Henderson Int Income - Annual Financial Report
02/11/2023 07:00
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RNS Number : 1158S Henderson Intl. Income Trust PLC 02 November 2023
JANUS HENDERSON FUND MANAGEMENT UK LIMITED
HENDERSON INTERNATIONAL INCOME TRUST PLC
LEGAL ENTITY IDENTIFIER: 2138006N35XWGK2YUK38
HENDERSON INTERNATIONAL INCOME TRUST PLC
Annual Financial Report for the year ended 31 August 2023
This announcement contains regulated information
INVESTMENT OBJECTIVE
The Company's investment objective is to provide shareholders with a growing
total annual dividend, as well as capital appreciation.
HIGHLIGHTS
• We are pleased to announce an increase in dividends of 3.0% to 7.47p per share
for the year, continuing the track record of having increased the dividend for
each of the eleven years since launch. The dividend has grown at an average
annualised rate of 5.8% compared to CPI growth of 2.9% during this time.
• Most companies in the portfolio increased their dividends, supporting the
robustness of the income stream.
• NAV total return rose by 0.8% (debt at par) and 1.4% (debt at fair value) over
the year.
• We continue to maintain and follow the Company's existing strategy of
identifying companies that have the capacity to grow their earnings and
dividends over the medium to long term while being attractively valued.
PERFORMANCE TO/AT 31 AUGUST
2023 2022
Dividend in respect of the year 7.47p(1) 7.25p
Dividend yield at the year end(2) 4.6% 4.2%
Dividend growth year-on-year 3.0% 15.1%
10-year compound dividend growth 5.8% 6.0%
Dividend growth since launch to 31 August 2023
2011(3) 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Total dividend (pence per share) 1.40 4.00 4.05 4.25 4.50 4.65 4.90 5.30 5.70 6.00 6.30 7.25 7.47
Dividend yields at 31 August 2023 2022
% %
Company(2) 4.6 4.2
Benchmark(4) 3.9 3.9
AIC Global Equity Income sector(5) 3.6 3.4
Total return performance for year to 31 August 2023 2022
%
%
NAV(6) (debt at par) 0.8 3.8
NAV(6) (debt at fair value) 1.4 6.3
Share price(7) (1.9) 7.8
Benchmark(4) 2.3 6.6
AIC Global Equity Income sector (NAV)(5) 5.7 3.6
Performance to/at 31 August 2023 2022
NAV per share at year end (debt at par) 175.7p 181.5p
Discount (debt at par)(8) (8.1)% (5.3)%
NAV per share at year end (debt at fair value)(8) 178.6p 183.4p
Discount (debt at fair value)(8) (9.6)% (6.3)%
Share price at year end 161.5p 171.8p
NAV total return (debt at fair value)(8) 1.4% 6.3%
Ongoing charge for year(8,9) 0.72% 0.83%
Gearing at year end(8) 3.9% 6.5%
1 Includes the fourth interim dividend in respect of the year ended 31 August
2023 to be paid to shareholders on 30 November 2023
2 Calculated based on the closing share price at 31 August
3 Four-month period from launch on 28 April 2011 to 31 August 2011
4 MSCI ACWI (ex UK) High Dividend Yield Index (sterling adjusted)
5 Excludes British & American Investment Trust plc
6 Net asset value ("NAV") total return (including dividends reinvested, net of
fees)
7 The Company's share price total return (assuming the reinvestment of all
dividends excluding dealing expenses). Since inception share price return -
launch price including discount (97.25p)
8 Alternative performance measure
9 Calculated using the methodology prescribed by the Association of Investment
Companies ("AIC")
Source: Morningstar Direct, Janus Henderson
CHAIRMAN'S STATEMENT
This is my first annual statement since taking over as chairman from Simon
Jeffreys. I would like to thank Simon for his hard work as chairman during the
past five years and especially during the testing period of the Covid
pandemic. His attention to detail is remarkable and he did much to improve the
quality of the Company's annual report and accounts.
We are building on this legacy and aim to further simplify the narrative where
possible and to highlight the primary objective of the Company, which is to
provide a rising annual income to shareholders. To this end I am beginning my
statement by talking about earnings and the dividend.
Earnings and dividends
We are pleased to announce a total dividend increase from 7.25p to 7.47p per
ordinary share for the year to 31 August 2023, a rise of 3.0%. The total
dividend for the year consists of a first, second and third interim dividend
of 1.85p per ordinary share, and a fourth interim dividend of 1.92p which will
be paid on 30 November 2023 to shareholders on the register at 10 November
2023.
After a significant increase of 23% in 2022, the revenue return of the Company
this year is 1% lower than last. This slight decline is primarily the result
of sterling's appreciation against several currencies, particularly the US,
Hong Kong and Australian dollars against which it has rallied 10%. Most
companies held in the portfolio increased their dividends, supporting the
robustness of the income stream during this period. A small portion of the
dividend was not covered by earnings and so it was necessary to draw on our
reserves to meet the shortfall.
We continue to recognise the importance of progressive dividend income to our
shareholders. We will employ the flexibility of the investment trust structure
to utilise both our strong revenue and capital reserves to support dividend
growth when necessary. The distributable reserves of the Company increased by
£15m to £107m at the year-end. If required, this provides a significant
cushion to support the continued growth of the dividend.
We have increased the dividend for each of the eleven years since launch and
this positive growth trend is demonstrated in the graphs in the annual report.
Capital performance and markets
Our secondary objective is to provide long-term capital appreciation. Over the
year, the net asset value ("NAV") total return per ordinary share rose by 0.8%
(debt at par) and by 1.4% (debt at fair value). The total return on the
ordinary share price was -1.9%, this figure includes total dividends of 7.47p
per ordinary share, an increase of 3.0% on the previous year. The Company's
performance comparator, the MSCI ACWI (ex UK) High Dividend Yield Index
(sterling adjusted), generated a 2.3% total return over the same period.
A more detailed analysis of performance, portfolio and positioning is provided
in the Fund Manager's Report below.
Gearing
Well-judged gearing can enhance returns to shareholders. The board's current
policy is to permit the fund manager to gear up to 25% of net assets at the
time of drawdown. Borrowing limits for this purpose include implied gearing
using derivatives. The Company's senior unsecured notes (€30m at 2.43% due
2044) provide low-cost debt financing and have helped to insulate shareholders
from rising interest rates over the period. Total gearing at the year end was
3.9% (31 August 2022: 6.5%).
Liquidity and discount management
The Company's share price has traded at a discount to NAV of between 1% to 10%
over the period and was 8.1% (with debt at par) at 31 August 2023. The board
continues to monitor the Company's premium/discount to NAV and will consider
appropriate action if this moves and remains out of line with the Company's
peer group. The board's ability to influence the premium or discount over
anything but the short term is limited and accordingly we believe it is not in
shareholders' interests to have a specific share issuance or buy-back policy.
It is sensible to retain flexibility however, and we shall therefore consider
share issuance and/or buy-backs where appropriate and subject to market
conditions.
Ongoing charge
The ongoing charge for the year to 31 August 2023, as calculated in accordance
with the Association of Investment Companies ("AIC") methodology, was 0.72%
(2022: 0.83%). It is pleasing that costs have fallen year on year primarily
because of the management fee reduction which took effect from 1 September
2022. This reduction has improved the Company's overall cost position making
it a more attractive proposition.
