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 2025

The Henderson Smaller Companies Investment Trust plc announces its financial results for the year ended 31 May 2025.

§ Final dividend increased to 20.5p per ordinary share (2024: 19.5p)

§ 22nd consecutive year of growth in the annual dividend

§ Outperformed the benchmark in 16 of the last 22 years

§ Indriatti van Hien was promoted to Co-Fund Manager in January 2025

§ Neil Hermon to retire as Co-Fund Manager of the Company in September 2025

The Company's Annual Report and Financial Statements for the year ended 31 May 2025 ("the Annual Report") is being published in hard copy format and an electronic copy will shortly be available to view and download from the Company's website: www.hendersonsmallercompanies.com.

The Annual Report, including the Notice of Annual General Meeting and together with the form of proxy, will shortly be uploaded to the Financial Conduct Authority's National Storage Mechanism and will be available for inspection at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism.

VIRTUAL INVESTOR PRESENTATION

The Chair and Fund Managers are hosting a virtual investor presentation on Wednesday, 17 September 2025 at 12.00 noon. Shareholders can register for the event here.

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

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

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

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

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

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

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

7    The figure for 2025 represents an interim dividend of 7.5p and a proposed final dividend of 20.5p, subject to shareholder approval

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

9    No performance fee is included in this calculation as no performance fee was paid in 2025 or 2024

A glossary of terms and explanations of alternative performance measures are included in the Annual Report. Sources: Morningstar Direct, Janus Henderson, LSEG Datastream

CHAIR'S STATEMENT

Dear Shareholder

Performance

The year under review was marked by heightened volatility in global markets, with disruption in the UK as the newly elected Labour Government began implementing its political agenda.

The Company's net asset value ("NAV") fell by 5.1% and the share price declined by 2.3% in the year to 31 May 2025, on a total return basis, reflecting a narrowing of the discount at which the shares trade from 11.5% to 9.2%. Over the same period the AIC UK Smaller Companies sector's average NAV and share price total return rose by 1.1% and fell by 1.0%, respectively. The Company underperformed its benchmark, the Deutsche Numis Smaller Companies Index (excluding investment companies), by 10.1%.

The Fund Managers have a style tilt towards more cyclical stocks (those whose performance is closely tied to the economic cycle), which has proven to be successful over the long term but has been impacted disproportionately by market conditions in the last few years. The Board recognises that a protracted period of underperformance is frustrating for shareholders, and has been in detailed discussions with the Fund Managers about their investment process.

Following these discussions, the Fund Managers have implemented a series of refinements to the investment process. The core philosophy, however, of investing in growth at the right price remains. The Board believes that these small but important refinements will enhance the portfolio construction and stock-picking process whilst maintaining this style-tilt, particularly at a time when the outlook for UK smaller companies continues to improve. More detail on this year's performance and the market outlook can be found in the Fund Managers' Report in the Annual Report.

Dividend and earnings

Total revenue from the Company's portfolio fell from £24.8m to £23.1m and earnings per share ("EPS") reduced from 29.9p to 27.9p, Although the majority of portfolio companies took advantage of their healthy financial performance to increase dividend payments, there is a trend in the UK equity market to prioritise share buybacks over dividends which is having an impact on overall dividend growth. In addition, changes to the portfolio in the year reduced the Company's income.

The Board is pleased to recommend an increased final dividend of 20.5p per share. Subject to shareholder approval at the AGM, the dividend will be paid on 13 October 2025 to shareholders on the register at 29 August 2025. The shares will be quoted ex dividend on 28 August 2025. When added to the interim dividend of 7.5p, this brings the total dividend for the year to 28.0p per share, a 3.7% increase on the 2024 total dividend of 27.0p per share.

The dividend will be fully funded from revenue generated in the current year. The EPS is calculated using the weighted average number of shares over the year, rather than the actual number of shares outstanding at the time the dividend is paid. Therefore, although EPS for 2025 is marginally lower than the total dividend, the recommended distribution is supported by current year earnings.

This will be the 22nd consecutive year of growth in the annual dividend for the Company, which is an 'AIC Dividend Hero'.

Share rating and buybacks

Reflecting the market's volatility, the Company's share price discount to NAV fluctuated in the year under review between 7.1% and 14.5%, averaging 11.6% and closing the year at 9.2%. The share price moved from 888.0p at the start of the year to 841.0p at 31 May 2025. The Company's discount has been consistently narrower than the weighted peer group average throughout the year.

The Board regularly reviews the discount to NAV at which the shares trade. Shares are only bought back in the market when the directors believe it is in the best interests of shareholders as a whole to do so and at a price below the prevailing NAV, thereby accreting the NAV per share for the remaining shareholders. Market conditions over the last two years have been particularly harsh and the market has witnessed discounts widening across the industry. During the period under review, the directors considered that the unusually wide discount to the NAV presented an attractive opportunity to enhance shareholder value through share buybacks.

