Henderson Fledgling Trust plc Annual Report and Financial Statements for the year ended 31 August

2012

Henderson Fledgling Trust plc Objective and policy

The Company seeks long-term growth in capital and dividends from investment predominantly in the constituents of the FTSE Fledgling (ex. Investment Companies) Index. The Company is managed using a hybrid investment style, whereby at least 65% of the portfolio passively replicates the Benchmark Index with an active overlay applied to the remainder, including investment in some AIM quoted stocks. Full details are given on page 13.

Benchmark index

The FTSE Fledgling (ex. Investment Companies) Index, established by the FTSE Actuaries UK Indices Committee as part of their range of indices measuring the performance of UK equities.

Manager

Henderson Global Investors Limited is appointed to manage the investment portfolio.

Board

The Company has an independent Board of Directors which monitors the performance of the Company and considers the investment strategy.

Continuation vote

Shareholders have the opportunity to vote on whether the Company should continue to operate as an investment trust company at each annual general meeting.

Website

Information about the Company can be found on the website www.hendersonfledglingtrust.com

Savings

As well as investing directly, shares can be purchased through dealing platforms and held in share plans, ISAs or pensions. Links to some dealing platforms can be found via the website. Potential investors are reminded that the value of investments and the income from them may go down as well as up and investors may not receive back the full amount invested. Tax benefits may vary as a result of statutory changes and their value will depend on individual circumstances.

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Financial Highlights

Highlights of the Year

31 August 2012

31 August 2011

Change %

Net assets (£’000)

68,131

79,960

-14.8(1)

Net assets excluding undistributed revenue (£’000)

65,961

77,876

-15.3

Discount

27.3%

11.0%

Year ended 31 August 2012

Year ended 31 August 2011

10.0p

10.0p

1.29%

1.15%

1,699

1,920

(10,326)

3,410

(8,627)

5,330

Shareholders’ funds

Dividends per ordinary share Ongoing charges(2) Total return to equity shareholders (£’000) Revenue return after taxation Capital return after taxation Total return Total return per ordinary share(3) Revenue

10.52p

11.23p

Capital

(63.95)p

19.94p

Total

(53.43)p

31.17p

Total return performance (including dividends reinvested) over the year ended 31 August 2012

-11.6

Ordinary share price

-26.5

Benchmark(4)

Performance

%

Net assets per share

-6.6

(1) The assets were reduced during the year by £1,589,000 which was used to repurchase and cancel 434,000 ordinary shares, representing 2.6% of the ordinary shares in issue at 31 August 2011. In broad terms, this reduction reflects the difference between the decrease of 14.8% in net assets and the decrease of 12.5% in the net asset value per ordinary share for the year ended 31 August 2012. (2) Ongoing charges have replaced total expense ratios. See page 16 for more details. (3) Based on the weighted average number of shares in issue during the year. (4) FTSE Fledgling (ex. Investment Companies) Index. Source: Henderson Global Investors Limited.

1

2

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Contents

1

Financial Highlights

25

Directors’ Remuneration Report

2

Contents

26

Consolidated Statement of

2

Financial Calendar

3-4

Chairman’s Statement

5

Historical Performance

6-9

Comprehensive Income 27

Statements of Changes in Equity

Portfolio Managers’ Report

28

10

Principal Investments

11

Classification of Investments and

12

29

Consolidated and Parent Company Cash Flow Statements

Directors and Management

30-48

Report of the Directors

49

(including the Business Review

24

Consolidated and Parent Company Balance Sheets

Portfolio Weighting 13-23

Consolidated and Parent Company

50-51

Notes to the Financial Statements Independent Auditors’ Report Glossary of Terms

and the Corporate Governance

52

Corporate Information

Statement)

53

General Shareholder Information

Statement of Directors’ Responsibilities

Financial Calendar Key dates for 2012/2013 are set out below: Annual general meeting

3 December 2012

Final dividend payable

17 December 2012

Half year results announced

April 2013

Interim dividend payable

May 2013(1)

Final results announced

November 2013(1)

(1) Expected dates.

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Chairman’s Statement

Tom Bartlam

Performance

each constituent has become more difficult to manage in

The Company’s performance for the year ended 31 August

terms of liquidity.

2012 was disappointing. The mid-market net asset value (“NAV”) per ordinary share total return (including dividends reinvested) was -11.6% compared to a total return of -6.6% from the FTSE Fledgling (ex. Investment Companies) Index (“the Fledgling Index”). Over the same period, the total return of the Company’s ordinary shares was -26.5%,

Although the June 2012 annual index change was also unbalanced, the active overlay has recently performed better. The outperformance of the Company’s total return relative to the Fledgling Index was 0.4% across July and August 2012 on a mid basis. Helped by a good September, performance for the calendar year to the end of September has improved with

underperforming the Fledgling Index by 19.9% as the

the total return NAV on a mid basis up by 13.3% compared

discount to NAV widened markedly.

to a total return of 11.2% in the Fledgling Index, representing

The Fledgling Index and the Company’s portfolio always

a relative outperformance of 2.1%.

experience volatility and cyclicality, but in the year under review the Fledgling sector experienced unusually high levels of both. This was as a result of investors being risk averse because of concerns about the Euro and global economic growth. This led to reduced portfolio liquidity particularly after the more difficult June 2011 annual index rebalance. The active overlay also underperformed with some negative contribution from the higher than anticipated gearing levels. Overlaying this is the longer term reduction in the number of constituents and the investable market capitalisation of the Fledgling Index such that the higher neutral weighting in

Over the long term the Fledgling Index has outperformed the FTSE All-Share Index. The asset class remains under-valued and certain stocks are very attractive when compared to larger companies. Whilst we expect the recovery period for some Fledgling companies to be longer than usual as general economic weakness continues, demand for Fledgling stocks has recently improved as a more “risk on” approach to investment has materialised. This was a result of renewed quantitative easing by both Europe and the US. Discount and share buy-backs

FTSE Fledgling (ex. Investment Companies) Index versus FTSE All-Share Index for the ten years to 31 August 2012

The discount at which the Company’s ordinary shares trade relative to their bid-priced NAV per share (including current year revenue) has widened significantly from 11.0% at 31 August 2011 to 27.3% at 31 August 2012. This

350

compares with the median discount for the UK Smaller

300

Companies sector which, over the same period, increased

250

from 14.2% to 16.7%.

200

The ordinary shares traded at a discount to NAV per share of between 9.4% and 27.4% during the year. At 26 October

150

2012 the discount was 20.8%. The Company has historically 100

bought back shares for discount management reasons but during the year the Board felt that it was more important to

50 0 Aug 2002

keep gearing levels down rather than buy back shares. During Aug 2003

Aug 2004

Aug 2005

Aug 2006

Aug 2007

Aug 2008

Aug 2009

Source: Datastream. Capital returns rebased to 100.

Aug 2010

Aug 2011

Aug 2012

the year the level of gearing within the portfolio has reduced from 9.5% to 1.9%. Since 1 September 2011 the Company has repurchased 434,000 ordinary shares, at an average cost

3

4

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Chairman’s Statement continued of 364.11p per share and an average discount of 14.5%.

17 years and the Board thanks him for his outstanding

Since the end of the financial year the Company has not

contribution to the Company during that time.

bought back any shares. The Board continues to monitor the level of the Company’s discount and will consider using the Company’s share buy-back powers when there is the prospect of significant NAV per share enhancement, subject to gearing levels permitting. Revenue and dividends The revenue return for the year ended 31 August 2012 was 10.52p per ordinary share, compared with 11.23p for the previous year. Your Board is pleased to recommend a final dividend of 6.0p per share which, subject to approval by shareholders, will be paid on 17 December 2012 to shareholders on the register at the close of business on

John Hancox, who had served on the Board for 14 years, sadly passed away on 6 October 2012 after a long illness. The Board thanks him for his exceptional contribution to the Company. Corporate governance The Company is committed to high standards of corporate governance and the Board believes that the Company has complied with the relevant parts of the guidance in this area, more information on which is given on pages 17 to 23. Annual general meeting (“AGM”) Shareholders are encouraged to attend the AGM on Monday 3 December 2012 at 201 Bishopsgate, London EC2M 3AE.

16 November 2012. Taken together with the interim dividend

The meeting will start at 10.30 a.m., will include a

of 4.0p per share paid in May 2012, the total dividend for the

presentation by Harmesh Suniara and will be followed by an

year will amount to 10.0p per share.

opportunity for shareholders to meet the Board and management team. The notice of the meeting and full details

GFT Dealing Limited

of the resolutions to be proposed are included in a separate

Following a change to the investment trust tax rules, the

letter posted to shareholders with the annual report. The

Company’s wholly owned subsidiary undertaking, GFT Dealing

Directors recommend that shareholders vote in favour of all of

Limited, (which was historically used for investment dealing to

the proposed resolutions as they intend to do in respect of

allow the Manager to take advantage of short-term

their own beneficial holdings where possible.

opportunities) was considered by the Board to be unnecessary. All investments were therefore transferred from

Continuation vote/strategic review

the subsidiary into the main portfolio at market value during

Pursuant to the Company’s articles of association an ordinary

the year and GFT Dealing Limited was not active at the year

resolution proposing that the Company continue in operation

end. Since the year end an application has been made for GFT

as an investment trust company will be proposed at the AGM

Dealing Limited to be struck off the register at Companies

and the Board is recommending that shareholders vote in

House.

favour.

Regulatory developments The Board, its advisers and the Company’s Manager are closely monitoring developments in relation to a key item of regulation, The Alternative Investment Fund Managers

In order to ensure that the Company’s investment policy remains appropriate the Board is undertaking a strategic review and will report to shareholders on the outcome in due course.

Directive, which is expected to be written into UK legislation in 2013 and which may have an impact on the Company. Board composition

Tom Bartlam

At the annual general meeting held in December 2011, Jimmy

Chairman

West retired from the Board. He had served as a Director for

1 November 2012

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Historical Performance Total return (including dividends reinvested) to 31 August 2012 (using mid-market priced portfolio valuations, annualised)(2) Performance versus competitors to 31 August 2012 (using bid price portfolio valuations)(3)

1 year %

3 years %

5 years %

10 years %

Net assets per share

-11.6

5.1

-5.0

155.6

Ordinary share price

-26.5

-7.1

-18.8

118.7

-6.6

14.7

1.3

199.4

1 year %

3 years %

5 years %

10 years %

-10.4

5.5

-7.0

156.0

12.3

54.7

14.1

216.6

Benchmark(1)

Net asset value total return AIC UK Smaller Companies Sector size weighted average return

Ten year record

30 June 2002

Net assets (£’000)

Net asset value per ordinary share p

Mid-market price per ordinary share p

58,367

206.5

179.5

Discount %

Dividends per ordinary share p

Special dividends per ordinary share p

Total dividends per ordinary share p

13.1

3.00

–

3.00

30 June 2003

58,580

233.7

186.0

20.4

3.25

–

3.25

30 June 2004

79,470

340.7

297.0

12.8

3.30

–

3.30

30 June 2005

88,782

389.9

370.0

5.1

3.50

–

3.50

30 June 2006

89,864

414.5

362.8

12.5

3.85

–

3.85

30 June 2007

112,462

536.5

457.0

14.8

4.00

–

4.00

30 June 2008

68,583

346.7

313.0

9.7

6.00

–

6.00

30 June 2009

71,264

376.7

316.0

16.1

4.90

2.60

7.50

31 August 2010(4)

84,996

457.1

381.0

16.6

7.50

–

7.50

31 August 2011

79,960

484.3

431.0

11.0

10.00

–

10.00(5)

31 August 2012

68,131

423.8

308.0

27.3

10.00

–

10.00

(5)

(1) FTSE Fledgling (ex. Investment Companies) Index. (2) Mid-market basis used as this is the fairest comparison with the Benchmark which is based on mid prices and as the spread between the bid and mid price can be large for Fledgling companies. (3) Performance versus competitors is shown using bid price portfolio valuations as this is the basis the competitors use to calculate their net asset value performance. (4) Accounting period extended to 14 months. (5) Dividend level increased following a change in the policy on allocation of expenses between revenue and capital. Sources: Henderson Global Investors Limited, Datastream, Funddata, Morningstar for the AIC.

5

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Portfolio Managers’ Report

Harmesh Suniara

Adam McConkey

Performance

which led to a reduction in weightings of certain constituents

Over the year ended 31 August 2012, the net asset value

such that the investable market capitalisation of the Fledgling

(“NAV”) per ordinary share (on a mid basis) total return was

Index declined by around 10.4%.

-11.6%, compared to a total return of -6.6% in the FTSE Fledgling (ex. Investment Companies) Index (“the Fledgling Index” or “Benchmark”) (on a mid basis). This underperformance principally arose from September to December 2011 as a result of the hangover from a difficult

Takeovers are usually a good source of additional outperformance but these have remained at very depressed levels during 2012. Over the very long term, the Fledgling segment of the market

June 2011 annual index rebalancing and as broader economic

has significantly outperformed the FTSE All-Share Index as

and debt concerns came into focus, especially in the US and

shown in the chart below.

Europe. Lower trading volumes impacted portfolio liquidity and short-term borrowings remained higher than normal for longer. The sharp increase in the debt-to-equity ratio for the stocks held in the portfolio post the June 2011 annual index rebalance also led to more companies going into

FTSE All-Share Index versus MicroCap and FTSE Fledgling (ex. Investment Companies) Index from 1 January 1955 to 31 August 2012 (gross income re-invested) 100,000,000

administration than had been typical as highly indebted companies found it more difficult to raise debt and/or equity.

10,000,000

The active overlay underperformed, not helped by the issues discussed above and also due to the higher than anticipated gearing post the June 2011 annual index rebalance and

£ (Log Scale)

1,000,000

100,000

previous large share buy-backs. 10,000

The stronger performance of the Fledgling Index from January to

31 August 2012 the Company was 1.9% geared. The June 2012 annual index change was also unbalanced

2012

2010

2002

2006

1998

1994

1990

1982

1986

1978

1970

1974

1962

1966

consequence, sharply reduce its short-term borrowings. As at

1,000 1958

April 2012 helped the Company rebalance the portfolio and, as a

1954

6

End Year MicroCap & Fledgling Indices

FTSE All-Share Index

Sources: MicroCap Index: Professors Elray Dimson and Paul Marsh, London Business School. FTSE Fledgling (ex. Investment Companies) Index & FTSE All-Share Index: Datastream.

with 14 new entrants (of which three were from non index and one new IPO) worth 22.4% of the portfolio and four exits

The period from 1 January 1955 to 31 August 2012 saw the

(of which three were non index) worth around 7.3% of the

market’s smallest capitalised stocks, as represented by the

portfolio. The threshold market capitalisation, set as the divide

MicroCap Index and the Fledgling Index, deliver an annualised

between the FTSE All-Share Index and Fledgling Index, was

total rate of return of 18.6% compared with an annualised

approximately £52 million in June 2012 compared with £58 million in June 2011.

return of 11.7% from the FTSE All-Share Index. Retail price inflation was 5.6% per annum over the same period, implying

The June 2012 annual index rebalance is being completed

an arithmetic real return of more than 6.9% per annum for

over a longer period with the aim of balancing purchases with

the Fledgling sector. The Company is unique in that it is the

sales and maintaining a low level of gearing. This rebalancing

only investment trust with a pure exposure to the Fledgling

was complicated by the introduction of new actual free float

Index, which has significantly outperformed the FTSE All-Share

weightings by FTSE International rather than free float bands

Index over the long term.

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Portfolio Managers’ Report continued More recently the reduction in the number of constituents

tracking error rose from 2.8% to 3.4% during the year. The

and the market capitalisation of the Fledgling Index has made

investable market capitalisation of the Fledgling Index has

it difficult to manage the portfolio due to the high neutral

continued to fall markedly such that when the Company has a

weighting compared to historic levels whilst market liquidity

neutral weighting in a Fledgling company, the Company

remains depressed. It has also increased the stock specific risk

would own 4.2% of that Company’s equity. Further

of the portfolio and reduced diversification.

explanation of these terms can be found in the Glossary of

Over the year the Company’s ordinary share price declined by

Terms on pages 50 and 51 of this report.

