Henderson Euro Focus - Results for the half-year ended 31 March 2024
29/05/2024 07:00
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RNS Number : 1525Q Henderson European Focus Trust PLC 29 May 2024
JANUS HENDERSON FUND MANAGEMENT UK LIMITED
LEGAL ENTITY IDENITIFIER: 213800GS89AL1DK3IN50
HENDERSON EUROPEAN FOCUS TRUST PLC (the "Company")
Unaudited results for the half-year ended 31 March 2024
This announcement contains 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 ("NAV") per share total return(1) rose by 17.9%, outperforming
the benchmark(2) return by 3.0%
· Share price total return(3) rose by 17.0%
· Interim dividend of 3.05p per share declared (see Chair's Statement for merger
background)
Total return performance to 31 March 2024
6 months 1 year 3 years 5 years 7 years 10 years
% % % % % %
NAV(1) 17.9 19.3 37.4 84.5 89.9 166.0
Benchmark index(2) 14.9 13.8 31.8 63.6 74.9 130.4
AIC Europe sector NAV(4) 17.8 14.7 26.9 69.1 87.3 152.5
Share price(3) 17.0 16.5 34.3 82.1 64.7 140.8
AIC Europe sector share price(4) 18.3 16.5 24.8 70.1 83.9 145.2
IA OEIC Europe sector(5) 15.0 12.5 25.1 58.5 65.6 115.8
Financial highlights
At 31 March 2024 At 30 September 2023
(unaudited) (audited)
Shareholders' funds
Net assets £440.1m £379.0m
NAV per ordinary share (debt at par) 206.8p 178.1p
Share price 180.5p 157.0p
Gearing at period end(6) 2.3% (3.8)%
Half-year ended Year ended
31 March 2024 30 September 2023
(unaudited) (audited)
Total return to equity shareholders
Revenue return after taxation (£'000) 2,841 9,188
Capital return after taxation (£'000) 64,715 66,105
Total return (£'000) 67,556 75,293
Total return per ordinary share
Revenue 1.34p 4.32p
Capital 30.41p 31.07p
Total return 31.75p 35.39p
1 Net asset value ("NAV") total return per ordinary share (with dividends
reinvested)
2 FTSE World Europe (ex UK) Index on a total return basis in sterling terms
3 Share price total return (with dividends reinvested) using mid-market
closing price
4 Average for the Association of Investment Companies ("AIC") Europe sector of
seven companies
5 Investment Association ("IA") open-ended investment company ("OEIC") Europe
ex UK Equity sector average NAV, comprising 143 OEICs at 31 March 2024
6 Net gearing, as defined in the alternative performance measures in the
Annual Report for the year ended 30 September 2023
Sources: Morningstar Direct, LSEG Datastream and Janus Henderson
INTERIM MANAGEMENT STATEMENT
CHAIR'S STATEMENT
This half year, I am pleased to report both excellent investment performance
during the last six months, as well as the prospect of a combination with
'stablemate' Henderson EuroTrust plc ("HNE"), which your Board wholeheartedly
recommends to shareholders. I also commend our Fund Managers for their
extremely interesting and insightful report on the investment activity and
prospects for Henderson European Focus Trust plc ("HEFT" or the "Company")
which follows my statement.
Performance
The Company's net asset value ("NAV") total return per share was 17.9%,
outperforming the Company's benchmark index, the FTSE World Europe (ex UK)
Index, which returned 14.9% on a total return basis for the six months to
31 March 2024.
The Company's long-term track record remains excellent, with NAV and share
price total returns outperforming the benchmark over one, three, five, seven
and ten years. Our results compare favourably with our competitors, be they in
the investment companies or the open-ended funds ("OEIC") sectors. The average
NAV total return of the AIC Europe investment company sector (comprising seven
companies) was 17.8% in the period under review, and the Investment
Association OEIC Europe ex-UK Equity sector average was 15.0% for the same
period.
The Company's share price total return in the six months to 31 March 2024 was
17.0%. The discount at which shares trade relative to NAV continued to be
disappointing, averaging 11.8% in the period while the AIC sector average was
10.3%. We continue to monitor the discount to NAV and hope that improved
liquidity in the Company's shares following the combination will help our
rating.
The unfortunate trend of my recent reports reflecting a backdrop of economic
uncertainty, further human suffering and heightened geopolitical risk, sadly,
continues. However, as a direct result, there is rapid multi-polar
repositioning taking place in supply chains, semi-conductor and energy
security, and defence capabilities. Governments are expending vast sums of
money, both directly and via subsidies to corporates, to achieve their
strategic aims: our Fund Managers refer to this as the 'Capex Supercycle'.
Budget deficits are at historic highs and national indebtedness exceeds 100%
of GDP in most major economies.
This does not read like a positive backdrop for strong equity market
performance and yet that is exactly what we have witnessed during the last six
months, with European markets increasing by close to 15%. I am very pleased to
report that your Fund Managers have performed well despite (as they detail in
their report) the domination of a small handful of big, global companies in
generating market returns.
Combination with HNE
As we announced on 20 May 2024, the Company has issued a prospectus relating
to the issue of new shares in connection with the proposed combination of the
assets of HEFT with the assets of HNE. Shareholders in both HEFT and HNE will
be asked to vote on this proposal at general meetings to be held in June and
July 2024. At the time we announced the proposed merger of interests on 14
March 2024, 35% of HEFT's and 38% of HNE's shareholders had signalled their
intention to support the proposals. If approved, the proposal should see the
creation of a company with circa £680 million of net assets 1 , making it a
larger, more liquid and more cost-effective vehicle, which we expect to be
eligible for FTSE 250 Index inclusion in due course. The same award-winning
team will be managing the enlarged Company - to be renamed Henderson European
Trust - led by Tom O'Hara and Jamie Ross (the Fund Manager of HNE) as
co-managers, on a style-agnostic basis with stock and sector selection
continuing to drive performance.
