Henderson Euro Focus - Annual results and final dividend
13/12/2023 07:00
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RNS Number : 5459W Henderson European Focus Trust PLC 13 December 2023
JANUS HENDERSON FUND MANAGEMENT UK LIMITED
HENDERSON EUROPEAN FOCUS TRUST PLC
LEGAL ENTITY IDENTIFIER: 213800GS89AL1DK3IN50
HENDERSON EUROPEAN FOCUS TRUST PLC
Annual Financial Report for the year ended 30 September 2023
This announcement constitutes regulated information.
INVESTMENT OBJECTIVE
The Company seeks to maximise total return (a combination of income and
capital growth) from a portfolio of stocks listed in Europe.
PERFORMANCE HIGHLIGHTS
§ Net asset value(1) per share total return rose by 24.1% (2022: -13.1%),
ahead of benchmark(2) by 3.6% (2022: -0.3)
§ Share price total return(3) was 27.7% (2022: -18.3%)
§ NAV total return outperformed peer group averages: AIC Europe sector(4) was
19.5% and IA OEIC Europe ex-UK sector(5) was 19.0%
§ Maintained full-year dividend of 4.35p, with proposed final dividend of
3.05p per share and interim of 1.30p per share (2022 total dividend: 4.35p)
§ NAV and share price outperformance of the benchmark index over 1, 3, 5, 7
and 10 years
Cumulative total return performance for the year to 30 September 2023
1 Yr 3 Yrs 5 Yrs 7 Yrs 10 Yrs
NAV 1 (#_ftn1) 24.1 32.2 46.1 81.1 162.5
Benchmark 2 (#_ftn2) 20.5 28.3 36.9 71.4 117.8
Share price 3 (#_ftn3) 27.7 34.5 43.9 78.9 143.7
AIC Europe sector NAV 4 (#_ftn4) 19.5 19.7 34.7 74.9 137.5
IA OEIC Europe ex-UK sector average 5 (#_ftn5) 19.0 22.3 29.0 60.4 105.5
Financial highlights
At 30 September 2023 At 30 September 2022
Shareholders' funds
Net assets attributable to ordinary 378,997 314,419
shareholders (£'000)
NAV per ordinary share 178.1p 147.7p
Mid-market price per ordinary share 157.0p 127.0p
Year ended Year ended
30 September 2023 30 September 2022
Total return to equity shareholders
Net revenue return (£'000) 9,188 10,913
Net capital/(loss) return (£'000) 66,105 (58,341)
----------- -----------
Net total return/(loss) (£'000) 75,293 (47,428)
====== ======
Total return per ordinary share
Revenue return 4.32p 5.11p
Capital return 31.07p (27.32p)
----------- -----------
Total return 35.39p (22.21p)
( ) ====== ======
Ongoing charge for year 0.80% 0.77%
1 (#_ftnref1) Net asset value ("NAV") per ordinary share (including
dividends reinvested and excluding costs of reinvestment) and calculated with
debt at par
2 (#_ftnref2) FTSE World Europe (ex UK) index in sterling terms
3 (#_ftnref3) Share price using mid-market closing prices
4 (#_ftnref4) Simple average NAV for the AIC Europe sector which currently
comprises seven investment trusts
5 (#_ftnref5) Investment Association Europe ex UK sector for open-ended
investment companies ("OEICs"), which comprised 143 funds at the year end
Sources: Morningstar Direct, Janus Henderson, Refinitiv Datastream
CHAIR'S STATEMENT
Geopolitical risk has dominated the past financial year and with the recent
appalling events in the Middle East this looks likely to continue. In economic
terms, the jury is still out as to whether we are headed for a hard landing or
not across the region, but it certainly seems that market participants have
come round to our Fund Managers' way of thinking that 'higher for longer'
prevails. As governments and corporates look to security of supply, whether
for energy or for product lines, the inherent capital redeployment will be
inflationary. Hence with inflation looking stickier than many envisaged,
especially in the US, the question now is how these elevated interest rates
will impact in the US, the world's largest economy and what the implications
will be for Europe, facing a slowdown of its own.
The Fund Managers' Report explains how they consider this macro backdrop when
assessing our investee companies, as well as potential investments, alongside
some generational shifts underway particularly in the role of technology. Much
has been written about the advance of artificial intelligence ("AI") this year
but when you look at the numbers around what it could mean, both in terms of
implications for some companies' revenues as well as the investment required
to make it happen, you start to get a feel for how it will impact every area
of our lives.
Our Fund Managers have been talking for some time now of investing in 'Global
Champions that just happen to be based in Europe'. Many of our investments
fall into this category rather than simply being domestic plays, and are
leaders in industries as diverse as semi-conductors, healthcare, aerospace,
luxury consumer goods, and electrical components, as well as aiding the
transition to 'greener', more sustainable products in building materials and
energy supply.
With this challenging backdrop, I am pleased to report continued net asset
value ("NAV") outperformance of both benchmark and peers after the extremely
strong appreciation we saw in the first half of the financial year. It was
gratifying for Tom O'Hara and John Bennett to be voted winners of the European
Equity (Active) category at the AJ Bell Investor Awards in September 2023,
particularly as these awards are voted on by AJ Bell customers, some of whom
are our investors.
Performance
The Company's NAV total return per share was 24.1% (2022: -13.1%),
significantly outperforming the Company's benchmark index, which returned
20.5% (2022: -12.8%) for the year to 30 September 2023. The share price total
return was 27.7% (2022: -18.3%), as the discount at which the shares traded
relative to NAV narrowed over the year.
The Company's long-term track record is excellent, with NAV and share price
total return outperforming the benchmark over one, three, five, seven and ten
years. Our results compare favourably with our competitors, be they in the
investment trust or the Investment Association OEIC (open-ended funds) sector.
The average NAV total return of the AIC Europe investment company sector
(comprising seven companies) was 19.5% in the year under review, and the OEIC
Europe ex-UK sector average (comprising 143 funds) was 19.0% for the same
period.
Dividends
The Board is pleased to recommend a final dividend for the year of 3.05p per
share which, subject to shareholder approval at the Annual General Meeting
("AGM"), will be paid on 5 February 2024 to shareholders on the register at 5
January 2024. When added to the interim payment in June 2023 of 1.30p, this
brings the full-year dividend to 4.35p per share, which is the same total
dividend as the 2022 full-year distribution of 4.35p per share, excluding the
special dividend (2022: interim at 1.20p and final at 3.15p).
Income from investments declined by around 10% in the year under review
compared with the year to 30 September 2022, primarily as a result of lower
exposure to higher-dividend-yielding stocks in sectors such as energy. The
Company has a policy of paying progressive dividends, and we would include the
maintenance of dividend levels in tougher times as consistent with this
approach. We are fortunate to have built up revenue reserves in previous
years which we can draw on where necessary and, with the recommendation of
this final dividend, propose to use a very small amount of these. It is worth
noting that whilst income is an important component, total return remains our
primary focus.
With the year-end share price at 157p (2022: 127p), the yield of the aggregate
dividends paid and proposed for the year is 2.8%.
Share rating
Discounts have been wider throughout the investment company sector this year
than at any point since the Global Financial Crisis (2007-08), with the
average (ex 3i Group) reaching a low of 19% in October and now currently
trading at 15.5%. There has been an inevitable knock-on to the European
sector, including our Company, hence frustratingly our shares have made only a
little progress relative to NAV from when we last reported to you in March.