Environmental, Social and Governance
The board pays close attention to the importance of Environmental, Social and
Governance ("ESG") matters and, together with the investment team, is
conscious that investors' interest in ESG matters will continue to grow. The
fund manager carefully considers ESG related risks and opportunities when
investing. This year we have enhanced disclosures about the manager's and
investment team's approach to ESG and these are contained in the annual
report.
Continuation vote
The Company's articles of association give shareholders the opportunity every
three years to vote on whether they wish to continue the life of the Company,
or to wind it up. Such a resolution will be put to shareholders at this year's
annual general meeting.
Given that the Company has achieved its primary objective of producing a
rising annual income for its shareholders, the board recommends that all
shareholders vote in favour of continuing the Company. All directors intend to
do so in respect of their own beneficial holdings and recent contact with
larger shareholders suggests to the board that they will do likewise.
Board composition
I am delighted to welcome Mai Fenton to the board. Mai was appointed on 1 June
2023. She has a wealth of marketing expertise, having spent over 25 years in
this area, focused on high-growth companies. Most recently, Mai was Chief
Marketing Officer at Superscript, an SME insurance provider, where she was
responsible for all aspects of their brand, digital and partnerships marketing
activity. She brings to the board an understanding of, and focus on, the
consumer; the key target when creating retail demand for the Company's shares.
The board is fully compliant with the FCA listing rules in relation to targets
for board composition and diversity and the directors will endeavour to ensure
that it remains so.
Annual general meeting
The twelfth annual general meeting ("AGM") of the Company will be held at
2.30pm on Tuesday, 12 December 2023 at the offices of Janus Henderson
Investors, 201 Bishopsgate, London EC2M 3AE. The notice of meeting and details
of the resolutions to be proposed are set out in a separate document which
accompanies this annual report. Ben Lofthouse, our fund manager, will give a
presentation at the meeting.
As an alternative, I invite shareholders to join by Zoom webinar and details
of how to register are set out in the notice of meeting. As is our normal
practice, there will be live voting for those physically present at the AGM.
However, due to technical restrictions, we cannot offer live voting by Zoom.
We therefore request all shareholders, particularly those who cannot attend
physically, to submit their votes by proxy to ensure that their votes are
included.
Outlook
The interest rate environment across the world has changed markedly during the
past year in response to higher inflation. By having raised interest rates
vigorously over the past 20 months, central banks hope to dampen down economic
growth and thus contain inflation without precipitating a major recession. For
inflation to fall back to previous levels, interest rates must either be
raised further, which may lead to a recession, or be kept at or around current
levels for longer. It is therefore unlikely that the very low and, in some
cases, negative interest rates of recent years will return in the foreseeable
future. A more likely consequence of this interest rate scenario is that stock
markets will mark time until the valuations of their underlying companies
decline to more attractive levels. This will occur as company earnings
continue to grow, albeit slowly, but their share prices do not rise.
Eventually, valuations will reach fair value, fully reflecting the inflation
background. At this point stock markets can begin to rise again.
Meanwhile, investors will have to rely more on the dividend income from their
investments, than they have in recent years, to generate a higher proportion
of their total return. Here the relationship between the Company's investment
trust status and its dividend is particularly important. This status allows
the Company to draw on its reserves to sustain and even grow dividend payments
in the most difficult period of an interest rate/inflationary cycle.
We cannot control the macroeconomic background but we can maintain and follow
the Company's existing strategy of identifying companies that have the
capacity to grow their earnings and dividends over the medium to long term
while being attractively valued.
Richard Hills
Chairman
1 November 2023
PORTFOLIO INFORMATION
Ten largest investments at 31 August 2023
Rank 2023 Rank 2022 Company Country Sector Market value Market value at time of investment Income Yield(1)
£'000 £'000 £'000 %
% of portfolio
1 2 Sanofi France Health care 13,665 3.8 11,269 497 3.6
2 1 Microsoft US Technology 13,637 3.8 1,530 135 1.0
3 8 Merck & Co US Health care 10,845 3.0 7,526 287 2.6
4 7 Cisco Systems US Telecommunications 10,380 2.9 6,235 286 2.8
5 6 Roche Switzerland Health care 10,367 2.9 10,245 372 3.6
6 18 nVent Electric US Industrials 10,098 2.8 5,024 133 1.3
7 10 Air Products & Chemicals US Basic materials 9,356 2.6 8,244 209 2.2
8 13 Novartis Switzerland Health care 9,224 2.6 6,947 437 4.7
9 - Zurich Insurance Switzerland Financials 8,908 2.5 8,972 520 5.8
10 4 Coca-Cola US Consumer staples 8,738 2.5 6,033 286 3.3
Top 10 105,218 29.4 72,025 3,162
(1) Dividend yields as at 31 August 2023 are based upon historic dividends,
including special dividends where known, and are not representative of future
yield
Geographic exposure at 31 August Sector exposure at 31 August
As a percentage of the investment portfolio As a percentage of the investment portfolio
excluding cash excluding cash
2023 2022 2023 2022
%
%
%
%
US 34.8 35.6 Financials 18.7 19.6
Switzerland 11.3 8.7 Health care 17.9 16.0
France 9.4 8.9 Consumer staples 11.8 9.4
China 5.4 4.4 Industrials 10.0 7.0
Germany 4.9 2.6 Telecommunications 9.7 9.8
Hong Kong 4.9 4.7 Consumer discretionary 9.2 8.5
Korea 3.3 4.7 Technology 8.4 13.4
Australia 3.2 5.2 Basic materials 4.3 5.4
Netherlands 2.7 2.0 Energy 3.9 4.5
Sweden 2.6 2.9 Real estate 3.1 4.0
Italy 2.2 2.9 Utilities 3.0 2.4
Singapore 1.9 2.3
Indonesia 1.9 0.9
Brazil 1.8 -
Spain 1.8 1.6
Canada 1.5 2.5
Japan 1.4 1.2
Denmark 1.1 1.4
Norway 1.1 1.3
Taiwan 1.0 3.6
Finland 0.9 2.6
India 0.9 -
Source: Janus Henderson
Investment portfolio as at 31 August 2023
Market value % of
Company Country £'000 portfolio
Basic materials
Air Products & Chemicals US 9,356 2.6
UPM-Kymmene Finland 3,235 0.9
Pilbara Minerals Australia 2,864 0.8
15,455 4.3
Consumer discretionary
Sony Japan 4,817 1.4
Alibaba China 4,046 1.1
Midea China 3,981 1.1
Compagnie Financière Richemont Switzerland 3,422 0.9
Mercedes-Benz Germany 3,248 0.9
Samsonite Hong Kong 3,064 0.9
BMW Germany 3,052 0.9
JD.Com China 2,973 0.8
Li-Ning China 2,856 0.8
China Yongda Automobiles China 1,442 0.4
32,901 9.2
Consumer staples
Coca-Cola US 8,738 2.5
Nestlé Switzerland 8,524 2.4
Mondelez US 8,394 2.3
Pepsico US 6,595 1.8
Ambev Brazil 6,453 1.8
Pernod-Ricard France 3,461 1.0
42,165 11.8
Energy
TotalEnergies France 5,321 1.5
Woodside Energy Australia 4,555 1.3
Aker Norway 4,151 1.1
14,027 3.9
Financials
Zurich Insurance Switzerland 8,908 2.5
Amundi France 6,678 1.9
CME US 6,067 1.7
ING Netherlands 5,928 1.6
Travelers Companies US 5,055 1.4
Bank Mandiri Indonesia 4,350 1.2
AXA France 4,172 1.2
CITIC Securities Hong Kong 4,163 1.2
Macquarie Australia 4,048 1.1
ASR Nederland Netherlands 4,034 1.1
AIA Hong Kong 3,546 1.0
BFF Bank Italy 3,538 1.0
United Overseas Bank Singapore 3,397 0.9
HDFC Bank India 3,073 0.9
66,957 18.7
Health care
Sanofi France 13,665 3.8
Merck & Co US 10,845 3.0
Roche Switzerland 10,367 2.9
Novartis Switzerland 9,224 2.6
Bristol-Myers Squibb US 6,667 1.9
Medtronic US 5,326 1.5
Johnson & Johnson US 3,971 1.1
Novo Nordisk Denmark 3,948 1.1
64,013 17.9
Industrials