I refer shareholders to the Company website www.hendersoneuropeanfocus.com
(http://www.hendersoneuropeanfocus.com) with the announcements released on 14
March,14 May and 20 May 2024 for more details, including information on a
tender offer for up to 15% of HEFT's issued share capital at a 2% discount to
FAV (being NAV less transaction costs).
Dividends
On 20 May 2024 the Board declared an interim dividend for the year of 3.05p
per share to be paid on 28 June 2024 to shareholders on the register at 7 June
2024. The interim dividend is higher than normal to ensure that our current
shareholders receive a dividend in line with the Company's previous financial
year of 4.35p per share and that the revenue reserves are protected. We
anticipate declaring a smaller final dividend (expected to be 1.30p) in
respect of the financial year ending 30 September 2024. There will be many
more shares in issue at that date after the two companies combine in July and
fewer dividends due in that short time period on the enlarged assets base. We
expect that the dividend cycle will be normalised to reflect a higher final
dividend for the following 2025 financial year end.
Outlook
Debate on the outlook for the market in the near term remains dominated by the
potential path of inflation, interest rates and economic growth, which may or
may not lend itself to a broadening out of equity performance to more cyclical
sectors such as oil, chemicals and pulp and paper, where we have exposures.
Our Fund Managers remain conscious of this, though continue to make a case for
Europe's 'Global Champions', many of which are enablers and beneficiaries of
the 'Capex Supercycle'.
European equities have increased by over 30% over a three-year period, despite
moribund economic growth in Europe. Our Fund Managers have always been at
pains to point out that investing in Europe, via HEFT, is really an investment
in global trends through a subset of European-listed companies. The unique
nature of European equity market performance (and the inevitable attempts by
market participants to explain it by using amusing acronyms like GRANOLAS to
refer to the leading companies in the European stock market) means that 2023
may be the moment when the investment community realised, finally, that
European equities are in fact, truly global in their business impact.
Vicky Hastings
Chair of the Board
28 May 2024
Fund Managers' Report
European equity markets enjoyed a strong six months from October 2023 to March
2024, with the FTSE World Europe (ex UK) Index - the benchmark against which
your Fund Managers are measured - increasing by just shy of 15% on a total
return basis. Pleasingly, the Company's NAV increased by 17.9%, marking a 3%
outperformance of the benchmark. Remember, it's only six months: it is more
meaningful to judge our performance over the longer term which continues to
demonstrate a consistently positive track record.
It is however worth reflecting on the performance of both the market and the
Company during the half year, as the proverbial 'stakes' felt high: an elite
group of mostly large companies drove much of the benchmark return. This
phenomenon, often referred to as 'narrow leadership', has been a feature of
the US stock market for some time owing to 'Big Tech' domination on that side
of the Atlantic. In 2023 it arrived on European shores. It can give fund
managers sleepless nights: when a selection of the biggest constituents of an
equity index are doing much of the heavy lifting in generating market returns,
you either have to own them, or find good alternatives, in order to not find
yourself languishing 'behind the benchmark' and facing certain censure from
colleagues, peers, clients and shareholders. Here lies a tension between
bottom-up stock-picking (meeting companies, researching them, deciding which
ones to own for the long term) and portfolio management (what does my
benchmark consist of, what can hurt me, where do the biggest risks lie and how
can I mitigate them?). As a style-agnostic, valuation-conscious, 'core'
strategy, we have always practiced pragmatism. It is the bridge between
picking the right stocks and building the right portfolio. This last six
months were a reminder as to its necessity in navigating different market
environments.
In short, we got the big names right over the last six months. We mostly owned
the ones that went up more than the market average and we mostly avoided the
ones that did not. Whether it was due to good stock-picking (we have talked
about the themes 'Global Champions', 'structural winners' and 'big is
beautiful' for some time now, and these exposures have served us well), or
good portfolio management, getting these big names right effectively kept us
out of trouble through an extreme market.
For numerical colour, the top ten constituents of the benchmark account for a
quarter of its market capitalisation. It includes names which will be familiar
to even the most casual reader (who manages to make it this far), such as
Nestlé, TotalEnergies, Louis Vuitton and Siemens. They respectively sell
food, petrol, handbags and machines. All mod cons and comforts (although it is
actually a different company making the home appliances using the Siemens
brand….). Of the top ten names, five went up by more than 30% over the
six-month period, well above the 15% return of the benchmark. We own all of
those five. Three of the top ten underperformed the benchmark, the biggest
laggard being Nestlé at -8%. We own none of those three.
It is rare we use this report to delve into the mechanics and risk management
decisions involved in running a portfolio, instead preferring to profess our
love of stock-picking through tangible examples. However, over the half year
ending March 2024, staying out of trouble felt like the most notable
achievement and we felt it worthy of sharing. Stock-picking or fund
management? Luck or skill? It is the outcome that matters. Probably the more
important conclusion is, as per our initial performance-related caveat, that
it is only six months.
Top and bottom contributors to performance
Our top contributors during the six-month period, in descending order,
included: Nestlé (which we avoided), Safran (the aircraft engine maker), BE
Semiconductor (one of our 'picks and shovels' investments in artificial
intelligence ("AI"), Roche (the big pharmaceutical business we avoided),
Holcim (a long-term construction materials position) and Airbus (which makes
the planes to which Safran's engines are attached).
The major detractors included UPM Kymmene (pulp and paper), Aker BP (oil),
Syensqo (specialty chemicals), Grifols (healthcare, since exited) and Ahold
Delhaize (food retail, since exited). It is notable that a fair share of our
top detractors came from more cyclical industries, a feature we will return to
shortly.
