Henderson Int Income - Annual Financial Report
31/10/2024 07:00
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RNS Number : 3085K Henderson Intl. Income Trust PLC 31 October 2024
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 2024
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 FOR THE YEAR TO 31 AUGUST 2024
• Dividends for the year increased by 3.2% to 7.71p per share. Your Company has
been recognised as a "next generation dividend hero" by the AIC.
• The portfolio has delivered attractive absolute growth this year: NAV total
return of 10.4% (debt at par) and 9.8% (debt at fair value).
• Equity markets have performed well over the period. The global economy has
generally weathered higher interest rates better than expected and all regions
of the portfolio generated positive returns.
PERFORMANCE TO/AT 31 AUGUST
2024 2023
Dividend in respect of the year 7.71p(1) 7.47p
Dividend yield at the year end(2) 4.7% 4.6%
Dividend growth year-on-year 3.2% 3.0%
10-year compound dividend growth 5.5% 5.8%
Dividend growth since launch to 31 August 2024
Total dividend
(pence per share)
2011(3) 1.40
2012 4.00
2013 4.05
2014 4.25
2015 4.50
2016 4.65
2017 4.90
2018 5.30
2019 5.70
2020 6.00
2021 6.30
2022 7.25
2023 7.47
2024 7.71
Your Company has been recognised by the Association of Investment Companies as
a "next generation dividend hero", reflecting its record of having
consistently grown its dividend for at least 10 consecutive years.
Dividend yields at 31 August 2024 2023
% %
Ordinary shares(2) 4.7 4.6
Benchmark(4) 3.6 3.9
AIC Global Equity Income sector(5) 3.4 3.6
Total return performance for year to 31 August 2024 2023
%
%
NAV(6) (debt at par) 10.4 0.8
NAV(6) (debt at fair value) 9.8 1.4
Share price(7) 6.5 (1.9)
Benchmark(4) 14.2 2.3
AIC Global Equity Income sector (NAV)(5) 14.0 5.7
Performance to/at 31 August 2024 2023
NAV per share at year end (debt at par) 185.8p 175.7p
Discount at year end (debt at par)(8) (11.7)% (8.1)%
NAV per share at year end (debt at fair value)(8) 188.0p 178.6p
Discount at year end (debt at fair value)(8) (12.8)% (9.6)%
Share price at year end 164.0p 161.5p
NAV total return (debt at fair value)(6,8) 9.8% 1.4%
Ongoing charge for year(8,9) 0.77% 0.72%
Gearing at year end(8) 4.7% 3.9%
1 Includes the fourth interim dividend in respect of the year ended 31 August
2024 to be paid to shareholders on 29 November 2024
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
After a few volatile years for global equity markets, I am happy to be able to
report that equity markets appreciated over the year and delivered steady
dividend growth. This gain has occurred despite ongoing conflicts in some
parts of the world, numerous elections, and against a backdrop of high
interest rates and inflation, although both are now on a declining trend.
It has been another year where there has been a significant variation between
the performance of different regions and sectors which will be covered more
fully in the fund manager's report. The USA has continued to lead the way in
the developed world but there may be a degree of rotation now occurring
following the decision of the Chinese Government to reflate its economy.
Depending on the success of this change of policy, emerging markets may
benefit too.
The objective of your Company is to provide shareholders with a growing total
annual dividend, as well as capital appreciation through a diversified
portfolio of global stocks outside of the UK. The Company has continued to
deliver a growing annual dividend as highlighted below with a total net asset
value ("NAV") return of 10.4% (with debt at par). Whilst attractive in
absolute terms, this has lagged the Company's benchmark total return. In light
of this, and given the prevailing discount at which the Company's shares have
traded, the board has spent some time this year reviewing investment strategy
and how this can be enhanced to provide a better balance between income and
capital generation. The details of this review and its outcome are discussed
later in this statement, in addition to the customary analysis of the
earnings, dividends and performance of the Company.
Earnings and dividends
We are pleased to announce a total dividend increase from 7.47p to 7.71p per
ordinary share for the year to 31 August 2024, a rise of 3.2%. The total
dividend for the year consists of a first, second and third interim dividend
of 1.92p per ordinary share, and a fourth interim dividend of 1.95p which will
be paid on 29 November 2024 to shareholders on the register at 8 November
2024.