Our discount to NAV ended the year at 11.9%, a small but noteworthy
improvement from the end of the previous year (30 September 2022: 14.0%) given
this backdrop.
During the year, the Company bought back 145,000 shares (2022: 912,658) to be
held in treasury, at an aggregate cost of £183,000, representing 0.01% of the
issued capital of the Company at the start of the year. This small amount of
repurchase is only marginally enhancing to NAV, but the willingness to buy
back signals that the Board is prepared to be active in the market should the
discount widen excessively, whilst being mindful not to shrink assets
needlessly. In our view, share repurchase and issuance remain useful
structural tools in the closed-ended sector, both in helping manage the supply
and demand for shares and pricing, and as deployment of capital. Ultimately,
we believe it is investment performance, investor sentiment and demand for a
company's shares that principally determine rating.
Capital structure and use of debt
The Company issued long-term structural debt (25 and 30-year) by way of
private placement loan notes in January 2022. With a weighted average interest
rate of 1.57% it was fortuitously timed and gives us welcome flexibility.
Fully utilised, the debt provided gearing of some 8% (at the time it was taken
on) but it is of sufficiently low-interest cost that, should the Fund Managers
want to move to cash and take out the leverage, they can without suffering
from a cash drag from the cost of debt. The Fund Managers' Report explains in
more detail how they have done just this and have managed the level of gearing
over the course of the year from a high of nearly 11% in March to a current
net cash level of 4%, taking into account the short-dated gilts as cash
equivalents rather than investments.
Fund management changes
A significant piece of news to report, not least since many will have been
shareholders in the Company for a long time, is that John Bennett intends to
retire next year, leaving behind an excellent performance record, a strong
team and long-standing investment philosophy to continue looking after the
Janus Henderson European funds, including the Company. John became the Fund
Manager in November 2010. Since then, shareholders have enjoyed significant
NAV outperformance of the benchmark, with an annualised total shareholder
return of 10.6% per annum.
The Board extends their heartfelt thanks to John for his tremendous
stewardship of the Company and the orderly way in which he is handing over the
leadership reins to his well-established colleagues, including Tom O Hara, his
Co-Manager. We wish him all the very best.
Board changes
Following Eliza Dungworth's retirement in May 2023, and in line with our
long-term succession plan, we have now returned to a Board of five members
through the appointment of Melanie Blake who joined on 3 July 2023. With over
20 years' experience in the financial services industry, Melanie brings deep
insight and expertise across risk, compliance and governance, a valuable
addition to the Board following Eliza's departure.
Our Senior Independent Director, Robin Archibald, has succeeded Eliza as Audit
and Risk Committee Chair, and Stephen Macklow-Smith has taken on the role of
the Board's marketing representative. We consider that we have a well-balanced
and experienced Board, succession planning firmly in our sights, as well as
governance guidelines on Board constitution, which we meet in every respect.
Please refer to the Annual Report for a fuller disclosure on Board
constitution.
Governance, shareholder engagement and AGM
We are pleased to invite shareholders to attend the AGM in person at our
registered office on Thursday, 25 January 2024 at 11.30 am and join us
afterwards for refreshments. This is an opportunity to meet the Fund Managers
and our Board. We hope that an earlier time may suit some shareholders better.
Shareholders who prefer to join virtually may do so via Zoom. There will be
live voting only for those physically present at the AGM and we would
encourage all shareholders to have their say and vote their shares on all
resolutions put forward. All the resolutions are recommended and supported by
your directors. Shareholders holding their shares through investor platforms
are also encouraged to attend, and to vote, ahead of the proxy voting deadline
of Tuesday 23 January 2024 through their nominee platforms. Do be aware that
the deadlines for voting through platforms may be earlier than our proxy
voting deadline.
In addition to the routine business to be considered at this year's AGM, the
Company is also proposing resolutions to its shareholders to cancel the
amounts standing to the credit of the share premium account and the capital
redemption reserve and which, subject to confirmation by the Court, will be
credited to a new special distributable reserve. Cancelling such reserves is a
routine procedure that is undertaken by investment trusts and was last carried
out by the Company in July 2007. The cancellation of these reserves (as
explained in more detail in the Annual Report) to create distributable
reserves is an administrative matter which will provide the Board with
flexibility to use such distributable reserves should it wish to do so for
shareholder distributions in the future.
Please see the Annual Report for the AGM Notice and more information on
joining and voting.
If you have questions for either the Board or the Fund Management team in
advance of the AGM - or indeed at any time of the year - please get in touch.
Do visit our website at www.hendersoneuropeanfocus.com
(http://www.hendersoneuropeanfocus.com) which has regular updates, and
subscribe for regular information using the sign-up function. In particular, I
would highlight the video on the website of Tom O'Hara discussing these
results and performance during the year.
Outlook
With US bond yields not far off the levels last seen in the Global Financial
Crisis, geopolitical risks that have continued to rise and the very real
threat of recessionary forces, it is not a surprise that your Fund Managers
are erring on the side of caution and, for the first time that I can remember,
investing in UK gilts (albeit for the very short term) to de-gear the Company.
However, for active stockpickers (as opposed to index huggers or passive
funds), when markets get volatile and uncertainty increases, opportunities
arise and good investment returns can accrue for the medium to longer term.
Indeed, this is the environment we now face and which your Fund Managers are
embracing. Meetings with the underlying company management teams continue and,
for some, the future is very bright. Your Board remains confident in your Fund
Managers' ability to uncover these opportunities and for the Company to
continue to prove a good long-term investment for its shareholders.
Vicky Hastings
Chair of the Board
FUND MANAGERS' REPORT
Hard-landing? Soft-landing? No landing? Peak interest rates?
These questions have dominated market discourse during the financial year. The
obvious truth is that neither we nor anyone else can be certain if, when, or
how deep any contraction might be. Moreover, whilst we have started to see
some cracks in the hitherto resilient US consumer demand - causing weakness in
share prices spanning clothing, luxury goods, spirits and other discretionary
goods - economic activity has generally surprised positively. Accordingly, the
market has had to regularly recalibrate its view of the likely duration of
high inflation levels and correspondingly elevated interest rates ("elevated",
that is, relative to only recent history).
Much of the market commentary still calls for a hard-landing, followed by an
inevitable central bank capitulation to lower rates. This cannot be eliminated
as a risk, especially if the speed of rate hikes causes an accident somehow,
somewhere in the financial system (the UK Gilt tantrum of late 2022 and the
mini-banking crisis of early 2023 serve as cautionary reminders that something
can lurk out of sight). But it is always worth considering the motive of those
making such a forecast; many participants wish for a hard-landing, having made
a lucrative career out of zero interest rates (think fixed income managers, or
equity investors with growth, technology or ESG mandates). They would
understandably wish for those good times to return. If it must come via a
painful economic contraction, then so be it.
It is also worth taking a step back from the never-ending cycle of
macro-monetary noise emanating from media outlets such as Bloomberg, which are
of course incentivised to make you as insecure, as reactive and as trigger
happy as possible in financial markets; you need live pricing, you need access
to research and datasets and you need live analysis of the latest
earth-shattering event, be it a CPI print, a non-farm payrolls figure or the
latest utterance of 'Fedspeak' by a central bank official at a random
conference. This is the edge you need to make money. No serious investor could
possibly operate without it - or so they would have you think.