Portfolio Activity
We opened a position in Finnish elevator heavyweight, KONE, believing the
eight-year-long headwind to otherwise strong performance, inflicted by the
normalisation of its once-stellar China-derived profits, is now largely behind
them. We added Rheinmetall, the German defence manufacturer, in order to gain
further exposure to the military pillar of the 'Capex Supercycle'. We
participated in the IPO of consumer-dermatology business, Galderma, best known
for its competitor to Botox. Personal care continues to be a bright spot in a
mixed consumer environment. We returned to Carlsberg, having met the new CEO
and looking to bolster our exposure (on top of ABInbev) to the profit-rebuild
potential within the beer category over the next couple of years. We added
CRH, the Irish-born one-stop-shop for building highways in the USA. It is
arguably one of the clearest beneficiaries of the multi-billion-dollar fiscal
giveaway that is 'Bidenomics'.
Compass, the biggest food catering business in the world, entered the
portfolio, thanks to the accelerating growth prospects of its European and US
businesses, as it becomes more difficult than ever for hospitals, universities
and office canteens to run their own operation in the face of food and labour
inflation. Big is definitely beautiful in the scale-dependent food catering
industry and this is being evidenced in Compass' operating performance. We
purchased VAT Group on post-results weakness, seeing an opportunity to
participate in its profound earnings growth prospects as a critical enabler of
the semi-conductor machinery supply chain. Finally, we added Unicredit and
Stellantis, which are detailed below.
We funded our new purchases via a series of exits: Grifols' sum-of-the-parts
potential faced further challenge via a short-selling report and we felt we
could no longer justify what had already become a smallish position. Hugo Boss
was sold as we felt the upside from the successful turnaround story had been
mostly realised. Sandvik was sold as we chose to focus our mining capital
equipment exposure through long-term holding, Metso. UCB was sold to increase
our weighting in long-term healthcare holding Sanofi. Food retailer Ahold
Delhaize will struggle to grow earnings in the next couple of years and as
such there are better defensive options elsewhere. Successful long-term
holding, Interpump, may well be sitting on peak margins and therefore offers
less upside potential.
Gearing remained light at 2.3%, meaning that the majority of our long-term
loan note proceeds are available to deploy, while in the meantime earning a
positive return, in excess of their 1.57% interest cost, in a cash deposit
account.
What next? The 6-12-month debate
The question we are asking ourselves is whether narrow market leadership
continues - with its top performers spanning 'thematic' and 'structural
winners' in AI, technology, healthcare, building materials and aerospace - or
whether the market shifts to reward the laggards. In recent weeks we have seen
signs of the latter, with the market warming up to a 'goldilocks' scenario of
interest rate cuts in 2024, combined with 'no landing' in the real economy
(i.e. no recession). This narrative - possibly just a herd effect of investors
fearful of being caught offside after a strong run - has been sufficient for a
'broadening' market which has seen more cyclical, economically sensitive
sectors like oil, mining and chemicals, stage a catch-up. These moves can be
violent and short lived (and indeed are being tested at the time of writing),
so it's important we don't jettison the stocks that have earned their place in
our portfolio through rigorous research, but we can risk-manage a market
rotation by trimming some of our winners and buying more of the cyclical
laggards in our portfolio, which is precisely what we've done, with a couple
of select new positions: Italian bank Unicredit and global automotive giant
Stellantis. Overall, we have been sparing with portfolio changes made in the
name of 'rotation'. Sentiment remains delicately poised and easily swayed by
incremental macroeconomic datapoints and the usually cryptic comments from
central bankers regarding the path for rate cuts, so we will not go wading in.
We never construct a portfolio that requires a specific macroeconomic outcome.
Pragmatism will play a crucial role in managing any sustained market-regime
change effectively. In the meantime, we maintain conviction in the long-term
prospects of our 'Global Champions' in semiconductor equipment, construction
materials, aerospace, industrials and other sectors.
The longer term debate. Could AI be the cure for our socio-economic ills?
Public discourse is doused in declinism. 2024 will be election-heavy across
the globe, with many of our potential future leaders standing on a platform of
reversing the perceived decay. There is a general unease in financial markets
as to the sustainability of recent economic resilience, especially in the US.
What are we to make of this? We have always viewed the disproportionate
attention paid to short-term monetary policy as somewhat farcical. "Powell
said this", "Lagarde said that", "a dot moved on the Fed's outlook chart":
short-term noise peddled by institutions incentivised to do so and central
bankers who are no more enlightened to the nuances of the real economy than
the rest of us. Too little time is given to the social and political
developments which ultimately set monetary, fiscal and economic policy on a
longer-term course.
Through this lens the economic angst may well be valid, particularly when one
considers that the surprising resilience thus far has been in no small part
due to fiscal largesse in the rich world, with the US running a 7% budget
deficit and Western peers averaging around 5%. One could argue it will
continue because it simply has to continue, in order to achieve sovereign
strategic goals deemed critical in a new multipolar, de-globalised world
order: onshoring of manufacturing, semiconductor autonomy, energy security and
military rearmament are expensive, capital and subsidy-intensive projects
(please see our previous commentaries on this 'Capex Supercycle'). But at some
point, isn't the music forced to stop, under the weight of public indebtedness
exceeding 100% of GDP in the US, Japan, China, the UK and France, to name a
handful of major economies? The interest bill on US government debt, for
example, now exceeds its military budget. The answer is probably yes, spending
will have to decline, unless we can grow GDP faster.