nVent Electric US 10,098 2.8
Honeywell International US 6,722 1.9
Daimler Truck Germany 5,738 1.6
Sandvik Sweden 5,448 1.5
LG Corp Korea 3,487 1.0
Nari Technology Co China 3,030 0.8
China National Building Material China 1,380 0.4
35,903 10.0
Real estate
Crown Castle US 3,869 1.1
CapitaLand Integrated Commercial Trust Singapore 3,656 1.0
Sun Hung Kai Properties Hong Kong 3,466 1.0
10,991 3.1
Technology
Microsoft US 13,637 3.8
Qualcomm US 5,114 1.4
Samsung Korea 4,084 1.1
Fidelity National Information US 3,775 1.1
Taiwan Semiconductor Manufacturing Taiwan 3,560 1.0
30,170 8.4
Telecommunications
Cisco Systems US 10,380 2.9
Deutsche Telekom Germany 5,406 1.5
Telus Canada 5,003 1.5
SK Telecom Korea 4,291 1.2
Tele2 Sweden 3,979 1.1
HKT Trust and HKT Ltd Hong Kong 2,999 0.8
Telekomunikasi Indonesia 2,477 0.7
34,535 9.7
Utilities
Iberdrola Spain 6,302 1.8
Enel Italy 4,252 1.2
10,554 3.0
Total investments 357,671 100.0
FUND MANAGER'S REPORT
• Equity markets have absorbed a rapid increase in interest rates. Portfolio
companies are generally coping well and earnings and dividend growth have been
stronger than many investors and commentators expected.
• The portfolio slightly outperformed the MSCI ACWI (ex UK) High Dividend Yield
Index but after fees the NAV (with debt at fair value) has lagged by 0.9%.
There has been a significant regional dispersion of returns and the strong
performance of the portfolio's European stocks has been offset by the weak
performance from the Asia Pacific holdings.
• We are in a period of incredible innovation and change which is not reflected
in current valuations due to macro-economic concerns.
• The diversified nature of the portfolio helps to protect against particular
earnings shocks to any one sector or region that might impact dividends in any
one year.
Over the period some factors that had suppressed economic growth in recent
years have abated. The energy crisis precipitated by Russia's invasion of
Ukraine was less severe than anticipated while the remaining Covid-impacted
countries abandoned their zero Covid policies and opened to the world. Both of
these factors have allowed supply chains to continue their recovery and goods
and services have become more available.
The chart in the annual report shows the performance of some of the major
regions' equity markets over the period. European equity markets have
recovered well from a difficult 2022, but Asia Pacific has been weak despite
moving on from measures implemented to contain Covid.
These developments have benefited economic growth but supply chain
improvements have not been reflected in price reductions. As a result,
inflation has proved to be more persistent than policy makers had expected,
forcing central banks to react by raising interest rates to higher levels than
markets predicted. The chart in the annual report illustrates the increases by
some of the major central banks this year.
This is a significant moment for financial markets. Since the financial crisis
of 2008, inflation has been lower than the levels that central banks perceived
to be healthy and economic growth has been 'below trend' too. Central banks,
as a result, have maintained a highly stimulative monetary environment,
employing new tools that have included quantitative easing and sub-zero
interest rates. This period lasted so long that some market participants began
to believe that rates would remain permanently lower. This year put paid to
that theory.
Inflation has spiked to historically high levels and central banks have been
forced to respond by increasing interest rates at the fastest rate in 40
years. This change has disrupted businesses that relied on plentiful debt at
low interest rates to enhance their returns or fund their cash flow. These
businesses include property, renewables, infrastructure, and early-stage
companies with little or no net cash flows. A combination of these effects has
resulted in problems for regional banks in the United States, leading to the
collapse of some relatively large financial institutions.
However, despite the fears and expectations of many observers, the rise in
interest rates has so far not caused a significant economic slowdown, increase
in unemployment, or recession. The rise in inflation has caused problems for
some companies that have not been able to pass on input cost increases, but
many other companies that have been able to have benefited from higher
pricing. The rise in inflation has also harmed large parts of society where
the cost of living has risen faster than wages. Recently wage growth has
picked up due to low unemployment and tough labour union negotiations, so some
of the cost-of-living crisis is now abating.
In the US, the world's largest stock market, it is notable that macro-economic
news has been overshadowed by advances in Artificial Intelligence ("AI").
Excitement around new AI systems that can generate content and the technology
infrastructure needed to power them has driven a strong rise in a narrow group
of stocks. Many of these companies are already large constituents of the US
equity market, including Microsoft, Nvidia, Facebook, Amazon and Apple. The
rally in these stocks has masked a general weakness in the US market and
reignited the tech/growth equity performance that faltered last year. The
chart in the annual report shows that these large companies have had a
disproportionately large impact in driving the market upwards compared to the
average company, as represented by the equal weighted S&P Index.
Performance review
The portfolio produced a total return of 1.4% in NAV per ordinary share over
the period (debt at fair value). This return includes dividends totalling
7.47p per share, a 3.0% increase year on year. Income growth has not been
matched by capital appreciation in recent years. Whilst disappointing, it is
perhaps understandable that against a background of a sharp rise in interest
rates, asset prices have stagnated.
Dividend performance
Investors sometimes ask about dividend trends, and how stable they may be in
the face of a recession. Research over long time periods show dividends are
significantly less volatile than earnings and tend to reflect the medium-term
outlook for companies rather than being overly driven by short-term earnings.
The diversified nature of the portfolio helps to protect against earnings
shocks in any one sector or region, while the focus on companies' long-term
prospects is designed to identify those that can grow through the cycle.
The Company's investment process focuses on companies with attractive dividend
yields, strong cash flow generation and the potential to grow. They are often
leaders in their respective industries, with established competitive
advantages. In a higher interest rate environment these characteristics are
increasingly important because they allow companies to continue to invest in
their businesses and pay dividends despite higher financing costs. The
underlying dividend growth of the portfolio has been solid, reflecting the
earnings growth of the underlying holdings.
After a significant increase of 23% in 2022, the revenue return of the Company
this year is 1% lower than last year. This slight decline is primarily the
result of sterling's appreciation against several currencies, particularly the
US, Hong Kong and Australian dollars against which it has rallied 10%. In a
global portfolio, currencies often move in different, uncorrelated directions,
cancelling each other out. Note 16.1.2 of the financial statements provides
some analysis of the portfolio's foreign currency sensitivity.
Local currency dividend growth from the top ten holdings averaged 5.2% during
the period, while the weighted average of the portfolio was over 8%, coming
from a wide range of sectors and regions. The three largest sectors in the
portfolio are financials, health care and consumer staples, where dividend
growth has exceeded our expectations.