A new capex supercycle - de-globalisation and artificial intelligence will
define geopolitics
There is a lot to constantly distract an investor from more meaningful
developments. When we as a team debate the outlook for inflation and the
corresponding cost of capital, we try to take a longer-term view of changes
across society and their potential impact on economic activity. In this
respect, political discourse - and increasingly policy action - suggests
something different and powerful is going on underneath the near-term focused
chatter. Yes, central banks are raising rates and reversing that great
"innovation" of the financial crisis - quantitative easing ("QE") - in order
to rein in inflation by cooling economic activity. But many governments, not
least that of the United States, are making their job much harder. Economic
hardship does not go down well with voters. De-globalisation and pro-labour
populism are strong mandates for those who command the national coffers. The
US is running an historically high budget deficit of 7%, as various stimulus
packages - collectively known as 'Bidenomics' - splurge over $1trillion on
highways, rail and other infrastructure, while providing generous incentives
for corporates to deploy their capital into the 'onshoring' of critical supply
chains in everything from semiconductors to electric vehicles and energy
security. This is more than the US government mobilised in response to the
Global Financial Crisis. Not even the profligate Europeans are engaging in
such fiscal largesse; France and Italy are 'only' running budget deficits of
around 5%. The OECD is averaging over 4%. We have never seen the likes of this
government activity during peacetime (although it may be optimistic to
describe the current geopolitical backdrop as such).
These trends don't appear to be fads, just as zero interest rate policy
("ZIRP") and QE were not short-lived phenomena. There are currently 35,000
trade protectionist measures in place globally, up from only 9,000 a decade
ago, according to Global Trade Alert. Supply chains must adjust to new
constraints, often through capital redeployment. Many of our investee
companies are either seeing evidence of this in their order books and/or
utilising their own strong balance sheets to invest. Construction spend on
manufacturing facilities in the US has already reached almost 0.6% of GDP, a
level not seen since before the World Trade Organisation was established in
the early 1990s. Furthermore, a record 67% of Americans have a favourable view
of trade unions, suggesting that 'America First' is a policy objective likely
to be pursued, regardless of who secures the White House in 2024. In turn,
other major economic blocs such as Europe feel obliged to follow with their
own measures. One of the strands of our investment 'DNA' (for which we have
introduced a dedicated section this year) is 'Believe in Cycles'. We believe
that we are at an inflection point in the long-cycle politics of
globalisation, with corresponding long-duration implications for capital
expenditure, wages, inflation and interest rates. Capital investment cycles
tend to be long term in nature, for the simple reason that building stuff
takes time. This affords many of our exposed investee companies a good degree
of visibility under all but the most extreme scenarios for near-term economic
momentum. Hard-landing or not, there will probably be 'shovels going into the
ground'.
Aside from industrial policy objectives, it is worth considering the strength
of private sector capital deployment, as it highlights a key segment of the
opportunities we are pursuing in European equities. It is well known that
Europe does not possess the 'Big Tech' superstars. But, importantly, it does
possess many of the enablers, or 'picks and shovels', that will be necessary
as this exclusive club embarks on an unprecedented period of capital
intensity. In 2019 the combined capital expenditure of Microsoft, Google, Meta
(formerly Facebook), Amazon and Apple was around $70bn. In 2024 it will reach
around $190bn, up by $35bn on 2023. The magnitude of this should not be
understated; it equates to almost 20% of the "Bidenomics" bazooka: a sizeable
spend even when set against an historic stimulus package in the largest
economy on Earth. Moreover, it will be repeated each year for the foreseeable
future, so that cumulatively it is likely to eclipse the fiscal programme.
To repeat: this is the capex outlook for only five companies. Dominant though
they are, there is also a long tail of large, cash generative, well-financed
companies across the globe which are investing into a critical juncture in
both geopolitics and technological progress. This will create change.
Europe's globally dominant 'picks and shovels'
The pursuit of the vast AI and cloud computing opportunity is both fixed-asset
and energy intensive for the titans of tech. Microsoft, which is lifting capex
as a percentage of sales from 11% in 2019 to 19% in 2024, plans to build an
additional 120 or so data centres, filled with leading AI-ready
semiconductors. Most of those chips will be bought from US stock market
darling, Nvidia, which does not produce its own chips, but outsources it to
manufacturing specialists like Taiwan Semiconductor ("TSMC"). TSMC in turn
must procure the latest manufacturing equipment for its 'fabs' (factories) to
fulfil Nvidia's requirements. Enter Europe's 'Global Champions' in
semiconductor capital equipment - ASML, ASM International and BE Semiconductor
- which provide the 'picks and shovels' to enable the production of ever more
complex chips. Atlas Copco, another portfolio company, supplies vacuum
technology to this highly demanding manufacturing environment.
Digging a little deeper, we find that European 'Global Champions' abound all
along the 'capex supercycle' supply chain.
Data centres and semiconductor factories, which are resource-intensive,
require robust foundations and supporting water, energy and telecommunications
infrastructure. Irish-headquartered but US-heavy construction materials
business, CRH, has already flagged healthy orderbooks as shovels go into the
ground for these facilities (CRH is also arguably the number one beneficiary
of all the highway investments being made in the US, acting as a one-stop-shop
for state departments of transport).
The average data centre has the same energy requirement as 80,000 households,
meaning Microsoft's plan alone will add the equivalent power demand of a city
of over 10 million people. Energy efficiency is therefore critical to
operating costs; Siemens and Schneider Electric supply the infrastructure
management hardware and software to optimise these hungry facilities (they
also happen to be global leaders in industrial automation, another secular
growth category as supply chains are 'on-shored' in the years ahead).
'Big is beautiful' continued
We have written about our belief that a return to zero interest rates is
unlikely. Accordingly, one must be sensitive to valuation when selecting
stocks. Thankfully, the desire to not overpay has always been part of our DNA
and has, at times, been to our detriment, notably during peak-ZIRP. However,
the real economy implications of this shift will take time to bear out. This
will present opportunities to stockpickers. As economic rationality returns
from a lengthy absence, the threat of disruption - from lavishly-funded,
unprofitable startups - will recede. The powerful, well-funded incumbents
across many industries are likely to become yet more powerful in the era ahead
of us.
Regular readers will be familiar with our 'Big is beautiful' mantra for this
new investment paradigm. We used Anheuser-Busch InBev - the world's biggest
brewer - as an example of this theme at work in the portfolio. More recently
we purchased German software company SAP, which commands a high global market
share in the boring but business critical world of Enterprise Resource
Planning ("ERP"). We had avoided this company for a long time owing to poor
governance and poor capital discipline. It sells the software that forms the
operating backbone of mid to large companies: supply chain, logistics, payroll
and finance - all fundamental functions of the modern corporate. Many of these
companies are in the process of transitioning their ERP systems from 'on
premise' to the 'cloud' (another reason for all that data centre capex). This
process has proven a lucrative opportunity for SAP to 'cross-sell' additional
applications such as HR services, travel and expenses management and, soon,
new AI-augmented tools. We see strong prospects for well over 10% annual
earnings growth in the coming years, driven by this transition.
The end of the free money era is likely to make SAP's clients - who are eager
to be digitally optimised and AI-ready - more reluctant to bear the risk of
changing their ERP supplier through such a complex and critical project, while
also reducing the likelihood of a startup competitor to SAP given the vast
amounts of funding - and patience - that would be required to erode the
incumbent's economic moat. Of course, being 'big' alone does not bestow a
divine right to success upon a company. There must be a value proposition to
customers. SAP possesses the scale and the resources (and a net cash balance
sheet) to invest in developing the applications its corporate customers
require in the era of cloud-hosted, AI-augmented ERP. Helpfully, once the
client has transitioned their system to the cloud, new innovations can be more
easily adopted via download, practically overnight.
