The Henderson Smaller Companies Investment Trust plc – Report and Financial Statements for the year The Henderson Smaller Companies Investment Trust plc ended Report and Financial Statements for the year ended 31 May 2014 31 May 2014 The Henderson Smaller Companies Investment Trust plc is managed by This report is printed on Revive, a paper containing 50% recycled fibre from both pre- and post- consumer waste and 50% FSC® certified virgin fibre. Pulps used are elemental chlorine free manufactured at a mill accredited with the ISO 14001 environmental management system. The FSC logo identifies products which contain wood from well managed forests certified in accordance with the rules of the Forest Stewardship Council. HGI9226/2014 Printed by Pureprint Group Limited HGI9226/2014 86804_Henderson-COVERS-DIGITAL.indd 1 06/08/2014 20:17 The Henderson Smaller Companies Investment Trust plc Objective The objective of The Henderson Smaller Companies Investment Trust plc is to maximise shareholders’ total returns by investing mainly in smaller companies that are quoted in the United Kingdom. Investment selection The investment selection process seeks, by rigorous research, to identify high-quality smaller companies with strong growth potential. Generally new investments are made in constituents of the benchmark index. Investments may continue to be held when the underlying companies grow out of the smaller companies sector but strong selling disciplines are applied regardless of the size of the entity. Benchmark Index Numis Smaller Companies Index (excluding investment companies).* Manager The Board has appointed Henderson Investment Funds Limited to manage the investments and to provide the related administrative services. Independent Board The Directors, who are independent of the Manager, meet regularly to consider investment strategy and to monitor the performance of the Company. Website Information about the Company can be found on the website www.hendersonsmallercompanies.com *until 28 March 2012, known as the Hoare Govett Smaller Companies Index (excluding investment companies). Prior to 1 June 2003 the benchmark was the FTSE SmallCap Index (excluding investment companies). Certifcates_Layout 1 31/01/2013 14:24 Page 4 2013 Investor of the Year WINNER Neil Hermon Henderson Smaller Companies Award Sponsor Organised by In association with 86804_Henderson-COVERS-LITHO.indd 2 19/08/2014 09:42 The Henderson Smaller Companies Investment Trust plc Report and Financial Statements 2014 1 Financial Highlights 31 May 31 May 2014 2013 Total net assets £476 million £403 million Net asset value per ordinary share 637.6p 540.0p Net asset value per ordinary share on an alternative basis* 634.3p 535.0p Market price per ordinary share 547.0p 454.0p Total return per ordinary share 107.0p 171.0p Revenue return per ordinary share 12.7p 6.2p Dividends per ordinary share# 11.0p 6.5p Gearing† 9.1% 8.2% *Calculated by deducting from the net assets the debt at its market value, as disclosed in note 19 on page 56. # An interim dividend of 3.0p was paid on 7 March 2014. The final dividend of 8.0p is subject to approval at the Annual General Meeting. † Calculated in accordance with the definition on page 58. Performance: comparative total return figures for periods ended 31 May 2014 1 year 2 years 3 years 5 years 10 years % % % % % The Henderson Smaller Companies Investment Trust plc: Net asset value per share* 19.92(1) 75.14(1) 66.89(1) 239.76(1) 306.84(2) The Henderson Smaller Companies Investment Trust plc: share price (2) 22.67 99.15 80.20 259.61 364.49 Numis Smaller Companies Index (excluding investment companies) (3)# 19.13 65.91 53.16 162.68 242.28 FTSE SmallCap Index (excluding investment companies) (3) 23.87 80.92 63.99 144.07 113.55 FTSE All-Share Index(3) 8.86 41.64 30.31 92.83 135.13 Sources: (1) Henderson Global Investors (2) Morningstar (3) Datastream; The net asset value total return figures are calculated on the basis that the Company’s issue of Debenture Stock is included at its par value, as in the financial statements that follow. * The net asset value per share total return figures include an adjustment to reflect that since 2005 investments are valued at bid prices (i.e. at fair value) rather than at mid-market prices. # Previously the Hoare Govett Smaller Companies Index (excluding investment companies). Historical Record Revenue Interim Special Market price Net asset value earnings Final dividend dividend dividend per ordinary per ordinary per ordinary per ordinary per ordinary per ordinary Year end share in pence share in pence* share in pence* share in pence share in pence share in pence† 31 May 2004 134.8 172.1 1.17 1.00 – – 31 May 2005 169.5 214.5 1.44 1.15 – – 31 May 2006 232.8 280.4 1.83 1.35 – – 31 May 2007 323.5 392.1 2.12 1.70 – – 