The suboptimal way to do this would be to let inflation stay high, growing
nominal GDP faster than the stock of mostly fixed-coupon debt, but hurting
bondholders in the process, who will not be sufficiently compensated for the
inflation via their interest income. In this scenario equities would offer the
best form of protection, as many businesses can put up prices to pass through
inflation. The optimal way - the holy grail - is 'real' GDP growth through
productivity gains. For all the doomsday predictions as to the impact of AI on
society, the optimistic case is that it could administer a potent efficiency
shot to society, vastly improving the quality and capacity of our strained
health, education and administrative services, and freeing up resources (both
money and time) to generate productive economic activity elsewhere. The speed
of this potential 'new industrial revolution' would require careful social
management, ensuring those displaced by AI automation can retrain for new
roles, or that the wholesale increase in leisure time accruing to humans is
somewhat equitably distributed in order to maintain an orderly society and
economy. This would appear to be one of the biggest risks to unleashing AI's
full potential: that it is just too much, too quickly for social cohesion to
be preserved.
Why is a European fund manager preoccupied with AI and its long-term impact on
society? Because if it generates real GDP growth, eases our debt problems and
creates a more dynamic economy, it would be a good thing for equities. It
would also make a case for a 'broader' market in which many of the more
economically sensitive stocks do well (courtesy of people with more money and
more free time). We are exploring a years, or even decades-long development,
but HEFT was designed for the long term and, sometimes, you have to look to
the future to help contextualise the present.
Signposts to a new Industrial Revolution
What do we see in the present that supports the future scenario outlined
above? A couple of companies have already suffered at the hands of AI, either
directly or via the market's pre-judgement. Education technology company,
Chegg, flagged that its users were switching to (freely available) ChatGPT for
exam preparation. Its shares are now worth 94% less than the Covid-induced,
study-at-home euphoria of their peak. Teleperformance offers companies
outsourced call centre services, an activity viewed as the thin end of the
wedge of AI-disruption, given the already significant improvements made to
customer services chatbots. Unhelpful for Teleperformance was the announcement
by Klarna, the 'buy now pay later' Fintech company, that its upgraded AI
chatbot was doing the equivalent work of 700 humans and handling two-thirds of
all customer enquiries, while freezing hiring in the process. Shares in
Teleperformance have declined by nearly 60% over the last year.
We were intrigued by AI-chip-darling NVIDIA's latest product announcement. Its
next generation of processors, called 'Blackwell', offers a 5x performance
upgrade compared to the predecessor, 'Hopper', which is still less than two
years old. It is expected to reduce cost and energy consumption by up to 25
times for an equivalent task. This leap in productivity and cost effectiveness
is likely to open up many more use-cases for AI, in turn amplifying its
potential impact on society. As 'The Economist' concisely highlighted with an
observation from the 19th century Industrial Revolution, "efficiency can raise
power consumption rather than reduce it". There is a parallel here and
Blackwell probably gave us a fresh signpost on a profound innovation journey.
AI cannot yet cure all of our socio-economic ills, but if productivity gains
in AI architecture can continue to compound at the rate NVIDIA has just
achieved by moving from Hopper to Blackwell, then it is more likely that AI
is the real deal, with broad accessibility offering the potential for
significant and rapid transformation across various sectors.
Reasons to be cheerful
These recent developments offer an ode to human ingenuity, so often omitted
from the gloomiest of forecasts which proliferate in our social media-fuelled
present, but which were also a recurring habit of our non-digital
predecessors. The Reverend Thomas Malthus famously theorised in the late 18th
century that population growth tends to outstrip food production growth, which
is constrained by the finite availability of land and the diminishing returns
from applying incremental units of labour to a fixed area of land. The result
is population 'checks' in the form of war, disease, famine and other
catastrophes, until the cycle starts over from a lower population level.
Absent from his thesis was the power of capital investment and innovation to
vastly improve agricultural yields and feed more mouths. Aldous Huxley gave a
humorous nod to its inherent nihilism, by having women in his dystopian 'Brave
New World' wear contraceptive 'Malthusian Belts'.
As equity investors we possess an inherent optimism. We choose to believe in
the power of human ingenuity, enterprise and ownership as the optimal - if not
perfect - route to progress. As the best way to protect and build our wealth.
Your Company has a long history of delivering value to its shareholders by
backing human enterprise. Long may that continue.
A new era for Henderson European Focus Trust
Which brings us to our closing comments. As the Chair has stated, shareholders
will soon be asked to approve the combination of HEFT and HNE, two Janus
Henderson stablemates committed to the long-term pursuit of wealth creation
via European equities. A common thread throughout our report has been to
acknowledge the virtue of pragmatism amidst constant change. It is no secret
that the investment company landscape is experiencing its own period of
change, one which points to the need for greater scale and liquidity to
maximise value for shareholders. A combined 'Henderson European Trust',
managed by the same steady hands of the Janus Henderson European equities
team, will offer shareholders greater access to liquidity and a more
cost-effective vehicle.
If recent history is anything to go by, the coming decades are likely to be a
mixture of exciting, alarming and, at times, a little scary. Creative
destruction - the driving force of capitalism - is sure to abound, ordaining
winners and condemning losers in the process. Share prices will rise and fall
in unequal measure, presenting opportunities to those willing to take
selective risks on human enterprise via equity ownership. The new, larger
Henderson European Trust should be exceptionally well-placed to pursue this
endeavour, with the same rigour of the previous decades, on your behalf. This
is a duty and a privilege to which your Fund Managers remain resolutely
committed, as we look forward to whatever the future brings.