The Company bought back 6,017,157 shares in the year under review, representing 8.1% of share capital, based on share capital at the start of the year and excluding Treasury shares. Of these, 120,000 were cancelled and 5,897,157 are now held in Treasury. These buybacks enhanced NAV by 0.7%.

A total of 6,987,667 shares, forming 9.4% of issued share capital, was repurchased in the period since the 2024 AGM and up to 30 June 2025. Due to this high rate of buybacks in the face of challenging market conditions, the Board convened a general meeting on 1 July 2025 to renew the share buyback authority to repurchase up to 14.99% of issued share capital. This renewal was approved by shareholders. Since the general meeting on 1 July, and as at 28 July 2025, a further 2,136,422 shares have been repurchased, representing 2.9% of share capital.

Capital structure

The Company's capital structure includes a preference stock class of 4,257 non-voting £1 units, each entitled to an annual 0.001% dividend. In March 1999, the Board offered to buy back all preference stock for cancellation. The remaining preference stock is now held by stockholders who did not respond to the offer. As over 25 years have now passed, the Board is taking steps to cancel the remaining preference stock class and return the capital associated with the stock to those stockholders. In the 2025 AGM notice in the Annual Report, the Board asks shareholders for authority to buy back and cancel the preference stock.

Fund management changes

Neil Hermon, who has been Fund Manager of the Company since 2002, intends to retire in September 2025, leaving behind a strong team and demonstrable investment philosophy. The Board extends its heartfelt thanks to Neil for his tremendous stewardship of the Company and the orderly way in which he is handing over the leadership reins to his well-established colleagues, including Indriatti van Hien, his Co-Manager. We wish him all the very best.

JHI, working with the Board, is recruiting an additional portfolio manager to join the team.

Board succession

Having served nine years on the Board, Victoria Sant will retire at our AGM on 7 October 2025. I would like to thank Victoria for her commitment, diligence and deep insight into environmental, social and governance ("ESG") matters from both a portfolio and corporate perspective as an ESG professional. In accordance with the Board's long-term succession plan, Mei Lim was appointed as a director in 2023 to succeed Victoria, and we will now return to a board of five members post the AGM.

Continuation vote

The Board has undertaken that shareholders should have the opportunity every third year to vote on whether they wish to continue the life of the Company. Shareholders will, therefore, be asked to vote on this at the forthcoming AGM as an ordinary resolution, which requires a majority vote in favour to pass.

The Board is recommending that shareholders vote in favour of continuation. We believe the Company's strategy of investing in smaller companies benefits especially from the investment trust structure, which brings the advantages of a stable asset base facilitating long-term investment decisions, the ability to use long-term borrowings to enhance shareholder returns, and the ability to smooth dividend payments over time which the Board has used to create a track record of long-term growth.

Since the Company adopted its current approach under Neil Hermon, long-term performance has been strong, delivering an annualised NAV total return of 12.1% since November 2002, when Neil started managing the Company, and outperforming the benchmark in 16 of the last 22 years with an excess NAV total return of 385% in aggregate, and an annualised excess return of 1.7%. As outlined above, in response to recent underperformance, the Fund Managers have implemented refinements to the investment process, supported by the Board, which they believe will enhance the stock-picking process in line with the core and unchanged investment philosophy going forward.

In the meantime, the Company continues to conduct an extensive buyback programme motivated by several factors including the wider market context and has maintained the Company's status as an AIC Dividend Hero demonstrating the Board's commitment to creating value for shareholders.

The Board has been meeting with large shareholders who have confirmed their support for the Company and continuation of the strategy.

We believe the Company's strategy of investing in smaller companies continues to represent an attractive opportunity for both long-term capital and dividend income growth, and benefits especially from the investment trust structure.

Annual General Meeting ("AGM")

We are pleased to invite shareholders to attend the AGM in person at our registered office at 11.30 am on Tuesday, 7 October 2025. We encourage shareholders to attend for the opportunity to meet the Board, Fund Manager Indriatti van Hien and the other members of the UK Smaller Companies team, including Shiv Sedani. Indriatti will give a presentation on the year under review and the outlook for the year ahead. Shareholders unable to join in person can join the meeting by videoconference.

In addition to the AGM, the Board is holding an online investor presentation this year, at 12 noon on Wednesday, 17 September 2025. This will include a Q&A session with the Chair and Fund Manager. The directors encourage shareholders to join, so they are fully informed about the Company's recent developments and its future plans, before voting on the AGM resolutions.

Further details can be found in the Annual Report.

Outlook

Macroeconomic news flow continues to be noisy. The path for monetary policy remains uncertain. Inflation remains above central bankers' target range. Trump's 'America First' policies have started to usher in a new world order and have already triggered significant policy responses from governments in Europe. These changes could induce both inflationary and reflationary impulses, while the spectre of a recession caused by the uncertainty brought by Trump's tariffs would be deflationary. To compound the issue, geopolitics are still messy and conflicts in both Europe and the Middle East are bringing volatility to commodity prices. However, markets are forward looking and given the attractive starting valuations in the UK small and mid-cap equity market, less noise may be all that is needed to drive markets forward.