The Company's revenue returns were 7.5% lower year-on-year at £13.2m. This
was due to a combination of lower special dividends, the appreciation of
sterling over the period and a slightly lower dividend yield from the
portfolio. This has resulted in £1.9m being drawn from revenue reserves to
cover the dividend.
We continue to recognise the importance of progressive dividend income to our
shareholders and 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 are
£97.6m at the year end. This provides a significant cushion to support the
continued growth of the dividend.
In line with our long-term objective to provide shareholders with a growing
total annual dividend, we have increased the dividend each year since launch
and we are very pleased this achievement has now been recognised by the
Association of Investment Companies ("AIC"), naming us as a "next generation
dividend hero". This positive growth trend is demonstrated in the graph in the
table above.
Capital performance and markets
Our second objective is to provide long-term capital appreciation. The
portfolio has delivered attractive absolute growth this year; the NAV total
return per ordinary share rose by 10.4% (debt at par) and by 9.8% (debt at
fair value). However, this underperformed the Company's performance
comparator, the MSCI ACWI (ex UK) High Dividend Yield Index (sterling
adjusted), which generated a 14.2% total return over the same period.
The total return on the ordinary share price was 6.5%, this figure includes
total paid dividends of 7.68p per ordinary share, an increase of 3.7% on the
previous year.
A more detailed analysis of performance, portfolio and positioning is provided
in the fund manager's report.
Investment strategy
Over the past few years, while the Company has consistently achieved its
income objective, the total annual return has slowed when compared to earlier
years, and has lagged the performance comparator and the wider global equity
market. In recent years, there have been times when non-dividend paying stocks
have significantly outperformed high dividend paying stocks. This
outperformance is exemplified in the US market in general versus global
markets in 2021 and 2023.
During the year the board carried out a review of the Company's investment
strategy, in particular in its ability to meet its objectives and taking into
consideration the desire of shareholders for both income and growth of
capital. It concluded, after considerable consultation with shareholders, to
make an enhancement to the Company's investment strategy. Dividends from the
portfolio will remain the primary contributor to the Company's distributions,
but when there are compelling opportunities in stocks, regions or sectors that
would otherwise be excluded due to their yield, the board is willing to
utilise distributable reserves to supplement dividends paid to investors. This
will expand the potential universe of stocks in which the investment team can
invest. It will also allow the manager to be more opportunistic and flexible
through the cycle to deliver on the objectives of your Company.
Your Company benefits from an experienced investment team. The board is
delighted to confirm the appointment of Faizan Baig, who has worked closely
with Ben Lofthouse, as deputy fund manager.
Shareholders will see from the annual report that the fund manager has been
managing the portfolio in line with the enhancements noted above. Further
detail can be found in the fund manager's report.
Gearing
Well-judged gearing can enhance returns to shareholders. The board's current
policy permits the fund manager to gear up to 25% of net assets at the time of
drawdown. The fund manager has maintained total gearing well within this
limit, with gearing at the year end of 4.7% (31 August 2023: 3.9%). 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.
Liquidity and discount management
The Company's share price has traded at a discount to NAV of between 6% to 14%
over the period and was 11.7% (with debt at par) at 31 August 2024. 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 factors that usually influence the discount most are the performance of
the Company and that of world stock markets. Both of these are covered fully,
later on in the fund manager's review, and as noted above the board has taken
action to further enhance the investment strategy to improve performance.
Two other factors have also been at work, but these are more technical. There
have been concerns over current legislation that show the costs of managing an
investment trust to be much higher in theory than in reality and these
concerns have led the average discount of the UK investment trust sector to
rise markedly over the past 12 months. The government is addressing this
matter with recently published legislation, so we hope it should become less
of an issue in due course. Secondly, with higher interest rates than in the
recent past, bonds have become a more attractive alternative to higher
yielding investment trusts where prices have weakened in response. When
interest rates, in due course, start to decline we would expect discounts to
start to narrow too.