Tom O'Hara and John Bennett
Fund Managers
28 May 2024
INVESTMENT PORTFOLIO at 31 March 2024
Company Sector Country of listing Valuation % of portfolio
£'000
Novo Nordisk Pharmaceuticals and Biotechnology Denmark 27,154 6.0
ASML Technology Hardware and Equipment Netherlands 24,370 5.4
Safran Aerospace and Defence France 18,282 4.1
Airbus Aerospace and Defence France 17,750 3.9
LVMH Moët Hennessy Louis Vuitton Personal Goods France 16,719 3.7
TotalEnergies Oil, Gas and Coal France 16,640 3.7
SAP Software and Computer Services Germany 16,473 3.7
Schneider Electronic Electronic and Electrical Equipment France 14,512 3.2
Siemens General Industrials Germany 14,053 3.1
Saint-Gobain Construction and Materials France 13,452 3.0
10 largest 179,405 39.8
Linde Chemicals Germany 13,071 2.9
UniCredit Banks Italy 12,932 2.9
Adidas Personal Goods Germany 11,881 2.6
UPM-Kymmene Forestry and Paper Finland 11,154 2.5
L'Oréal Personal Goods France 10,593 2.4
Holcim Construction and Materials Switzerland 9,914 2.2
Atlas Copco Industrial Engineering Sweden 9,553 2.1
Anheuser-Busch InBev Beverages Belgium 9,548 2.1
ASR Nederland Non-life Insurance Netherlands 9,506 2.1
Deutsche Boerse Investment Banking and Brokerage Services Germany 9,331 2.1
20 largest 286,888 63.7
BE Semiconductor Technology Hardware and Equipment Netherlands 9,167 2.0
CRH Construction and Materials Ireland 8,943 2.0
Metso Industrial Engineering Finland 8,868 2.0
Infineon Technology Hardware and Equipment Germany 8,729 1.9
ASM International Technology Hardware and Equipment Netherlands 8,672 1.9
Compass Travel and Leisure United Kingdom 8,654 1.9
Sanofi Pharmaceuticals and Biotechnology France 8,573 1.9
Syensqo Chemicals Belgium 8,501 1.9
Danone Food Producers France 8,446 1.9
Universal Music Media Netherlands 8,007 1.8
30 largest 373,448 82.9
Arkema Chemicals France 7,446 1.6
Aker BP Oil, Gas and Coal Norway 7,443 1.6
VAT Group Electronic and Electrical Equipment Switzerland 6,966 1.6
Essilor Luxottica Medical Equipment and Services France 6,552 1.5
Shell Oil, Gas and Coal United Kingdom 5,828 1.3
KONE Industrial Engineering Finland 5,780 1.3
Euronext Investment Banking and Brokerage Services Netherlands 5,725 1.3
Siemens Healthineers Medical Equipment and Services Germany 5,425 1.2
Stellantis Automobiles and Parts Netherlands 5,137 1.1
Galderma Pharmaceuticals and Biotechnology Switzerland 4,432 1.0
40 largest 434,182 96.4
Rheinmetall Aerospace and Defence Germany 4,401 1.0
Carlsberg Beverages Denmark 4,162 0.9
STMicroelectronics Technology Hardware and Equipment Switzerland 4,005 0.9
Interpump Industrial Engineering Italy 3,459 0.8
Total investments at fair value 450,209 100.0
COUNTRY OF LISTING (as a percentage of the portfolio excluding cash)
31 March 2024 31 March 2023
% %
France 30.9 31.1
Germany 18.5 13.5
Netherlands 15.6 17.9
Denmark 6.9 5.4
Finland 5.8 8.7
Switzerland 5.7 2.7
Belgium 4.0 5.0
Italy 3.7 2.6
United Kingdom 3.2 8.4
Sweden 2.1 1.9
Ireland 2.0 -
Norway 1.6 1.9
Spain - 0.9
100.0 100.0
SECTOR EXPOSURE (as a percentage of the portfolio excluding cash)
31 March 2024 31 March 2023
% %
Industrials 30.2 22.9
Technology 15.9 9.3
Consumer Discretionary 13.6 12.7
Health Care 11.6 11.8
Basic Materials 8.9 12.0
Financials 8.3 12.9
Energy 6.6 14.2
Consumer Staples 4.9 4.2
100.0 100.0
Principal Risks and Uncertainties
The principal risks and uncertainties associated with the Company's business
can be divided into the following main areas:
· Market
· Investment performance
· Business strategy and market rating
· Gearing
· Operational
· Regulatory and reporting
Information on these risks and how they are managed is given in the Annual
Report for the year ended 30 September 2023. In the view of the Board, these
principal risks and uncertainties at the year end are as applicable to the
remaining six months of the financial year as they were to the six months
under review.
The Company is currently engaged in a corporate transaction to merge its
interests with those of Henderson EuroTrust plc, also managed by Janus
Henderson. This introduces a degree of operational risk which has been
mitigated as far as possible, including in relation to direct costs.
Related-Party Transactions
The Company's transactions with related parties in the period under review
were with the directors and the Manager, Janus Henderson. There have been no
material transactions between the Company and its directors during the period
other than amounts paid to them in respect of remuneration and expenses, for
which there were no outstanding amounts payable at the period end.
In relation to the provision of services by the Manager, other than fees
payable by the Company in the ordinary course of business and the facilitation
of marketing activities with third parties, there have been no material
transactions with the Manager affecting the financial position of the Company
during the period under review.
Statement of Directors' Responsibilities
The directors (as listed in note 15) confirm that, to the best of their
knowledge:
(a) the condensed financial statements for the half-year ended 31 March 2024 have
been prepared in accordance with FRS 104 Interim Financial Reporting, and give
a true and fair view of the assets, liabilities, financial position and profit
or loss of the Company;
(b) the Interim Management Report and condensed financial statements include a
fair review of the information required by Disclosure Guidance and
Transparency Rule 4.2.7R (indication of important events during the first six
months and description of principal risks and uncertainties for the remaining
six months of the year); and
(c) the Interim Management Report includes a fair review of the information
required by the Disclosure Guidance and Transparency Rule 4.2.8R (disclosure
of related-party transactions and changes therein).