26.5% on a total return basis as the discount to the

Risk characteristics

Company’s NAV widened; this compares to a fall of 6.6%

as at 31 August 2012 Portfolio

from the Fledgling Index and a gain of 10.2% from the FTSE All-Share Index. The Fledgling Index has significantly underperformed all other

Number of companies

main equity indices except for the FTSE AIM All-Share during the reporting period and this can be seen in the chart below

Tracking error

for the FTSE All-Share and Small Cap indices.

FTSE Fledging (ex. Investment Companies) Index

Portfolio and Index overlap

90

87

80

(95)

(88)

(86)

3.4% (2.8%)

FTSE Fledgling (ex. Investment Companies) Index versus FTSE All-Share Index and FTSE Small Cap (ex Investment Companies) Index from 1 January 2011 to 31 August 2012

Beta

1.01

1.0

(1.1)

(1.0)

Comparative statistics as at 31 August 2011 are shown brackets. Source: Barra.

Relative performance rebased to 100

120.0 115.0

Sector weightings

110.0

The portfolio’s sector positions are broadly similar to those of

105.0

the Benchmark as befits a predominantly index tracking

100.0

approach. The sector classification of investments and

95.0 90.0

portfolio weightings in relation to the Fledgling Index are

85.0

shown on page 11 of this report.

80.0 75.0 31/12/2011

31/08/2011

FTSE Fledgling Index

31/08/2012

Characteristics of the Fledgling Index 31/12/2010

70.0

FTSE All-Share Index

FTSE Small Cap Index

Source: Datastream.

The Fledgling Index differs from larger company indices such as the FTSE All-Share Index and the FTSE 100 Index. In particular, the Fledgling Index has a significantly different industry distribution and different style bias.

Portfolio construction

Distribution of the constituents of the Fledgling (ex

Summary risk statistics

Investment Companies) Index by market capitalisation

The number of individual investments held in the portfolio

as at 31 August 2012

decreased over the year from 95 as at 31 August 2011 to 90 as at 31 August 2012. Over the same period, the number of companies in the Fledgling Index fell from 88 to 87. The portfolio remains highly representative of the Fledgling Index

Under £20m 18%

Greater than £50m 13%

with an overlap between the investment portfolio and the Index of 80 companies. £40m to £50m 17%

The following table summarises the risk characteristics of the portfolio. The key statistic is the tracking error of 3.4% against the Fledgling Index. The tracking error estimates the

£20m to £30m 26%

typical range in performance around the Fledgling Index that might be expected in two out of every three years. The

Source: Factset.

£30m to £40m 26%

7

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Portfolio Managers’ Report continued Sector distribution

The dividend yield for the Fledgling Index will ultimately

The Fledgling Index has significantly different sector

depend on the ability of the underlying companies to at least

weightings to that of the FTSE All-Share Index. In particular,

maintain their dividend payments as recovery stocks tend to

the industrials, consumer services and technology sectors are

be the most vulnerable to dividend cuts as they go through a

strongly represented in the Fledgling Index when compared to

restructuring period with a focus on cash generation. It also

the FTSE All-Share Index. Conversely, the Fledgling Index has

depends on how many of the dividend paying companies

lower exposure to the oil & gas, basic materials and consumer

leave the Fledgling Index during index rebalancing periods.

goods sectors and no exposure to the telecommunications sector. The financials sector in the Fledgling Index primarily

Valuation measures

consists of companies operating in the real estate sector

at 31 August 2012

rather than the banking, insurance or lending sectors. Industry group weightings of the FTSE Fledgling (ex. Investment Companies) Index and the FTSE All-Share Index at 31 August 2012 % 30

FTSE Fledgling (ex. Investment Companies) Index

1.2x (1.3x)

0.58 (0.38)

Price/book value ratio

0.6x (1.2x)

1.6x (1.6x)

0.38 (0.75)

Price/earnings ratio

6.0x (10.6x)

10.3x (9.2x)

0.58 (1.15)

Historic dividend yield

3.5% (3.6%)

4.3% (4.3%)

0.81 (0.84)

4.8x (2.4x)

2.2x (2.5x)

Dividend cover

10

5

Te c

hn

an

ol

cia

og

y

ls

s ie Fin

ilit Ut

om ec

rv

s

s Te l

ice

re

Se er ns um

Co

oo

th al He

er um ns Co

ca

ds

ls G

st du

Ba

sic

In

M

il

at

&

er

G

ia

ria

ls

as

0

FTSE Fledgling (ex. Investment Companies) Index

FTSE All-Share Index

Source: Factset.

Relative

0.7x (0.5x)

20

15

FTSE All-Share Index

Price/sales ratio

25

O

8

Notes: Price sales/ratio is calculated as enterprise value (market capitalisation plus net debt) to sales (source: UBS). Price/book value ratio (source: UBS). Price/earnings ratio shown is 2012 forecast and excludes negative earners (source: UBS). Dividend yield is shown net (source: Datastream). Dividend cover is only in respect of companies actually paying a dividend (source: UBS). Comparative valuation measures at 31 August 2011 are shown in brackets.

Valuation The constituent companies of the Fledgling Index continue to

Growth, financing and profitability

be valued more cheaply than those of the FTSE All-Share

Growth

Index using the price-to-sales and price-to-book value

Currently, consensus forecasts for dividend growth of larger

measures. For example, Fledgling companies are valued at a

UK companies exceed those for Fledgling companies,

substantial 62% discount to FTSE All-Share Index companies

however, earnings growth among Fledgling companies is

using the price-to-book value measure. The price-to-sales ratio

anticipated to exceed that of larger companies.

of the Fledgling Index is 0.7x and compares favourably to the FTSE All-Share where the same ratio is 1.2x.

Financing The average debt-to-equity ratio of Fledgling companies has

The price-to-earnings ratio for the Fledgling Index has fallen

risen significantly over the year, largely due to highly geared

substantially to 6.0x compared to 10.6x last year, leaving

new entrants at the quarterly and annual index changes.

companies trading at much more attractive valuations and is also

Fledgling companies now carry much higher levels of debt

lower than that for the FTSE All-Share which stands at 10.3x.

relative to their equity than their larger counterparts although

The dividend yield of 3.5% for the Fledgling Index is below that of the FTSE All-Share Index although dividend cover is higher for the Fledgling Index.

this is heavily concentrated in a narrow band of companies.

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Portfolio Managers’ Report continued Financing characteristics

Takeover activity Takeovers as a proportion of the portfolio (%)

Number of takeovers

2003

10.8

36

2004

10.3

30

2005

8.7

24

2006

11.9

15

Profitability

2007

15.5

17

Average returns on equity for Fledgling companies are below

2008

14.7

13

that for the FTSE All-Share Index but remain at reasonably

2009

9.2

12

healthy levels.

2010

9.9

6

at 31 August Debt/equity ratio %

FTSE Fledgling (ex. Investment Companies) Index FTSE All-Share Index

2012

2011

152 39

46 37

Source: UBS.

FTSE Fledgling Index characteristics at 31 August

2011

2.6

3

2012 (first eight months)

1.5

1

(1) 30 June to 2009, 31 August thereafter. Overseas sales as a percentage of total(1) % 2012 2011

Average return on equity(2) % 2012 2011

FTSE Fledgling (ex. Investment Companies) Index

42

16

10.7

18.8

FTSE All-Share Index

65

55

15.5

17.5

Sources: (1) Factset, Worldscope. (2) UBS.

Takeover activity Takeover activity fell significantly in 2011 and has become even more depressed in the first eight months of 2012. Mergers and acquisitions have been relatively sparse and concentrated in larger companies. The high indebtedness of part of the portfolio makes those companies less attractive as acquisition targets despite low relative valuations. Longer term we expect takeovers to become a more significant feature once again.

Period end(1)

Harmesh Suniara and Adam McConkey Henderson Global Investors Limited 1 November 2012

9

10

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Principal Investments as at 31 August 2012

Valuation £’000

% of portfolio

2,714 2,678 2,594 2,273 2,058 1,995 1,919 1,851 1,768 1,760

3.9 3.8 3.7 3.2 2.9 2.9 2.7 2.6 2.5 2.5

Industrial engineering Support services Real estate investment trusts General retailers Alternative energy Construction & materials Industrial engineering Electricity Software & computer services General industrials

21,610 1,749 1,669 1,561 1,518 1,495 1,423 1,387 1,305 1,291 1,260

30.7 2.5 2.4 2.2 2.2 2.1 2.0 2.0 1.9 1.8 1.8

20 largest Record AXA Property Trust Hornby Corin STV Vislink Johnston Press Liontrust Asset Management Source Bioscience Tamar European Industrial Fund

Financial services Non equity investment instruments Leisure goods Health care equipment & services Media Technology hardware & equipment Media Financial services Pharmaceuticals & biotechnology Equity investment instruments

36,268 1,201 1,195 1,169 1,162 1,156 1,121 1,111 1,101 1,097 1,022

51.6 1.7 1.7 1.7 1.7 1.7 1.6 1.6 1.6 1.6 1.5

30 largest Air Partner Treatt Molins J Smart Crystalox Solar HMV Parity Hiwave Technologies Energy Assets Creston

Travel & leisure Chemicals Industrial engineering Support services Alternative energy General retailers Software & computer services Leisure goods Support services Media

47,603 961 898 884 882 879 864 861 861 853 837

68.0 1.4 1.3 1.3 1.3 1.3 1.2 1.2 1.2 1.2 1.2

40 largest Other listed investments (50 stocks)

56,383 13,612

80.6 19.4

Total investments

69,995

100.0

Company

Main activity

Phytopharm Communisis Skyepharma Bioquell Dee Valley Future Thorntons Acal MJ Gleeson Filtronic

Pharmaceuticals & biotechnology Support services Pharmaceuticals & biotechnology Health care equipment & services Gas, water & multi-utilities Media Food & drug retailers Support services Construction & materials Technology hardware & equipment

10 largest Trifast Office2office Local Shopping REIT Moss Bros Porvair T Clarke MS International Jersey Electricity Gresham Computing Macfarlane

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Classification of Investments and Portfolio Weighting as at 31 August 2012

Oil & gas

Basic materials

Industrials

Consumer goods

Health care

Consumer services

Utilities

Financials

Technology

Total

Alternative energy

Chemicals Mining

Construction & materials Electronics & electrical equipment General industrials Industrial engineering Support services

Food producers Household goods Leisure goods Personal goods

Health care equipment & services Pharmaceuticals & biotechnology

Food & drug retailers General retailers Media Travel & leisure

Electricity Gas, water & multi-utilities

Equity investment instruments Financial services Non equity investment instruments Real estate & investment services Real estate investment trusts

Software & computer services Technology hardware & equipment

Portfolio %

FTSE Fledgling (ex investment companies) Index %

Relative to the Index

3.4

4.2

-0.8

3.4

4.2

-0.8

1.3 2.0

1.4 2.1

-0.1 -0.1

3.3

3.5

-0.2

4.5 – 1.8 6.6 12.5

4.8 0.5 1.4 6.5 12.7

-0.3 -0.5 +0.4 +0.1 -0.2

25.4

25.9

-0.5

– 3.4 2.9 –

0.2 3.5 1.7 0.1

-0.2 -0.1 +1.2 -0.1

6.3

5.5

+0.8

5.1 12.4

5.4 7.1

-0.3 +5.3

17.5

12.5

+5.0

2.7 5.7 8.0 1.4

1.2 5.2 10.3 1.3

+1.5 +0.5 -2.3 +0.1

17.8

18.0

-0.2

1.9 2.9

2.0 3.3

-0.1 -0.4

4.8

5.3

-0.5

2.4 5.0 1.8 2.1 2.2

4.9 6.7 – 3.2 2.5

-2.5 -1.7 +1.8 -1.1 -0.3

13.5

17.3

-3.8

3.6 4.4

3.1 4.7

+0.5 -0.3

8.0

7.8

+0.2

100.0

100.0

11

12

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Directors

Tom Bartlam

Rod Birkett

Peter Dicks

Tom Bartlam (Chairman of the Board and of the Nomination and Management Engagement Committees) was formerly a founder and managing director of Intermediate Capital Group plc, the leading independent mezzanine provider and investor in Europe, prior to which he was a director of Charterhouse Bank where he was involved in their corporate finance and private equity activities. He is a chartered accountant with more than 30 years’ experience in the investment and financial services industry. He is currently chairman of Pantheon International Participations plc and Polar Capital Holdings plc and is a non-executive director of Numis Corporation plc. He joined the Board in April 2011 and was appointed as Chairman in December 2011. Rod Birkett (Chairman of the Audit Committee) began his career at stockbrokers Vickers da Costa before moving to SG Warburg. He was senior fund manager, Japanese equities at Robert Fleming and was subsequently appointed head of the firm’s closed end funds business. He then moved on to be joint head of Japanese equities at Thames River Capital. He has also served as an executive committee member of The Association of Investment Companies. He is an executive director of Trust Associates Limited. He joined the Board in August 2008.

Peter Dicks (Senior Independent Director and Chairman of the Remuneration Committee) began his career at stockbrokers Joseph Sebag & Co, after which he co-founded Abingworth plc, a venture capital company which focused on investment in unquoted technology based companies in the United States of America. He is currently non-executive chairman of Capital Accumulations Limited, Private Equity Investor Plc, Sportingbet Plc, SVM UK Emerging Fund plc and Unicorn AIM VCT plc. He is also a non-executive director of Daniel Stewart Securities plc, Foresight VCT plc, Foresight 2 VCT plc, Foresight 3 VCT plc, Foresight 4 VCT plc, Graphite Enterprise Trust PLC, Mears Group PLC, Polar Capital Technology Trust PLC and Standard Microsystems Corporation, a NASDAQ quoted company incorporated in the United States of America. He joined the Board in November 1999.

All Directors are independent of the Manager and are members of the Audit, Nomination, Remuneration and Management Engagement Committees.

Management Henderson Global Investors Limited (“Henderson”) (which is authorised and regulated by the Financial Services Authority) and its subsidiaries undertake management, administration and company secretarial services. The day-to-day management of the Company’s portfolio is carried out jointly by Harmesh Suniara and Adam McConkey, supported by Henderson’s UK smaller companies team. Harmesh Suniara has been involved in the management of the Company since early 2008. He has 13 years’ experience as a research analyst in the UK small and mid-cap sectors. He began his career trading derivatives in LIFFE before joining Williams de Broë in 1996 as an equities analyst. In 2004 he moved to KBC Peel Hunt. He graduated from Cambridge University in 1993 having read Physics and Theoretical Physics. Adam McConkey is director of UK smaller companies at Henderson and has over 13 years’ investment industry experience. He joined the Company’s previous manager, Gartmore Investment Limited, in 2000 from the Co-operative Insurance Society where he worked as a European analyst on life and pension funds and on the construction of the CIS European Growth Unit Trust. He has lectured in European politics and political economy at Liverpool University as well as a number of US universities and has a PhD in international relations from Loughborough University. Debbie Fish ACIS acts as Secretary on behalf of Henderson Secretarial Services Limited.