We hope these provide some good examples of our investment thinking in what
many would consider challenging times and times of change, with the spectre of
geopolitical risk hanging over world markets, just after Covid and compounded
by recent events in the Middle East.
Performance
The NAV of the Company increased by 24.1% during the financial year, 3.6%
ahead of the 20.5% benchmark return. Major contributors included our
semiconductor capital equipment stocks BE Semiconductor and ASM International,
along with long-term holding Holcim and diabetes and obesity 'category killer'
Novo Nordisk, which has now become Europe's largest company by market
capitalisation.
Detractors included insurer ASR Nederland, which became mired in a potential
historic mis-selling scandal, oil major Shell, which we sold in June and
recycled into TotalEnergies and AkerBP (though have recently reintroduced) and
Finnish pulp and paper manufacturer UPM Kymmene.
It is worth noting the somewhat distorting effect of the period of
measurement. The September end of financial year 2022 coincided, almost to the
day, with the European market trough, following which we saw a sustained rally
in almost everything through to spring 2023, with the previous laggards
outperforming. Two of our bigger detractors - Shell and UPM - were less due to
investments gone wrong (both stocks actually gained during financial year
2023), but courtesy of large position sizes that lagged the rapid recovery in
the benchmark during 2023. It provides a good example of why we always
encourage performance to be judged on at least three years. Even good
investments can have a "bad" 12 months measured against a benchmark. UPM
remains our largest overweight position, while we also retain a sizeable
overweight exposure to oil and gas, which we view as strategically critical
given the geopolitical backdrop. Energy also provides us with a useful tool in
protecting our shareholders' capital against the inflationary effects of what
will probably be more frequent commodity spikes. Oil and semiconductors, both
held in size, offer a true economic barbell for the multipolar world.
Activity
It is useful to begin with an explanation of our year end net gearing levels
(or lack thereof). We ended the financial year with a net cash position of 4%.
This means that not only was the available structural gearing (equivalent to
over 7% of NAV) undeployed, but we also held additional cash. Part of this was
a result of selling activity late in the financial year. We took some profits
in semiconductor stocks during late August/early September, while also
starting to reduce our holding in Hugo Boss and fully exiting shortly after
the year end, as we feel the brand turnaround story is now relatively
well-appreciated and the stock will be more sensitive to general consumer
sentiment. We also sold the last of our banks in early September as we think
the near-term tailwinds from net interest margin expansion have peaked and the
long-term threat of greater regulatory scrutiny and government constraint has
only intensified. In the era of increased statism, not only do we think it
wise to gain exposure to the many quality 'enablers' we have listed, but it is
equally important to avoid the 'donors.' Banks will continue to be a source of
funds for hungry governments, likely via recurring 'one-off' taxes on profits.
On a related note, we own no utility companies on a similar basis; profits
mandated by the government are never wholly reliable profits. They are likely
to be even less so in the years ahead. As a sector it also benefitted from an
abundance of cheap debt to fund projects. Not anymore.
Our net-cash position therefore was partially temporary. At the time of
writing we have returned to a neutral position, with the gearing undeployed.
We feel no urgency to wade into the market; we are near-term cautious on
market direction given the rapid rise in interest rates (during the writing of
this commentary the US 10-year treasury yield touched 5% for the first time
since 2007), nor do we feel any stocks or sectors have reached the 'valuation
margin of safety' threshold that warranted full deployment of the gearing in
September 2022. We will be patient and we can afford to be; the interest rate
payable on our loan notes is 1.57%, locked in for 25 and 30 years across two
tranches. We can earn 2.75% by depositing the cash in the bank. More
interestingly (and another indication of the challenge to banks) we can earn
5% in short-dated UK gilts. At the time of writing, we have approximately 5%
of NAV - around two-thirds of the value of the loan notes - deployed into
these 'cash equivalent' sovereign debt instruments. They are 'cash equivalent'
as they are held to maturity (early 2024) and therefore both interest and
capital value are determined. We are enjoying 'positive carry' and will
therefore bide our time for more attractive equity opportunities.
Outlook
We have illustrated why we believe Europe's 'makers' and 'doers' will stand to
benefit - and are benefitting already - from the profound growth in both
publicly funded capital expenditure and the utilisation of enormous reserves
of 'dry powder' sat on corporate balance sheets. This may, in part, explain
the absence of the much-feared hard-landing, at least so far. But, even if it
does not prevent a painful economic downturn, it serves as a reminder that
economies are not binary, but always nuanced. There will always be attractive
opportunities for businesses to pursue. There will always be areas of economic
resilience. Thus, where there is nuance, there is opportunity for
stockpickers. Whatever the macroeconomic backdrop, we want to be invested in
the right companies, which are competing in the right places and - critically
- at the right share price. Europe's big, beautiful, global champions offer a
compelling opportunity set.
Tom O'Hara and John Bennett
Fund Managers
PRINCIPAL RISKS
The Board, with the assistance of the Manager, has carried out a robust
assessment of the principal risks facing the Company, including those which
would threaten its business model, future performance, solvency, liquidity in
its shares and reputation. The assessment includes consideration of economic
and political risks, most of which are outside the Board's direct control. The
Board has drawn up a detailed matrix of risks facing the Company, together
with a strategic heat map charting the top ten risks, which it has distilled
into six categories of principal risks, as shown in the Annual Report. To
assist in mitigating the decision-taking risks as far as practicable, it has
put in place a schedule of investment limits and restrictions, appropriate to
the Company's investment objective and policy, which it reviews at each board
meeting.
The Company's principal risks and mitigating steps are as follows:
Risk Risk Controls and mitigation
Market Investment risk is spread by holding a diversified portfolio of investee
companies, typically with strong balance sheets and good growth prospects. The
The Company's absolute performance in terms of net asset value total return Company does not currently embark on any currency or market movement hedging
and share price total return is dependent on the performance of the investee strategies, though it has the ability to do so.
companies and markets in which the Company invests. Performance is also
impacted by currency and interest rate movements, as well as by political and
economic events.
The Company's investment strategy is reviewed formally by the Board at least
annually, and takes into account shareholder views, developments in the
marketplace and how the structure of the Company is positioned to meet them.
Investment performance The Board is responsible for ensuring that the investment policy is met. The
day-to-day management of the Company's assets is delegated to the Manager
The relative performance of the Company against its benchmark and European under investment guidelines, with close monitoring of the guidelines.
open and closed-ended peers depends principally on asset allocation and stock
selection, which, in turn, require investment skills. In exercising these
skills, the Manager is responsible for adhering to the investment policy and
investment guideline restrictions set by the Board and amended from time to The Board meets the Manager on a regular basis and keeps investment
time. performance, in terms of both capital and income returns, under close review.
The Management Engagement Committee reviews the Manager's performance
annually. Although the Company is not invested against any income criteria,
the net income of the Company and the revenue reserves are monitored against
dividend pay-outs and anticipated future net income.
Investment performance is monitored over the short, medium and longer term
against the Company's benchmark and against a wider peer group of open and
closed-ended investment vehicles investing in listed European equities.
The Board also reviews the performance attribution analysis against benchmark
in detail, to understand the main drivers of performance in reporting periods.