On behalf of the Board
Vicky Hastings
Chair of the Board
28 May 2024
CONDENSED INCOME STATEMENT
(Unaudited) (Unaudited) (Audited)
Half-year ended Half-year ended Year ended
31 March 2024 31 March 2023 30 September 2023
Revenue return £'000 Capital return £'000 Total return £'000 Revenue return £'000 Capital return £'000 Total return £'000 Revenue return £'000 Capital return £'000 Total return £'000
Gains on investments held at fair value through profit or loss - 65,315 65,315 - 70,132 70,132 - 68,293 68,293
Exchange gains/(losses) on currency transactions - 572 572 - (361) (361) - (5) (5)
Income from investments (note 2) 3,476 - 3,476 3,195 - 3,195 11,206 - 11,206
Other income 248 - 248 55 - 55 224 - 224
Gross revenue and capital gains 3,724 65,887 69,611 3,250 69,771 73,021 11,430 68,288 79,718
Management fees (note 7) (332) (997) (1,329) (290) (870) (1,160) (587) (1,762) (2,349)
Other fees and expenses (312) - (312) (331) - (331) (639) - (639)
Net return before finance costs and taxation 3,080 64,890 67,970 2,629 68,901 71,530 10,204 66,526 76,730
Finance costs (59) (175) (234) (68) (205) (273) (129) (385) (514)
Net return before taxation 3,021 64,715 67,736 2,561 68,696 71,257 10,075 66,141 76,216
Taxation on net return (180) - (180) (135) - (135) (887) (36) (923)
Net return after taxation 2,841 64,715 67,556 2,426 68,696 71,122 9,188 66,105 75,293
Return per ordinary share (note 3) 1.34p 30.41p 31.75p 1.14p 32.28p 33.42p 4.32p 31.07p 35.39p
The total columns of this statement represent the Income Statement of the
Company prepared in accordance with FRS 104.
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 and the Statement of Changes in Equity.
The accompanying notes are an integral part of the condensed financial
statements.
CONDENSED Statement of Changes in Equity
Half-year ended Revenue reserve Other reserves £'000 Total
Called-up
£'000
shareholders' funds
31 March 2024 share Share Capital reserve
capital
£'000 £'000
(Unaudited)
premium account
£'000
£'000
At 30 September 2023 10,819 41,995 217,076 12,496 96,611 378,997
Net return after taxation - - 64,715 2,841 - 67,556
Ordinary dividend paid - - - (6,489) - (6,489)
Cancellation of share premium account (note 5) - (41,995) - - 41,995 -
At 31 March 2024 10,819 - 281,791 8,848 138,606 440,064
Half-year ended Revenue reserve Other reserves £'000 Total
31 March 2023 Called-up
£'000
shareholders' funds
(Unaudited) share Share Capital reserve
capital
£'000 £'000
premium account
£'000
£'000
At 30 September 2022 10,819 41,995 151,154 13,840 96,611 314,419
Net return after taxation - - 68,696 2,426 - 71,122
Ordinary dividend paid - - - (7,766) - (7,766)
Buyback of ordinary shares for treasury - - (183) - - (183)
At 31 March 2023 10,819 41,995 219,667 8,500 96,611 377,592
Year ended Called-up Share premium account Capital reserve Revenue reserve Other Total
share
£'000
£'000
shareholders'
30 September 2023
capital £'000 reserves £'000
funds
(Audited) £'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
Ordinary dividend paid - - - (10,532) - (10,532)
Buyback of ordinary shares for treasury - - (183) - - (183)
At 30 September 2023 10,819 41,995 217,076 12,496 96,611 378,997
The accompanying notes are an integral part of the condensed financial
statements.
CONDENSED Statement of Financial Position
(Unaudited) (Unaudited) (Audited)
31 March 31 March 30 September
2024 2023 2023
£'000 £'000 £'000
Fixed assets
Investments held at fair value through profit or loss 450,209 403,212 384,249
Current assets
Debtors 12,418 11,606 11,745
Cash at bank 24,519 15 15,857
36,937 11,621 27,602
Creditors: amounts falling due within one year (17,317) (6,653) (2,655)
Net current assets 19,620 4,968 24,947
Total assets less current liabilities 469,829 408,180 409,196
Creditors: amounts falling due after one year (29,765) (30,588) (30,199)
Net assets 440,064 377,592 378,997
Capital and reserves
Called-up share capital 10,819 10,819 10,819
Share premium account - 41,995 41,995
Capital reserve 281,791 219,667 217,076
Revenue reserve 8,848 8,500 12,496
Other reserves (note 5) 138,606 96,611 96,611
Total shareholders' funds 440,064 377,592 378,997
Net asset value per ordinary share (note 6) 206.83p 177.47p 178.13p
The accompanying notes are an integral part of the condensed financial
statements.
CONDENSED cash flow statement
(Unaudited) (Unaudited) (Audited)
Half-year ended Half-year ended Year ended 30 September 2023
31 March 2024 31 March 2023 £'000
£'000 £'000
Cash flows from operating activities
Net return before taxation 67,736 71,257 76,216
Add back: finance costs 234 273 514
Gains on investments held at fair value through profit or loss (65,315) (70,132) (68,293)
(Gains)/losses on foreign exchange (572) 361 5
Taxation paid (292) (118) (1,389)
Increase in debtors (492) (824) (163)
(Decrease)/increase in creditors (535) 122 1,099
Net cash inflow from operating activities 764 939 7,989
Cash flows from investing activities
Sales of investments held at fair value through profit or loss 104,450 163,809 288,351
Purchases of investments held at fair value through profit or loss (89,965) (179,585) (290,172)
Net cash inflow/(outflow) from investing activities 14,485 (15,776) (1,821)
Cash flows from financing activities
Buyback of shares for treasury - (183) (183)
Equity dividends paid (net of refund of unclaimed distributions) (6,489) (7,766) (10,532)
Drawdown of bank overdraft - 2,095 -
Interest paid (234) (243) (863)
Net cash outflow from financing activities (6,723) (6,097) (11,578)
Net increase/(decrease) in cash and equivalents 8,526 (20,934) (5,410)
Cash and cash equivalents at beginning of period 15,857 21,272 21,272
Gains/(losses) on foreign exchange 136 (323) (5)
Cash and cash equivalents at end of period 24,519 15 15,857
Comprising:
Cash at bank 24,519 15 15,857
The accompanying notes are an integral part of the condensed financial
statements.