As I wrote in my last report to shareholders, there is a distinct limit to the
board's ability to influence and maintain the premium or discount of the
Company's share price to NAV over the short term. Further, your board
continues to believe that it is not in shareholders' interests to have a
specific share buy-back or issuance policy, but that we should retain
flexibility to consider share buy-backs and/or issuance where appropriate (and
actively do so). We shall therefore continue with this policy but remain
willing to take appropriate action subject to market conditions.
Ongoing charge
The ongoing charge for the year to 31 August 2024, as calculated in accordance
with the AIC methodology, was 0.77% (2023: 0.72%). The slight rise in the
ongoing charge largely reflects an increase in administration costs for the
year. The spend on marketing and advertising was increased (see the annual
report for details) and total directors' fees were also higher as there was a
period last year when there were only four directors on the board.
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 and managing the portfolio.
Board composition
Lucy Walker has indicated that, due to the increasing demands of her other
business commitments, she will be retiring at the 2024 AGM and will not be
standing for re-appointment. I would like to take this opportunity to thank
her for the contribution she has made during her time on the board. On the
retirement of Mrs Walker, Mrs Parfrey will become the senior independent
director.
Two directors, myself and Aidan Lisser, will reach nine years of service in
2025. In order to provide an orderly succession, it is proposed that Mr Lisser
will retire following publication of the Company's half year results. It is
then my intention to retire at the conclusion of the 2025 AGM.
The board considers that a board of five directors remains the optimal number
for the Company. The directors have commenced steps to recruit three new
directors, with recruitment to be staggered over the next 12 to 18 months.
This will allow the changing dynamics of the board to settle with each new
appointment and provide time to consider the desired background and experience
of the next director to ensure the board remains balanced, with an appropriate
spread of skills and experience.
Annual general meeting
The thirteenth annual general meeting ("AGM") of the Company will be held at
2.30pm on Tuesday, 10 December 2024 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 the 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.
In addition to the routine business to be considered at this year's AGM, the
Company is also proposing a resolution to shareholders to cancel the amount
standing to the credit of the Company's share premium account which, subject
to the confirmation of the Court, will be credited to a special distributable
reserve. Cancelling the amount standing to the credit of the share premium
account (which is a non-distributable reserve) is a routine procedure that is
undertaken by many investment trusts and was last carried out by the Company
in February 2013. The cancellation of this reserve (as explained in more
detail in the notice of meeting) in order to create a distributable reserve is
an administrative matter which will provide the board with flexibility to use
such distributable reserve, should it wish to do so, in the future.
Outlook
It seems rather trite to say that there is a good deal of uncertainty in the
world. This is always the case, but perhaps all the more so than even a few
years ago. Elections, and currently wars in particular, often have a knock-on
effect on the price of crude oil. Higher oil prices dampen demand and lower
growth in consuming nations, which in turn impacts global investment markets.
If the war in the Middle East escalates further this could therefore lead to a
recession in the West.
On the other hand, inflation and interest rates are falling globally and
positive noises from the US Federal Reserve are encouraging. The Chinese
authorities have decided to stimulate their domestic economy, which should in
due course be reflected in a stronger global economy.
If the world can avoid a full-scale war in the Middle East, which is more
driven by political than economic considerations, then there seems to be a
good chance that falling interest rates will win the day and global stock
markets will continue to move ahead.
The implementation of the review of the investment strategy, together with a
lower interest rate environment, should benefit the Company. Your Company
remains in a strong position to continue to grow the annual dividend and with
a more flexible investment approach we expect to see better capital
performance too.