The Fund Managers keep the global political and economic picture under review
as part of the investment process and provide the Board with frequent updates
to enable the directors to monitor and manage risks of geopolitical disruption
and global economic risks. Climate risk is assessed within the individual
stock selection process and is reported within quarterly Fund Manager board
reports.
Business strategy and market rating The Board monitors the Company's ordinary share price relative to net asset
value per share and reviews changes in shareholdings in the Company to
A number of factors, including the setting of an appropriate investment understand short or longer-term trends in demand for and supply of the shares.
proposition, changing investor demand or investment performance may lead to an
increase or decrease in demand for and/or supply of the Company's shares and
will impact how the shares are priced in relation to the Company's underlying
net asset value per share. The Company is able, when appropriate, to issue or to buy back shares in order
to help maintain an orderly secondary market in the Company's shares, but not
against any prescribed discount or premium levels, other than avoiding
dilution to existing shareholders' interests through share issuance at a
discount. The Board also monitors the rating of the Company's shares against
other closed-ended investment companies in the sector.
The Company is 'evergreen' and does not have a liquidity event, such as
periodic tenders or continuation votes. The liquidity of the portfolio is
monitored and is considered sufficient for the purposes of a closed-ended
fund, including where the Company buys back its own shares.
Gearing The Company's investment policy sets a limit on borrowing of 20% of net assets
at the time the borrowing is assumed, and the Board monitors the level of
The Fund Managers have authority to use gearing in line with the Company's gearing at each meeting.
investment policy. In the event of a significant or prolonged fall in equity
markets any gearing in place would exacerbate the effect of the falling market
on the Company's net asset value and, consequently, its share price. Gearing
would have the opposite effect in the event of a significant or prolonged rise The Manager makes active use of the Company's gearing with close oversight of
in equity markets in which the Company is invested. borrowings and cash management from the Board when gearing is extended or
contracted in relation to different market conditions and as applied to
different investment and disinvestment opportunities.
Operational The Management Engagement Committee reviews each service provider at least
annually, and, in conjunction with the Audit and Risk Committee, considers
The Company is reliant on third-party service providers for all its reports on internal controls, including any reported breaches, throughout the
operational activities, including reliance on Janus Henderson as investment year, from all the service providers. This reporting covers such matters as
manager, corporate secretary and administrator to the Company. business resilience and cyber security risk as well as matters that are
subject to review as part of the annual audit of the Company.
The Company depends on the diligence, skill and judgement of the Manager's
investment team. Continuity of service of the team and individuals in the team Janus Henderson has a strong European Equities team, which supports the Fund
could impact the future success of the Company. Managers in the management of the Company's portfolio. Constructive challenge,
succession and continuity planning are key elements of the management of the
team and are reported closely to the Board with consultation on any major
changes.
Failure of third parties' operational or internal control systems could
prevent the accurate reporting or monitoring of the Company's financial
position. Janus Henderson subcontracts some of the operational functions
(principally those relating to trade processing, investment administration and The Board reviews the internal control structure and reporting for the Company
accounting) to BNP Paribas. from all agents and meets with their representatives throughout the year to
make enquiry on the systems and controls. The Board considers climate risk in
respect of operational capability in its review meetings with service
providers.
Failure of controls could also impact the Company meeting its regulatory
obligations.
Regulatory and reporting The Board is apprised regularly of impending regulatory and reporting changes
and monitors closely, through its various agents, the Company's adherence to
The Company operates in a highly regulated environment which could inter alia existing requirements, including maintaining investment trust and listed
affect the listing of the Company's shares and the Company's tax status, as company status.
well as how the Company conducts its affairs in the market more generally.
The Board is also kept apprised of corporate governance developments and, as
The Company has strict reporting requirements that need to be adhered to both far as practicable, adheres to corporate governance guidelines that are
internally and externally to the market. applicable to an investment company.
THE COMPANY'S VIABILITY
The AIC Code of Corporate Governance includes a requirement for the Board to
assess the future prospects for the Company, and to report on that assessment
within the Annual Report. The Board considers that certain characteristics of
the Company's business model and strategy are relevant to this assessment:
§ the Board aims to ensure that the Company seeks to deliver long-term
performance;
§ the Company's investment objective, strategy and policy, which are subject
to regular Board monitoring, mean that the Company is invested mainly in
readily realisable, listed securities and that the level of borrowings is
restricted; and
§ the Company is a closed-ended investment company and therefore does not
suffer from the liquidity issues arising from unexpected redemptions.
Also relevant were certain aspects of the Company's operational agreements:
§ the Company retains title to all assets held by the custodian under the
terms of formal agreements with the custodian and depositary;
§ revenue and expenditure forecasts are reviewed by the directors at each
board meeting; and
§ cash is held with approved banks.
In addition, the directors carried out a robust assessment of the principal
risks and uncertainties which could threaten the Company's business model,
including future performance, liquidity and solvency, climate change, and
considered emerging risks that could have a future impact on the Company. The
Board takes into account the liquidity of the portfolio, short-term and
structural gearing, the income stream from the portfolio, and the Company's
ability to meet its liabilities as they fall due. This includes consideration
of how the forecast income stream, expenditure and levels of reserves could
impact the Company's ability to pay dividends to shareholders over that
period. Detailed income and expense forecasts are made over a shorter time
frame. However, the nature of the Company's business means that such forecasts
are equally valid to be considered over the longer five-year period as a means
of assessing whether the Company can continue in operation.
The directors assess viability over five-year rolling periods, taking account
of foreseeable severe but plausible scenarios. This included consideration of
the duration of the Company's loan and borrowing facilities and how a breach
of any covenants could impact the Company's NAV and share price. The Board has
assessed the risks associated with the various geopolitical, economic and
health crises in recent years and has concluded that these events have not
affected the long-term viability of the Company, and its ability to continue
in operation, notwithstanding any short-term uncertainty they have caused in
the markets.
In common with investment companies generally, the viability statement does
not take into account corporate events which might be initiated by the Company
or to which the Company might be subject, and where the Company's
circumstances might be dramatically changed. An investment company has
relatively liquid assets, compared to industrial or commercial companies, and
can, therefore, be subject to major and unexpected strategic change. No such
event or change affecting the Company's viability is known or currently in
contemplation by the Company. The directors believe that a rolling five-year
period best balances the Company's long-term objective, its financial
flexibility and scope with the difficulty in forecasting economic conditions
affecting the Company and its shareholders.
Based on their assessment, and in the context of the Company's business model,
strategy and operational arrangements set out in the Annual Report, the
directors have a reasonable expectation that the Company will be able to
continue in operation and meet its liabilities as they fall due over the
five-year period to September 2028.
RELATED-PARTY TRANSACTIONS
The Company's transactions with related parties in the year were with the
directors and the Manager. There were no material transactions between the
Company and its directors during the year other than amounts paid to them in
respect of remuneration and expenses, for which there were no outstanding
amounts payable at the year end. Directors' shareholdings in the Company are
disclosed in the Annual Report.
In respect of the provision of services by Janus Henderson, other than fees
payable by the Company in the ordinary course of business and the facilitation
of marketing activities with third parties, there were no material
transactions with the Manager affecting the financial position of the Company
during the year under review. More details on transactions with the Manager,
including amounts outstanding at the year end, are given in the Annual Report.