There is potential for the UK economy to beat GDP growth expectations. UK consumers continue to see real wage increases, corporates are benefitting from falling (but still restrictive) interest rates and both groups are sitting on strong balance sheets. Confidence is the catalyst needed to drive investment; hiring and spending decisions and recent sentiment gauges suggest that despite the noise, animal spirits are recovering, so we look to the year ahead with cautious optimism.

Amid these challenging conditions, in aggregate the Company's portfolio continues to have quality bias and holds companies with robust business models which are soundly financed and being run by management teams whose incentives are aligned with our own. The attractive valuations in this part of the market are well-documented. These claims are validated by continued in-bound M&A and ongoing share buyback programmes being sanctioned by boards.

Over the long term, this Company seeks to capture the well-established small-cap premium: that is, the long-term outperformance of small caps over large caps driven by factors such as higher growth prospects and higher alpha-generating opportunities in this under-researched part of the market. Whilst the small-cap factor has proved elusive in the UK over the last 10 years - a period punctuated by the EU referendum vote, the protracted period of political and economic instability that ensued and 'UK exceptionalism' - we see good reasons for course correction. Stable politics puts growth back on the agenda in the UK. We see positive early indications of this through commitment to planning reforms, deregulation in the financial sector and most significantly, a resetting of the trading relationship with the EU. Improving sentiment towards UK plc would alleviate the acute technical pressure this part of the market has suffered from in terms of asset outflows, and we have seen the positive impact on performance that the inflows from global investors in calendar years 2015, 2017 and 2021 can bring. Smaller companies may underperform larger companies in periods of economic dislocation as investors flock to larger and more liquid asset classes, but history will show that they rebound most strongly after such periods.

We believe UK smaller companies continue to offer exciting growth opportunities to long-term investors. We remain confident in the ability of our Fund Managers to draw on their consistent and disciplined investment approach to generate significant long-term value.

Penny Freer

Chair of the Board

30 July 2025

FUND MANAGER'S REPORT

Fund performance

The Company had a disappointing year in performance terms, with its net asset value falling in absolute terms and underperforming the benchmark. The share price declined by 2.3% and the net asset value ("NAV") by 5.1% on a total return basis. This compared with an increase of 5.0% in the Company's benchmark total return, the Numis Smaller Companies Index (excluding investment companies). The underperformance comprised negative contributions from stock selection, expenses and gearing whilst the ongoing share buyback has been a positive contributor to performance. At a macro-level our underperformance was a function of rising bond yields having a detrimental impact on the real economy and therefore earnings and valuations of our predominantly pro-cyclical and interest rate sensitive portfolio. The negative contribution from stock selection arose from company specific issues impacting a number of our larger holdings. Many of these issues are temporary in nature and are already being fully reflected in underlying share prices. However, we continue to appraise all our positions through the lens of our rigorous investment process and have made changes where necessary. Despite it being a poor year for performance, the long-term record of the Company remains strong, materially outperforming its benchmark during the tenure of the UK Smaller Companies team and in 16 of the last 22 years' discrete financial years.

Performance attribution

Source Janus Henderson.  See the glossary of terms in the Annual Report.

Market - year under review

Despite continued market volatility, UK equity markets posted positive returns in the year under review. The path for monetary policy continued to dominate investors' thoughts. The widely anticipated rate-cutting cycle started in earnest last summer (2024). Base rates fell by 1% in the UK to 4.25% and by a similar amount in the US to 4.25-4.5%, whilst in Europe they fell 1.75% to 2.25% by period end. However, expectations for further and faster cuts were ultimately undermined by shift changes in fiscal policy following elections in all three regions.

In the UK, the Labour Party's first Budget, which focused on taxing, spending and investing, saw an extra tax burden levied on corporates in the form of increased National Insurance Contributions and a requirement for additional significant gilt issuance due to a large increase in public spending. In the US, Trump secured a second term, having campaigned on an inflationary mix of policies such as tax cuts, immigration curbs and tariffs. Finally, a change in government in Germany came with debt brake reform and commitments to significant expenditure on infrastructure and defence. Consequently, yields on core 10-year government bonds have risen due to increased concerns around sticky inflation and how that country's fiscal policies may be on an unsustainable path.

Geopolitical uncertainty persisted and the period was most notably punctuated by a return to isolationism by the US. The level of reciprocal tariffs announced on "Liberation Day" saw broader and more punitive tariffs than the market expected. Reprieve came soon after when the White House either paused or softened the implementation of these reciprocal tariffs to give time for trade deals to be negotiated, thus avoiding a full-scale trade war. Nevertheless, animal spirits were wounded and a formal trade agreement between the US and China is still outstanding. Oil prices fell and investor concerns around recession rose. Furthermore, ceasefire talks between Russia and Ukraine hit an impasse and during the pursuit of peace, the US made clear that European NATO members must take on more responsibility for their defence, which cast doubt over US commitment to Article 5 of the NATO treaty. The potential emergence of a new world order called US exceptionalism into question and the dollar depreciated against sterling as a result.