Richard Hills
Chairman
30 October 2024
PORTFOLIO INFORMATION
Ten largest investments at 31 August 2024
Rank 2024 Rank 2023 Company Country Sector Market value Market value at time of investment Income Yield(1)
£'000 £'000 £'000 %
% of portfolio
1 2 Microsoft US Technology 14,820 3.9 1,356 117 0.8
2 1 Sanofi France Health care 13,785 3.6 11,269 521 3.8
3 10 Coca-Cola US Consumer staples 10,206 2.7 6,033 279 2.7
4 8 Novartis Switzerland Health care 9,315 2.5 5,799 339 3.6
5 6 nVent Electric US Industrials 9,040 2.4 4,555 112 1.2
6 14 Amundi France Financials 8,974 2.3 7,790 546 6.1
7 26 Qualcomm US Technology 8,864 2.3 6,260 116 1.3
8 29 Sony Japan Consumer discretionary 8,835 2.3 8,733 35 0.4
9 23 Deutsche Telekom Germany Telecommunications 8,744 2.3 6,245 266 3.0
10 - American Tower US Real estate 8,639 2.3 8,497 - 2.9
Top 10 101,222 26.6 66,538 2,331
(1) Dividend yields as at 31 August 2024 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
2024 2023 2024 2023
%
%
%
%
US 36.8 34.8 Technology 19.6 8.4
France 11.9 9.4 Financials 17.5 18.7
Germany 7.5 4.9 Health care 13.9 17.9
Switzerland 6.9 11.3 Consumer discretionary 12.0 9.2
Japan 6.1 1.4 Industrials 8.7 10.0
Korea 4.0 3.3 Consumer staples 7.8 11.8
China 3.6 5.4 Telecommunications 7.1 9.7
Taiwan 3.2 1.0 Basic materials 4.3 4.3
Italy 3.0 2.2 Utilities 4.0 3.0
Australia 2.5 3.2 Real estate 3.6 3.1
India 2.4 0.9 Energy 1.5 3.9
Spain 1.9 1.8 100.0 100.0
Denmark 1.9 1.1
Indonesia 1.9 1.9
Hong Kong 1.4 4.9
Canada 1.4 1.5
Finland 1.3 0.9
Singapore 1.2 1.9
Sweden 1.1 2.6
Netherlands - 2.7
Norway - 1.1
Brazil - 1.8
100.0 100.0
Source: Janus Henderson
Investment portfolio as at 31 August 2024
Market value % of
Company Country £'000 portfolio
Basic materials
Arkema France 5,427 1.4
UPM-Kymmene Finland 4,783 1.3
Air Products & Chemicals US 4,256 1.1
Pilbara Minerals Australia 1,841 0.5
16,307 4.3
Consumer discretionary
Sony Japan 8,835 2.3
Home Depot US 8,305 2.2
Compagnie Financière Richemont Switzerland 6,041 1.6
Aptiv US 5,400 1.4
Midea China 4,517 1.2
Hyundai Korea 4,280 1.1
Samsonite Hong Kong 3,146 0.8
Anta Sports China 2,600 0.7
Astra International Indonesia 2,506 0.7
45,630 12.0
Consumer staples
Coca-Cola US 10,206 2.7
Pepsico US 7,201 1.9
Pernod-Ricard France 7,116 1.8
Nestlé Switzerland 5,374 1.4
29,897 7.8
Energy
TotalEnergies France 5,603 1.5
5,603 1.5
Financials
Amundi France 8,974 2.3
CME US 7,132 1.9
Swiss Re Switzerland 5,554 1.4
Travelers Companies US 5,299 1.4
Dai-ichi Life Japan 5,177 1.4
AXA France 5,078 1.3
Macquarie Australia 4,956 1.3
Bank Mandiri Indonesia 4,620 1.2
OCBC Bank Singapore 4,460 1.2
Resona Japan 4,287 1.1
HDFC Bank India 4,166 1.1
Samsung Fire & Marine Insurance Korea 3,718 1.0
BFF Bank Italy 3,454 0.9
66,875 17.5
Health care
Sanofi France 13,785 3.6
Novartis Switzerland 9,315 2.5
Novo Nordisk Denmark 7,405 1.9
Merck & Co US 7,020 1.8
Medtronic US 6,149 1.6
Johnson & Johnson US 4,902 1.3
Bristol-Myers Squibb US 4,447 1.2
53,023 13.9
Industrials
nVent Electric US 9,040 2.4
Honeywell International US 7,165 1.9
Daimler Truck Germany 7,049 1.8
Siemens Germany 6,403 1.7
Nari Technology Co China 3,386 0.9
33,043 8.7
Real estate
American Tower US 8,639 2.3
Goodman Australia 2,785 0.7
Swire Properties Hong Kong 2,379 0.6
13,803 3.6
Technology
Microsoft US 14,820 3.9
Qualcomm US 8,864 2.3
Taiwan Semiconductor Manufacturing Taiwan 8,531 2.2
Samsung Korea 7,376 1.9
Oracle US 6,693 1.8
Infineon Technologies Germany 6,433 1.7
TE Connectivity US 5,312 1.4
Tokyo Electron Japan 5,011 1.3
Infosys Technologies India 4,737 1.3
Hon Hai Precision Taiwan 3,742 1.0
Lenovo China 3,171 0.8
74,690 19.6
Telecommunications
Deutsche Telekom Germany 8,744 2.3
Telus Canada 5,340 1.4
Cisco Systems US 4,533 1.2
Verizon Communications US 4,324 1.1
Tele2 Sweden 4,155 1.1
27,096 7.1
Utilities
Enel Italy 7,953 2.1
Iberdrola Spain 7,248 1.9
15,201 4.0
Total investments 381,168 100.0
FUND MANAGER'S REPORT
This report contains a summary of the trends in equity markets around the
world and the drivers of their returns, the performance of the Company's
portfolio over the period, and the positioning and outlook going forward. This
year the investment team has also been working with the board on measures to
improve the total return of the Company going forward. This report discusses
the enhancements made to the investment process which have been designed to
achieve this.