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Report of the Directors The Directors present the audited financial statements of the

has continued to conduct its affairs in a manner that will enable

Group and their report for the year from 1 September 2011

it to gain such approval for the year ended 31 August 2012. For

to 31 August 2012. The Group comprises Henderson

years beginning on or after 1 September 2012 approval will be

Fledgling Trust plc (“the Company”) and its wholly owned

by way of a one-off application in advance and the Company

subsidiary undertaking, GFT Dealing Limited (the “subsidiary”),

intends to conduct its affairs in order to maintain investment

which was historically used for investment dealing to allow

trust status. The Company is liable to corporation tax on its net

the Manager to take advantage of short-term opportunities.

revenue profits but is exempt from corporation tax on capital

Following a change to the corporation tax rules for investment

gains if it has complied at all times with Section 1158.

companies the Board decided that the Company’s subsidiary was no longer necessary. The investments held within the subsidiary were transferred to the Parent Company at market value in June 2012 and a capital contribution of £115,000 was made by the Company in order to extinguish the losses incurred by the subsidiary. The subsidiary ceased to be active in July 2012 and an application has been made for it to be struck off the register at Companies House.

b) Investment objective and policy Objective The Company seeks long-term growth in capital and dividends from investment predominantly in the constituents of the FTSE Fledgling (ex. Investment Companies) Index (“the Fledgling Index”). Policy The Company is managed using a hybrid investment style. For

Business Review

the most part, a policy of broad indexation of the Fledgling

The following Business Review is designed to provide information

Index is adopted. An active overlay is then applied to up to a

primarily about the Company’s business and results for the year

maximum of 35% of the portfolio. However, the Directors

ended 31 August 2012. The Business Review should be read in

intend that no more than 30% of the Company’s assets

conjunction with the Chairman’s Statement on pages 3 and 4

would normally be allocated to the active overlay.

and the Portfolio Managers’ Review on pages 6 to 9, which give

This overlay takes the form of overweighting and/or

a review of the investment activities for the year and an outlook

underweighting holdings in:

for the future.

s

Fledgling Index companies; and/or

s

AIM quoted companies which were formerly listed on the

a) Status The Company (registered in England & Wales on 6 October 1994 with company registration number 2974633) traded throughout the year under review and was not dormant. The Company is an investment company as defined in Section 833

UK Listing Authority’s Official List (“the Official List”) and which meet the Fledgling Index market capitalisation criteria (as at the time of investment)

of the Companies Act 2006 (“the Act”) and operates as an

that are strongly favoured and/or less favoured by the

investment trust in accordance with Section 1158 of the

Manager’s investment process, and/or where the companies’

Corporation Tax Act 2010 (“Section 1158”), is subject to the

directors have recently purchased or sold their own shares.

UK Listing Authority’s Listing Rules and is governed by its

The Company will not invest more than 20% of the

articles of association, amendments to which must be

Company’s assets (at the time of investment) in AIM quoted

approved by shareholders by way of a special resolution. The

stocks which were formerly listed on the Official List.

Company is not a close company.

However, it is the Directors’ intention that no more than 15%

For the year ended 31 August 2012, and in previous years, the Company was required to seek approval from HM Revenue &

of the Company’s assets (at the time of investment) would normally be invested in such stocks.

Customs (“HMRC”) of its status as an investment trust under

Companies which meet the investment criteria above which are

Section 1158 every year. HMRC approval of the Company’s

considered unlikely to remain solvent on a one-year view will be

status as an investment trust has been received in respect of the

excluded from the portfolio. The Manager will not always

year ended 31 August 2011, although this approval is subject to

dispose of stocks that have moved away from the Fledgling

there being no subsequent enquiries under corporation tax self

Index immediately if there are liquidity issues or the timing of

assessment. The Directors are of the opinion that the Company

such a sale would be detrimental to shareholder value.

13

14

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Report of the Directors continued This dual approach of broad indexation coupled with an active

s

overlay is seen as the most practicable way of obtaining full

In the year under review borrowing costs totalled £131,000, the

exposure to the anticipated long-term outperformance of the

management fee totalled £588,000 and other expenses

Fledgling Index. It offers a widely diversified portfolio, close in

(excluding those costs that are omitted from the calculation of

structure to that of the Fledgling Index. The active overlay is

ongoing charges as defined on page 50) totalled £310,000.

intended to help the Company to perform in line with or

These figures include VAT where applicable.

Costs

slightly ahead of the Fledgling Index, by adding sufficient value at least to mitigate the Company’s management fees and the

s

sometimes significant portfolio dealing costs associated with

The Directors recommend a final dividend of 6.0p per ordinary

the periodic rebalancing of the Fledgling Index.

share which, subject to shareholders’ approval, will be paid on

c) Attractions of the sector and the selection criteria The Fledgling Index is rebalanced quarterly. Out-of-favour companies are relegated from the main market to the Fledgling sector, while others are promoted to the main market from the

Dividends

17 December 2012 to shareholders on the register on 16 November 2012. This dividend, together with the interim dividend of 4.0p per share paid in May 2012, makes a total dividend of 10.0p per share for the year.

Fledgling sector. This gives the sector a recovery bias which

e) Share capital and shareholders

provides attractive investment opportunities.

s

Historically, smaller companies offer a better long-term growth potential than large companies and a key attraction is their lower relative valuation ratios.

Share capital

As at 31 August 2012 there were 16,075,080 ordinary shares of 25p each in issue. All ordinary shares rank equally for dividends and distributions and carry one vote each. There are no restrictions concerning the transfer of securities in the Company,

The Manager’s selection criteria focus on the following:

no special rights with regard to control attached to securities, no

s s s s s

agreements between holders of securities regarding their

s

strong market positions; prospects for good turnover growth; substainability and prospective growth of profit margins;

transfer known to the Company and no agreement which the Company is party to that affects its control following a takeover bid. To the extent that they exist, the revenue profits of the

potential for a company to surprise on the “upside”;

Group (including accumulated revenue reserves) are available for

balance sheet fundamentals, including tangible net asset

distribution by way of dividends to the holders of the ordinary

value and cash flow; and

shares. Upon a winding-up, after meeting the liabilities of the

credibility of the corporate strategy.

Group, the surplus assets would be distributed to shareholders

The Manager also monitors director share dealings within the investee companies closely.

pro rata to their holding of ordinary shares. Subject to annual shareholder approval, the Company may purchase its own shares at a discount to net asset value

d) Financial review and dividend

s

Assets

The Group’s net assets at 31 August 2012 amounted to £68,131,000 compared with £79,960,000 at 31 August 2011.

s

Revenue

(“NAV”) per share. At the annual general meeting (“AGM”) in December 2011 shareholders gave the Board authority to buy back 2,409,654 ordinary shares during the following 15 months. During the year ended 31 August 2012 the Company repurchased for cancellation 434,000 ordinary

The Group’s gross revenue totalled £2,299,000 (2011:

shares (equal to 2.6% of the issued share capital as at

£2,588,000). After deducting expenses and tax, the revenue

31 August 2011). No shares have been repurchased since the

return for the year was £1,699,000 (2011: £1,920,000).

end of the year to the date of this report.

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Report of the Directors continued

s

the Company should continue as an investment trust. More

Holdings in the Company’s shares

Declarations of interests in the voting rights of the Company as

details are given in the separate letter sent to shareholders

at 31 August 2012 were as follows:

with this report.

Voting rights

h) Going concern

at 31 August 2012

Having considered the Company’s investment objective, the Percentage of voting rights

Prudential Assurance Company(1)

40.8

AXA Investment Managers SA

16.7

Legal & General Investment Management

3.6

nature and liquidity of the Company’s investment portfolio and income and expenditure projections, the Directors believe it is appropriate for the Company to continue to prepare its accounts on a going concern basis. The assets of the Company consist almost entirely of securities that are listed

In the period from 1 September 2012 to 23 October 2012 no

(or quoted on AIM) and the value of the Company’s assets is

disclosures of voting rights have been received by the

greater than its liabilities. Cash is held with banks approved

Company.

and regularly reviewed by the Manager. Accordingly, the

(1) The Prudential Assurance Company’s holding exceeds 30% as a consequence of the Company’s repurchase and cancellation of ordinary shares. In accordance with Note 1 of Rule 37 of the City Code on Takeovers and Mergers, this percentage holding did not result in an obligation under Rule 9 of the City Code for the Prudential Assurance Company to make a mandatory offer for the Company.

Company has adequate financial resources to continue in

– At 31 August 2012 the Company had 16,075,080 ordinary shares in issue with a total of 16,075,080 voting rights. At 26 October there were 16,075,080 ordinary shares in issue with a total of 16,075,080 voting rights.

outcome of the vote on the ordinary resolution to be put to the

– The percentage is calculated by applying the latest holding disclosure to the Company to the aggregate voting rights in respect of the issued ordinary share capital.

continue to operate as an investment trust company. In

The Board is aware that, as at 31 August 2012, 5.4% of the issued ordinary shares were held on behalf of participants in Halifax Share Dealing products. The participants in these schemes are given the opportunity to instruct the relevant nominee company to exercise the voting rights appertaining to their shares in respect of all general meetings of the Company. The nominee company has stated that it will exercise the voting rights of any

operational existence for the foreseeable future. The validity of the going concern basis depends on the AGM seeking shareholder authority for the Company to particular, no provision has been made for the costs of winding-up the Company or liquidating its investments in the event that the resolution is not passed. The value which would be generated from the realisation of the Company’s assets on a winding-up or from any reconstruction proposals that the Directors may put forward cannot currently be estimated since this will be determined by investment markets at that time. i) Performance measurement and key performance

shares held through the schemes that have not been exercised by

indicators

the individual participants. They will do so by voting for or against

In order to measure the success of the Company in meeting

all resolutions to be put at all general meetings of the Company

its objectives the Directors take into account the following key

(or by withholding votes on such resolutions) pro rata to the

performance indicators:

aggregate voting instructions for each resolution received from those participants who have chosen to exercise their voting rights.

s

In line with the Company’s investment objective, the principal measure of performance is considered to be the

f) Borrowings

movement of the NAV per share compared with the

The Company has a secured overdraft facility of £15 million

movement of the Fledgling Index on a total return basis.

with HSBC Bank plc. The overdraft is used from time to time to facilitate periodic rebalancing of the portfolio and to fund share buy-backs and corporate actions, such as placings and open offers. Drawings, when made, are therefore normally shortterm in nature. At 31 August 2012 gearing was 1.9% of NAV.

s

The Directors also monitor the performance of the Company’s ordinary shares and, in particular, the level of discount at which they trade relative to the NAV. Over the year ended 31 August 2012 the total return of the Company’s ordinary shares (with dividends reinvested) was -26.5% and the

g) Duration of the Company

discount was 27.3% at the year end. A share buy-back policy

In accordance with the articles of association, a resolution is

is in place which the Company can implement for discount

put to each AGM to allow shareholders to vote on whether

management reasons.

15

16

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Report of the Directors continued

s

The Directors regularly review the costs of running the

During the year under review the Manager used certain

Company, calculated using the AIC methodology for

services which were provided by or paid for by various

ongoing charges. The Company has moved away from

brokers. In return it placed business, which may have included

calculating a total expense ratio (“TER”) in line with a

transactions relating to the Company, with these brokers.

recommendation from the AIC in order to ensure that the information provided in relation to expenses is comparable

Custody services are provided by HSBC Bank plc.

with other investment companies. For the Company, the

k) Principal risks and uncertainties

only difference in the calculation method is a move away

The Board has identified its key risks as follows:

from using monthly net asset values to using daily net asset values as the basis for the calculation. The Company’s ongoing charges for the year ended 31 August 2012 were 1.29% compared to 1.15% in 2011. For comparison purposes, the TER in 2011 was 1.16%.

s

Portfolio and market price

The Company’s performance is dependent on the performance of the companies and securities markets in which it invests. Smaller company markets are, by their very nature, less liquid than their larger counterparts and therefore tend to be more

Information on the Company’s performance in the year under

sensitive to economic and other factors and hence are more

review is included in the Portfolio Managers’ Report on pages

volatile. A significant or prolonged fall in these equity markets

6 to 9. Information on how the Company has performed over

would have a serious impact on the Company’s NAV per share

the longer term is included in the historical performance

and share price. The key characteristics and differences between

tables on page 5.

the Fledgling Index and the larger UK equity markets are

j) Management arrangements

described in the Portfolio Managers’ Report on pages 6 to 9.

Following the acquisition of Gartmore Group Limited by

The Company is permitted to invest in companies quoted on

Henderson Group plc in April 2011, with effect from

AIM which were formerly listed on the Official List. Such

31 August 2011 the investment management services

investments may be less liquid and carry a higher risk and the

previously provided by Gartmore Investment Limited

rules and continuing obligations imposed upon them are less

(“Gartmore”), as set out in an investment management

demanding than those on the Official List.

agreement dated 3 March 2003 (as subsequently amended) were novated to Henderson Global Investors Limited (“Henderson”), which is authorised and regulated by the Financial Services Authority. The agreement is terminable upon three months’ notice by either party. Henderson receives a management fee calculated monthly in arrears at 0.8% per annum on the value of the Company’s total assets less current liabilities up to £75 million and at 0.5% per annum thereafter. In this regard, current liabilities exclude any borrowings under facilities other than bank overdraft facilities.

The Company’s ability to provide returns to shareholders and achieve its investment objective is dependent upon the ability of the Manager to add value through the active investment overlay. The Company is also subject to the risk that the market rating of its ordinary shares will fail to reflect its investment performance as a consequence of poor sentiment towards equities in general or smaller companies in particular. The Board regularly reviews the relative level of discount against the sector, giving consideration to ways in which share price

Henderson and its subsidiaries provide accounting, company

performance can be enhanced, including marketing initiatives

secretarial and general administrative services under the terms of

and effective communication of the Company’s investment

a Company Secretarial and Administration Agreement entered

performance to existing and potential investors by the

into between Gartmore and the Company dated 3 March 2003,

Manager and the Company’s broker.

the provisions of which were novated to Henderson and its subsidiaries on 31 August 2011. There is no separate charge for the provision of these services.

s

Operational

In common with most other investment companies the Company has no employees and the Company therefore relies

Details of the individuals at Henderson responsible for

on services provided by third parties, including the Manager

managing the day-to-day operations of the Company are

and Secretary. As described in the Corporate Governance

given on page 12.

Statement on page 21, the Board keeps under review the risks

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Report of the Directors continued facing the Company and minimises operational risks through

s

they have taken all the steps a director might reasonably

its arrangements with service providers and its review of their

be expected to have taken to be aware of relevant audit

services and internal controls.

information and to establish that the Company’s auditors

s

are aware of that information.

Tax and regulatory

A breach of Section 1158 could lead to a loss of investment trust status, resulting in capital gains realised within the

Corporate Governance Statement

portfolio being subject to corporation tax. A breach of the

a) Applicable corporate governance codes

UKLA Listing Rules could result in suspension of the Company’s shares, while a breach of the Act could lead to criminal proceedings or financial or reputational damage.

The Board is accountable to shareholders for the governance of the Company’s affairs. The Company is committed to maintaining high standards of corporate governance and the Board has considered the principles and recommendations of

The Board receives regular reports on the Company’s

the AIC Code of Corporate Governance (“the AIC Code”) by

compliance with Section 1158, the UKLA Listing Rules and

reference to the AIC Corporate Governance Guide for

other regulations.

Investment Companies (“the AIC Guide”) issued in October

Other principal risks associated with the Company’s financial instruments and policies for managing these risks are given in note 25 to the accounts.

2010. The AIC Code addresses all the principles set out in the UK Corporate Governance Code (“the UK Code”) as well as setting out additional principles and recommendations on issues that are of specific relevance to the Company and the

l) Payment of suppliers

Company believes that reporting against the AIC Code will

The Company’s principal supplier is its Manager, the payment

provide the most appropriate information to shareholders.

terms for which are set out above and in note 4 to the accounts. In relation to other suppliers, it is the payment policy of the Company to obtain the best possible terms for all business and, therefore, there is no single policy as to the terms used. In general the Company agrees with its suppliers the terms on which business will take place and it is the

The Financial Reporting Council (“the FRC”) confirmed on 30 September 2010 that it remained the view of the FRC that by following the AIC Guide boards of investment companies should fully meet their obligations in relation to the UK Code and paragraph 9.8.6 of the Listing Rules.