At home, the Labour party won the general election with a resounding majority. After an unsteady start and marked fall in business and consumer confidence following the Budget, sentiment was boosted by the signing of trade deals with the US, India and most importantly Europe. All three deals should now play a role in reducing inflation, boosting growth in the long term and give cause to believe that the political risk premium that has pervaded UK equity market valuations may finally erode.

UK GDP growth was positive in the period and grew at 0.7% in the first quarter of 2025, the fastest rate of growth amongst the G7. In this environment, smaller companies underperformed their larger counterparts, with the Deutsche Numis Smaller Companies Index (ex investment companies) up 5.0% against a rise in the FTSE All-Share Index of 9.4% as ongoing macro-uncertainty impacted the more cyclically sensitive part of the market. This year marks the sixth year of underperformance of UK small caps versus UK large caps in the last 10 years: an exceptional statistic, considering the well-documented long-term outperformance of smaller companies versus larger companies.

Gearing

Gearing started the year at 11.5% and ended at 10.2%. 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% issued in February 2022, and £70 million short-term bank borrowings.

As the Company's NAV fell during the period under review, the use of gearing was a negative contributor to performance in the year. However, gearing has made a significant positive contribution to investment performance over the 22 years the fund management team has 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

¹ Not owned by the Company

² Position sold during the year

Balfour Beatty is an international contractor and infrastructure investor. It operates three main verticals; construction services in the UK, US and Hong Kong, support services including the maintenance of infrastructure assets such as road, rail, energy and utilities in the UK and owning a portfolio of infrastructure investments including military housing in the US and schools, hospitals and student accommodation in the UK. The shares have performed strongly following robust order book growth and a continuation of strong cash generation which has enabled further cash returns to shareholders in the form of the growth in the regular dividend and share buybacks. Longstanding CEO Leo Quinn announced his retirement in the period under review and we await the views of the incoming CEO Philip Hoare on existing margin targets and company structure, both areas where we see scope for further optimisation.

Wood Group is a multinational engineering, consulting and project delivery firm focused on the oil and gas industry. The Company's shares came under severe pressure following Sidara's abandoned takeover offer. Further share price pressure ensued when the company announced an independent review into its accounting practices following write-offs on large-scale projects. This review unearthed material governance and control failures. The Company did not own a position in this stock.

SigmaRoc is a building materials company operating in the UK and Europe. The business has expanded rapidly over the past year following its transformative acquisition of CRH's European lime and limestone operations which made the company a market leader in five European countries (Norway, Sweden, Finland, UK and Ireland) and put it in the number two position in another three countries (Germany, Poland and the Czech Republic). Lime and limestone are used in a broad range of industries including construction, steel, chemical, environmental and agricultural which provides good end-market diversification for the company. The shares have performed strongly on account of earnings upgrades driven by better-than-expected synergies from the CRH deal, increasing optimism around end-market revival following German debt brake reforms and an upbeat capital markets day which presented ambitious growth targets and shareholder friendly capital allocation policies.

Ascential is a global business to business events, market intelligence and advisory firm. Following the divestment of trend forecaster WGSN and its Digital Commerce business in the prior financial year, the rump of the business comprised two market-leading events: Cannes Lions and Money20/20. The business was acquired by global events operator Informa, at a substantial premium to the prevailing share price in October 2024.

Raspberry Pi is a developer of single board computers and microcontrollers for industrial and enthusiast customers. The company had a unique beginning, starting as a charitable foundation to build a low-cost compute module as a teaching aid. The products gained traction with developers at industrial companies where Raspberry Pis were used to displace internally made boards with a value-oriented solution. The company was listed in June 2024 and the shares performed strongly following good results and an optimistic long-term outlook driven by new product origination, customer wins and market growth in edge computing.

Principal detractors

¹ Not owned by the Company

Next 15 is a technology and data-driven consulting business. The company's historic growth has been driven by new customer wins, digital investment opportunities and acquisitions. More recently, earnings growth has been challenged on account of weakness in government spending around elections and demand from tech clients. This in conjunction with the unexpected termination of a material contract with one of the company's largest customers triggered a material profits warning in September 2024. With the balance sheet in good shape, valuation materially compressed and a renewed focus by the board on value creation through self-help and disposals, we believe the shares offer attractive value.

Impax Asset Management is an environmentally and socially responsible focused asset manager based in the UK. Whilst the company has shown periods of impressive earnings growth from a combination of asset inflows and positive market performance in the past, the last 12 months has been more challenging due to the loss of a large intermediary client reducing assets under management and company profitability. Whilst the business remains attractive from a valuation and recovery perspective, we have reduced the position size in the portfolio to reflect the current outlook.