Several of the financial sector holdings were among the fastest dividend
growers: Asia Pacific banks United Overseas Bank, Bank Mandiri and Macquarie
all grew their dividends by over 20%, and European insurers Zurich Insurance,
ASR Nederland and AXA grew in the region of 10%. This has been driven by
increased regulatory clarity about balance sheet requirements and higher
interest and insurance rates.
Earnings in the health care sector are less impacted by short-term factors
like interest rates or price trends but more by new treatment approvals and
competition for specific medicines. Despite concerns about drug pricing reform
in the United States all the health care holdings in the portfolio announced
dividend increases this year. The fastest growth has come from Novo Nordisk
and Sanofi, which have some blockbuster drugs still in the early stages of
their adoption and with little competition. Holdings such as Merck & Co,
Novartis and Roche are growing but their drugs are more mature, and their
dividend growth is more conservative to fund investment in their development
pipeline.
Consumer staples is the third largest sector, and the portfolio companies have
also benefited from a supportive pricing environment and good demand for their
products. They have generally been increasing their dividends. Beverage
company Pernod-Ricard increased its dividend by 23% and food company Mondelez
by 10%. Their growth is less cyclical and comes more from their exposures to
emerging markets where consumption is increasing and consumers are trading up
as GDP per capita increases.
Special dividends were received from TotalEnergies, exchange operator CME, and
luxury goods company Richemont.
Capital performance
The Company's portfolio is relatively concentrated, consisting of 50-80
positions, so performance can be impacted by stock-specific news as well as
regional equity market performance and sector news. The investment process
focuses on identifying businesses that are attractively valued and where the
dividends both add to shareholders' total return and reward them for being
invested until the value is realised by capital appreciation. Portfolio
construction ensures the portfolio is diversified to reduce concentration
risks, and the portfolio is organised in regional sleeves: North America,
Europe and Asia Pacific.
The Company produced a net asset total return of 1.4% (debt at fair value),
which was 0.9% behind the MSCI ACWI (ex UK) High Dividend Yield Index. The
portfolio's performance was 2.8%. An estimated attribution of the portfolio's
performance between asset allocation and stock selection is given below, which
also includes the impact of other factors to explain the movement of the net
asset value over the year.
Estimated performance attribution (relative to the MSCI ACWI (ex UK) High
Dividend Yield Index)
%
Stock selection -1.3
Asset allocation +1.5
Gearing +0.3
Expenses -0.7
Timing residual* -0.7
Total -0.9
* Refer to glossary in the annual report
There has been a considerable dispersion between the returns of different
regions and sectors this year. The average exposures and total returns for
each region are detailed below. The positive asset allocation was primarily
driven by the overweight position in Europe, as well as the underweight in
North America. Stock selection in Europe and North America was positive but
was offset by weak stock selection in the Asia Pacific region.
Portfolio exposures and returns by region
Average exposure Total return
% %
Europe (ex UK) 33.6 +17.1
North America 40.9 +1.5
Asia Pacific (ex Japan) 24.4 -12.1
Other* 2.5 -6.5
* Other represents holdings in Japan and Latin America
The overweight exposure to European stocks, which represented on average a
third of the portfolio, contributed most to performance. Due to concerted
efforts by European governments to increase gas inventory levels and by
consumers to reduce consumption, energy prices gradually abated over the
period.
Many of the portfolio's financial holdings have been significant positive
contributors to performance aided by rising interest rates and an improving
economic environment. In recent years the portfolio has maintained a
significant exposure to financial companies because their valuations have not
reflected their profitability or dividend sustainability, both of which have
endured despite the low interest rate environment of the last decade. European
financial companies BFF Bank, ING and AXA, and asset managers Van Lanschot and
Amundi were amongst the most positive individual contributors to performance.
The pharmaceutical sector was also a positive contributor. Novo Nordisk has
developed its diabetes treatment to also target obesity, where it is proving
remarkably effective and seeing a surge in demand. Sanofi was sold off by the
market last year due to litigation concerns that have proved unfounded (our
position was added to at the time), and revenues have grown faster than the
market expected.
North America returned 1.5% and was a poor performing region for higher
yielding stocks. The top performers were those with additional demand related
to AI: Microsoft, Cisco and nVent. Microsoft is a leader in AI through its
investment in OpenAI, the creator of ChatGPT, and has been one of the first
companies to monetise generative AI. nVent is benefiting from AI albeit in a
much more moderate way via demand for its data centre cooling systems. Whilst
the portfolio avoided exposure to real estate or regional banks, the worst hit
sectors from rising interest rates, telecommunications has derated as bond
yields have risen and Crown Castle (telecom towers) and Canadian telecoms
operator Telus have both fallen in value. Broadcom appears as the largest
single detractor. We had held the company for several years and took profit
from it. It has subsequently rallied on the excitement around AI, causing a
relative underperformance against the index. Fidelity National Information
Services is a payments company that has suffered from lower transactions than
expected because of a more price competitive market. It has been sold post
year-end to invest in other opportunities.
The most significant negative contributor to performance has been the
overweight to the Asia Pacific region. The region makes up approximately 25%
of the portfolio and the return for the period was -12.1%. Despite high levels
of consumer savings, the opening up of the Chinese economy after Covid has not
yet triggered the pickup in economic and consumer activity that the rest of
the world experienced post Covid. Whilst Chinese exposure is relatively low
(5.4%), it has disproportionately impacted performance despite the general
avoidance of companies involved in property construction. Consumer facing
companies including leisure wear retailer Li-Ning, auto dealer China Yongda
Automobiles, and JD.Com were some of the largest underperformers. The
companies held in the region are all leaders in their respective industries,
and in many cases have cash balance sheets, but this has not stopped them
falling to very low valuations. Often the best investments are made when
sentiment in a particular stock, sector or region is depressed and it
certainly feels like sentiment regarding China is now very low.
The table below highlights the most significant stock contributors to
performance over the year measured by contribution to absolute return.
The table below highlights the most significant stock contributors to
performance over the year measured by contribution to absolute return.
%
nVent Electric +1.1
Sanofi +0.7
Microsoft +0.6
Novo Nordisk +0.6
ING +0.6
JD.Com -0.7
Fidelity National Information -0.7
Li-Ning -0.7
Crown Castle -0.9
Broadcom -1.2
Source: Janus Henderson. Based on Total Effect Relative MSCI ACWI (ex UK) High
Dividend Yield Index, as at 31 August 2023
Impact of gearing
Since the Company has long-term debt we provide both a fair value and par
value return (see note 16.4 in the annual report for details). The fair value
of the debt reflects a theoretical market price which reflects interest rate
expectations. The rise in interest rate expectations during the period has
reduced the fair value of the debt by £2,196,000, enhancing the fair value
net asset value return of the Company by 0.6%. The par value of the debt is
only changed by currency movements and has fallen by £224,000 over the year,
as a result of sterling slightly strengthening against the euro.
ESG and company engagement
Integration of environmental, social and governance factors into investment
decision making and ownership is detailed in the annual report. During the
period under review the investment team continued to actively engage with
investee companies. Recent discussions have focused on climate related areas,
including how forestry products manufacturer UPM-Kymmene has assessed the
potential impact of climate change on its forestry assets. Also, how consumer
staples companies such as Nestlé and Mondelez are addressing deforestation
and traceability of their supply chain. Elsewhere, the team has engaged with
TotalEnergies about their progress on methane emission reductions, and
industrial gas company Air Products & Chemicals' investments in hydrogen
generation to help the sector decarbonise.
