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The financial information for the half years ended 30 November 2009 and 30 November 2008 has not been audited. The information for the year ended 31 May 2009 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 498(2) or section 498(3) of the Companies Act 2006.

10.	Financial Report for the half year ended 30 November 2009 The full half year report will be available on www.hendersonsmallercompanies.com for viewing on 29 January 2010. Copies will be posted to shareholders in February 2010 and will be available thereafter from the Secretary at the Company's Registered Office, 201 Bishopsgate, London EC2M 3AE.

Page 12 of 13

THE HENDERSON SMALLER COMPANIES INVESTMENT TRUST PLC

Financial Report for the half year ended 30 November 2009

Notes to the Condensed Financial Statements, continued

Investment Portfolio

at 30 November 2009

	Valuation at 30 November 2009 £'000	% of portfolio		Valuation at 30 November 2009 £'000	% of portfolio
Informa	7,215	3.47	Shaftesbury	2,212	1.06
WSP	6,187	2.98	Capital & Regional	2,131	1.02
Intermediate Capital	4,751	2.29	CSR	2,131	1.02
Spectris	4,648	2.24	Greene King	2,006	0.96
W S Atkins	4,634	2.23	Babcock International	1,992	0.96
Bellway	4,549	2.19	*RWS Holdings	1,969	0.95
Victrex	4,438	2.13	Debenhams	1,963	0.94
Carillion	4,362	2.10	Aveva Group	1,940	0.93
Croda	4,020	1.93	Big Yellow	1,940	0.93
Interserve	3,626	1.74	Keller Group	1,906	0.92
	----------	--------		--------	----------
10 largest	48,430	23.30	40 largest	125,908	60.55

Domino Printing	3,563	1.71	Halfords	1,893	0.91
Balfour Beatty	3,460	1.66	Chime Communications	1,890	0.91
Premier Oil	3,446	1.66	Persimmon	1,861	0.90
Chemring	3,248	1.56	Spirent Communications	1,857	0.89
Northgate	3,226	1.55	BSS Group	1,847	0.89
Melrose	3,161	1.52	Mouchel	1,845	0.89
Rotork	3,094	1.49	EAGA	1,822	0.88
Charter	3,007	1.45	Euromoney Institutional Investor	1,753	0.84
Paragon	2,946	1.42	Oxford Instruments	1,666	0.80
VT Group	2,830	1.36	NCC Group	1,628	0.78
	---------	--------		------------	-----------
20 largest	80,411	38.68	50 largest	143,970	69.24

LSL Property Services	2,743	1.32	Senior	1,620	0.78
Phoenix	2,720	1.31	Psion	1,602	0.77
Ultra Electronic	2,668	1.28	Aberdeen Asset Management	1,568	0.75
Restaurant Group	2,572	1.24	Chloride	1,517	0.73
Costain	2,547	1.23	International Ferro Metals	1,516	0.73
Grainger	2,531	1.22	SIG	1,509	0.73
Synergy Healthcare	2,508	1.21	Meggitt	1,508	0.73
Fidessa	2,471	1.19	ITE Group	1,497	0.72
Bluebay Asset Management	2,317	1.11	Anite	1,435	0.69
Laird	2,230	1.07	Care UK	1,432	0.69
	-----------	----------		-----------	-----------
30 largest	105,718	50.86	60 largest	159,174	76.56
				======	======