Notes to the condensed financial statements
1. Accounting policies
The condensed set of financial statements has been prepared in accordance
with: FRS 104, Interim Financial Reporting; FRS 102, the Financial Reporting
Standard applicable in the UK and Republic of Ireland; and the Statement of
Recommended Practice for "Financial Statements of Investment Trust Companies
and Venture Capital Trusts", which was updated by the Association of
Investment Companies in July 2022.
For the period under review, the Company's accounting policies have not varied
from those described in the Annual Report for the year ended 30 September
2023. The condensed set of financial statements has been neither audited nor
reviewed by the Company's auditor.
2. Income from investments
(Unaudited) (Unaudited) (Audited)
Half-year ended Half-year ended Year ended
31 March 31 March 30 September
2024 2023 2023
£'000 £'000 £'000
Listed investments:
Overseas dividends 2,864 2,533 10,143
UK dividends 203 662 969
UK fixed interest income 409 - 94
3,476 3,195 11,206
3. Return per ordinary share
(Unaudited) (Unaudited) (Audited)
Half-year ended Half-year ended Year ended
31 March 31 March 30 September
2024 2023 2023
£'000 £'000 £'000
The return per ordinary share is based on the following figures:
Net revenue return 2,841 2,426 9,188
Net capital return 64,715 68,696 66,105
Net total return 67,556 71,122 72,293
Weighted average number of ordinary 212,768,122 212,784,056 212,776,067
shares in issue for each period
Revenue return per ordinary share 1.34p 1.14p 4.32p
Capital return per ordinary share 30.41p 32.28p 31.07p
Total return per ordinary share 31.75p 33.42p 35.39p
The Company has no securities in issue that could dilute the return per
ordinary share. Therefore, the basic and diluted returns per share are the
same.
4. Called-up share capital
At 31 March 2024, there were 216,389,910 shares in issue, of which 3,621,788
were held in treasury. During the half-year period ended 31 March 2024, no
shares were issued or repurchased (half-year ended 31 March 2023: 145,000
shares were repurchased for treasury at a cost of £183,000, and year ended 30
September 2023: 145,000 shares at a cost of £183,000). No shares have been
issued or repurchased since 31 March 2024. As at 24 May 2024, 212,768,122
shares were entitled to a dividend.
5. Other reserves
31 March 2024 31 March 2023 30 September 2023
£'000 £'000 £'000
Special distributable reserve 25,846 25,846 25,846
Additional special distributable reserve 51,416 - -
Merger reserve 61,344 61,344 61,344
Capital redemption reserve - 9,421 9,421
Total 138,606 96,611 96,611
The share premium account (£41,995,000) and capital redemption reserve
(£9,421,000) were cancelled on 13 March 2024 to create a new additional
special distributable reserve of £51,416,000. The new reserve will be
available to the Company for buybacks of the Company's shares, dividend
distributions and other corporate purposes as permitted under the Company's
articles of association. The merger reserve is not distributable, and nor was
the capital redemption reserve in prior periods. As at 31 March 2024, the
total distributable reserves within 'other reserves' are £77,262,000 (31
March 2023: £25,846,000; 30 September 2023: £25,846,000). The realised
capital proportion of the capital reserve is also distributable.
6. Net asset value per share - basic and diluted
The net asset value per ordinary share is based on the 212,768,122 shares
(excluding treasury shares) in issue at 31 March 2024 (half year ended 31
March 2023: 212,768,122 shares; year ended 30 September 2023: 212,768,122
shares).
7. Management fees
Janus Henderson Fund Management UK Limited ("JHFM") is appointed to act as the
Company's alternative investment fund manager. JHFM delegates investment
management services to Janus Henderson Investors UK Limited ("JHIUK").
References to 'Janus Henderson' or the 'Manager' within these results refer to
the services provided by both JHFM Ltd and JHIUK.
Management fees are charged in accordance with the terms of the management
agreement. The Manager receives a fee of 0.65% per annum of net assets up to
£300m and 0.55% of net assets above £300m. Any holdings in funds managed by
Janus Henderson are excluded from the calculation of the management fee. There
is no performance fee.
Management fees and finance costs are allocated 25% to revenue and 75% to
capital in the Condensed Income Statement.
8. Investments held at fair value through profit or loss
The table below analyses fair value measurements for investments held at fair
value through profit or loss. These fair value measurements are categorised
into different levels in the fair value hierarchy based on the valuation
techniques used and are defined as follows under FRS 102:
Level 1: the unadjusted quoted price in an active market for identical assets or
liabilities that the entity can access at the measurement date.
Level 2: inputs other than quoted prices included within Level 1 that are observable
(i.e. developed using market data) for the asset or liability, either directly
or indirectly.
Level 3: inputs are unobservable (i.e. for which market data is unavailable) for the
asset or liability.
Financial assets held at fair value through profit or loss at 31 March 2024 Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Quoted equities 450,209 - - 450,209
Total 450,290 - - 450,209
Financial assets held at fair value through profit or loss at 31 March 2023 Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Quoted equities 403,212 - - 403,212
Total 403,212 - - 403,212
Financial assets held at fair value through profit or loss at 30 September Level 1 Level 2 Level 3 Total
2023
£'000 £'000 £'000 £'000
Quoted equities 364,567 - - 364,567
Short-dated government bonds 19,682 - - 19,682
Total 384,249 - - 384,249
There have been no transfers between levels of fair value hierarchy during the
period.