Zegona Communications is an investment company specialising in acquiring, improving and selling European telecommunications companies. It purchased Vodafone's Spanish operations in a majority debt-funded transaction during the period. The shares performed strongly on account of better-than-expected cost cutting and good progress towards selling its network business which would address the high leverage at the company. The Company did not own a position in this stock.

Future is a tech-enabled global platform for specialised media content operating three main verticals: Business-to-consumer where it monetises specialist content through the sale of digital advertising, magazine subscriptions and affiliate links, Go.Compare, a UK-based price comparison and lead-generation platform and business-to-business where it delivers specialist content and services to professional and enterprise customers. Shares came under pressure towards the end of this period under review on account of management turnover and tariff-driven uncertainty which has caused brands to restrain marketing budgets, thus undermining the improving trajectory seen in the digital advertising business in 2024. Despite the pressure on earnings in recent years, the business has maintained resilient margins and cash generation which is supporting a substantial and ongoing share buyback programme. During the period under review, the company signed a licensing deal with Open AI which positively signals that management is working hard to get ahead of any trends which may disrupt audience growth or traffic flows to their sites. We believe the business is undervalued on a sum-of-the-parts basis and are encouraged by the board's renewed focus on portfolio optimisation in this respect.

TBC Bank is the largest commercial bank in Georgia. The shares rallied off the back of strong loan growth, expansion into Uzbekistan, the announcement of a new share buyback and bullish sentiment towards the region on hopes of a ceasefire in Ukraine. The Company did not own a position in this stock.

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, but are not limited to, the following:

Currys is an omnichannel electricals retailer operating in the UK, Ireland and Nordics. Market shares in the UK and Nordics are 23% and 28% respectively. After a programme of extensive store rationalisation and balance sheet repair, the business is in a stronger financial position, as signalled by the resumption of its regular dividend after a five-year hiatus. Our investment thesis is premised on an improvement in trading in both the UK and Nordics driven by recovering consumer confidence and a replacement cycle in consumer electronics as five years has elapsed since the pandemic-induced spending spree in the category. The shares are lowly valued relative to their margin targets, and continued delivery of the strategy should see a material re-rating of the shares.

FRP Advisory Group is a provider of restructuring, corporate finance and consulting services to corporates in the UK. The company was formed in 2010 through a management buyout and has expanded from a total network of 29 partners at inception, to over 100 today. The company is currently seeing strong tailwinds from the business recovery division as corporates restructure and reshape following a period of higher interest rates. With a supportive backdrop and plans for further acquisitions, FRP is well set for growth over the medium term.

Genus is a leading global porcine and bovine genetics supplier. It breeds proprietary pig and cattle herds which are optimised for traits which boost farmers' margins and delivers its products to customers in the form of both semen and live animals. Its market shares in porcine and bovine genetics are 16% and 8% respectively. Our investment gives us exposure to healthcare intellectual property and a management team focused on improving earnings and returns in its bovine business and building out a market leading position in China, which represents 50% of global pork production, in its porcine business. In addition, we see valuation upside from the optionality around the approval and commercialisation of its gene-edited disease resistant pig product (PRRSv).

Johnson Service Group is a provider of workwear and linen rental services for the hotel, restaurant and catering industries. The company has operations in the UK and Ireland and employs over 6,500 people. After a challenging period during Covid, the group is on a stronger footing, with a more agile operating model, an improved pricing dynamic and higher retention of existing customers. Furthermore, with lower volatility in energy costs, the company has the potential to improve its margins over time. The company's strong balance sheet should allow the business to grow both organically and through acquisition.

Pinewood Technologies is a provider of cloud-based enterprise software for the car dealership industry. The company was listed following a spin-out from Pendragon, a UK automotive retailer, which was acquired by Lithia Motors. Whilst the car dealership market is mature, Pinewood has a meaningful opportunity to grow in an industry where there has been notable under-investment in software by owners to improve service quality and reduce costs. Competitor providers have also not kept up with the pace of innovation, leaving Pinewood, with its leading cloud-based platform, to target customers who are stuck with legacy solutions. Recent contract wins with large dealerships demonstrate the group's right to win and underpins confidence for the group's future growth profile.

Spire Healthcare is a leading independent healthcare group operating in the UK. It operates 38 private hospitals and over 50 clinics, serving self-pay, insured and NHS patients. Our investment thesis is centred around management's plans to drive volumes and improve returns. We took advantage of a material pull back in the shares caused by increased labour cost headwinds which pushed margin targets back to initiate a position in the stock. We believe the valuation is underpinned by the freehold assets of the 19 hospitals the company owns, and we see upside to medium-term revenue forecasts and returns from increasing demand for elective procedures driven by long waiting lists and the capital-light expansion of its primary care services.