Company’s policy to abide by such terms. All creditors are

Copies of the AIC Code, the AIC Guide and the UK Code

settled on the due date for payment.

can be found on the respective organisations’ websites: www.theaic.co.uk and www.frc.org.uk

Annual General Meeting The AGM will be held on Monday 3 December 2012 at 10.30 a.m. at the Company’s registered office. Separate resolutions will be proposed for each substantive issue. The notice and details of the resolutions to be put at the AGM are contained in the separate letter being sent to shareholders with this report. Directors’ Statement as to Disclosure of Information to Auditors The Directors who were members of the Board at the time of approving this report are listed on page 12. Each of those Directors confirms that:

s

to the best of their knowledge and belief, there is no

b) Statement of compliance The Board believes that the Company has complied with the recommendations of the AIC Code that are applicable to smaller companies (those below the FTSE 350) during the year under review and up to the date of this report and therefore the provisions of the UK Code that are relevant to the Company except as set out below or elsewhere in the Corporate Governance Statement. The UK Code includes provisions relating to:

s

the role of the chief executive;

s

executive directors’ remuneration; and

s

the need for an internal audit function.

information relevant to the preparation of their report of

For the reasons set out in the AIC Guide, and as explained in

which the Company’s auditors are unaware; and

the UK Code, the Board considers these provisions are not

17

18

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Report of the Directors continued relevant to the Company as an externally managed investment

The Board confirms that, having conducted a formal

company. The Company has therefore not reported further in

performance evaluation, as explained on page 21, each of the

respect of these provisions.

Directors seeking re-election continue to demonstrate their

The AIC Code recommends that a full portfolio list be included within the annual report or on a Company’s website. The Company has not done so as it believes it is in the best

commitment to the Company and to perform their roles effectively and recommends that you vote in favour of each of the relevant resolutions being put to the AGM.

interests of shareholders and the Company as a whole for the

s

holdings that make up the active overlay portion of the

All Directors have a wide range of other interests and are not

portfolio not to be made public.

dependent on the Company itself. At the Nomination

Directors’ independence

Committee meeting in July 2012, the Directors reviewed their c) Directors

independence and confirmed that all Directors are wholly

s

independent of the Manager. Peter Dicks has served on the

Board composition

The Board consists of three non-executive Directors and the

Board for more than nine years; in line with the AIC Code, the

biographies of those holding office at the date of this report,

Board believes that length of service does not diminish the

which are set out on page 12, demonstrate the breadth of

contribution from a Director as experience and knowledge of

investment, commercial and professional experience relevant to

the Company is a positive factor and should not impact a

their positions as Directors. All Directors served through the year

Director’s independence. The Board has determined that all

and all are resident in the UK. Jimmy West retired from the

Directors are independent in character and judgment and that

Board on 12 December 2011. John Hancox, who was Director

their individual skills, broad business experience and high

throughout the year under review, sadly passed away on

degree of knowledge and understanding of the Company are

6 October 2012.

of great benefit to shareholders.

The Board has set, and each Director has agreed to adopt,

There were no contracts subsisting during or at the end of the

generic terms and conditions of appointment of non-executive

year in which a Director of the Company is or was materially

Directors of the Company, a copy of which is available for

interested and which is or was significant in relation to the

inspection at the Company’s registered office during normal

Company’s business. No Director has a contract of service

business hours and at the Company’s AGM and is available on

with the Company and there are no agreements between the

the website www.hendersonfledglingtrust.com

Company and its Directors concerning compensation for loss

s

Directors’ appointment and retirement

of office.

The appointment of new Directors is considered by the

s

Nomination Committee, which makes recommendations to

The Directors’ Remuneration Report on page 25 provides

the Board. The Board may appoint Directors to the Board and

information on the remuneration of the Directors.

any Director so appointed must stand for election by the

The beneficial interests of the Directors in the ordinary shares

shareholders at the AGM following appointment, in

of the Company are shown in the table below.

Directors’ remuneration and shareholdings

accordance with the articles of association. Directors’ interests All Directors are appointed for an initial term of three years.

31 August 2012

31 August 2011

The articles of association require each Director to retire and

Tom Bartlam

10,000

10,000

submit themselves for re-election at least every three years

Rod Birkett

4,000

4,000

and for one third of the Directors to retire each year.

Peter Dicks

15,000

15,000

In accordance with the requirements of the UK Code, Peter Dicks, who has served as a Director for more than nine years, will stand for re-election at the AGM.

John Hancox held 60,000 shares on 31 August 2012 (2011: 60,000). Since the year end Rod Birkett purchased 3,000 shares. There have been no other changes in any of the

In accordance with the provisions of the articles of association,

Directors’ interests in shares detailed above since the

Tom Bartlam will also stand for re-election at the AGM.

Company’s year end. No Director held any interest, beneficial

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Report of the Directors continued or otherwise, in the issued shares of the Company other than

d) The Board

stated above.

s

s

Directors’ conflicts of interest

The Company’s articles of association permit the Board to consider and, if it sees fit, to authorise situations where a Director has an interest that conflicts, or may possibly conflict, with the interests of the Company (“situational conflicts”). The Board has a formal system in place for Directors to declare situational conflicts to be considered for authorisation by those Directors who have no interest in the matter being considered. In deciding whether to authorise a situational conflict, the nonconflicted Directors must act honestly and in good faith with a view to the best interests of the Company and they may impose limits or conditions when giving the authorisation, or subsequently, if they think this is appropriate. Any situational conflicts considered, and any authorisations given, are recorded in the relevant meetings’ minutes. The prescribed procedures have been followed in deciding whether, and on what terms, to authorise situational conflicts and the Board believes that the systems it has in place for reporting and considering situational conflicts continues to operate effectively.

s

Directors’ professional development

Responsibilities of the Board and its Committees

The Board meets formally at least five times a year, with additional Board or committee meetings arranged when required. The Directors have regular contact with the Portfolio Managers and Secretary between formal meetings. The Board has a formal schedule of matters specifically reserved for its decision, which are categorised under various headings including strategy, management and structure, financial reporting and other communications, Board membership and other appointments, contracts, internal control, corporate governance and miscellaneous. The Board is responsible for the approval of annual and half year results, interim management statements and other public documents. At each meeting the Board reviews the Company’s investment performance and considers financial analyses and other reports of an operational nature. The Board monitors compliance with the Company’s objective and is responsible for setting asset allocation, investment and gearing limits within which the Manager has discretion to act and regularly reviews investment strategy. It has adopted a procedure for Directors to take independent professional advice in the furtherance of their duties at the expense of the Company. In

When a new Director is appointed he or she is offered an

order to enable them to discharge their responsibilities, all

induction seminar which is held by the Manager. Directors are

Directors have full and timely access to relevant information.

also provided on a regular basis with key information on the Company’s policies, regulatory and statutory requirements and internal controls. Changes affecting Directors’ responsibilities are advised to the Board as they arise. Directors are also able to attend external training facilities and industry seminars at the expense of the Company and each Director’s individual training requirements are considered by the Chairman as part of the annual performance appraisal.

s

Directors’ insurance and indemnification

s

Committees of the Board

The Board has four Committees: the Audit Committee, the Management Engagement Committee, the Nomination Committee and the Remuneration Committee. The terms of reference for these Committees are available on the website www.hendersonfledglingtrust.com or via the Secretary. Audit Committee The Audit Committee comprises all of the Directors and is

Directors’ and officers’ liability insurance cover is in place which

chaired by Rod Birkett. The Board is satisfied that at least one

indemnifies the Directors against certain liabilities arising from

of the Committee’s members has recent and relevant financial

the carrying out of their duties. Under the Company’s articles

experience.

of association and, subject to the provisions of UK legislation, a

The Audit Committee meets at least twice a year and is

qualifying third party provision indemnity may be provided to

responsible for the review of the half year results, the annual

Directors in respect of costs which they may incur relating to

accounts, the nature and scope of the external audit and the

the defence of any proceedings brought against them arising

findings therefrom, the terms of appointment of the auditors

out of their positions as Directors, in which they are acquitted

together with their remuneration, performance, independence

or judgment is given in their favour by the Court. The Company

and objectivity, as well as any non-audit services provided by

has granted indemnity to Directors to the extent permitted by

the auditors. It meets with representatives of the Manager

law in respect of liabilities that may attach to them in their

and receives reports on the quality and effectiveness of the

capacity as Directors of the Company.

accounting records and management information maintained

19

20

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Report of the Directors continued on behalf of the Company. Representatives of the Manager’s

being considered). The Committee is responsible for

compliance and risk department regularly attend meetings to

reviewing Board succession planning and tenure policy, the

report on the systems of internal controls in place.

performance of the Board as a whole and the Board

The provision of non-audit services by the Company’s auditors is considered and approved by the Audit Committee on a case

Committees and the appointment of new Directors through an established formal procedure.

by case basis. The policy set by the Audit Committee, which is

When considering succession planning, the Committee bears

kept under review, ensures that consideration is given to the

in mind the balance of skills, knowledge, experience and

following factors when considering the provision of non-audit

diversity existing on the Board and will recommend when the

services by the auditors:

s s

whether the audit firm is the most suitable supplier of

Once a decision is made to recruit additional Directors to the

non-audit services;

Board, a formal job description is drawn up. The Committee

the impact on the auditors’ independence and objectivity and what safeguards can be put in place to eliminate or reduce any threat in this regard; and

s

recruitment of additional non-executive Directors is required.

the cost-effectiveness of the services.

may use external agencies as and when the requirement to recruit an additional Board member becomes necessary. The Committee also reviews and recommends to the Board the Directors seeking re-election. Recommendation is not automatic and will follow a process of evaluation of each

The Audit Committee remains satisfied with the effectiveness

Director’s performance and consideration of the Director’s

of the audit provided by Ernst & Young LLP. The auditors are

independence. The Committee also takes into account the mix

required to rotate the audit partner every five years and this is

of skills and experience of the current Board members. In

the second year that the current partner has been in place.

accordance with the UK Code any Director serving for longer

The Audit Committee is satisfied that the auditors are

than six years would be subject to particularly rigorous

independent of the Company.

assessment of his contribution.

The appointment of the auditors is not regularly put out to

The Committee met in July 2012 to carry out its annual review

tender but performance is regularly reviewed by the Audit

of the Board, its composition and size and its Committees. The

Committee. On the basis of the auditors’ performance the

results of the performance evaluation are contained in (e) below.

Audit Committee recommended their continuing appointment to the Board with no tender necessary.

Management Engagement Committee

The auditors have indicated their willingness to continue in

All Directors are members of the Management Engagement

office. Accordingly, resolutions to confirm the appointment of

Committee, which is chaired by the Chairman of the Board.

Ernst & Young LLP as auditors to the Company, and to

The Committee is responsible for reviewing the management

authorise the Directors to determine their remuneration, will

contract on a regular basis, ensuring that the terms are fair

be proposed at the AGM.

and reasonable and that its continuance, given the Company’s

The Audit Committee has reviewed and is satisfied with the “whistle blowing” policy that the Manager has put in place for its staff to raise concerns about possible improprieties, including in relation to the Company, in confidence. The

performance over both short and longer terms, is in the best interests of the Company and its shareholders and also for reviewing the performance and cost effectiveness of the Company’s other service providers.

policy includes the necessary arrangements for independent

The Committee met in July 2012 to carry out its annual

investigation and follow-up action.

review of the Manager, the results of which are contained in (h) below.

Nomination Committee All Directors are members of the Nomination Committee,

Remuneration Committee

which is chaired by the Chairman of the Board (who would

All Directors are members of the Remuneration Committee,

not chair the Committee when the Chairman’s successor was

which is chaired by Peter Dicks. The Committee is responsible

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Report of the Directors continued for monitoring the remuneration of the Directors. The level of

However, such a system is designed to manage rather than

Directors’ fees is reviewed by reference to the work involved,

eliminate risks of failure to achieve the Company’s business

the level of responsibility and the fees paid by comparable

objectives and can only provide reasonable and not absolute

investment companies. Further information is included in the

assurance against material misstatement or loss. The Board has

Directors’ Remuneration Report on page 25.

reviewed the effectiveness of the Company’s system of internal

s

controls for the year ended 31 August 2012. During the course

Board attendance

The table below sets out the number of Board and Committee meetings held during the year under review and the number of

of its review the Board has not identified or been advised of any failings or weaknesses that have been determined as significant. All business risks faced by the Company are

meetings attended by each Director. All Directors in place at the date of this report attended the AGM in December 2011.

recorded in a risk map which is reviewed regularly.

Directors’ attendance at meetings

The Manager has established an internal control framework to

Board

AC

MEC

NC

RC

5 5 5 5 3

2 2 2 2 1

1 1 1 1 1

1 1 1 1 1

1 1 1 1 1

2

1

n/a

n/a

n/a

Number of meetings Tom Bartlam Rod Birkett Peter Dicks John Hancox Jimmy West(1) AC: MEC: NC: RC:

Audit Committee Management Engagement Committee Nomination Committee Remuneration Committee

(1) Retired on 12 December 2011

e) Performance evaluation The performance of the Company is considered in detail at each Board meeting. In the year under review the Board has conducted a review of its own performance, together with that of its Committees, the Chairman and each individual Director through questionnaires and discussion and concluded

provide reasonable, but not absolute, assurance on the effectiveness of the internal controls operated on behalf of its clients. The effectiveness of the internal controls is assessed by the Manager’s compliance and risk department on a continuing basis. The Board receives a formal report on a quarterly basis which details the steps taken to monitor the areas of risk, including those that are not directly the responsibility of the Manager, and which reports the details of any known internal control failures. The Board receives a report on the Manager’s internal controls each year which includes a report from the Manager’s auditors on the control policies and procedures in operation. As all of the Company’s management functions are delegated to third parties and the Board monitors the controls in place through the Manager’s internal audit department the Board feels that there is currently no need for the Company to have

that each were satisfactory and the Board has a good balance

its own internal audit function.

of skills and experience. In particular, it is considered that each

g) Accountability and relationship with the Manager

of the Directors makes a significant contribution to the affairs

The Statement of Directors’ Responsibilities in respect of the

of the Company and that Directors seeking re-election at the

financial statements is set out on page 24, the Independent

Company’s AGM merit re-election by shareholders. The use of

Auditors’ Report on page 49 and the statement of going

external parties to undertake the performance evaluation has

concern on page 15.

been used on occasion historically and will be considered from time to time in the future.

The Board has delegated contractually to external third parties, including the Manager, the management of the investment

f) Internal controls The Board has established an ongoing process for identifying, evaluating and managing any major risks faced by the Company. The process accords with advice issued by the FRC and is subject to regular review by the Board.

portfolio, the custodial services (which include the safeguarding of the assets), the day-to-day accounting, company secretarial and administration requirements and registration services. Each of these contracts was entered into after full and proper consideration by the Board of the quality and cost of the

The Board has overall responsibility for the Company’s system

services offered, including the control systems in operation in so

of internal controls and for reviewing its effectiveness.

far as they relate to the affairs of the Company.

21

22

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Report of the Directors continued The Board receives and considers regular reports from the

appointment of the Manager on the existing terms is in the

Manager and ad hoc reports and information are supplied to the

interests of the Company and its shareholders as a whole.

Board as required. In addition, the Chairman is able to attend meetings of all the chairmen of the investment trust companies

i) Relations with shareholders

managed by the Manager which provide a forum to discuss

Shareholder relations are given high priority by the Board. The

industry matters which would then be reported to the Board.

prime medium by which the Company communicates with its

The Manager takes decisions as to the purchase and sale of individual investments. The Manager also ensures that all Directors receive, in a timely manner, all relevant management, regulatory and financial information. Representatives of the Manager attend each Board meeting enabling the Directors to probe further on matters of concern. The Directors have access to the advice and services of the Secretary through its

shareholders is through the half year results and annual report and financial statements which aim to provide shareholders with a clear understanding of the Company’s activities and their results. This information is supplemented by the daily calculation and publication of the NAV per share to a regulatory information service and a monthly fact sheet which is available on the website www.hendersonfledglingtrust.com

appointed representative who is responsible to the Board for

The Board considers that shareholders should be encouraged to

ensuring that Board and Committee procedures are followed

attend and participate in the AGM. Shareholders have the

and that applicable rules and regulations are complied with.

opportunity to address questions to the Chairman of the Board,

The proceedings at all Board and Committee meetings are fully

the Chairman of the Audit Committee and all other Directors at

recorded through a process that allows any Director’s concerns

the meeting. Harmesh Suniara, as a representative of the

to be recorded in the minutes.