Market commentary
Equity markets have performed well over the period under review. At the start
of the year, investors were concerned about inflation and the need for high
interest rates to bring this under control. After a period of abnormally high
inflation for much of 2022 and 2023, inflation has shown signs of moderating
in recent months. As the year has progressed investors have become more
confident that central banks do not need to raise rates but should be able to
reduce them in the event of an economic slowdown. Early in the year equity
markets started to rally in anticipation of a better economic environment
because of the hoped-for cuts. During that period cyclical stocks outperformed
defensive ones.
Interest rates have started to fall in some economies (for example,
Switzerland, Canada, Sweden). However, as the chart in the annual report
shows, they have hardly moved from their peaks in many other major developed
economies. Both equity and bond markets remain very sensitive to inflation
trends. Expectations for the number of potential interest rate cuts have
varied significantly over the last few months, resulting in increased market
volatility towards the end of the year. During this period more defensive
sectors, such as utilities and telecommunications, outperformed while cyclical
and technology stocks sold off.
Despite the lack of immediate interest rate cuts, the global economy has
generally weathered higher interest rates better than expected. Although one
area of the world that has continued to struggle economically has been China.
The Chinese economy has continued to grow but ongoing concerns remain around
the property market and weak consumer sentiment. These concerns have weighed
on commodity and emerging markets as a result. As shown in the chart in the
annual report, the US market has significantly outperformed this year,
followed by the other developed markets, while the Asia Pacific region has
lagged.
Whilst the equity market rally has become more broadly based as the year has
progressed, it has still been led by a relatively small number of low or zero
yielding mega cap technology stocks at the forefront of generative Artificial
Intelligence ("AI") innovation. These have become known as the 'Magnificent
Seven' (Nvidia, Microsoft, Meta, Amazon, Alphabet, Apple and Tesla). The
extent to which these companies are generating actual revenues from AI varies.
Nvidia and Microsoft are already reporting revenues from AI, for the others
the opportunities are more speculative. 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 relative underperformance of an equal weighted S&P Index.
Technology stocks and other companies associated with AI across all industries
have been a significant contributor to the difference in returns. Value has
continued to underperform growth as a factor, but over the year the market has
started to show some signs of broadening out.
Performance review
The Company's portfolio has appreciated in value over the year. The portfolio
produced a total return of 9.8% in NAV per ordinary share over the period
(debt at fair value), and the dividend has been increased again. Whilst we are
pleased to report the dividend growth and capital appreciation, the
performance was behind that of the MSCI ACWI (ex UK) High Dividend Yield
Index. Given the dual objectives of the Company of generating income growth
and capital appreciation, we will discuss the two elements of returns
separately below.
Income trends and performance
The Company's investment process focuses on companies with 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 investment team also ensures
that the portfolio is spread by sector and region to diversify risks.
The dividend growth of the portfolio has been good, reflecting the earnings
growth of the underlying holdings. Local currency dividend growth from the top
ten holdings averaged 6.5% during the period, while the weighted average of
the portfolio was over 10%, coming from a wide range of sectors and regions.