Disposals

To balance the additions to our portfolio, we have disposed of positions in companies which we felt were set for poor price performance or where we saw better opportunities in which to recycle capital.

These disposals included: our position in CLS, an office and commercial real estate operator with properties in the UK, Germany and France following concerns around how the company was going to manage leverage, the need to reinvest in its estate and sustain the dividend; our position in Morgan Advanced Materials, a manufacturer of specialist carbon and ceramic components. Operational performance at the business has been disappointing, and the investment into Silicon Carbide has not lived up to expectations. With a delayed industrial market recovery, we expect trading conditions to remain difficult.

We also disposed of our positions in: Midwich, a global audio and visual distributor; Severfield, a UK structural steel contractor; Spectris, a specialist provider of high-tech instruments, test equipment and software; Synthomer, a specialist chemicals company; and Videndum, a manufacturer and supplier of camera equipment accessories, on concerns around leverage in the context of delayed end-market recovery in their respective industries. In many cases there is a requirement for these businesses to dispose of assets to address elevated balance sheet leverage. Given the uncertain macroeconomic backdrop, we assessed the risk of not being able to consummate deals or having to accept lower valuations as high.

We disposed of our position in Liontrust a UK asset manager, following a disappointing flow environment and challenges in relation to future profitability of the business. Finally, we disposed of our long-standing holding in RWS, a tech-enabled language services provider around both cyclical and structural concerns, in particular the deteriorating returns profile of the business as it seeks to pivot its service model and invest more in AI.

Takeover activity

Takeover activity in the portfolio persisted during the year as trade buyers and private equity alike continued to exploit the attractive valuations in the UK small and mid-cap space. Takeover bids were received for: Alliance Pharma, a consumer healthcare company, from DBay Advisors; Alpha Financial Markets, a provider of management consulting and technology services to the financial service services industry, from Bridgepoint; Ascential, a B2B events operator for the marketing and fintech industries, from Informa; and Learning Technologies, a provider of educational technology and talent management software, from General Atlantic.

Top ten positions

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

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

Paragon Banking is a speciality lender with a primary focus on providing buy-to-let mortgages to professional landlords. The company enjoys a strong capital position, enabling it to grow dividends whilst simultaneously buying back its own stock. Regulations on complex underwriting and the sophistication of its underwriting capability have allowed Paragon to grow market share from non-bank lenders which have suffered in the rising rate environment. As base rates fall and business and consumer confidence improves, commercial loans and mortgages should become more affordable which should increase lending volumes. Paragon should also benefit from government driven deregulation of the financial services sector which could potentially lower capital requirements, increase the scope for capital returns to shareholders and boost lending volumes.

Bellway is a national UK housebuilder. The company has a robust long-term track record of controlled expansion, and solid operational and financial performance whilst maintaining a strong balance sheet. Recent weakness in the housing market, caused by the economic downturn and rising interest rates, has put short-term profitability under pressure across the industry as house prices soften and volumes contract. However, the business remains well placed to benefit from any recovery on account of its well-invested land bank. The government's ambitious housebuilding targets which seek to address the structural undersupply of homes in the UK should provide tailwinds for the sector as planning reforms are enacted. Valuation support is provided by the discount to NAV at which the shares currently trade.

Mitchells & Butlers is a national owner and operator of pubs in the UK. Its major brands include All Bar One, Browns, Harvester, Toby Carvery, O'Neill's, Miller & Carter, Nicholson and Ember Inns. The vast majority of its pubs are owned freehold, meaning it has substantial asset value backing. The company has consistently outperformed peers in terms of like-for-like revenue growth on account of its well-invested estate, diversified brand portfolio and consistency of customer service. Whilst cost inflation remains acute, management has reliably managed to mitigate these headwinds through its 'ignite' efficiency programmes. The company is steadily repaying its securitised debt, enabling a transfer of value from debt to equity, a trend which will now be accelerated as its pension deficit is cleared. The shares trade at a substantial discount to recent industry transaction multiples and its NAV.

Just Group is an annuities provider in the UK. The business provides both bulk annuities, where it assumes the liability for paying for defined benefit pensions for a corporate's pension scheme in exchange for an upfront premium; and personal annuities, where it sells policies to individuals which pay a fixed stream of income to a policyholder for the remainer of their life, in exchange for an upfront lump sum premium. After a difficult period for the annuities market as low base rates dampened demand and increasingly stringent solvency rules made it more capital intensive to grow, the business is benefitting from higher interest rates and increased pension de-risking activity. Our investment thesis is premised on enduring growth, supported by capital resilience in conjunction with a valuation which does not reflect the economic value-add currently being generated by the business.

Volution is a leading specialist in indoor air quality and ventilation systems operating primarily in the UK, Australia, Nordics and Continental Europe. It has exposure to both the new-build (private and public) and residential repairs, maintenance and improvement (RMI) market. Volution generates industry leading margins driven by efficient supply chain management and better execution of its in-house manufacturing process. The investment case is premised on regulation and green-housing trends continuing to drive growth in demand for ventilation products in conjunction with a recovery in RMI spend in the UK. Finally, we expect organic growth to continue to be augmented by acquisitive growth under the ambitious and long-standing management team.