31 May 2008 252.0 317.6 4.64 2.20 – 1.60 31 May 2009 167.0 202.1 6.30 3.00 – 2.60 31 May 2010 216.0 277.1 4.59 3.60 – – 31 May 2011 319.4 398.1 4.91 4.20 – – 31 May 2012 284.3 374.5 6.07 5.50 – – 31 May 2013 454.0 540.0 6.24 6.50 – – 31 May 2014 547.0 637.6 12.67 8.00 3.00 – * The figures for 2006 (and the figures for subsequent years) have been calculated in accordance with International Financial Reporting Standards (‘IFRS’); 2005 figures were restated on first adoption of IFRS. The figures for the earlier years have not been restated. † In 2008 and 2009 the revenue earnings included the write-back of VAT borne on management fees in certain periods between 1990 and 2007 and the simple interest receivable on those refunds. Most of the amounts recognised were distributed by way of special dividends. 86804_Henderson-TEXT.indd 1 28/08/2014 16:25 2 The Henderson Smaller Companies Investment Trust plc Report and Financial Statements 2014 Contents About the Company Inside front cover Profile 1 Financial Highlights, Performance and Historical Record 2 Contents Strategic Report 3 Chairman’s Statement 4 Fund Manager’s Review 9 Investment Portfolio 12 Strategic Review Governance 18 Directors and Management 19 Report of the Directors 21 Corporate Governance Statement 25 Report of the Audit Committee 27 Statement of Directors’ Responsibilities 28 Directors’ Remuneration Report Independent Auditors’ Report 31 Independent Auditors’ Report Financial Statements 34 Statement of Comprehensive Income 35 Statement of Changes in Equity 36 Balance Sheet 37 Cash Flow Statement 38 Notes to the Financial Statements Shareholder Information 58 Glossary of terms 59 General Shareholder Information 60 Directors and other Information 86804_Henderson-TEXT.indd 2 28/08/2014 16:25 The Henderson Smaller Companies Investment Trust plc Report and Financial Statements 2014 3 Strategic Report Chairman’s Statement Jamie Cayzer-Colvin It has been another excellent year for the Company with a average discount over the year being 12.7%. 22.7% total return for shareholders. The net asset value of The Board continues to keep a close eye on the discount and the Company increased by 19.9% in the year on a total will from time to time buy back shares, even though we do return basis and again outperformed its benchmark, the not believe that share buy-backs have a significant effect on Numis Smaller Companies Index (excluding investment the discount other than in the short term. companies) which increased by 19.1%. Regulatory Over the past ten years our net asset value total return has In accordance with the Alternative Investment Fund Managers been 306.8% versus a total return from the Numis Smaller Directive, the Company has appointed Henderson Investment Companies Index (excluding investment companies) of Funds Limited to act as its Alternative Investment Fund 242.3%, the FTSE All-Share Index of 135.1% and the FTSE Manager. HSBC Bank plc has been appointed as the SmallCap Index of 113.6%. This is a compound annual return Company’s Depositary. Further details are contained in the to shareholders of 15.1% and is testimony to the skills of our Strategic Review. Manager, Neil Hermon. Outlook The Company’s performance over the past year has for the Uncertainty faces the UK, with votes on Scottish independence second year been recognised by Money Observer, with the in September this year and a UK-wide general election in Company being awarded Best UK Smaller Companies Trust 2015. However, at long last the buds of economic growth are 2014. appearing in Western economies. Good news continues to I would like to thank all the Henderson staff and my Board for flow from the corporate world, and the smaller companies their efforts throughout the year on behalf of shareholders. market will continue to produce some exciting growth opportunities. So with Neil’s proven and disciplined approach Revenue and dividend to investing, I believe we are well set for the year ahead. The revenue return per share has increased to 12.7p, compared with 6.2p for the previous year. This increase is Annual General Meeting due in part to the change in accounting policy to charge a Our Annual General Meeting will be held at 10:30am on proportion of expenses to capital and also reflects the growth Friday, 3 October 2014 at the Registered Office, in dividend payments from our portfolio companies. The 201 Bishopsgate, London EC2M 3AE. The Notice of Meeting Board proposes an increase in the final dividend for the year is set out in the accompanying circular to shareholders. We to 8.0p per share, making a total dividend for the year of would encourage as many shareholders as possible to attend 11.0p (2013: 6.5p) as an interim dividend of 3.0p was paid in for the opportunity to meet the Board and to watch a March.