The technology sector is not well known for paying dividends but it is the
sector that is seeing the fastest dividend growth and that is reflected in the
portfolio's holdings. Microsoft has been a consistent dividend grower for many
years and its 10% increase this year continued that trend. Other companies
like Oracle and Taiwan Semiconductor Manufacturing also increased their
dividends by over 10% reflecting their confidence in future earnings growth. A
notable development this year has been the significant increase in dividend
and buyback announcements coming from Korean and Japanese companies. The
governments of these countries have implemented programmes to improve
shareholder returns, which includes encouraging companies to pay out more in
dividends. Portfolio holdings such as Hyundai, Samsung Fire & Marine
Insurance, Dai-ichi Life and Sony all increased their dividends by over 10%
during the year.
The underlying dividend growth from the portfolio's holdings has been good but
the income return for the period is lower than last year (£14.9m in 2024
compared to £16.6m in 2023). One of the reasons for this is that there have
been fewer special dividends from companies. In recent years the portfolio has
benefited from approximately £1m of special dividends annually. These
payments have come largely from companies that paused payments during the
Covid period but have since paid catch up payments, in particular many
financial services companies. These payments have not been repeated this year.
The other reason for the fall in income is that more opportunities have
presented themselves in some lower yielding areas of the market and the team
is using the flexibility of the investment structure to hold some lower
yielding stocks with more capital upside potential.
Currency has also had a slight negative impact on dividend income. Over the
year, sterling appreciated 3.7% against the US dollar and 1.7% against the
euro. In a global portfolio, currencies often move in different and
uncorrelated directions thus cancelling each other out to a degree. Note
17.1.2 of the financial statements provides some analysis of the portfolio's
foreign currency sensitivity.
Capital trends and performance
The Company produced a net asset value total return of 9.8% (debt at fair
value), which was 4.4% behind the MSCI ACWI (ex UK) High Dividend Yield Index.
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 NAV over the year.
Estimated performance attribution (relative to the MSCI ACWI (ex UK) High
Dividend Yield Index)
%
Stock selection -3.2
Asset allocation -0.1
Gearing -0.3
Expenses -0.8
Total -4.4
Against the benchmark the main detractor was stock selection. Asset allocation
was neutral, and the positive impact of gearing in a rising market was reduced
by the fair value increase of the debt due to falling interest rate
expectations. Each of these components of return are discussed below.
The average exposures and total returns for each region are detailed below.
Portfolio exposures and returns by region
Average exposure Total return
% %
Europe (ex UK) 34.3 +13.9
North America 42.4 +7.1
Asia Pacific (ex Japan) 20.8 +13.9
Japan 2.6 +20.3
After the last few years of market volatility it is good to see that all
regions generated positive returns. The turnaround in the performance of the
Asia Pacific (ex Japan) portfolio has been notable since the exposure was
changed early in the financial year to gain more exposure to structural growth
and reduce exposure to the domestic Chinese economy. The returns for the
region improved from 3.3% at the half year to 13.9% at the year end. The
European returns came from a broad range of stocks and sectors, ranging from
financials to utilities. The return from the North American holdings, however,
is disappointing. The portfolio returned 7.1% while the benchmark stocks in
the region returned 14.8%. The portfolio was impacted by some of the market
volatility late in the year when technology stocks sold off and defensive
sectors such as tobacco and utilities rallied. There were some stock specific
reasons for the underperformance (the largest stock contributors to
performance are shown and discussed below) and the focus on higher yielding
stocks has not aided performance over the period or the last few years. In
response to the underperformance the investment team has made changes in the
portfolio over the year to improve the balance between income delivery and
capital growth by using the investment trust structure more fully. Details of
these changes are set out in the investment strategy section of this report.
The table below highlights the most significant stock contributors and
detractors to performance over the year measured by contribution to absolute
return.
%
Taiwan Semiconductor Manufacturing +0.90
Tele2 +0.68
Microsoft +0.50
Chevron* +0.46
Pfizer* +0.45
Pernod Ricard -0.48
Samsonite International -0.50
Bristol-Myers Squibb -0.58
Air Products and Chemicals -0.58
Roche -0.65
Source: Janus Henderson. Based on Total Effect Relative to MSCI ACWI (ex UK)
High Dividend Yield Index, as at 31 August 2024.