STATEMENT OF DIRECTORS' RESPONSIBILITIES UNDER DTR 4.1.12
Each director, as listed below, confirms that, to the best of their knowledge:
§ the financial statements, which have been prepared in accordance with
United Kingdom Generally Accepted Accounting Practice (United Kingdom
Accounting Standards comprising FRS 102 and applicable law) give a true and
fair view of the assets, liabilities, financial position and return of the
Company; and
§ the Strategic Report includes a fair review of the development and
performance of the business and the position of the Company, together with a
description of the principal risks and uncertainties that it faces.
On behalf of the Board
Vicky Hastings
Chair of the Board
PORTFOLIO INFORMATION
Top 10 investments at 30 September 2023
Company Sector Country of listing Valuation £'000 Percentage of portfolio
UPM-Kymmene Forestry and Paper Finland 24,022 6.25
Novo Nordisk Pharmaceuticals and Biotechnology Denmark 23,175 6.03
UK Government Bond 0.125% 31/01/24 Government Bonds United Kingdom 19,682 5.12
TotalEnergies Oil, Gas and Coal France 16,572 4.31
Saint-Gobain Construction and Materials France 15,636 4.07
Safran Aerospace and Defence France 13,692 3.56
Airbus Aerospace and Defence France 13,389 3.49
LVMH Moët Hennessy Louis Vuitton Personal Goods France 13,154 3.43
Holcim Construction and Materials Switzerland 12,684 3.30
Schneider Electric Electronic and Electrical Equipment France 11,724 3.05
------------ ---------
Total (10 largest) 163,730 42.61
======= =====
Sector exposure 2023 2022
at 30 September % %
Industrials 26.7 18.4
Basic Materials 14.1 11.5
Consumer Discretionary 12.0 11.1
Health Care 11.6 14.7
Energy 8.9 14.7
Technology 8.9 4.4
Consumer Staples 6.5 11.6
Financials 6.2 10.9
Government Bonds 5.1 -
Utilities - 2.7
Geographic exposure 2023 2022
at 30 September % %
France 30.5 27.8
Germany 16.8 13.7
Netherlands 11.2 10.5
Finland 8.4 8.1
United Kingdom 6.8 10.3
Belgium 6.2 1.9
Denmark 6.0 6.5
Switzerland 5.0 11.8
Sweden 3.4 2.0
Norway 2.9 2.6
Italy 1.4 1.3
Spain 1.4 2.2
Portugal - 1.3
INCOME STATEMENT
Year ended Year ended
30 September 2023 30 September 2022
Revenue Capital Total Revenue Capital Total
return return return return return return
£'000 £'000 £'000 £'000 £'000 £'000
Gains/(losses) on investments held at fair value through profit or loss - 68,293 68,293 - (55,148) (55,148)
Exchange losses on currency transactions - (5) (5) - (1,142) (1,142)
Income from investments (note 2) 11,206 - 11,206 12,529 - 12,529
Other income 224 - 224 25 - 25
---------- ---------- ---------- ---------- ---------- ----------
Gross revenue and capital gains/(losses) 11,430 68,288 79,718 12,554 (56,290) (43,736)
Management fee (note 6) (587) (1,762) (2,349) (548) (1,642) (2,190)
Other fees and expenses (639) - (639) (561) - (561)
---------- ---------- ---------- ---------- ---------- ----------
Net return before finance costs and taxation 10,204 66,526 76,730 11,445 (57,932) (46,487)
Finance costs (129) (385) (514) 38 (272) (234)
---------- ---------- ---------- ---------- ---------- ----------
Net return before taxation 10,075 66,141 76,216 11,483 (58,204) (46,721)
Taxation on net return (note 7) (887) (36) (923) (570) (137) (707)
---------- ---------- ---------- ---------- ---------- ----------
Net return after taxation 9,188 66,105 75,293 10,913 (58,341) (47,428)
====== ====== ====== ====== ====== ======
Return per ordinary share (note 8) 4.32p 31.07p 35.39p 5.11p (27.32p) (22.21p)
====== ====== ====== ====== ====== ======
The total columns of this statement represents the Income Statement of the
Company. The revenue return and capital return columns are supplementary to
this and are prepared under guidance published by the Association of
Investment Companies. All revenue and capital items in the above statement
derive from continuing operations. The Company had no recognised gains or
losses other than those disclosed in the Income Statement.
STATEMENT OF CHANGES IN EQUITY
Year ended Called-up share capital Share premium account £'000 Capital Revenue Other reserves Total
reserve
reserve
30 September 2023 £'000
£'000 £'000
£'000 £'000
At 30 September 2022 10,819 41,995 151,154 13,840 96,611 314,419
Net return after taxation - - 66,105 9,188 - 75,293
Buyback of ordinary shares for treasury - - (183) - - (183)
Ordinary dividends paid (note 4) - - - (10,532) - (10,532)
---------- ---------- ---------- ---------- ---------- ----------
At 30 September 2023 10,819 41,995 217,076 12,496 96,611 378,997
====== ====== ====== ====== ====== ======
Year ended Called-up share capital Share premium account £'000 Capital Revenue Other reserves Total
reserve
reserve
30 September 2022 £'000
£'000 £'000
£'000 £'000
At 30 September 2021 10,819 41,995 210,819 10,492 96,611 370,736
Net return after taxation - - (58,341) 10,913 - (47,428)
Buyback of ordinary shares for treasury - - (1,324) - - (1,324)
Ordinary dividends paid (note 4) - - - (7,565) - (7,565)
---------- ---------- ---------- ---------- ---------- ----------
At 30 September 2022 10,819 41,995 151,154 13,840 96,611 314,419
====== ====== ====== ====== ====== ======
STATEMENT OF FINANCIAL POSITION
At 30 September At 30 September
2023 2022
£'000 £'000
Fixed assets
Investments held at fair value through profit or loss 384,249 320,289
------------- -------------
Current assets
Debtors 11,745 7,355
Cash at bank 15,857 21,272
------------- -------------
27,602 28,627
Creditors: amounts falling due within one year (2,655) (3,949)
------------- -------------
Net current assets 24,947 24,678
------------- -------------
Total assets less current liabilities 409,196 344,967
Creditors: amounts falling due after one year (30,199) (30,548)
------------- -------------
Net assets 378,997 314,419
======== ========
Capital and reserves
Called-up share capital 10,819 10,819
Share premium account 41,995 41,995
Capital reserve 217,076 151,154
Revenue reserve 12,496 13,840
Other reserves 96,611 96,611
------------- -------------
Shareholders' funds 378,997 314,419
======== ========
Net asset value per ordinary share (note 9) 178.13p 147.67p
======== ========
CASH FLOW STATEMENT
Year ended Year ended
30 September 2023 30 September 2022 £'000
£'000
Cash flows from operating activities
Net return/(loss) before taxation 76,216 (46,721)
Add back: finance costs 514 234
(Gains)/losses on investments held at fair value through profit or loss (68,293) 55,148
Losses on foreign exchange 5 1,142
Taxation paid (1,389) (780)
Increase in debtors (163) (87)
Increase/(decrease) in creditors 1,099 (144)
------------- -------------
Net cash inflow from operating activities* 7,989 8,792
------------- -------------
Cash flows from investing activities
Sales of investments held at fair value through profit or loss 288,351 277,186
Purchases of investments held at fair value through profit or loss (290,172) (273,147)
------------- -------------
Net cash (outflow)/inflow from investing activities (1,821) 4,039
------------- -------------
Cash flows from financing activities
Buyback of ordinary shares for treasury (183) (1,324)
Equity dividends paid (10,532) (7,565)
Repayment of bank overdraft - (10,558)
Issue of unsecured loan notes - 29,275
Costs relating to issue of unsecured loan notes - (173)
Interest paid (863) (271)
------------- -------------
Net cash (outflow)/inflow from financing activities (11,578) 9,384
------------- -------------
Net (decrease)/increase in cash at bank (5,410) 22,215
Cash at bank at beginning of period 21,272 199
Losses on foreign exchange (5) (1,142)
------------- -------------
Cash at bank at end of period 15,857 21,272
------------- -------------
Comprising:
Cash at bank 15,857 21,272
======== ========
* Cash inflow from dividends was £9,394,000 (2022: £11,266,000) and cash
inflow from interest was £213,000 (2022: £25,000)
NOTES TO THE FINANCIAL STATEMENTS
1. Accounting policies
a) Basis of preparation
The Company is a registered investment company as defined in section 833 of
the Companies Act 2006 and is incorporated in the United Kingdom. It operates
in the United Kingdom and is registered at the address below.