Manager, makes a presentation to shareholders. A summary of

The Board has reviewed the implications of the Bribery Act 2010, which came into force on 1 July 2011, and confirmed its zero tolerance to bribery and corruption in its business activities. It has sought assurances from the Company’s main contractors and suppliers that they will maintain adequate safeguards to protect against any potentially illegal behaviour by their employees and agents.

the proxy votes received on the resolutions proposed is displayed at the meeting and each substantial issue is dealt with in a separate resolution. It is the intention of the Board that the annual report and financial statements and notice of AGM be issued to shareholders so as to provide at least 20 working days’ notice of the meeting whenever possible. These documents are also included on the website. Shareholders wishing to lodge questions in advance of the meeting, or raise

h) Continued appointment of the Manager

issues or concerns at any time, are invited to do so by writing

The Board considers the arrangements for the provision of

to the Secretary at the registered office address given on page

investment management and other services to the Company

52 of this report.

on an ongoing basis. The principal contents of the agreement with the Manager are contained on page 16. Through the Management Engagement Committee, an annual review of the Company’s investment performance over both the short and longer terms, together with the quality of other services provided by Henderson, including company secretarial, accounting and marketing, and the terms of the investment management agreement and company secretarial and administration agreement is undertaken.

General presentations to both shareholders and analysts follow the publication of the annual results. All meetings between the Manager and shareholders are reported to the Board. j) Corporate Responsibilities (SEE statement)

s

Responsible investment

Responsible investment is the term Henderson uses to cover its work on corporate governance and corporate responsibility (or social, environmental and ethical (“SEE”) issues) in the companies in which it invests on its clients’ behalf, across all

The Board remains satisfied with the long-term investment

funds. In May 2005 Henderson became a founding signatory

performance and in particular the experience, skills and

to the United Nations Principles for Responsible Investment.

commitment of the individual Portfolio Managers. It is

The Principles, developed under the auspices of the UN

therefore the Directors’ opinion that the continuing

Secretary-General, are a voluntary and aspirational framework

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Report of the Directors continued for incorporating environmental, social and corporate

nature of the resolution the Portfolio Managers will give

governance (“ESG”) issues into mainstream investment

specific instructions on voting non-routine and unusual or

decision-making and ownership practices.

controversial resolutions. Decisions not to support resolutions

The way companies respond to sustainability and corporate responsibility can affect their business performance, both

and the rationale therefor are fed back to the investee company prior to voting.

directly and indirectly. An investee company’s policy on social

The Henderson responsible investment policy can be found on

responsibility and the environment is therefore considered as

the Henderson website, www.henderson.com

part of the investment risk decision.

s

Voting policy and the UK Stewardship Code

s

Employee and environmental matters

The Company has no employees and its core activities are

Henderson’s responsible investment policy sets out the

undertaken by Henderson, which has implemented

Manager’s approach to corporate governance and corporate

environmental management practices, including systems to

responsibility for all the companies in which it invests on

limit the use of non-renewable resources and to minimise the

behalf of its clients and its policy on proxy voting. The policy

impact of operations on the environment, and is focused on

also sets out how Henderson implements the Stewardship

reducing greenhouse gas emissions and minimising waste,

Code. The Company has reviewed Henderson’s policy and has

where possible.

delegated responsibility for voting to the Manager. The Board receives a report annually on the voting undertaken by the Manager on behalf of the Company. Henderson believes that voting at general meetings is an

By order of the Board

important aspect of corporate stewardship and a means of

Debbie Fish ACIS

signalling shareholder views, practices and performance.

For and on behalf of

Voting recommendations are guided by the best interests of

Henderson Secretarial Services Limited, Secretary

the investee companies’ shareholders. Depending on the

1 November 2012

23

24

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Statement of Directors’ Responsibilities The Directors are responsible for preparing the annual report,

the financial position of the Company and the Group and

the Directors’ Remuneration Report and the financial

enable them to ensure that the financial statements and the

statements in accordance with applicable law and regulations.

Directors’ Remuneration Report comply with the Companies

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the Group and Parent Company financial statements in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that year. In preparing these

Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Statement under DTR 4.1.12 Each of the Directors, who are listed on page 12, confirms that, to the best of their knowledge: ●

●

the European Union on a going concern basis, give a true

select suitable accounting policies and then apply them

and fair view of the assets, liabilities, financial position and

consistently; ●

make judgments and accounting estimates that are reasonable and prudent;

●

profit or loss of the Group and Parent Company; and ●

the annual report includes a fair review of the development and performance of the business and the position of the

state whether applicable IFRS as adopted by the European

Group and Parent Company, together with a description of

Union have been followed, subject to any material departures

the principal risks and uncertainties that it faces.

disclosed and explained in the financial statements; and ●

the Group and Parent Company financial statements, which have been prepared in accordance with IFRS as adopted by

financial statements, the Directors are required to:

Signed for and on behalf of the Board of Directors

prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting

Tom Bartlam

records that are sufficient to show and explain the Company’s

Chairman

transactions and disclose with reasonable accuracy at any time

1 November 2012

The financial statements are published on www.hendersonfledglingtrust.com which is a website maintained by the Company’s Manager, Henderson Global Investors Limited (“Henderson”). The maintenance and integrity of the website is the responsibility of Henderson; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Directors’ Remuneration Report Introduction

The fees paid to the Directors who served during the years

This report is submitted in accordance with Sections 420-422

ended 31 August 2011 and 2012 were as follows:

of the Companies Act 2006 (“the Act”). The report also meets the relevant Listing Rules of the Financial Services

Year ended 31 August 2012 £

Year ended 31 August 2011 £

Authority and describes how the Board has applied the

(Audited)

principles relating to Directors’ remuneration. As required by

Tom Bartlam(1) Rod Birkett(2) Peter Dicks John Hancox(3) Jimmy West(4) Robert Jeens(5) James Kerr-Muir(6)

26,677 21,500 19,500 19,500 8,327 – –

6,992 19,383 18,667 18,667 28,250 12,446 5,181

Total

95,504

109,586

the Act, an ordinary resolution to approve the report will be proposed at the annual general meeting. The Company’s auditors are required to report on certain information contained within this report. Where information set out below has been audited, it is indicated as such. Remuneration policy All Directors are non-executive and the Company has no employees. The whole Board fulfills the function of the Remuneration Committee. No advice or services were provided by any external person in respect of the consideration of Directors’ remuneration. Directors are remunerated in the form of fees, payable quarterly in arrears, to the Director personally. In accordance with the Company’s articles of association the aggregate remuneration of the Directors may not exceed £125,000 per

(1) Chairman and highest paid Director, appointed on 18 April 2011. (2) Chairman of the Audit Committee. (3) Senior Independent Director during year under review. Ceased to be a Director on 6 October 2012. (4) Retired on 12 December 2011. (5) Appointed on 1 September 2010 and retired on 18 April 2011. (6) Retired on 1 December 2010.

No other remuneration or compensation was paid or payable by the Company during the year to any of the current or former Directors or third parties.

calibre.

Performance graph The Company’s performance is measured against the Company’s Benchmark, the FTSE Fledgling (ex. Investment Companies) Index (“Fledgling Index”). The graph below compares the total return of the mid-market price of the Company’s ordinary shares over the five year period ended 31 August 2012 with the total return of the Benchmark and of the FTSE All-Share Index (“AllShare Index”) over the same period.

No Director is eligible to receive bonuses, pension benefits,

Total return performance to 31 August 2012

annum. Subject to this overall limit, the Board’s policy is that remuneration should be comparable to that of other investment trusts of a similar size and with a similar capital structure and investment objective and should be of a sufficient level to attract and retain directors of a suitable

share options or other benefits and no long-term incentive schemes are in place. No Director has a service contract with the Company.

150

125

100

Directors’ appointments may be terminated at any time by written notice with no compensation payable.

75

50

Directors’ fees

2007

2008

Source: Datastream.

2009

Fledgling Index

2010

2011

Share price

Directors’ annual fees are £29,500 for the Chairman of the Board, £21,500 for the Chairman of the Audit Committee

By order of the Board

and £19,500 for a non-executive Director. Fee levels were last

Debbie Fish ACIS

increased in July 2011. With effect from 1 September 2012

For and on behalf of

the Senior Independent Director is paid an additional £2,000

Henderson Secretarial Services Limited, Secretary

per annum.

1 November 2012

2012

All-Share Index

25

26

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Consolidated Statement of Comprehensive Income for the year ended 31 August 2012

Year ended 31 August 2012 Revenue Capital return return Total £’000 £’000 £’000

Notes 2

(Losses)/gains on investments held at fair

3

Investment income

value through profit or loss 3 12

– 2,329

Year ended 31 August 2011 Revenue Capital return return Total £’000 £’000 £’000

–

4,350

4,350

–

2,329

2,638

–

2,638

(9,782)

(9,782)

Other income

2

–

2

40

–

40

Net exchange loss

–

–

–

–

(8)

(8)

(32)

(90)

–

(90)

(9,782)

(7,483)

2,588

4,342

6,930

Loss on investments held for trading Total income

(32) 2,299

–

Expenses 4

Management fees

(235)

(353)

(588)

(282)

(422)

(704)

5

Other expenses

(310)

(115)

(425)

(344)

(447)

(791)

(10,250)

(8,496)

1,962

3,473

5,435

(76)

(131)

(42)

(63)

(105)

(10,326)

(8,627)

1,920

3,410

5,330

–

–

–

(8,627)

1,920

3,410

5,330

(53.43)p

11.23p

19.94p

31.17p

Profit/(loss) before finance costs and taxation 6

Finance costs Profit/(loss) before taxation

7

Taxation

1,754 (55) 1,699 –

–

–

Net profit/(loss) for the year and total comprehensive income

9

Return per ordinary share

1,699

10.52p

(10,326)

(63.95)p

The total column of this statement represents the Consolidated Statement of Comprehensive Income, prepared in accordance with IFRS as adopted by the European Union. The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies. The Group does not have any other comprehensive income and hence the net profit/(loss), as disclosed above, is the same as the Group’s total comprehensive income. All items in the above statement derive from continuing operations. No operations were acquired or discontinued during the year. All income is attributable to the equity shareholders of Henderson Fledgling Trust plc. There are no minority interests.

The notes on pages 30 to 48 form part of these financial statements

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Consolidated and Parent Company Statements of Changes in Equity for the year ended 31 August 2012 Called up share capital £’000

Capital redemption reserve £’000

Total equity at 31 August 2011 Total comprehensive income: (Loss)/profit for the year Transactions with owners, recorded directly to equity: Ordinary dividends paid Buy-backs of ordinary shares

4,127

6,171

–

Total equity at 31 August 2012

4,019

Notes

8

8

8

8

– (108)

Consolidated Year ended 31 August 2012 Retained earnings Capital Revenue reserve reserve(1) £’000 £’000

Total £’000

67,578

2,084

79,960

–

(10,326)

1,699

(8,627)

– 108

– (1,589)

(1,613) –

(1,613) (1,589)

55,663

2,170

68,131

6,279

Consolidated Year ended 31 August 2011 Retained earnings Capital Revenue reserve reserve(1) £’000 £’000

Called up share capital £’000

Capital redemption reserve £’000

Total equity at 31 August 2010 Total comprehensive income: Profit for the year Transactions with owners, recorded directly to equity: Ordinary dividends paid Buy-backs of ordinary shares

4,649

5,649

73,156

1,542

84,996

–

–

3,410

1,920

5,330

– (522)

– 522

– (8,988)

(1,378) –

(1,378) (8,988)

Total equity at 31 August 2011

4,127

6,171

67,578

2,084

79,960

Called up share capital £’000

Capital redemption reserve £’000

Total equity at 31 August 2011 Total comprehensive income: (Loss)/profit for the year Transactions with owners, recorded directly to equity: Ordinary dividends paid Buy-backs of ordinary shares

4,127

6,171

–

Total equity at 31 August 2012

4,019

– (108)

Company Year ended 31 August 2012 Retained earnings Capital Revenue reserve reserve(1) £’000 £’000

Total £’000

Total £’000

67,488

2,174

79,960

–

(10,351)

1,724

(8,627)

– 108

– (1,589)

(1,613) –

(1,613) (1,589)

55,548

2,285

68,131

6,279

Company Year ended 31 August 2011 Retained earnings Capital Revenue reserve reserve(1) £’000 £’000

Called up share capital £’000

Capital redemption reserve £’000

Total equity at 31 August 2010 Total comprehensive income: Profit for the year Transactions with owners, recorded directly to equity: Ordinary dividends paid Buy-backs of ordinary shares

4,649

5,649

73,156

1,542

84,996

–

–

3,320

2,010

5,330

– (522)

– 522

– (8,988)

(1,378) –

(1,378) (8,988)

Total equity at 31 August 2011

4,127

6,171

67,488

2,174

79,960

(1) The revenue reserve represents the amount of reserves distributable by way of dividend.

The notes on pages 30 to 48 form part of these financial statements

Total £’000

27

28

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Consolidated and Parent Company Balance Sheets at 31 August 2012

Notes

Consolidated 2012 £’000

Consolidated 2011 £’000

Company 2012 £’000

Company 2011 £’000

–

–

–

(90)

69,995

87,167

69,995

87,167

69,995

87,167

69,995

87,077

Non current assets 13

Investment in subsidiary

10

Investments held at fair value through profit or loss

Current assets 12

Investments held for trading

–

245

–

–

Balances due from brokers

–

485

–

485

14

Other receivables

15

Cash and cash equivalents

Total assets

111

217

111

297

1,359

1,282

1,359

1,282

1,470

2,229

1,470

2,064

71,465

89,396

71,465

89,141

Current liabilities Balances due to brokers 16

Other payables

Net assets

(297)

(126)

(297)

(126)

(3,037)

(9,310)

(3,037)

(9,055)

(3,334)

(9,436)

(3,334)

(9,181)

68,131

79,960

68,131

79,960

4,019

4,127

4,019

4,127

Equity attributable to equity shareholders 17

Called up share capital

18

Capital redemption reserve

19

Capital reserve

20

Revenue reserve Total equity

21

Net asset value per ordinary share

6,279

6,171

6,279

6,171

55,663

67,578

55,548

67,488

2,170

2,084

2,285

2,174

68,131

79,960

68,131

79,960

423.8p

484.3p

423.8p

484.3p

These financial statements were approved by the Board of Directors on 1 November 2012 and signed on its behalf by:

Tom Bartlam Chairman

The notes on pages 30 to 48 form part of these financial statements

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Consolidated and Parent Company Cash Flow Statements for the year ended 31 August 2012

Year ended 31 August 2012 Consolidated Company £’000 £’000

Notes

Year ended 31 August 2011 Consolidated Company £’000 £’000

Operating activities (Loss)/profit before finance costs and taxation

5,435

5,525

Foreign exchange losses

–

–

8

8

Decrease in investments

17,417

17,057

1,290

1,535

591

671

(440)

(520)

60

60

101

101

9,572

9,317

6,394

6,649

Buy-backs of ordinary shares

(1,589)

(1,589)

(8,988)

(8,988)

(Decrease)/increase in bank overdraft

(6,153)

(5,898)

5,236

4,981

Equity dividends paid

(1,613)

(1,613)

(1,378)

(1,378)

(140)

(140)

(91)

(91)

(9,495)

(9,240)

(5,221)

(5,476)

Decrease/(increase) in receivables Increase in payables Net cash inflow from operating activities

(8,496)

(8,471)

Financing activities

8

Bank overdraft interest paid Net cash used in financing activities

Increase in cash and cash equivalents Cash and cash equivalents at the start of the year

77

77

1,173

1,173

1,282

1,282

117

117

–

–

(8)

(8)

1,359

1,359

1,282

1,282

Effect of foreign exchange rate changes 15

Cash and cash equivalents at the end of the year

The notes on pages 30 to 48 form part of these financial statements

29

30

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Notes to the Financial Statements

1

Accounting policies (a) Basis of preparation Henderson Fledgling Trust plc (“the Company”) is a company incorporated and domiciled in the United Kingdom under the Companies Act 2006 (“the Act”). The consolidated financial statements of the Company for the year ended 31 August 2012 comprise the Company and its subsidiary, GFT Dealing Limited, together referred to as the “Group”. The nature of the Group’s operations and its principal activities are set out in the Report of the Directors on pages 13 to 23. The subsidiary ceased to be active during the year and an application has been made for it to be struck off the register at Companies House. The consolidated and parent company financial statements for the year ended 31 August 2012 have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union and with those parts of the Act applicable to companies reporting under IFRS. These comprise standards and interpretations approved by the International Accounting Standards Board, together with interpretations of the International Accounting Standards and Standing Interpretations Committee approved by the International Financial Reporting Standards Committee that remain in effect, to the extent that IFRS have been adopted by the European Union. The financial statements have been prepared on a going concern basis and on the historical cost basis, as modified by the revaluation of investments at fair value. The principal accounting policies adopted are set out below. Where presentational guidance set out in the AIC SORP is consistent with the requirements of IFRS, the Directors have sought to prepare the financial statements on a basis consistent with the recommendations of the AIC SORP. Accounting standards (i) Standards, amendments and interpretations becoming effective in the current financial year: ●

IFRS 1 (Amendment), First Time Adoption of International Financial Reporting Standards – amendments resulting from the 2010 annual improvement review. No impact on the financial statements.