*Not owned, but positive for performance by not owning
Technology, financial services and communications (telecoms) were the
strongest performing sectors, all generating over 20% returns.
Technology stocks represent 19.6% of the portfolio and have provided the
greatest absolute and relative performance over the period. Many of the
holdings are lower yielding dividend growers, rather than high dividend
payers. The exposure of the portfolio was increased throughout the year. The
largest position, Microsoft, a longstanding holding, has emerged as one of the
leaders in AI by virtue of its investment in OpenAI, the creator of ChatGPT,
and its leading positions in cloud computing and business software.
Semiconductor companies Qualcomm and Taiwan Semiconductor Manufacturing were
also significant positive contributors to performance because of accelerating
demand for semiconductors. AI activity is starting to broaden out from demand
for semiconductor chips to computing infrastructure investment. A wide range
of companies are starting to see customer orders increasing, from the likes of
database provider Oracle to server manufacturer Hon Hai Precision and Indian
IT services provider Infosys Technologies, which all performed strongly as a
result. Not all technology stocks have participated in the rally yet.
Portfolio companies Samsung, which is one of the world's largest computer
memory design and manufacturers, Infineon Technology, a leading analogue
semiconductor company, and Cisco Systems and Lenovo, computer hardware
manufacturers, were negative contributors to performance. Whilst they are
seeing some AI-related sales they are not yet significant enough to offset
weakness elsewhere in their businesses. We believe this will change over time
and that they are undervalued on that basis.
Technology stocks have not been the only good performers. The portfolio's
second largest sector exposure is the financial sector (17.5% of the
portfolio) and it was one of the best performers over the period. It is one of
the higher yielding sectors and one that we have considered was significantly
undervalued for some years. Many companies in the sector benefit from higher
interest rates, and higher rates coupled with low credit losses are driving
strong profit growth across much of the sector. Fund management company Amundi
performed strongly due to the recovery in asset values. The portfolio's
insurance companies benefited from rising insurance premiums and improving
profitability. US insurer Travelers Companies was one of the top performers
and the positions in AXA, Zurich and Swiss Re also performed well. Asian
insurers Dai-ichi Life and Samsung Fire & Marine Insurance rose due to the
previously mentioned focus on improving shareholder returns in Japan and South
Korea.
The communications and utility sectors have ended up being great performers
this year. This was driven partly by interest rates peaking and by a growing
acknowledgement that the utility sector is likely to see a higher growth rate
in the future due to the heavy investment needed to transform the way energy
is generated and consumed globally.
Whilst there has been much to celebrate in the portfolio over the year, the
underperformance of some stocks held it back. In general, the portfolio has
been overly exposed across all the regions to companies with Chinese revenues.
The country has not seen the recovery from the easing of Covid lockdown that
the rest of the world experienced and which we had expected. As a result we
repositioned the Asia Pacific portfolio significantly in the first half of the
year. Insurer AIA and retailer Li-Ning were sold. Anta Sports, Pernod-Ricard
and Samsonite were retained as we believed that their valuations did not
reflect their longer-term growth potential. It is worth noting that some of
the Chinese holdings have performed well, such as Nari Technology and Midea,
and the others have seen a recovery post year end on the stimulus
announcements.
Another common theme that has detracted from returns over the period has been
our investments in companies that are going through transformations and that
are increasing investments to accelerate future earnings growth. Examples of
this include US companies Air Products & Chemicals, pharmaceutical company
Bristol-Myers Squibb and car parts supplier Aptiv. These companies have raised
their investment budgets to invest in new technologies and maintain their
competitive positions. They are attractively valued compared to their peers
and in our view their improving earnings growth is not reflected in their
share prices but the market has not yet been willing to give them credit for
this improvement. Industrial gases company Air Products & Chemicals, for
example, is investing heavily in low carbon hydrogen projects (known as green
and blue hydrogen technologies) but the projects will not be ready for a few
years and the market would like to see evidence of demand before rewarding the
company for investment. It has signed some contracts for green hydrogen
recently, which has seen some of the underperformance reversed. In these cases
we have learned a lesson about being too early to invest.
The performance from the health care industry has been mixed in recent years.