Portfolio positioning
Stock selection is driven by a combination of the attractiveness of the
company (leading competitive positioning, positive supply/demand outlook, good
cash flow generation, long-term sustainability of business model) and its
valuation.
In recent years we have been concerned about two potential macro-economic
risks when analysing companies: the risk that interest rates may rise and the
ability for companies to deal with cost inflation. The risk of higher interest
rates has largely been realised, and new opportunities are being presented as
valuations become more attractive in some parts of the market. The main risk
now is that the sharp rise in interest rates may slow growth more than
expected.
The reduction in the Company's technology and financial sector weightings
reflects that many of these stocks have recovered well and could be vulnerable
to economic weakness. Financial services positions closed on this basis
included Taiwanese financial conglomerate CTBC Financial, insurers Sampo and
Manulife, and asset manager Van Lanschot. Where new positions in the sector
were initiated, they have less credit exposure and earnings are driven more by
volume growth than interest rate movements. These include derivative exchange
operator CME, Zurich Insurance and Indian bank HDFC. CME is one of the largest
providers of interest rate derivatives, used by investors and financial
companies to help manage interest rate risk, especially in times of interest
rate uncertainty. Zurich Insurance is benefiting from tightness in insurance
markets due to higher-than-expected losses by competitors who have mispriced
inflation and natural catastrophe related events.
In the technology sector semi-conductor companies MediaTek and Broadcom were
sold, along with glass-focused technology business Corning and consumer gaming
company Nintendo. A position in Qualcomm was purchased. Qualcomm designs and
manufactures communication technology and software, including for mobile
phones, modems and PCs. Although it is well known for supplying the smartphone
industry, it is a much more diversified business that it was in the past. The
company is seeing growth from new markets including the auto sector which is
using more technology on each new car designed, and potentially the AI
industry. The increased penetration of technology into society remains one of
the most exciting themes for the coming decade and the portfolio continues to
own leaders in the area including Microsoft, Taiwan Semiconductor
Manufacturing and Samsung.
If the interest rate environment remains high it will be important for
companies to be able to grow despite that environment. Some of the changes in
the portfolio also reflect the opportunity of falling valuations to invest in
companies with more structural growth. A new position was initiated in Sony,
which has superior and more diversified long-term growth drivers than many
competitors, yet trades at a similar or lower valuation. Emerging markets have
been out of favour due to interest rate and currency concerns, which provided
an opportunity to initiate new positions in consumer staples companies
Pernod-Ricard and Ambev. Both have material exposure to Asian and Latin
American markets and the potential to grow earnings and dividends throughout
the economic cycle.
The largest individual stock changes are shown below:
Purchases %
Zurich Insurance +2.6
Ambev +1.9
CME +1.8
Daimler Truck +1.7
Qualcomm +1.5
Sales %
Verizon Communications -2.1
Panasonic -2.1
Texas Instruments -1.8
Quanta Computer -1.7
Swire Pacific -1.3
Outlook
The portfolio remains well diversified by region and sector with North America
and Europe the largest regional exposures. The proportion of the portfolio in
the Asia Pacific region has been maintained. In the long term, this region has
attractive economic characteristics with many technology leaders listed there.
With regard to China and Hong Kong, exposure remains relatively low in a
portfolio context, at 9%.
If consensus economic forecasts are correct, the Asia Pacific region could see
more investor interest next year.
Global gross domestic product (GDP) growth and consensus forecasts
GDP growth (%) 2022 2023e 2024e
World 3.4 2.8 2.6
US 2.1 2.4 1.0
UK 4.3 0.4 0.4
Eurozone 3.3 0.5 0.8
Asia Pacific (ex Japan) 3.2 4.5 4.6
Japan 1.1 1.8 1.0
China 3.0 5.0 4.5
Source: Bloomberg, as at 16 October 2023
Note: 2023-2024 are estimates
It is hard to know the impact of higher interest rates on economies, but as
discussed earlier there are interesting long-term demand trends for many
companies and sectors that have, if anything, strengthened over the last few
years. These include decarbonisation spend, the relocation of supply chains
and technological innovation. There is still a very wide divergence between
the performance of different regions, stocks and sectors. As the chart in the
annual report shows, the relative underperformance of value versus growth
stocks remains at levels unprecedented in recent history. While stock
selection remains important to avoid value traps, there remain many
undervalued opportunities.
Ben Lofthouse
Fund Manager
1 November 2023
INVESTMENT POLICY
The Company will invest in a focused and internationally diversified portfolio
of 50-80 companies that are either listed in, registered in, or whose
principal business is in countries that are outside the UK and will be made up
of shares (equity securities) and fixed interest asset classes that are
diversified by factors such as geography, industry and investment size. A
maximum of 25% of gross assets may be invested in fixed interest securities.
The Company does not hold investments in unlisted companies unless it is
through subsequent delisting of an existing investment.
Investment in any single company (including any derivative instruments) will
not, in gross terms, exceed 5% of net assets at the time of investment and no
more than 15% of gross assets may be invested in other listed investment
companies (including investment trusts) or collective investment schemes. No
more than 10% of gross assets may be invested in companies that themselves
invest more than 15% of their gross assets in UK listed investment companies
or collective investment schemes.
The Company may use financial instruments known as derivatives for the purpose
of efficient portfolio management, for investment purposes or to generate
additional income while maintaining a level of risk consistent with the risk
profile of the Company. The Company may hedge exposure to foreign currencies
up to a maximum of 20% of gross assets and may generate up to a maximum of 20%
of gross income through investment in traded options.
The Company can borrow to make additional investments with the aim of
achieving a return that is greater than the cost of borrowing. The Company's
articles of association allow borrowings up to 100% of net asset value. In
normal circumstances, the manager may only utilise gearing up to 25% of net
assets at the time of drawdown or investment (as appropriate) in accordance
with the board's policy and for these purposes 'gearing' includes implied
gearing through the use of derivatives.
PRINCIPAL RISKS AND UNCERTAINTIES
The board, with the assistance of Janus Henderson, has carried out a robust
assessment of the principal risks and uncertainties, including emerging risks,
facing the Company, including those that would threaten its business model,
future performance, solvency or liquidity and reputation.
The board regularly considers the principal risks facing your Company and has
drawn up a matrix of risks. The board has also put in place a schedule of
investment limits and restrictions, appropriate to your Company's investment
objective and policy. The principal risks which have been identified and the
steps taken by the board to mitigate these are set out in the table below. The
principal financial risks are detailed in note 16 to the financial statements
in the annual report.
The risk register has been updated during the year to reflect increasing
geopolitical and political risks and increased cyber security risks. The risk
arising from the continued consolidation of the wealth management industry has
been moved from an emerging risk to a principal risk.
Risk Trend Mitigation
Geopolitical risks ↑
Geopolitical risks, including the Russian invasion of Ukraine and the conflict The fund manager is active in the review of geographic and sector allocations,
in the Middle East, are causing political and economic volatility. Supply including an understanding of underlying impacts of trade with Russia. At each
chains, energy supply and consequential price increases are among the risks. board meeting, the allocation of the assets across the geographic markets and
the sector relative weightings are discussed with the fund manager, with a
focus on the current market context.
Political risks ↑
Political and economic uncertainty, including the political climate in China, The board actively engages in dialogue with the fund manager to ensure an
could give rise to market volatility. This could affect foreign exchange ongoing review of the portfolio and reallocation, if considered appropriate,
movements and impact the valuation of your Company's portfolio and dividend to adjust stocks or geographical allocations.
income.