The financial statements have been prepared in accordance with the Companies
Act 2006, FRS 102 - The Financial Reporting Standard applicable in the UK and
Republic of Ireland and with the Statement of Recommended Practice: Financial
Statements of Investment Trust Companies and Venture Capital Trusts (the
"SORP") amended in July 2022 by the Association of Investment Companies.
The principal accounting policies applied in the presentation of these
financial statements are set out in the Annual Report. These policies have
been consistently applied to all the years presented.
The accounts have been prepared under the historical cost basis except for the
measurement of investments at fair value. In applying FRS102, financial
instruments have been accounted for in accordance with sections 11 and 12 of
the Standard. All of the Company's operations are of a continuing nature.
The preparation of the Company's financial statements requires the directors
to make judgements, estimates and assumptions that affect the reported amounts
in the primary financial statements and the accompanying disclosures. These
assumptions and estimates could result in outcomes that require a material
adjustment to the carrying amount of assets or liabilities affected in the
current and future periods, depending on circumstance.
The directors do not believe that any accounting judgements have been applied
to this set of financial statements that have a significant risk of causing a
material adjustment to the carrying amount of assets and liabilities. Nor do
they believe that there are any estimates that have a significant risk of
causing a material adjustment to the carrying amount of assets and liabilities
within the next financial year. In line with UK GAAP, the fair values of
investments are used, whereby quoted prices are used to value the investments
in active markets and thereby reflect participants' views of climate change
risk.
b) Going concern
The assets of the Company consist of securities that are readily realisable
and, accordingly, the directors believe that the Company has adequate
resources to continue in operational existence for at least twelve months from
the date of approval of these financial statements. In coming to this
conclusion, the directors have considered the nature of the portfolio, being
that the securities held are readily realisable, the strength of its
distributable reserves, and the ongoing costs of the Company. The directors
have also reviewed the revenue forecast and size of the Company's long-term
debt and stress-tested its financial covenants.
As part of their usual assessment of risks facing the Company, the directors
have further considered the global economic and geopolitical environment
including the repercussions of the Covid-19 pandemic, the ongoing war in
Ukraine and conflict in the Middle East, the impact of these on supply chains
and the possible impact of climate change risk on the value of the portfolio.
The directors have concluded that the Company is able to meet its financial
obligations, including the interest payments for its loan notes, as they fall
due for a period of at least twelve months from the date of this report.
2. Income from investments
2023 2022
£'000 £'000
Listed investments:
Overseas dividends 10,143 12,181
UK dividends 969 348
UK fixed-income interest 94 -
--------- ---------
11,206 12,529
===== =====
3. Dividend
The Board recommends a final dividend of 3.05p per share (2022: 3.15p). When
added to the interim payment of 1.30p (2022: 1.20p), this will bring the
full-year dividend to 4.35p per share. Subject to approval at the AGM on 25
January 2024, the final dividend will be payable on 5 February 2024 to
shareholders on the register at 5 January 2024.The shares will be quoted
ex-dividend on 4 January 2024.
4. Dividends paid and payable on ordinary shares
Dividends on ordinary shares Record date Payment date 2023 2022
£'000 £'000
Final dividend (2.35p*) for the year ended 7 January 2022 4 February 2022 - 5,019
30 September 2021
Interim dividend (1.20p) for the year ended 6 June 2022 27 June 2022 - 2,563
30 September 2022
Final dividend (3.15p) for the year ended 6 January 2023 6 February 2023 6,702 -
30 September 2022
Special dividend (0.50p) for the year ended 6 January 2023 6 February 2023 1,064 -
30 September 2022
Interim dividend (1.30p) for the year ended 2 June 2023 27 June 2023 2,766 -
30 September 2023
Unclaimed dividends over 12 years old - (17)
---------- -----------
10,532 7,565
====== ======
* Figures have been restated due to the subdivision of each ordinary share of
50p into ten ordinary shares of 5p each on 7 February 2022
The final dividend for the year ended 30 September 2023 has not been included
as a liability in these financial statements. The total dividend payable in
respect of the financial year, which forms the basis of the retention test
under Section 1158 of the Corporation Tax Act, is set out below.
2023 2022
£'000 £'000
Revenue available for distribution by way of dividend for the year 9,188 10,913
Interim dividend (1.30p) for the year ended 30 September 2023 (2,766) -
(based on 212,768,122 ordinary shares in issue at 2 June 2023)
Final dividend (3.05p) for the year ended 30 September 2023 (6,489) -
(based on 212,768,122 ordinary shares in issue at 8 December 2023)
Interim dividend (1.20p) for the year ended 30 September 2022 - (2,563)
(based on 213,565,480 ordinary shares in issue at 6 June 2022)
Final dividend (3.15p) for the year ended 30 September 2022 - (6,702)
(based on 212,768,122 ordinary shares in issue at 6 January 2023)
Special dividend (0.50p) for the year ended 30 September 2022 - (1,064)
(based on 212,768,122 ordinary shares in issue at 6 January 2023)
------------ -------------
Undistributed revenue for section 1158 purposes (67) 584
======= =======
All dividends have been paid or will be paid out of revenue profits or revenue
reserves.
5. Called-up share capital
Number of shares entitled to dividend Shares held in treasury Total number of shares Nominal value of shares
£'000
At 30 September 2022 212,913,122 3,476,788 216,389,910 10,819
Buy back into treasury of 145,000 shares (145,000) 145,000 - -
----------------- -------------- ------------------ -----------
At 30 September 2023 212,768,122 3,621,788 216,389,910 10,819
========== ======== ========== ======
At 30 September 2021 21,382,578 256,413 21,638,991 10,819
Buy back into treasury of 26,030 shares (26,030) 26,030 - -
---------------- ------------ ----------------- -----------
21,356,548 282,443 21,638,991 10,819
---------------- ------------ ----------------- -----------
Issue of new ordinary shares following 10 for 1 stock split 192,208,932 2,541,987 194,750,919 -
Buy back into treasury of 652,358 shares (652,358) 652,358 - -
----------------- -------------- ----------------- -----------
At 30 September 2022 212,913,122 3,476,788 216,389,910 10,819
=========== ========= =========== =======
6. Management fee
Year ended Year ended
30 September 2023 30 September 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Management fee 587 1,762 2,349 548 1,642 2,190
====== ====== ====== ====== ====== ======
A description of the basis for calculating the management fee is given in the
Annual Report. Management fees are allocated 25% to revenue and 75% to capital
in the Income Statement.