●

IFRS 7 (Amendment), Financial Instruments – Disclosures – amendments resulting from the 2010 annual improvement review. No impact on the financial statements.

●

IAS 1 (Amendment), Presentation of Financial Statements – amendments resulting from the 2010 annual improvement review. No impact on the financial statements.

●

IAS 24 (Revised), Related Party Disclosures – revised definition of related parties. No impact on the financial statements.

(ii) Standards, amendments and interpretations to existing standards that become effective in future accounting periods and have not been adopted early by the Group or the Company: ●

IFRS 7 (Amendment), Financial Instruments – Disclosure (effective for periods beginning on or after 1 January 2013) – amendments enhancing disclosures about offsetting financial assets and financial liabilities.

●

IFRS 7 (Amendment), Financial Instruments – Disclosure (effective for periods beginning on or after 1 January 2015 or otherwise when IFRS 9 is first applied) – amendments requiring disclosures about the initial application of IFRS 9.

●

IFRS 9, Financial Instruments (effective for financial periods beginning on or after 1 January 2015) – replaces IAS 39 and simplifies accounting for financial assets, replacing the current multiple measurement categories with a single principle-based approach to classification. All financial assets to be measured at either amortised cost or fair value. The Group will apply IFRS 9 from 1 September 2015, subject to endorsement by the EU.

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Notes to the Financial Statements continued

1

Accounting policies (continued) ●

IFRS 10, Consolidated Financial Statements (effective for periods beginning on or after 1 January 2013) – provides additional guidance to assist in the determination of control where this is difficult to assess. The Group will apply IFRS 10 from 1 September 2013.

●

IFRS 12, Disclosure of Interests in Other Entities (effective for periods on or after 1 January 2013) – includes the disclosure requirement for all forms of interest in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles. The Group will apply IFRS 12 from September 2013.

●

IFRS 13, Fair Value Measurement (effective for periods beginning on or after 1 January 2013) – aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across all IFRS. The Group will apply IFRS 13 from 1 September 2013.

●

IAS 1, Presentation of Financial Statements (effective for periods beginning on or after 1 July 2012) – amendments to revise the way other comprehensive income is presented. The Group will apply this amendment from 1 September 2012.

(iii) Standards, amendments and interpretations to existing standards that become effective in future accounting periods and are not relevant to the Group’s or the Company’s operations: ●

IFRS 11, Joint Arrangements (effective for periods beginning on or after 1 January 2013).

●

IAS 12 (Amendment), Income Taxes (effective for periods beginning on or after 1 January 2012).

●

IAS 27 (Revised 2011), Separate Financial Statement (effective for periods beginning on or after 1 January 2013).

●

IAS 28 (Revised 2011), Associates and joint ventures (effective for periods beginning on or after 1 January 2013).

(b) Basis of consolidation The Group financial statements consolidate the financial statements of the Company and of its sole wholly owned subsidiary undertaking, GFT Dealing Limited, drawn up on the balance sheet date. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. The inter-group balances and transactions are eliminated on consolidation. The investment in the subsidiary is recognised at fair value in the financial statements of the Company. The Statement of Comprehensive Income is only presented in consolidated form as provided by section 408 of the Act. Whilst active during the year, GFT Dealing Limited ceased to be active before 31 August 2012 and an application has been made for it to be struck off. (c) Going concern The Company’s shareholders are asked every year to vote for the continuation of the Company. An ordinary resolution to this effect will be put to shareholders at the annual general meeting (“AGM”) to be held on 3 December 2012 and the Board has no reason to believe that this resolution will not be passed. The assets of the Company consist almost entirely of securities that are listed on the UK Listing Authority Official List or quoted on AIM and, accordingly, the Directors believe that the Company has adequate financial resources to continue in operational existence for the foreseeable future. For these reasons, the Board has decided that it is appropriate for the financial statements to be prepared on a going concern basis.

31

32

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Notes to the Financial Statements continued

1

Accounting policies (continued) (d) Investments held at fair value through profit or loss All investments are designated upon initial recognition as held at fair value through profit or loss. Investment transactions are accounted for on a trade date basis. Assets are de-recognised at the trade date of the disposal. Proceeds are measured at fair value, which is regarded as the proceeds of sale less any transaction costs. The fair value of the financial instruments is based on their quoted bid price at the balance sheet date, without deduction of the estimated future selling costs. Unquoted investments (including the Company’s investment in its subsidiary) are valued by the Directors using primary valuation techniques such as earnings multiples, recent transactions and net assets. Where fair value cannot be reliably measured the investment will be carried at the previous reporting date value unless there is evidence that the investment has since been impaired, in which case the value will be reduced. Changes in the value of investments held at fair value through profit or loss and gains and losses on disposal are recognised in the Statement of Comprehensive Income as “gains or losses on investments held at fair value through profit or loss”. No provision for taxation is required in respect of any realised or unrealised appreciation of investments which arises as the Company expects to continue to qualify as an investment trust for tax purposes, thereby rendering capital profits exempt from tax. (e) Presentation of the Statement of Comprehensive Income In order to better reflect the activities of an investment trust company, and in accordance with the AIC SORP, supplementary information which analyses the Statement of Comprehensive Income between items of a revenue and capital nature has been presented alongside the Statement of Comprehensive Income. The net revenue is the measure the Directors believe appropriate in assessing the Group’s compliance with certain requirements set out in Section 1158 of the Corporation Tax Act 2010 (“Section 1158”). (f) Income Dividends receivable on equity shares are recognised as revenue for the year on an ex-dividend basis. Special dividends are treated as revenue return or as capital return, depending on the facts of each individual case. Income from fixed interest debt securities is recognised using the effective interest rate method. Where the Company elects to receive dividends in the form of additional shares rather than cash, the amount of cash dividend foregone is recognised as revenue in the Statement of Comprehensive Income. The trading profits of the subsidiary undertaking, which represent realised gains and losses on the sale of current asset investments, are dealt with in the revenue column of the Statement of Comprehensive Income as a revenue item. Bank deposit interest is accounted for on an accruals basis. Where the Company enters into a commitment to sub-underwrite an issue of securities, in exchange for the receipt of commission, a derivative financial instrument is created. Any such derivatives are recognised initially at fair value. They are re-measured subsequently at fair value, with the related gains and losses being reflected in the Statement of Comprehensive Income. Net losses arising from these derivatives, where the actual or expected loss from taking up the securities underwritten exceeds the commission income, are allocated to the capital return. Net gains are allocated to the revenue return. Other receivables do not carry any right to interest and are short-term in nature. Accordingly, they are stated at their nominal value (amortised cost), reduced by appropriate allowances for estimated irrecoverable amounts.

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Notes to the Financial Statements continued

1

Accounting policies (continued) (g) Expenses All expenses and interest payable are accounted for on an accruals basis. Expenses are split and presented partly as capital items where a connection with the maintenance or enhancement of the value of the investments held can be demonstrated and, accordingly, management fees and finance costs are allocated 40% to revenue and 60% to capital in order to reflect the Directors’ expected long-term view of the nature of investment returns of the Group. Expenses which are incidental to the purchase or sale of an investment are charged to the capital column of the Statement of Comprehensive Income and allocated to the capital reserves. Other payables are stated at their nominal amount. The costs of repurchasing ordinary shares, including related stamp duty and transaction costs, are taken directly to equity and reported through the Statement of Changes in Equity, with the cost of the repurchase being charged to the capital reserve. Share repurchase transactions are accounted for on a trade date basis. The nominal value of ordinary share capital repurchased and cancelled is transferred out of called-up share capital and into the capital redemption reserve in accordance with Section 733 of the Act. (h) Taxation The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on the taxable profit for the year. Taxable profit differs from net profit as reported in the Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that were applicable at the balance sheet date. In line with the recommendations of the AIC SORP, the allocation method used to calculate tax relief on expenses presented against capital returns in the supplementary information in the Statement of Comprehensive Income is the “marginal basis”. Under this basis, if taxable income is capable of being offset entirely by expenses presented in the revenue return column of the Statement of Comprehensive Income, then no tax relief is transferred to the capital return column. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Investment trusts which have approval as such under Section 1158 are not liable for taxation on capital gains. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the year when the liability is settled or the asset is realised. Deferred tax is charged or credited in the Statement of Comprehensive Income, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. (i) Foreign currency For the purposes of the consolidated financial statements, the results and financial position of each entity is expressed in pounds sterling, which is the functional currency of the Company and of its subsidiary and the presentational currency of the Group. Sterling is the functional currency because it is the currency of the primary economic environment in which the Company and its subsidiary operate.

33

34

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Notes to the Financial Statements continued

1

Accounting policies (continued) Transactions recorded in overseas currencies during the year are translated into sterling at the appropriate daily exchange rates. Monetary assets and liabilities and investments held at fair value through profit or loss which are denominated in overseas currencies at the balance sheet date are translated into sterling at the exchange rates ruling at that date. Gains and losses arising on the retranslation of investments held at fair value through profit or loss are included within the “gains or losses on investments held at fair value through profit or loss”. (j) Cash and cash equivalents Cash comprises cash in hand and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and that are subject to an insignificant risk of changes in value. (k) Operating segments The chief operating decision maker has been identified as the Board of the Company. The Board reviews the Group’s internal management accounts in order to analyse performance. The Directors are of the opinion that the Group is engaged in a single segment of business being the investment business. (l) Dividends payable to shareholders Dividends payable to shareholders are recognised in the financial statements when they are paid or, in the case of final dividends, when they are approved by shareholders. Dividends are dealt with in the Statement of Changes in Equity. (m) Reserves Capital redemption reserve The amount by which the nominal value of the Company’s issued share capital is diminished when shares are purchased out of the Company’s profits are held in this reserve, which is non-distributable. Capital reserve This reserve comprises both gains and losses on disposals of investments and investment holding gains and losses. In accordance with the Company’s articles of association, sums standing to the credit of the capital reserve are available for distribution only by way of the purchase of the Company’s own shares. The Company may only distribute in this way “realised” profits which comprise net gains less losses on the realisation of investments together with changes in the fair value of investments that are considered to be readily convertible into cash without accepting adverse terms. Revenue reserve Comprises accumulated undistributed revenue profits available for distribution as dividends.

2

(Losses)/gains on investments held at fair value through profit or loss (Losses)/gains on disposal of investments

2012 £’000

2011 £’000

(16,651)

19,062

Fair value adjustments in earlier years

14,129

3,561

Net (losses)/gains on fair values at the previous balance sheet date

(2,522)

22,623

Fair value adjustments arising during the year

(7,260)

(18,273)

(9,782)

4,350

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Notes to the Financial Statements continued

3

Dividends and other income

2012 £’000

2011 £’000

1,845

2,110

Income from listed investments: Franked UK dividends UK property income distributions

84

77

400

451

2,329

2,638

Underwriting commission

–

37

Interest on deposits

2

3

2,331

2,678

Overseas dividends

Other income:

4

Management fee

Revenue return £’000

2012 Capital return £’000

235

353

Management fee

Total £’000

Revenue return £’000

2011 Capital return £’000

Total £’000

588

282

422

704

A summary of the management agreement is given on page 16 in the Report of the Directors. Management fees are allocated 60% to capital and 40% to revenue.

5

Other expenses Revenue: Directors’ fees (see the Directors’ Remuneration Report on page 25) Audit of the financial statements for the Group and Parent Company Other professional fees Custody and other bank charges Registration costs Printing and postage FSA and London Stock Exchange fees AIC subscriptions Share price listings in newspapers and websites Insurances Other expenses

Capital: Transaction costs incurred on acquisition of investments

2012 £’000

2011 £’000

96 22 41 18 16 26 11 9 8 7 56

110 22 36 34 21 19 10 8 8 7 69

310

344

115

447

425

791

35

36

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Notes to the Financial Statements continued

6

Finance costs Bank overdraft interest Overdraft arrangement fee

Total £’000

Revenue return £’000

2011 Capital return £’000

Total £’000

67

116

42

63

105

9

15

–

–

–

76

131

42

63

105

2011 Capital return £’000

Total £’000

Revenue return £’000

2012 Capital return £’000

49 6 55

Finance costs are allocated 60% to capital and 40% to revenue. 7

Taxation (a) Analysis of charge for the year Overseas tax suffered

Revenue return £’000

2012 Capital return £’000

Total £’000

Revenue return £’000

–

–

–

–

–

–

–

–

–

–

–

–

Current and total tax charge for the year

(b) Factors affecting the tax charge for the year The tax assessed for the year is lower than the standard rate of corporation tax in the UK of 24% for an investment trust (2011: 26%) for the year ended 31 August 2012. The differences are explained below. Revenue return £’000

2012 Capital return £’000

Total £’000

Revenue return £’000

2011 Capital return £’000

Total £’000

Net profit/(loss) on ordinary 1,699

(10,326)

(8,627)

1,920

3,410

5,330

Corporation tax at 24%(1) (2011: 26%)

170

(1,033)

(863)

208

369

577

Corporation tax at 26% (2011: 28%)

258

(1,566)

(1,308)

314

557

871

2,462

2,462

–

(1,180)

(1,180)

activities before taxation

(1)

Effects of: Capital loss/(profits) not subject to corporation tax Non-taxable dividends Expenses not deductible for tax purposes Current year expenses not utilised Tax charge

–

(695)

–

(695)

–

29

29

1

122

123

135

108

243

172

132

304

–

–

–

–

–

–

(563)

–

(563)

(1) The rate of corporation tax lowered to 24% from 1 April 2012.

(c) Provision for deferred taxation No provision for deferred taxation has been made in the current or prior year.

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Notes to the Financial Statements continued

7

Taxation (continued) The Company has not provided for deferred tax on capital gains or losses arising on the revaluation or disposal of investments as it is exempt from tax on these items because of its status as an investment trust company. (d) Factors that may affect future tax charges The Company has not recognised a deferred tax asset of £3,163,000 (2011: £3,176,000) arising as a result of having unutilised management expenses, deficits on non-trading loan relationships and trading losses. These expenses will only be utilised if the tax treatment of the Company’s income and capital gains changes or if the Company’s investment profile changes.