OSB Group is a speciality lender with a primary focus on providing buy-to-let mortgages to professional landlords. Regulations on complex underwriting and the sophistication of its underwriting capability have allowed OSB to grow market share. After a difficult period for the company as base rates increased, stoking fiercer competition for flow, which drove both asset and deposit spreads down, net interest margin expectations have now been set at a more realistic level. The shares trade at an attractive discount to tangible book value and in our view, do not reflect the mid-teens return on tangible equity guidance set by management. The company retains a strong capital position allowing it to return significant cash to shareholders through share buybacks and growing dividends. Like Paragon Banking, OSB should similarly benefit from deregulation in the financial services sector.

Vesuvius is a materials technology company. The company provides steel flow control, foundry technologies, advanced refractories and metal processing products and services to customers around the world. The business has gone through significant rationalisation over recent years removing excess capacity and improving returns on capital and margins. The company has demonstrated robust pricing power during the recent inflationary period, validating its leading market position and high value add of its products. Although the steel industry is seeing the impact of global economic weakness, not helped by recent tariff uncertainty, the business is well positioned to enjoy strong growth once markets recover especially as margins have clear scope to strengthen. We are being paid to wait as strong cash generation has allowed the company to continue to pay a healthy dividend to shareholders.

Serco is a leading global government outsourcer, providing a range of services across defence, justice and immigration, citizen services, health and facilities management and transport sectors. It operates globally but its key markets comprise of the UK and US. The business employs 50,000 people in over 20 countries. The business has over 500 contracts with governments, and the top 20 contracts account for nearly half of group revenues. Our investment case is premised on continued strong demand for the outsourcing of public services from governments running increasingly stretched budget deficits, an under-leveraged balance sheet should provide optionality around M&A or further cash returns and a valuation multiple which we believe underappreciates the strong margins in its growing defence business.

Portfolio weightings

As at 31 May 2025, the portfolio was weighted by company size as follows:

Market outlook

After a year of elections across major economies it should come as no surprise that global markets are set to remain volatile. New governments are in the process of implementing the bold policy promises they campaigned on. In the US, the start of Trump's second term has already brought trade policy shocks, foreign policy reversals, multiple U-turns and cast doubt over Federal Reserve independence with much of this being communicated via social media. Unpredictable policymaking from the world's largest economy has raised concerns around a global economic slowdown. As base rates are still restrictive across major economies there is an obvious lever central bankers can pull to stimulate demand. However, inflation is still sticky and central bankers are taking a cautious approach to rate cuts while they wait to see how policy changes, tariffs and tax cuts in the US and labour cost increases in the UK manifest themselves in price growth. Lower oil and energy prices, despite continued military conflict, are helping keep headline inflation at bay.

Corporates and consumers are dealing with unprecedented uncertainty, which has precipitated volatile readings in sentiment indicators, albeit from a position of strength. Amongst UK consumers, savings ratios remain high and unemployment relatively low. Moreover, corporate management teams remark that since the pandemic they have become so accustomed to market upheaval that operating frameworks are already in place for new challenges they may face. We take comfort in this and the strong balance sheets of both corporates and consumers, noting that they are intrinsically healthier than they were ahead of the Global Financial Crisis in 2008-2009.

Geopolitics are set to remain challenging. Conflicts in Ukraine and the Middle East are struggling to reach stable resolutions and heightened tensions between China and the US persist. These themes are not new. What distinguishes this year is the emerging challenge to US exceptionalism. The country's moral leadership and economic dominance being called into question has manifested itself in a weaker dollar and the potential for lower foreign investment in the region. It is too early to say whether or not this will be an enduring theme. In stark contrast, however, we believe UK exceptionalism is abating.

There is no denying that the Labour Government's 'honeymoon period' following its landslide election victory was short-lived and that the Government is faced with the challenge of reviving economic growth while walking a fiscal tightrope. However, its recent focus on deregulation within the financial services sector suggests that there are signs the government understands the need to get the private sector back onside. Stable politics, a resetting of the UK's relationship with the European Union, its largest trading partner, investment in capital projects and a real focus on supply side reform should attract business investment and foreign capital into the country. All else being equal, a 1% shift in global equity allocations away from the US and into the UK would drive a 25% uplift to assets in the market. The current dismal allocations to UK small-cap equities mean small changes can make a material difference in underlying valuations in this flows-driven part of the market.

After a lost decade in UK smaller companies, starting with uncertainty about the EU referendum vote, we see good reasons why fortunes could change and history will show that small caps perform best after periods of economic dislocation. UK small-cap valuations remain attractive and sit well below long-term averages. They also remain markedly depressed versus other developed markets, even on a sector-adjusted basis. The persistent in-bound M&A activity the market is experiencing tells you that many market players are already taking notice and boards have never been keener to signal value through share buybacks. The IPO market has remained quiet; a re-rating of the broader market can quickly change this. Once the flywheel starts, it will be hard to stop.