The fund manager monitors political and economic issues and regularly reviews
geographic and sector allocation. The risk is spread through holding a diverse
portfolio.
Investment activity and performance risks ↔
An inappropriate investment strategy (for example, in terms of asset The board monitors investment performance at each board meeting, including
allocation or the level of gearing) may result in underperformance against performance relative to the benchmark. It also regularly reviews the extent of
your Company's benchmark index and the companies in its peer group. its borrowings, when in use.
Further increases in interest rates could materially affect the performance of The fund manager actively monitors the level of gearing in the stocks across
stocks with high levels of gearing. This could impact their cashflows and the portfolio and adjusts exposure where necessary. This is discussed on a
ability to pay dividends, and thus affect the performance of the Company's regular basis with the board.
portfolio.
Portfolio and market price risks ↔
Although your Company invests almost entirely in securities that are listed on The manager seeks to maintain a diversified portfolio to mitigate against this
recognised markets, share prices may move rapidly. The companies in which risk. The board regularly reviews the portfolio, activities and performance.
investments are made may underperform or fail entirely with a potential impact
on their share price and/or dividend yield. A fall in the market value of your
Company's portfolio would have an adverse effect on shareholders' funds.
The fund manager monitors your Company's exposure to foreign currencies daily
and reports to the board at each meeting. The fund manager measures the risk
to the Company of the foreign currency exposure by considering the effect on
Most of your Company's assets, liabilities, income and expenses are the Company's net asset value and total return of a movement in the exchange
denominated in currencies other than sterling (the Company's functional rates to which your Company's assets, liabilities, income and expenses are
currency and presentational currency). As a result, movements in exchange exposed.
rates may affect the sterling value of those items.
The board has set an investment limit on currency hedging to a maximum of 25%
Increasing inflation could impact the performance of markets internationally, of gross assets to mitigate against this risk.
with greater market price volatility having a consequential impact on the
performance of the portfolio.
Tax and regulatory risks ↔
A breach of section 1158/9 of the Corporation Tax Act 2010 could lead to a The manager has been contracted to provide investment, company secretarial,
loss of investment trust status, resulting in capital gains realised within administration and accounting services through suitably qualified
the portfolio being subject to corporation tax. A breach of the Listing Rules professionals. The board receives internal control reports produced by Janus
could result in suspension of your Company's shares, while a breach of the Henderson on a quarterly basis, which confirm legal and regulatory compliance.
Companies Act could lead to criminal proceedings, or financial or reputational
damage.
Operational and cyber risks ↑
Disruption to, or failure of, Janus Henderson's accounting, dealing or payment The board monitors the services provided by the manager and its other
systems or the custodian's records could prevent the accurate reporting and third-party suppliers and receives reports on the key elements in place to
monitoring of the Company's financial position. Your Company is also exposed provide effective internal controls. The board also receives assurances from
to the operational and/or cyber risk that one or more of its service providers the manager's chief information security officer that the manager maintains
may not provide the required level of service in the event of a cyber attack. robust cyber and information security policies, processes and procedures.
The manager maintains appropriate policies and procedures, together with a
robust firewall, to mitigate any such attacks.
The board also monitors the principal business risks faced by your Company
which are recorded in a risk map which is reviewed regularly. Systems are in
operation to safeguard the Company's assets and shareholders' investments, to
maintain proper accounting records and to ensure that financial information
used within the business, or published, is reliable.
Consolidation of the wealth management industry ↑
Continued consolidation of the wealth management industry may result in a
narrower customer base and the increasing importance of being on the 'buy
list'. A key focus is on performance and to ensure that your Company meets buy list
requirements of institutional investors. The manager makes use of PR and
marketing in order to reach individual buyers. The board is enhancing your
Company's marketing strategy to ensure the growing needs of individual
self-directed investors are met to help stimulate ongoing demand for your
Company's shares.
Emerging risks
In addition to the principal risks facing your Company, the board also
regularly considers potential emerging risks, which are defined as potential
trends, sudden events or changing risks which are characterised by a high
degree of uncertainty in terms of the probability of them happening and the
possible effects on the Company. Should an emerging risk become sufficiently
clear, it may be moved to a significant risk.
The board has identified the following as potential emerging risks:
Emerging risk Mitigation
Consolidation of the investment trust sector leading to a greater average size The board regularly reviews the market to identify and participate in
of investment trusts becoming the norm. consolidation opportunities and looks to the manager to provide performance to
improve the Company's chances for growth.
Unfavourable regulatory changes, including tax changes and the possible The board and the manager monitor potential changes on an ongoing basis.
imposition of a wealth tax.
Increased regulation and focus by investors on climate change and ESG The board, through the manager and corporate broker, maintains a regular
developments. dialogue with major shareholders and discusses the Company's objectives with
them. The feedback from this, together with the investment strategy in the
context of performance, is regularly reviewed by the board.
VIABILITY AND GOING CONCERN
The AIC Code of Corporate Governance includes a requirement for the board to
assess the future prospects for your Company, and to report on the assessment
within the annual report. The board considers that certain characteristics of
your Company's business model and strategy are relevant to this assessment:
• the board looks to ensure that your Company seeks to deliver long-term
performance;
• the Company's investment objective, strategy and policy, which are subject to
regular board monitoring, mean that your Company is invested mainly in readily
realisable listed securities and that the level of borrowings is restricted;
• your Company is a closed-end investment company and therefore does not suffer
from the liquidity issues arising from unexpected redemptions; and
• the Company has an ongoing charge of 0.72% (2022: 0.83%).
Also relevant were a number of aspects of your Company's operational
agreements:
• your Company retains title to all assets held by the custodian under the terms
of the formal agreement with the depositary;
• long-term borrowing is in place, being the 2.43% senior unsecured notes 2044,
which are also subject to a formal agreement, including financial covenants
with which your Company complied in full during the period since issuance. The
value of long-term borrowing is relatively small in comparison to the value of
net assets, being 7.4% at 31 August 2023 (2022: 7.2%);
• revenue and expenditure forecasts are reviewed by the directors at each board
meeting; and
• cash is held with an approved bank.
In addition, the directors carried out a robust assessment of the principal
risks and uncertainties which could threaten your Company's business model,
including future performance, liquidity or solvency and reputation and
considered emerging risks that could have a future impact on your Company.
The principal risks identified as relevant to the viability assessment were
those relating to investment activity and performance, portfolio and market
price risks. The board took into account the liquidity of your Company's
portfolio, the existence of the long-term fixed rate borrowings, the effects
of any significant future falls in investment values and income receipts on
the ability to repay and re-negotiate borrowings, grow dividend payments and
retain investors and the potential need for share buy-backs in order to
maintain a narrow share price discount.
The directors assess viability over three-year rolling periods, taking account
of foreseeable severe but plausible scenarios. In coming to this conclusion,
the directors have considered the heightened macroeconomic uncertainty
following Russia's invasion of Ukraine, the conflict in the Middle East and
the political climate in China, in particular, the potential impact on income
and your Company's ability to meet its investment objective, and the impact on
loan covenants. The directors do not believe that they will have a long-term
impact on the viability of your Company and its ability to continue in
operation, notwithstanding the short-term uncertainty that these events have
caused in the markets and specific short-term issues, such as to energy,
supply chain disruption, inflation and labour shortages.
The directors believe that a rolling three-year period best balances your
Company's long-term objective, its financial flexibility and scope with the
difficulty in forecasting economic conditions affecting your Company and its
shareholders.