8

2012 £’000

2011 £’000

Final dividend for the year ended 31 August 2010 of 4.0p

–

707

Interim dividend for the year ended 31 August 2011 of 4.0p

–

671

Final dividend for the year ended 31 August 2011 of 6.0p

970

–

Interim dividend for the year ended 31 August 2012 of 4.0p

643

–

1,613

1,378

Dividends Amounts recognised as distributions to equity holders in the year:

Subject to approval at the AGM, the proposed final dividend of 6.0p per ordinary share will be paid on 17 December 2012 to shareholders on the register of members at the close of business on 16 November 2012. The proposed final dividend for the year ended 31 August 2012 has not been included as a liability in these financial statements. Under IFRS, the final dividend is not recognised until approved by shareholders. The total dividends payable in respect of the financial year which form the basis of the test under Section 1158 are set out below: 2012 £’000

Revenue available for distribution by way of dividends for the year

1,724

Interim dividend of 4.0p paid on 25 May 2012 (based on 16,075,080 shares in issue at 11 May 2012)

(643)

Proposed final dividend of 6.0p payable on 17 December 2012 (based on 16,075,080 shares in issue at 26 October 2012) Undistributed revenue for section 1158 purposes

(965) 116

37

38

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Notes to the Financial Statements continued

9

Return per ordinary share The return per ordinary share figure is based on the net loss for the year of £8,627,000 (2011: profit of £5,330,000) and on 16,147,058 (2011: 17,103,007) ordinary shares, being the weighted average number of ordinary shares in issue during the year. The return per ordinary share figure detailed above can be further analysed between revenue and capital, as below. The Company has no securities in issue that could dilute the return per ordinary share. Therefore the basic and diluted return per ordinary share are the same.

Net revenue profit Net capital (loss)/profit Net total (loss)/profit

2012 £’000

2011 £’000

1,699

1,920

(10,326)

3,410

(8,627)

5,330

Weighted average number of ordinary shares in issue during the year

Revenue return per ordinary share

10

16,147,058

17,103,007

Pence

Pence

10.52

11.23

Capital return per ordinary share

(63.95)

19.94

Total return per ordinary share

(53.43)

31.17

Investments held at fair value through profit or loss

2012 £’000

2011 £’000

(a) Group Book cost brought forward

124,694

111,517

Acquisitions at cost (excluding transaction costs)

18,299

67,214

Proceeds of disposals (net of transaction costs)

(25,689)

(73,099)

Net (losses)/gains realised on disposals

(16,651)

19,062

Closing book cost

100,653

124,694

Fair value adjustment

(30,658)

(37,527)

69,995

87,167

(1)

Valuation at 31 August (1) Proceeds of disposals of investments includes special capital dividends of £52,000 (2011: £487,000).

The investments are all equities which are either listed on the Official List or quoted on AIM in the UK and are included in the Balance Sheet at fair value.

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Notes to the Financial Statements continued

10

Investments held at fair value through profit or loss (continued) Analysis of investments at fair value: 2012 £’000

2011 £’000

68,268

85,728

1,727

1,439

69,995

87,167

Listed: United Kingdom Unlisted: United Kingdom (quoted on AIM)

The Company’s investments are registered in the names of nominees of, and held to the order of, HSBC Bank plc, as custodian to the Company. There were no contingent liabilities in respect of the investments held at the year end.

(b) Company

Portfolio investments £’000

Subsidiary undertaking £’000

Total £’000

Book cost brought forward

124,694

–

124,694

Investment holding losses brought forward

(37,527)

(90)

(37,617)

Valuation brought forward

87,167

(90)

87,077

Acquisitions at cost

18,299

115

18,414

Disposals at cost

(42,340)

–

(42,340)

6,869

(25)

6,844

69,995

–

69,995

Closing book cost

100,653

115

100,768

Investment holding losses

(30,658)

(115)

(30,773)

Valuation at 31 August 2012

69,995

–

69,995

Movements in the year:

Movement in investment holding gains Valuation at 31 August 2012

The subsidiary was not active at 31 August 2012 and had a nil carrying value following a capital contribution of £115,000 made during the year from the Parent Company in order to extinguish losses incurred. The results of the subsidiary are consolidated within the Group accounts with the investment stated at a net asset value (“NAV”) of nil which is considered by the Board to be fair value. (c) Transaction costs Costs on acquisitions Costs on disposals

2012 £’000

2011 £’000

115

447

49

184

164

631

39

40

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Notes to the Financial Statements continued

11

Significant interests At 31 August 2012 the Company held interests amounting to 3% or more of any class of capital in the following investee companies: % of class

% of class

Abbeycrest(1)

14.6

Haynes Publishing

4.0

Hiwave Technologies

13.4

Alpha UK Multi Property Trust

4.0

Thorntons

11.2

City of London

3.9

Skyepharma

11.1

Molins

3.9

Beale

10.8

Jersey Electricity

3.9

Southern Cross Healthcare(1)

10.7

Hornby

3.8

Superglass

9.9

Air Partner

3.8

Clarke

7.6

Victoria

3.8

Phytopharm

7.5

Dee Valley

3.8

Manganese Bronze

6.8

Acal

3.8

Future

6.3

Trifast

3.6

Parity

6.3

Gresham Computing

3.6

HMV

6.2

Alizyme(1)

3.6

Source Bioscience

6.2

Triad

3.6

Ark Therapeutics

6.1

STV

3.5

Filtronic

5.7

Johnston Press

3.5

Helphire

5.6

Moss Bros

3.4

MacFarlane

5.5

Record

3.4

Flying Brands

5.2

DRS Data & Research Services

3.4

Communisis

5.1

Office2office

3.3

Antisoma

5.0

Anglesey Mining

3.3

Local Shopping REIT

4.9

Caffyns

3.3

Corin

4.8

Vislink

3.2

Luminar(1)

4.5

Walker Crips Weddle Beck

3.2

600

4.4

Cardiff Property

3.0

Styles & Wood

4.2

Clinton Cards(1)

3.0

MWB

4.2

Pochins

3.0

AXA Property

4.2

MS International

3.0

Jarvis

4.1

Liontrust Asset Management

3.0

Bioquell

4.0

Electronic Data Processing

3.0

Waterman

4.0

Mallett

3.0

(1)

(1) Stock de-listed and valued at nil.

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Notes to the Financial Statements continued

12

Loss on investments held for trading

2012 £’000

2011 £’000

Listed equity investments: Opening valuation Opening book cost

382

–

(137)

–

245

–

187

505

Proceeds of disposals

(400)

(170)

Net (loss)/profit realised on disposals

(169)

47

137

(137)

–

245

Opening fair value adjustment

Movements in the year: Acquisitions at cost

Increase/(decrease) in fair value adjustment Closing valuation Closing book cost

–

382

Closing fair value adjustment

–

(137)

–

245

Closing valuation Losses on investments held for trading: On equity investments: Net (loss)/profit realised on disposals

(169)

47

Increase/(decrease) in fair value adjustment

137

(137)

Total loss on investments held for trading

(32)

(90)

The investments held by the dealing subsidiary (GFT Dealing Limited) have been designated as held for trading and valued at fair value through profit or loss. 13

Subsidiary undertaking During the year the Company had an investment in the entire issued ordinary share capital, fully paid, in its wholly owned subsidiary undertaking, GFT Dealing Limited, which was registered in England and Wales and operated in the United Kingdom as an investment dealing company. The investment is stated in the Company’s accounts at NAV, which is considered by the Directors to equate to fair value. The amount due from the subsidiary company at 31 August 2012 amounted to £nil (2011: £80,000). An application has been made for the subsidiary to be struck off since the year end.

41

42

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Notes to the Financial Statements continued

13

Company 2012 £’000

Subsidiary undertaking (continued) Book value brought forward

Company 2011 £’000

(90)

–

(32)

(90)

Loss of subsidiary for the year: Loss on investments held for trading Franked UK dividends Overdraft interest Capital contribution

14

Other receivables Prepaid expenses and other debtors Accrued income Amount due from subsidiary

Group 2012 £’000

Group 2011 £’000

11

–

(4)

–

115

–

–

(90)

Company 2012 £’000

Company 2011 £’000

10

15

10

15

101

202

101

202

–

–

–

80

111

217

111

297

The carrying amounts and other receivables approximate their fair value. None of the other receivables are past due or impaired.

15

16

Cash and cash equivalents

Group 2012 £’000

Group 2011 £’000

Company 2012 £’000

Company 2011 £’000

Cash at bank

1,359

1,282

1,359

1,282

Other payables

Group 2012 £’000

Group 2011 £’000

Company 2012 £’000

Company 2011 £’000

Amounts payable within one year: Accrued expenses Bank overdraft

354

474

354

474

2,683

8,836

2,683

8,581

3,037

9,310

3,037

9,055

The carrying amounts of other payables approximate their fair value. The Company has an overdraft facility of £15,000,000 with HSBC Bank plc which has interest payable on drawn amounts of 1.25% over the bank’s base rate (2011: £9,000,000 overdraft facility with The Royal Bank of Scotland plc with interest payable on drawn amounts of 1.5% over the bank’s base rate). Drawings on the facility are repayable on demand.

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Notes to the Financial Statements continued

17

Called up share capital

2012 £’000

2011 £’000

4,019

4,127

Allotted, issued and fully paid: 16,075,080 ordinary shares of 25p each (2011: 16,509,080)

During the year 434,000 (2011: 2,085,500) ordinary shares were purchased and cancelled at a cost of £1,589,000 (2011: £8,988,000), including £9,000 relating to stamp duty and other transaction costs (2011: £45,000). Since the year end no ordinary shares have been purchased and cancelled. 18

Capital redemption reserve Balance brought forward Nominal value of ordinary shares repurchased Balance at 31 August

19

Capital reserve Balance brought forward (Losses)/gains on disposal of investments Investment holding gains/(losses) Loss on subsidiary Management fees allocated to capital Finance costs allocated to capital Transaction costs incurred on acquisitions of investments Cost of shares repurchased Net exchange loss Balance at 31 August

2012 £’000

2011 £’000

6,171

5,649

108

522

6,279

6,171

Group 2012 £’000

Group 2011 £’000

Company 2012 £’000

Company 2011 £’000

67,578

73,156

67,488

73,156

(16,651)

19,062

(16,651)

19,062

6,869

(14,712)

6,869

(14,712)

–

(25)

(90)

(422)

(353)

(422)

– (353) (76)

(63)

(76)

(63)

(115)

(447)

(115)

(447)

(1,589)

(8,988)

(1,589)

(8,988)

–

(8)

–

(8)

55,663

67,578

55,548

67,488

The split of capital reserve between realised and investment holding losses in order to determine distributable profits (those reserves which are considered to be readily convertible into cash) is as follows:

Realised Investment holding losses

Group 2012 £’000

Group 2011 £’000

Company 2012 £’000

Company 2011 £’000

86,325

105,109

86,325

105,109

(30,662)

(37,531)

(30,777)

(37,621)

55,663

67,578

55,548

67,488

43

44

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Notes to the Financial Statements continued

20

Revenue reserve

Group 2012 £’000

Group 2011 £’000

Company 2012 £’000

Company 2011 £’000

Balance brought forward

2,084

1,542

2,174

1,542

Net revenue return for the year

1,699

1,920

1,724

2,010

(1,613)

(1,378)

(1,613)

(1,378)

2,170

2,084

2,285

2,174

Dividends paid on ordinary shares Balance at 31 August

21

Net asset value per ordinary share (Group and Company) The NAV per ordinary share is based on the net assets attributable to the ordinary shares of £68,131,000 (2011: £79,960,000) and on the 16,075,080 ordinary shares in issue at 31 August 2012 (2011: 16,509,080). The NAV per ordinary share as at 31 August 2012 was 423.8p (2011: 484.3p). The Company has no securities in issue that could dilute the NAV per ordinary share.

22

Notes to the cash flow statement Cash and cash equivalents comprise cash at bank and other short-term highly liquid investments with a maturity of three months or less. Purchases and sales of investments are considered to be operating activities of the Company, given its purpose, rather than investing activities. However, the cash flows associated with these activities are presented below: 2011 £’000

2012 £’000

Proceeds on disposal of fair value through profit and loss investments Purchases of fair value through profit and loss investments

23

26,174

72,687

(18,128)

(67,300)

Related party transactions Henderson Global Investors Limited (“Henderson”) and its subsidiaries are appointed to provide investment management, accounting, administration and company secretarial services (as detailed on page 16) and as such Henderson is regarded as a related party. During the year £588,000 was payable to Henderson for the provision of services to the Company (2011: £704,000 was payable to the previous Manager for comparable services). At the balance sheet date, management fees totalling £235,000 (2011: £358,000) were accrued to be payable to Henderson. Henderson also provides the Company with sales and marketing services. The total fees payable for these services for the year ended 31 August 2012 (excluding VAT) amounted to £13,000 (2011: £nil). At 31 August 2012, £2,000 was outstanding (2011: £nil). The Company also made a capital contribution of £115,000 (2011: £nil) to the subsidiary, GFT Dealing Limited. The compensation payable to key management personnel comprised £96,000 (2011: £110,000) paid by the Company to the Directors in respect of services to the Company as shown in the Directors’ Remuneration Report on page 25. The Company has no employees.

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Notes to the Financial Statements continued

24

Capital management policies and procedures The Company’s capital is represented by its net assets, which are managed to achieve the Company’s investment objective, set out on page 13. The Board monitors and reviews the broad structure of the Company’s capital on an ongoing basis. This review includes: (a) the planned level of gearing through the Company’s overdraft facility; (b) the need to buy back or issue equity shares; and (c) the determination of dividend payments. The Company’s objectives, policies and processes for managing capital are unchanged from the preceding year. The Company is subject to externally imposed capital requirements through the Act, with respect to its status as a public company. In addition, with respect to the obligation and ability to pay dividends, the Company must comply with the provisions of Section 1158 and the Act respectively. These provisions are unchanged since the previous year and the Company has complied with them.

25

Risk management policies and procedures As an investment trust the Company invests for the long term in equity securities, in accordance with its investment objective as set out on page 13. In pursuing its investment objective, the Group is exposed to a variety of risks that could result in either a reduction in the Group’s net assets or a reduction in the revenue available for distribution by way of dividends. These financial risks (market risk, liquidity risk and credit risk), and the Directors’ approach to the management of them, are set out below. The Manager, in close co-operation with the Board, co-ordinates the Group’s risk management. The objectives, policies and processes for managing the risks, and the methods used to manage the risks, are set out below; they have not changed from the prior year. (a) Market risk The fair value of a financial instrument held by the Group may fluctuate due to changes in market prices. This market risk comprises market price risk (see note 25(b)), currency risk (see note 25(c)) and interest rate risk (see note 25(d)). The Board reviews and agrees policies for managing these risks. The Manager assesses the exposure to market risk when making each investment decision and monitors the overall level of market risk on the whole of the investment portfolio on an ongoing basis. (b) Market price risk Market price risk (i.e. changes in market prices other than those arising from interest rate risk or currency risk) may affect the fair value of the investments. The Group’s investments are susceptible to market price risk arising from uncertainties about the future prices of the investments. This is the most significant of the Group’s risks; the Group invests in Fledgling companies which are riskier and significantly less liquid than larger companies and their share prices tend to be more volatile.

45

46

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Notes to the Financial Statements continued

25

Risk management policies and procedures (continued) Management of the risk The Board manages the risks inherent in the investment portfolio by ensuring full and timely access to relevant information from the Manager. The Board regularly reviews investment performance. The Board monitors the Manager’s compliance with the Group’s objectives and is directly responsible for investment strategy. The Group’s exposure to changes in market prices at 31 August 2012 on its equity investments was £69,995,000 (2011: £87,167,000). Concentration of exposure to market price risk An analysis of the Group’s principal investments is shown on page 10 and a sector analysis is set out on page 11. The maximum percentage of the Group’s assets which may comprise the active investment overlay is 35%. Up to 20% of the Group’s assets may be invested in companies quoted on AIM which were formerly listed on the Official List and which meet the Fledgling Index market capitalisation criteria. By increasing the level of active investment overlay, certain investments may represent a more significant proportion (and others a lesser proportion) of the Group’s total assets. An investment in shares quoted on AIM may be less liquid and carry a higher risk than an investment listed on the Official List. Therefore the Group’s performance would be adversely affected if any one of the investments comprising the active overlay were to perform badly is greater than it would be if the Group’s investments were more diversified. Therefore the Group’s returns may diverge from those of the Fledgling Index. At 31 August 2012, the active investment overlay represented 20.9% (2011: 19.6%) of the investment portfolio by value, of which 3.6% (2011: 2.6%) was in AIM quoted stocks. The net increase in the Fledgling Index over the 10 year period to 31 August 2012 was 199.4%, with the annual movement over that period averaging 13.7% (2011: 10.3%). This illustrates the volatility of the Fledgling sector and indicates that it could move by a similar percentage in the forthcoming financial period. Accordingly, to illustrate the Group’s sensitivity to market prices, a 13.7% change in the market value of the equity portfolio at 31 August 2012 would generate a corresponding increase or decrease in the NAV per ordinary share of 14.1% and, because of the effect of the management fee, would have a converse effect on revenue return of around 0.1p per ordinary share. The effect on capital return would be a change of 59.2p per ordinary share. (c) Currency risk The Group is not itself materially exposed to currency risk, although some of the investments will be in companies that have operations that involve currency risk. As at 31 August 2012, the Group did not hold any non-sterling denominated investments (2011: nil). (d) Interest rate risk The Group finances part of its activities through the use of a short-term overdraft facility, details of which are provided in note 16. Drawings on the facility, made from time to time to facilitate periodic rebalancing of the portfolio, are normally short term in nature and, when made, are generally arranged on a rolling weekly basis. No hedging of the rate is undertaken. The Manager minimises the risk of exposure to excessive interest costs by monitoring the Group’s cash position on a regular basis. During the year, the maximum drawing on the overdraft facility was £9,685,000 (2011: £8,581,000). The weighted average interest rate paid was 1.7% (2011: 2.0%).