7. Taxation
(a) Analysis of charge for the year
Year ended Year ended
30 September 2023 30 September 2022
Revenue return Capital return Total return Revenue return Capital return Revenue return
£'000 £'000 £'000 £'000 £'000 £'000
Corporation tax prior year adjustment - - - (584) - (584)
Overseas tax suffered 887 36 923 1,154 137 1,291
---------- ---------- ---------- ---------- ---------- ----------
Total taxation for the year 887 36 923 570 137 707
====== ====== ====== ====== ====== ======
b) Factors affecting the tax charge for the year
Year ended Year ended
30 September 2023 30 September 2022
Revenue Capital Total Revenue return Capital return Total
return return return £'000 £'000 return
£'000 £'000 £'000 £'000
Return before taxation 10,075 66,141 76,216 11,483 (58,204) (46,721)
---------- ---------- ---------- ---------- ---------- ----------
Corporation tax at an effective rate of 22.0% (2022:19.0%) 2,217 14,551 16,768 2,182 (11,059) (8,877)
Effects of:
Non-taxable capital (profits)/losses - (15,023) (15,023) - 10,695 10,695
Non-taxable overseas income (2,445) - (2,445) (2,375) - (2,375)
Expenses not deductible for tax purposes - - - 1 - 1
Tax effect of expensed double-taxation relief - - - (5) - (5)
Corporation tax prior-year adjustment - - - (584) - (584)
Current-year expenses not utilised 228 472 700 197 364 561
Overseas tax 887 36 923 1,154 137 1,291
---------- ---------- ---------- ---------- ---------- ----------
887 36 923 570 137 707
====== ====== ====== ====== ====== ======
The UK corporation tax is an effective rate of 22.0% (2022: 19.0%). The tax
charge for the year is lower than the corporation tax rate.
In the prior year, the Company filed a claim with HMRC, on the basis of the
principles set out in the Franked Investment Income Group Litigation Order
("FII/GLO") claim, for corporation tax unduly paid in respect of periods prior
to 1 July 2009. The claim was filed on the basis that the relevant UK tax
legislation was in breach of EU law for these periods.
Additionally, the claim was successfully settled with HMRC and the provision
for corporation tax previously provided and the associated interest thereon
(relating to the refund of French withholding tax received in 2017) was
removed and this was accounted for in year ended 30 September 2022.
The total of the claim and the write-back of tax previously accrued for is
£584,000 and reflected in the 2022 tax charge.
No provision for deferred tax has been made in the current or prior accounting
year. At the period end, after offset against income taxable on receipt, there
is a potential deferred tax asset of £8,389,000 (2022: £7,597,000) in
relation to surplus management expenses. It is unlikely that the Company will
generate sufficient taxable profits in the future to utilise these amounts and
therefore no deferred tax asset has been recognised.
8. Return per ordinary share
The return per ordinary share is based on the net return attributable to the
ordinary shares of £75,293,000 (2022: net loss of £47,428,000) and on
212,776,067 ordinary shares (2022: 213,530,236) being the weighted average
number of ordinary shares in issue during the year excluding shares held in
treasury. The return per ordinary share can be further analysed between
revenue and capital as below.
2023 2022
£'000 £'000
Net revenue return 9,188 10,913
Net capital return/(loss) 66,105 (58,341)
------------ ------------
Net total return/(loss) 75,293 (47,428)
======= =======
Weighted average number of ordinary shares in issue during the year 212,776,067 213,530,236
Revenue return per ordinary share 4.32p 5.11p
Capital return per ordinary share 31.07p (27.32p)
---------- ------------
Total return per ordinary share 35.39p (22.21p)
====== =======
The Company does not have any dilutive securities and therefore the basic and
diluted returns per share are the same.
9. Net asset value ("NAV") per share
The NAV per ordinary share is based on the net assets attributable to the
ordinary shares of £378,997,000 (2022: £314,419,000) and on 212,768,122
(2022: 212,913,122) shares in issue on 30 September 2023, excluding treasury
shares.
The movements during the year of the assets attributable to the ordinary
shares were as follows:
2023 2022
£'000 £'000
Total net assets at start of year 314,419 370,736
Net return for the year after tax 75,293 (47,428)
Buyback of ordinary shares for treasury (183) (1,324)
Dividends paid on ordinary shares (10,532) (7,565)
----------- -----------
Net assets attributable to the ordinary shares at 30 September 378,997 314,419
====== ======
10. 2023 financial information
The figures and financial information for 2023 are extracted from the Annual
Report for that period and do not constitute statutory accounts. The Company's
Annual Report for the year ended 30 September 2023 has been audited but has
not yet been delivered to the Registrar of Companies. The Independent
Auditor's Report on the 2023 Annual Report is unqualified, does not include a
reference to any matter to which the auditor draws attention without
qualifying the report, and does not contain any statements under s498
Companies Act 2006 (the "Act").
11. 2022 financial information
The figures and financial information for 2022 are extracted from the
published Annual Report for the year ended 30 September 2022 and do not
constitute statutory accounts for that year. The 2022 Annual Report has been
delivered to the Registrar of Companies and includes an unqualified
Independent Auditor's Report, does not include a reference to any matter to
which the auditor draws attention without qualifying the report, and does not
contain a statement under s498 of the Act.
12. Annual Report 2023
The Annual Report for the year ended 30 September 2023 will be posted to
shareholders in December 2023 and will be available at
www.hendersoneuropeanfocus.com (http://www.hendersoneuropeanfocus.com) and in
hard-copy format from the registered office at 201 Bishopsgate, London, EC2M
3AE.
13. General information
Company status
Henderson European Focus Trust plc is registered in England and Wales (company
number 00427958), has its registered office at 201 Bishopsgate, London EC2M
3AE and is listed on the main market of the London Stock Exchange.
SEDOL/ISIN: Ordinary shares: BLSNGB0/GB00BLSNGB01
London Stock Exchange ("TIDM") Code: HEFT
Global Intermediary Identification Number ("GIIN"): THMNPN.99999.SL.826
Legal Entity Identifier ("LEI") number: 213800GS89AL1DK3IN50
Directors and secretary
The directors of the Company are Vicky Hastings (Chair), Robin Archibald
(Senior Independent Director and Chairman of the Audit and Risk Committee),
Stephen Macklow-Smith, Marco Maria Bianconi and Melanie Blake. The Corporate
Secretary is Janus Henderson Secretarial Services UK Limited.
Website
Details of the Company's share price and net asset value, together with
general information about the Company, monthly factsheets, insights,
announcements, reports and details of general meetings can be found at
www.hendersoneuropeanfocus.com (http://www.hendersoneuropeanfocus.com) .
For further information, please contact:
Vicky Hastings Dan Howe
Chair of the Board Head of Investment Trusts
Henderson European Focus Trust plc Janus Henderson Investors
Telephone: 020 7818 2220 Telephone: 020 7818 4458
Tom O'Hara Harriet Hall
Fund Manager Investment Trust PR Manager
Janus Henderson Investors Janus Henderson Investors
Telephone: 020 7818 2197 Telephone: 020 7818 2919
Neither the contents of the Company's website nor the contents of any website
accessible from hyperlinks on the Company's website (or any other website) are
incorporated into, or form part of, this announcement.
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