The directors recognise that there is a continuation vote that is due to take
place at the 2023 AGM. The directors currently believe that your Company will
continue to exist for the foreseeable future, and at least for the period of
assessment.
Based on their assessment, and in the context of your Company's business
model, strategy and operational arrangements set out above, the directors have
a reasonable expectation that your Company will be able to continue in
operation and meet its liabilities as they fall due over the three-year period
to 31 August 2026.
The directors consider your Company has adequate resources to continue in
operational existence for at least twelve months from the date of approval of
the financial statements and that it is appropriate to adopt the going concern
basis of accounting in preparing the financial statements (see below for
further details).
BORROWINGS
Your Company's short-term gearing facility allows borrowing of up to £30m in
sterling and other currencies by way of an overdraft facility with HSBC Bank
plc. Under this facility the Company borrowed in both sterling and euros in
the year under review.
On 30 April 2019, your Company issued €30m fixed rate 25-year senior
unsecured notes at an annualised coupon of 2.43%. This long-term fixed rate
euro denominated financing was obtained at a price that the board considered
attractive. The senior unsecured notes are expected to enhance long-term
investment performance.
Within the terms of the senior unsecured notes are clauses that would be
enacted in certain scenarios should the notes be prepaid by the Company before
maturity. These clauses could impact the total amount repayable. The directors
have assessed these and have concluded that these clauses are highly unlikely
to occur.
The level of gearing at 31 August 2023 was 3.9% of net asset value (2022:
6.5%).
RELATED PARTY TRANSACTIONS
The Company's transactions with related parties in the year were with the
directors and the manager. There have been no material transactions between
the Company and its directors during the year. The only amounts paid to them
were in respect of expenses and remuneration for which there were no
outstanding amounts payable at the year 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 provision of
marketing services) there have been no material transactions with the manager
affecting the financial position or performance 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 note 21 of the annual report.
DIRECTORS' RESPONSIBILITY STATEMENT
Each of the directors, who are listed below, confirms that, to the best of
their knowledge:
• the Company's financial statements, which have been prepared in accordance
with UK Accounting Standards, give a true and fair view of the assets,
liabilities, financial position and return of the Company; and
• the annual report and financial statements include 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
Richard Hills
Chairman
1 November 2023
INCOME STATEMENT
Year ended 31 August 2023 Year ended 31 August 2022
Revenue Capital Revenue Capital
return return Total return return Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
(Losses)/gains from investments held at fair value through profit or loss - (8,984) (8,984) - 1,834 1,834
3 Income from investments held at fair value through profit or loss 16,641 - 16,641 16,431 - 16,431
Loss on foreign exchange - (84) (84) - (337) (337)
4 Other income 894 - 894 852 - 852
Gross revenue and capital (losses)/gains 17,535 (9,068) 8,467 17,283 1,497 18,780
Management fee (500) (1,502) (2,002) (563) (1,690) (2,253)
Other administrative expenses (609) - (609) (682) - (682)
Net return before finance costs and taxation 16,426 (10,570) 5,856 16,038 (193) 15,845
Finance costs (162) (488) (650) (158) (475) (633)
Net return before taxation 16,264 (11,058) 5,206 15,880 (668) 15,212
Taxation on net return (2,020) - (2,020) (1,439) (128) (1,567)
Net return after taxation 14,244 (11,058) 3,186 14,441 (796) 13,645
6 Return per ordinary share 7.27p (5.64p) 1.63p 7.37p (0.41p) 6.96p
The total column 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 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
Called up Share premium Other capital
share capital £'000 account £'000 Special reserves £'000 Revenue reserve
Year ended reserve £'000 Total
Notes 31 August 2023 £'000 £'000
At 31 August 2022 1,960 194,550 45,732 105,977 7,468 355,687
Net return for the year - - - (11,058) 14,244 3,186
7 Dividends paid - - - - (14,503) (14,503)
At 31 August 2023 1,960 194,550 45,732 94,919 7,209 344,370
Called up Share premium Other
share capital £'000 account £'000 Special capital Revenue
Year ended reserve reserves reserve Total
Notes 31 August 2022 £'000 £'000 £'000 £'000
At 31 August 2021 1,960 194,550 45,732 106,773 7,137 356,152
Net return for the year - - - (796) 14,441 13,645
7 Dividends paid - - - - (14,110) (14,110)
At 31 August 2022 1,960 194,550 45,732 105,977 7,468 355,687
STATEMENT OF FINANCIAL POSITION
At At
31 August 31 August
Notes 2023 2022
£'000 £'000
Fixed asset investments held at fair value through profit or loss 357,671 378,931
Current assets
Debtors 3,588 3,039
Cash at bank and in hand 18,028 6,590
21,616 9,629
Creditors: amounts falling due within one year (9,375) (7,107)
Net current assets 12,241 2,522
Total assets less current liabilities 369,912 381,453
Creditors: amounts falling due after more than one year (25,542) (25,766)
Total net assets 344,370 355,687
Capital and reserves
9 Called up share capital 1,960 1,960
10 Share premium account 194,550 194,550
Special reserve 45,732 45,732
Other capital reserves 94,919 105,977
Revenue reserve 7,209 7,468
Total shareholders' funds 344,370 355,687
8 Net asset value per ordinary share 175.7p 181.5p
STATEMENT OF CASH FLOWS
Year ended Year ended
31 August 31 August
2023 2022
£'000 £'000
Cash flows from operating activities
Net return before taxation 5,206 15,212
Add back: finance costs 650 633
Losses/(gains) on investments held at fair value through profit or loss 8,984 (1,834)
Losses on foreign exchange 84 337
Withholding tax on dividends deducted at source (2,432) (2,553)
Taxation recovered 56 439
(Increase)/decrease in debtors (189) 76
Decrease in creditors (104) (5)
Net cash inflow from operating activities 12,255 12,305
Cash flows from investing activities
Purchase of investments (105,273) (117,656)
Sale of investments 119,914 105,417
Proceeds from capital dividends 2 4,206
Net cash inflow/(outflow) from investing activities 14,643 (8,033)
Cash flows from financing activities
Equity dividends paid (net of refund of unclaimed distributions and reclaimed (14,503) (14,110)
distributions)
Interest paid (644) (628)
Net cash outflow from financing activities (15,147) (14,738)
Net increase/(decrease) in cash at bank and in hand 11,751 (10,466)
Cash at bank and in hand at start of year 6,590 17,199
Effect of foreign exchange rates (313) (143)
Cash at bank and in hand at end of year 18,028 6,590
Comprising:
Cash at bank and in hand 18,028 6,590
18,028 6,590
NOTES TO THE FINANCIAL STATEMENTS
1. Accounting policies
Basis of accounting
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 201 Bishopsgate, London EC2M 3AE.
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") issued 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.
Following the issue of the senior unsecured notes on 30 April 2019 it was
determined that the Company would adopt the recognition and measurement
provisions of IFRS 9 (Financial Instruments), as permitted by sections 11 and
12 of FRS 102. This was determined to better reflect the directors' assessment
of the carrying value of the senior unsecured notes and has no impact on the
carrying value of the Company's financial assets.
The financial statements are prepared under the historical cost basis except
for the measurement at fair value of investments.
The preparation of the Company's financial statements on occasion 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 amounts of assets or liabilities
affected in current and future periods, depending on circumstances. The
directors have considered the accounting treatment of the senior unsecured
notes as set out in accounting policy 1i) in the annual report to be an area
of judgement, in particular with reference to clauses that would be enacted
should the notes be prepaid before maturity and concluded the adoption of IFRS
9 described above is the most appropriate and complies with accounting
standards. The decision to allocate special dividends as income or capital is
a judgement but not deemed to be material.