We acknowledge the uncertainty around economic conditions but feel confident that our long-standing investment process will yield a well-diversified portfolio of companies on attractive multiples that can deliver cash generative growth. There is no shortage of investment opportunities in this market and notwithstanding a difficult few years for performance, we remain confident in our ability to generate significant value from a consistent and disciplined investment approach which has delivered so powerfully over the longer term.

Indriatti van Hien and Neil Hermon

Fund Managers

30 July 2025

​

INVESTMENT PORTFOLIO at 31 May 2025

There were no convertible or fixed interest securities at 31 May 2025 (2024: None).

1           Quoted on the Alternative Investment Market

PRINCIPAL RISKS AND UNCERTAINTIES

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

Throughout the year the Board has considered the impact of macroeconomic events with a global impact and heightened market volatility, including US trade tariffs and a global trade war, the ongoing ramifications of the Russia/Ukraine war and extreme conflict in the Middle East. The Board has had regard to the impact of mitigation measures on manufacturing supply lines and on heightened uncertainty in the business environment. The Board has also considered the wider consequences of economic uncertainty, disruption to markets and society through artificial intelligence ("AI"), and the UK banks' appetite for lending to the corporate sector.

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

The principal risks fall broadly under the following categories:

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:

●          aggressive action taken by activist investors;

●          global market uncertainty/disruption arising from President Trump's actions and policies; and

●          possible global conflict owing to escalated violence in the Middle East.

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, from a corporate perspective, 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. The Fund Managers work with the Board to monitor the risk landscape, and identify emerging risks from the perspective of their potential impact on the portfolio and investee companies.

VIABILITY STATEMENT

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.

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

The Board considers revenue and expense forecasts at each meeting, with additional focus at the time of reviewing half-year and year-end results. At the same time, the Board discusses the impact of decreases in revenue of up to 20% on the Company and the impact that would have on revenue and capital reserves available to pay dividends.

The Board does not expect there to be any significant change in the principal risks and adequacy of the mitigating controls in place, nor does the Board envisage any change in strategy or objective or any events that would prevent the Company from continuing to operate over the next five years; the Company's assets are liquid, its commitments are limited and the Company intends to continue to operate as an investment trust.

In coming to this conclusion, the Board has considered rigorously the uncertainties facing the UK's domestic economy, inflation, the potential impact of a global recession, US and global tariff reforms and potential trade wars, risks associated with geopolitical instability, and conflicts in Ukraine and the Middle East. The Board considers that these events highlight the advantages of holding an investment trust. The Board does not believe these factors will have a long-term impact on the viability of the Company and its ability to continue in operation, notwithstanding the short-term uncertainties these events have caused in the markets and specific shorter-term issues, such as inflation, the cost-of-living crisis in the UK, uncertainties about short-term economic growth and supply chain disruption.

The last continuation vote at the 2022 AGM was passed with the support of 99.2% of votes cast. The Board expects shareholders to support the Company's continuation at the forthcoming AGM in October 2025, and subsequently the 2028 AGM, both of which are within the viability assessment period. The Chair, Senior Independent Director and the Fund Managers have been meeting extensively with shareholders this year to discuss recent changes to the fund management team (as set out in the Chair's Statement in the Annual Report), management of the Company's discount to NAV and the Company's investment strategy and prospects. Feedback from these meetings suggests that shareholders are supportive of the Company continuing in operation.

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 2030.

FUTURE DEVELOPMENTS

The future success of the Company is dependent primarily on the performance of its investment portfolio, which will, to a significant degree, reflect the performance of the stock market and the skill of the Manager. While the Company invests in companies that are listed (or quoted) in the United Kingdom, the underlying businesses of those companies are affected by external factors, many of an international nature. The Board's intention is that the Company will continue to pursue its stated investment objective and strategy as explained in the Annual Report.  The Chair's Statement and the Fund Managers' 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 and expenses. Remuneration is paid quarterly in arrears and amounts for April and May 2025 were therefore accrued as at the year end. There were no other outstanding amounts payable at the year end. 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:

On behalf of the Board

Penny Freer

Chair of the Board

30 July 2025

STATEMENT OF COMPREHENSIVE INCOME

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

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

All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the year.

The profit attributable to shareholders for the year disclosed above represents the Company's total comprehensive income. The Company does not have any other comprehensive income.

STATEMENT OF CHANGES IN EQUITY

BALANCE SHEET

STATEMENT OF CASH FLOWS

¹ In accordance with IAS 7.31, cash inflow from dividends was £22,228,000 (2024: £24,346,000) and cash inflow from interest was £171,000 (2024: £198,000)

NOTES TO THE FINANCIAL STATEMENTS

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.