The valuation techniques used by the Company are explained in the accounting
policies note 1(c) in the Company's Annual Report for the year ended 30
September 2023.
9. Borrowings
As at 31 March 2024, the Company's bank overdraft included in "Creditors:
amounts falling due within one year" was £nil (31 March 2023: £2,095,000; 30
September 2023: £nil).
On 31
January
2022,
the
Company
issued
€35m
long
term
fixed
-rate
unsecur
ed
loan
notes
in two
tranche
s:
§ €25m unsecured loan notes maturing on 31 January 2047 with a fixed coupon
of 1.53%; and
§ €10m unsecured loan notes maturing on 31 January 2052 with a fixed coupon
of 1.66%.
Total proceeds from the issue of the notes were £29,275,000 less £173,000
issue costs.
The unsecured loan notes are carried in the Statement of Financial Position at
par less the issue costs which are amortised over the life of the notes. In
order to comply with fair value accounting disclosures only, the fair value of
the unsecured loan notes has been estimated to be £19,221,000 (31 March 2023:
£19,918,000; 30 September 2023: £17,508,000) and is categorised as Level 3
in the fair value hierarchy. However, for the purpose of the daily NAV
announcements, the unsecured loan notes are valued at par in the NAV because
they are not traded and the directors expect them to be held to maturity and,
accordingly, the directors have assessed that this is the most appropriate
value to be applied for this purpose.
10. Changes in net debt
The following table shows the movements during the period of net debt in the
statement of financial position:
At 1 October 2023 Cash flows Amortisation of issue costs Foreign exchange movement At 31 March
£'000 £'000 £'000 £'000 2024
£'000
Financing activities
Unsecured loan notes (30,199) - (2) 436 (29,765)
(30,199) - (2) 436 (29,765)
Non-financing activities
Cash and cash equivalents 15,857 8,526 - 136 24,519
15,857 8,526 - 136 24,519
Total (14,342) 8,526 (2) 572 (5,246)
At 1 October 2022 Cash flows Amortisation of issue costs Foreign exchange movement At 31 March
£'000 £'000 £'000 £'000 2023
£'000
Financing activities
Bank overdraft - (2,095) - - (2,095)
Unsecured loan notes (30,548) - (2) (38) (30,588)
(30,548) (2,095) (2) (38) (32,683)
Non-financing activities
Cash and cash equivalents 21,272 (20,934) - (323) 15
21,272 (20,934) - (323) 15
Total (9,276) (23,029) (2) (361) (32,668)
At 1 October 2022 Cash flows Amortisation of issue costs Foreign exchange movement At 30 September
£'000 £'000 £'000 £'000 2023
£'000
Financing activities
Unsecured loan notes (30,548) - (5) 354 (30,199)
(30,548) - (5) 354 (30,199)
Non-financing activities
Cash and cash equivalents 21,272 (5,410) - (5) 15,857
21,272 (5,410) - (5) 15,857
Total (9,276) (5,410) (5) 349 (14,342)
11. 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. Having assessed these
factors and the principal risks, as well as considering geopolitical risks and
macroeconomic factors, the directors consider it appropriate to adopt the
going concern basis of accounting in preparing these financial statements.
12. Dividends
The directors have declared an interim dividend of 3.05p per ordinary share
(2023: 1.30p), payable on 28 June 2024 to shareholders who are on the register
of members on 7 June 2024. The shares will be quoted ex-dividend on 6 June
2024. Based on the 212,768,122 shares in issue (excluding treasury shares) at
24 May 2024, the cost of this dividend will be £6,489,000 (2023 interim
dividend: £2,766,000).
13. Proposed merger with Henderson EuroTrust plc
The boards of Henderson European Focus Trust plc and Henderson EuroTrust plc
have announced that both companies have signed Heads of Terms in respect of a
proposed merger of interests to form Henderson European Trust plc. A
prospectus and circular in respect of the proposed transaction were published
on 20 May 2024. Please see the Chair's Statement for further details.
14. Comparative information
The financial information contained in this half-year report does not
constitute statutory accounts as defined in section 434 of the Companies Act
2006. The financial information for the half years ended 31 March 2024 and 31
March 2023 has not been audited nor reviewed by the Company's auditor. The
figures and financial information for the year ended 30 September 2023 are an
extract based on the latest published accounts and do not constitute statutory
accounts for that year. Those accounts have been delivered to the Registrar of
Companies and included the Independent Auditor's Report which was unqualified
and did not contain a statement under either section 498(2) or section 498(3)
of the Companies Act 2006. A glossary of terms and details of alternative
performance measures can be found in the Annual Report for the year ended
30 September 2023.
15. General information
Company status
Henderson European Focus Trust plc is registered as an investment company in
England and Wales (no. 00427958), has its registered office at 201
Bishopsgate, London EC2M 3AE and is listed on the London Stock Exchange.
SEDOL/ISIN: 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 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 and data, copies of
announcements, reports and details of general meetings can be found at
www.hendersoneuropeanfocus.com (http://www.hendersoneuropeanfocus.com) .
16. Half-year report
The half-year report will shortly be available at
www.hendersoneuropeanfocus.com (http://www.hendersoneuropeanfocus.com) or from
the Company's registered office. An abbreviated version, the 'Update', will be
posted to shareholders in June 2024.
Fo
r
fu
rt
he
r
in
fo
rm
at
io
n,
pl
ea
se
co
nt
ac
t:
Vicky Hastings Harriet Hall
Chair of the Board PR Director, Investment Trusts
Henderson European Focus Trust plc Janus Henderson Investors
Tel: 020 7818 2220 Tel: 020 7818 2919
Dan Howe
Head of Investment Trusts
Janus Henderson Investors
Tel: 020 7818 3349
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.
1 Based on net assets at 30 April 2024 and assuming full take-up of the 15%
HEFT tender offer and HNE cash exit.
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