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Notes to the Financial Statements continued

25

Risk management policies and procedures (continued) The Group also earns interest on its cash and short-term deposits although, generally, cash balances held are not significant. Where funds are placed on deposit, they are rarely fixed for periods of more than one week. At the year end, financial assets and liabilities exposed to floating interest rates were as follows: Group 2012 £’000

Group 2011 £’000

Company 2012 £’000

Company 2011 £’000

1,359

1,282

1,359

1,282

(2,683)

(8,836)

(2,683)

(8,581)

Financial assets: Cash at bank and on deposit Financial liabilities: Bank overdraft The Group has no direct exposure to fixed interest rates. The year end amounts are not representative of the exposure to interest rates either during the year just ended or in the year ahead, since the level of borrowings and/or cash held are determined to a great extent by the level of takeovers in the Fledgling sector and by the effects of the annual rebalancing. However, to illustrate the potential sensitivity to changes in interest rates, if the overdraft facility of £15,000,000 was fully drawn, a change of 0.5% in the rate of interest charged would, over the course of a period, amount to £75,000, less than 0.2% of year end net assets. Interest rate changes may have an impact on the earnings of companies held within the portfolio and therefore may have a significant impact on the market value of the Group’s investments. (e) Liquidity risk Liquidity risk is the possibility of the Group failing to realise sufficient assets to meet its financial obligations. The Group minimises this risk by investing in primarily marketable securities which can be expected to generate cash inflows and by ensuring that it has adequate cash and credit facilities in place to meet cash outflows on liabilities. The Group’s liquidity is held in sterling, almost entirely on interest-bearing current accounts or short-term deposits in the money market. Deposits are rarely fixed for terms in excess of one week and, if amounts are substantial, are placed with different deposit takers so that at any given time deposits do not exceed £2,500,000 with any one deposit taker. At 31 August 2012, the fair value of financial liabilities was £651,000 (2011: £600,000), comprising: Group & Company 2012 £’000

Group & Company 2011 £’000

Investments purchased awaiting settlement

297

126

Accrued expenses and interest

354

474

Due within one month:

(f) Credit risk The failure of the counterparty to a transaction to discharge its obligations under that transaction could result in the Group suffering a loss.

47

48

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Notes to the Financial Statements continued

25

Risk management policies and procedures (continued) Management of the risk The risk is not significant, and is managed as follows: – investment transactions are carried out with a large number of brokers, whose credit standard is reviewed regularly by the Manager, and limits are set on the amount that may be due from any one broker; – cash at bank is held only with reputable banks with high quality external credit ratings. In summary, the exposure to credit risk at 31 August 2012 was to cash and cash equivalents of £1,359,000 (2011: £1,282,000) and to accrued income of £101,000 (2011: accrued income of £202,000 and balances due from brokers of £485,000). (g) Fair value hierarchy disclosures The table below sets out the fair value measurements using the IFRS 7 fair value hierarchy. Categorisation within the hierarchy has been determined on the basis of the lowest level of input that is significant to the fair value measurement of the relevant asset, as follows: Level 1: valued using quoted prices in active markets for identical assets. Level 2: valued by reference to valuation techniques using observable inputs other than quoted prices included in Level 1. Level 3: valued by reference to valuation techniques using inputs that are not based on observable market data. The valuation techniques used by the Company are explained in note 1(d) on page 32.

Fair value hierarchy – Group 2012

Equity investments

Fair value hierarchy – Company 2012

Equity investments

Fair value hierarchy – Group 2011

Equity investments

Fair value hierarchy – Company 2011

Equity investments

Level 1 £’000

Level 2 £’000

Level 3 £’000

Total £’000

69,995

–

–

69,995

Level 1 £’000

Level 2 £’000

Level 3 £’000

Total £’000

69,995

–

–

69,995

Level 1 £’000

Level 2 £’000

Level 3 £’000

Total £’000

87,254

158

–

87,412

Level 1 £’000

Level 2 £’000

Level 3 £’000

Total £’000

87,009

158

–

87,167

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Independent Auditors’ Report to the Members of Henderson Fledgling Trust plc We have audited the financial statements of Henderson Fledgling Trust plc for the year ended 31 August 2012 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated and Parent Company Statements of Changes in Equity, the Consolidated and Parent Company Balance Sheets, the Consolidated and Parent Company Cash Flow Statements and the related notes 1 to 25. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (“IFRS”) as adopted by the European Union and, as regards the Parent Company financial statements, as applied in accordance with the provisions of the Companies Act 2006.

●

the Group financial statements have been properly prepared in accordance with IFRS as adopted by the European Union;

●

the Parent Company financial statements have been properly prepared in accordance with IFRS as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and

●

the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the group financial statements, Article 4 of the IAS Regulation.

This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Opinion on other matters prescribed by the Companies Act 2006 In our opinion:

Respective responsibilities of directors and auditors As explained more fully in the Statement of Directors’ Responsibilities set out on page 24, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s and the Parent Company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report and financial statements to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion: ●

the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 August 2012 and of the Group’s loss for the year then ended;

●

the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and

●

the information given in the Report of the Directors for the financial year for which the financial statements are prepared is consistent with the financial statements.

Matters on which we are required to report by exception We have nothing to report in respect of the following: Under the Companies Act 2006 we are required to report to you if, in our opinion: ●

adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or

●

the Parent Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or

●

certain disclosures of Directors’ remuneration specified by law are not made; or

●

we have not received all the information and explanations we require for our audit.

Under the Listing Rules we are required to review: ●

the Directors’ statement, set out on page 15, in relation to going concern;

●

the part of the Corporate Governance Statement relating to the Company’s compliance with the nine provisions of the UK Corporate Governance Code specified for our review; and

●

certain elements of the report to shareholders by the Board on Directors’ remuneration.

Amarjit Singh (Senior statutory auditor) for and on behalf of Ernst & Young LLP, Statutory Auditor London 1 November 2012

49

50

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Glossary of Terms AIM

Ongoing charges

AIM is the London Stock Exchange’s international market for

Ongoing charges are those expenses of a type which are likely

smaller growing companies.

to recur in the foreseeable future, whether charged to capital or revenue, and which relate to the operation of the Company

Beta

as a collective fund, excluding the costs of acquisition or

A measure of portfolio responsiveness to market movements.

disposal of investments, financing charges and gains or losses

The Benchmark index has a beta of 1.0. A beta of 1.05, for

arising on investments. Ongoing charges are based on actual

example, means that if the Benchmark rose by 20% then

costs incurred in the year as being the best estimate of future

1.05 times this return (or 21%) would be expected (based on

costs.

historical data) for the period and if the market fell by 20% the portfolio would be expected to fall by 21%. An index tracking portfolio should have a beta very close to 1.0. Gearing (leverage) The gearing percentage reflects the amount of borrowings (i.e. bank loans or overdrafts) the Company has used to invest in the market. This figure indicates the extra amount by which shareholders’ funds would move if the Company’s investments were to rise or fall.

Premium/discount The amount by which the market price per share of an investment trust is either higher (premium) or lower (discount) than the NAV per share, expressed as a percentage of the NAV per share. Price-to-book ratio This is the ratio of the market capitalisation of a company to its net assets after deducting total debt. This is a valuation measure and indicates how far the price of a company‘s

This is calculated by dividing total assets less cash, before

shares is from its “real” asset backing. This measure is often

deducting borrowings and prior charges, by net assets,

used to help value companies in the financial sector, or where

expressed as a percentage.

asset values are important.

Indexation Investment in a portfolio of shares and securities, the characteristics of which broadly match those of an index. Investment trusts Investment trusts are public limited companies, listed on the London Stock Exchange, which provide shareholders with a professionally managed portfolio of investments. Investment trusts are exempt from tax on the capital gains arising on their investments subject to meeting certain criteria. Income, net of expenses and tax, is substantially distributed to shareholders.

Price-to-earnings ratio This ratio is calculated by dividing the middle market price per share by the earnings per share. This ratio is commonly used to measure the relative cheapness of companies. Price-to-sales ratio This ratio is the proportion of total market capitalisation plus net debt (total debt less current assets) to total revenue. The use of total market capitalisation plus net debt is to allow for the fact that different companies have different debt structures. The ratio’s numerator reflects a measure of total capital to “buy-out” a company at the current share price and to clear all debts. This is compared to the total revenue which

Net asset value (“NAV”) per ordinary share

would have been “bought” by doing this. This is a useful

The value of the Company’s assets (i.e. investments and cash

valuation measure for non-financial companies, particularly

held) less any liabilities (i.e. bank borrowings) for which the

where earnings are negative or at very depressed levels.

Company is responsible, divided by the number of shares in issue. The aggregate NAV is also referred to as shareholders’

Rebalancing

funds on the Balance Sheet. The NAV is published daily.

Transactions in investments to re-align a portfolio with the index it is designed to track or changes in the index itself to keep within the portfolio’s chosen criteria.

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Glossary of Terms continued Total return

Tracking error

This is the return on the share price or NAV taking into

A measure of how close to its benchmark the performance of

account both the rise and fall of share prices and the

a portfolio is likely to be. It is a useful summary statistic for

dividends paid to shareholders. Any dividends received by a

measuring a portfolio’s total risk against its benchmark index.

shareholder are assumed to have been reinvested in either

In statistical terminology, the tracking error is the expected

additional shares (for share price total return) or the

standard deviation of future portfolio returns against the

Company’s assets (for NAV total return).

index. By way of illustration, a tracking error of 2.5% indicates that in 2 out of every 3 years the portfolio’s return would be expected to be within 2.5% of the index’s return. A tracking error of 1% would indicate that the portfolio’s performance is likely to be much closer to that of the index (within 1% in 2 out of 3 years).

51

52

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Corporate Information Manager

Registrar

Henderson Global Investors Limited, authorised and regulated

Equiniti Limited

by the Financial Services Authority

Aspect House

Portfolio Managers: Harmesh Suniara and Adam McConkey

Spencer Road Lancing

Secretary

West Sussex BN99 6DA

Henderson Secretarial Services Limited,

Telephone 0871 384 2428

represented by Debbie Fish ACIS

Calls to this number cost 8p per minute from a BT landline.

Registered number

Other providers’ costs may vary. Lines are open 8.30 a.m. to

Registered as an investment company in England and Wales

5.30 p.m., Monday to Friday.

No. 2974633

Independent auditors

Registered office

Ernst & Young LLP

201 Bishopsgate

1 More London Place

London EC2M 3AE

London SE1 2AF

Telephone 020 7818 1818 Email [email protected] www.hendersonfledglingtrust.com

Stockbrokers Cenkos Securities plc 6. 7. 8 Tokenhouse Yard London EC2R 7AS

LISTED PREMIUM

Keeping up to date with Henderson Fledgling Trust plc Website

Scan the QR code or use this

For more information about Henderson Fledgling Trust plc,

short URL to register for HGi:

visit the website at www.hendersonfledglingtrust.com

http://HGi.co/gkh

HGi

Follow us on Twitter

HGi is a content platform provided by Henderson that offers a

To get the latest updates follow

new level of online personalisation where you can “follow”

us on Twitter @HGiTrusts

investment experts, topics and the trusts that are of interest to you. By creating your HGi profile you will be updated regularly on the topics that interest you most, bringing you closer to Henderson’s investment expertise.

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

General Shareholder Information Release of results

Share price listings

Half year results are announced in April. Full year results are

The market price of the Company’s ordinary shares is

announced in October/November.

published daily in The Financial Times and other leading newspapers. The Financial Times also shows figures for the

Annual general meeting

estimated net asset value (“NAV”) per share and discount.

The AGM is held in London in December. Performance details/share price information BACS

Details of the Company’s share price and NAV per share

Dividends can be paid to shareholders by means of BACS

can be found on the website. The Company’s NAV is

(Bankers’ Automated Clearing Services); mandate forms for

published daily.

this purpose are available from the registrar. Alternatively, shareholders can write to the registrar (the address is given on

Shareholder details

page 52) to give their instructions; these must include the

Shareholders who hold their shares in certificated form can

bank account number, the bank account title and the sort

check their shareholding with the registrar, Equiniti Limited,

code of the bank to which payments are to be made. Disability Act Copies of this report and other documents issued by the Company are available from the Secretary. If needed, copies can be made available in a variety of formats, including Braille, audio tape or larger type as appropriate.

via www.equiniti.com. Please note that to gain access to your details on the Equiniti site you will need the holder reference number shown on your share certificate. ISIN/SEDOL number The ISIN code/SEDOL (Stock Exchange Daily Official List) number of the Company’s shares is GB0003719225. The mnemonic code is HFT.

You can contact the registrar, Equiniti Limited, which has installed textphones to allow speech and hearing impaired

Nominee share code

people who have their own textphone to contact them

Where notification has been provided in advance, the

directly, without the need for an intermediate operator by

Company will arrange for copies of shareholder

dialling 0871 384 2255. Specially trained operators are

communications to be provided to the operators of nominee

available during normal business hours to answer queries via

accounts. Nominee investors may attend general meetings

this service.

and speak at them when invited to do so by the Chairman.

Alternatively, if you prefer to go through a ‘typetalk’ operator

Investors via Halifax Share Dealing receive all shareholder

(provided by the Royal National Institute for Deaf People) dial

communications. A voting instruction form is provided to

18001 followed by the number you wish to dial.

facilitate voting at general meetings of the Company.

ISA

Website

The Company intends to continue to manage its affairs in order

Further information on the Company can be found at

to qualify as an eligible investment for a stocks and shares ISA.

www.hendersonfledglingtrust.com

Warning to Shareholders Shareholders should be wary of unsolicited telephone calls or correspondence concerning the Company and offering investment advice, offers to buy shares at a discount or free company reports. It is extremely unlikely that Henderson Fledgling Trust plc, its Manager (Henderson Global Investors Limited) or its registrar (Equiniti Limited) would make unsolicited telephone calls to shareholders. In the event that the Company or its advisers did make unsolicited calls, shareholders would never be asked to confirm their personal details and such calls would relate only to official documentation already circulated to shareholders and never be in respect of offering investment advice or unpublished investment or financial information regarding the Company. If you are in any doubt about the veracity of an unsolicited phone call, please call the Secretary on the telephone number provided on page 52.

53

54

Henderson Fledgling Trust plc Annual Report and Financial Statements 2012

Henderson Fledgling Trust plc is managed by

This report is printed on Revive, a paper containing 50% recycled fibre 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. This report was printed by Pureprint Group using their pureprint environmental print technology which minimises the negative environmental impacts of the printing process. Vegetable-based inks were used throughout and 99% of the dry waste and 95% of the cleaning solvents associated with this production were recycled. Pureprint Group is a CarbonNeutral® company.

HGI43333/2012