The directors do not believe that any accounting judgements or estimates 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 within the next financial year.
2. Going concern
The Company's articles of association require that at every third annual
general meeting of the Company an ordinary resolution be put to shareholders
asking them to approve the continuation of the Company. The next such
resolution will be proposed at the forthcoming annual general meeting. The
directors believe that the Company will continue to exist for the foreseeable
future. 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 the financial statements. Having assessed
these factors, the principal risks, as well as considering the heightened
macroeconomic uncertainties and other matters discussed in connection with the
viability statement, the board has determined that it is appropriate for the
financial statements to be prepared on a going concern basis.
3. Income from investments held at fair value through profit or loss
2023 2022
£'000 £'000
Dividend income 16,641 16,431
16,641 16,431
4. Other income
2023 2022
£'000 £'000
Bank interest 318 16
Option premium income 576 836
894 852
5. Management fee
2023 2022
Revenue return Capital return Total Revenue return Capital return Total
£'000
£'000
£'000
£'000
£'000
£'000
Management fee 500 1,502 2,002 563 1,690 2,253
A summary of the terms of the management agreement is given in the strategic
report in the annual report.
6. Return per ordinary share
2023 2022
£'000 pence £'000 pence
Revenue return 14,244 7.27 14,441 7.37
Capital return (11,058) (5.64) (796) (0.41)
Total return 3,186 1.63 13,645 6.96
Weighted average number of ordinary shares 195,978,716 195,978,716
7. Dividends paid on ordinary shares for the year to 31 August
Dividends on ordinary shares Ex-dividend date Record date Payment date 2023 2022
£'000 £'000
4(th) interim dividend - 1.85p 3 November 2022 4 November 2022 30 November 2022 3,626 -
1(st) interim dividend - 1.85p 2 February 2023 3 February 2023 28 February 2023 3,626 -
2(nd) interim dividend - 1.85p 11 May 2023 12 May 2023 31 May 2023 3,625 -
3(rd) interim dividend - 1.85p 27 July 2023 28 July 2023 31 August 2023 3,626 -
4(th) interim dividend - 1.80p 4 November 2021 5 November 2021 30 November 2021 - 3,527
1(st) interim dividend - 1.80p 3 February 2022 4 February 2022 28 February 2022 - 3,527
2(nd) interim dividend - 1.80p 5 May 2022 6 May 2022 31 May 2022 - 3,528
3(rd) interim dividend - 1.80p 28 July 2022 29 July 2022 31 August 2022 - 3,528
14,503 14,110
A fourth interim dividend in respect of the year ended 31 August 2023 of 1.92p
per share has been declared and will be paid to shareholders on 30 November
2023 with record date 10 November 2023. The Company's shares will go
ex-dividend on 9 November 2023.
The total dividends payable in respect of the financial year which form the
basis of section 1158 of the Corporation Tax Act 2010 are set out below. At
the point of declaring each dividend, the directors consider the revenue
earned during the financial period to date as well as the distributable
revenue reserves brought forward, out of which total amount the dividend is to
be paid.
2023 2022
£'000 £'000
Revenue available for distribution by way of dividend for the year 14,244 14,441
Interim dividends of 5.55p paid (2022: 5.40p) (10,877) (10,583)
Fourth interim dividend for the year ended 31 August 2023 of 1.92p (based on (3,763) (3,626)
195,978,716 ordinary shares in issue as at 30 October 2023) (2022: 1.85p)
Transfer (from)/to revenue reserve(1) (396) 232
(1) The deficit of £396,000 (2022: surplus of £232,000) has been transferred
(from)/to the revenue reserve
8. Net asset value per ordinary share
The net asset value per ordinary share and the net assets attributable to
ordinary shares at the end of the year were as follows:
2023 2022
Net assets attributable (£'000) 344,370 355,687
Number of ordinary shares in issue 195,978,716 195,978,716
Net assets per ordinary share (pence) 175.7 181.5
The movements during the year of the assets attributable to the ordinary
shares were as follows:
2023 2022
£'000 £'000
Net assets at start of the year 355,687 356,152
Total net return after taxation 3,186 13,645
Dividends paid on ordinary shares in the period (14,503) (14,110)
Total net assets attributable to the ordinary shares at 31 August 344,370 355,687
9. Called up share capital
Number of shares Number of shares entitled to dividend
Ordinary shares 1p each £'000
At 31 August 2023 195,978,716 195,978,716 1,960
At 31 August 2022 195,978,716 195,978,716 1,960
No shares were issued or bought back during the year (2022: same).
10. Share premium account
2023 2022
£'000 £'000
At the start of the year 194,550 194,550
At 31 August 194,550 194,550
11. 2023 financial information
The figures and financial information for the year ended 31 August 2023 are
extracted from the Company's annual financial statements for that year and do
not constitute statutory financial statements for that year. The Company's
annual financial statements for the year ended 31 August 2023 have been
audited but have not yet been delivered to the Registrar of Companies. The
auditors' report on the 2023 financial statements was unqualified and did not
contain any statements under sections 498(2) and 498(3) of the Companies Act
2006.
12. 2022 financial information
The figures and financial information for the year ended 31 August 2022 are
extracted from financial statements for that year and do not constitute
statutory financial statements for that year. Those financial statements have
been delivered to the Registrar of Companies and included the report of the
auditors which was unqualified and did not contain any statements under
sections 498(2) or 498(3) of the Companies Act 2006.
13. Annual report and financial statements
The annual report and financial statements for the year ended 31 August 2023
will be posted to shareholders in early November 2023 and will be available on
the Company's website www.hendersoninternationalincometrust.com
(http://www.hendersoninternationalincometrust.com) . Copies will be available
in hard copy format from the Company's registered office, 201 Bishopsgate,
London EC2M 3AE.
14. Annual general meeting
The annual general meeting will be held on Tuesday, 12 December 2023 at 2.30pm
at the offices of Janus Henderson Investors, 201 Bishopsgate, London EC2M 2AE.
The notice of the annual general meeting will be posted to shareholders with
the annual report and financial statements.
15. General information
Company Status
Henderson International Income Trust plc is a UK domiciled investment trust
company.
SEDOL/ISIN number: ordinary shares: B3PHCS8/GB00B3PHCS86
London Stock Exchange (TIDM) Code: HINT
Global Intermediary Identification Number (GIIN): WRGF5X.99999.SL.826
Legal Entity Identifier (LEI): 2138006N35XWGK2YUK38
Company Registration Number: 7549407
Registered Office
201 Bishopsgate, London EC2M 3AE
Directors and Secretary
The directors of the Company are Richard Hills (chairman), Jo Parfrey (audit
committee chair), Lucy Walker (senior independent director), Mai Fenton and
Aidan Lisser.
The corporate secretary is Janus Henderson Secretarial Services UK Limited,
represented by Sally Porter, ACG.
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.hendersoninternationalincometrust.com
(http://www.hendersoninternationalincometrust.com) .
For more information please contact:
Ben Lofthouse
Fund Manager
Henderson International Income Trust plc
Telephone: 020 7818 5187
Dan Howe Harriet Hall
Head of Investment Trusts Investment Trusts PR Manager
Janus Henderson Investors Janus Henderson Investors
Telephone: 020 7818 4458 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) is
incorporated into, or forms part of, this announcement.
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