There is a great deal of innovation in the sector and in some cases cheap
valuations, but the stocks are very sensitive to drug pipeline news. Novartis
and Novo Nordisk have outperformed significantly due to positive drug trials,
but Roche and Bristol-Myers Squibb have underperformed on the back of
disappointing trial data. We have sold Roche and maintained the holding in
Bristol-Myers Squibb.
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 the
potential for total return gains to shareholders.
The single largest change in the portfolio during the year was the increase in
the technology sector exposure from 8.4% to 19.6%. This was discussed earlier
in the report and in the case study on technology innovation. This increase
was funded from a range of stocks and sectors that have less upside potential.
We have found that some companies in the portfolio that benefited from
competitors' supply chain problems during Covid are starting to see their
pricing power erode. Positions sold on this basis included stocks in the
energy sector, where increased supply is meeting lower than expected demand,
and stocks in the consumer staples sector, including the sales of Mondelez and
Ambev.
The financial sector exposure was gradually reduced during the year.
Initially, a large exposure had been held in the belief that the market was
overly pessimistic on the outlook for companies' profits, and that it would
benefit from higher interest rates. In some cases, such as ING, this has
happened and the position has been sold.
The Asia portfolio was significantly changed to reduce the exposure to the
domestic Chinese economy and to increase the exposure to companies that can
benefit from structural global growth. These areas include technology
innovation, infrastructure capital spending, and decarbonisation efforts.
Positions purchased included Nari Technology, Midea and Infosys Technologies.
These were funded via sales including SK Telekom, HKT Trust and HKT Ltd and
China Yongda Automobiles.
Some economically sensitive stocks were sold in areas where we are not seeing
demand recovering as expected, despite depressed activity levels. Notably,
auto exposure has been reduced by selling Mercedes and BMW, and machine tool
manufacturer Sandvik.
The largest individual stock changes are shown below:
Purchases %
American Tower +2.3
Home Depot +2.2
Oracle +1.8
Infineon Technologies +1.7
Siemens +1.7
Sales %
Roche -3.0
Zurich Insurance -2.6
Mondelez -2.2
ING -1.8
Ambev -1.7
Case study - accessing technological innovation
Some technologists describe technological innovation as happening in waves.
The advent of generative AI has been described as the 4(th) wave of computing,
coming after the 3(rd) wave which was 'Mobile Cloud'. Advancing semiconductor
technology over the past three decades has enabled these breakthroughs. It
fits with a general theme we have seen over the last five years, which is that
the implementation of digital technology and cloud computing adoption has
broadened out from what was initially consumer focused (digital streaming of
TV, music, advertising) to be more industry focused. This digital
implementation can take many different forms: higher levels of driver-aids in
cars, perhaps ending in self-driving capabilities, digital 'twins' in industry
where sensors monitor a machine and create a digital version of it for
engineers to monitor in real time. To drive it all, enormous data centres are
required with enhanced cooling systems, needing more electricity, connectors
and equipment. These trends have been in place for a while, but the advent of
generative AI has turbo-charged them.
The portfolio has invested in companies that will see higher growth rates
because of the spending needed to create the infrastructure to facilitate this
technological innovation. Microsoft needs no introduction as a brand, but it
is one of the largest cloud operators in the world and is offering businesses
an increasingly AI-driven range of software to enhance productivity. The
investment team has taken advantage of the post Covid slump in some areas of
technology spending to add to the companies that will help facilitate this
4(th) wave. Oracle, for example, is a world leader in databases and it is
seeing increased demand because the first step to using AI effectively is to
have easy access to a businesses' data. Siemens is an engineering company but
it is also the leader in a number of the world's industrial software
categories. nVent and TE Connectivity provide some of the crucial cabling,
connectivity and cooling systems for datacentres, cars and industry. These are
just some of the businesses in the portfolio that are gaining sales from the
new wave of technical innovation.
Impact of gearing
We have not used gearing much this year having been cautious that the sharp
rise in interest rates could cause either an economic slow-down or problems
for indebted companies and consumers. Such outcomes might give rise to
opportunities to invest at more attractive prices. The fact that interest
rates are higher also means that the Company earns interest on its cash, which
offsets the cost of debt. We did see some market volatility towards the end of
the financial year and have used that to add to existing holdings using
gearing.
Since the Company has long-term debt, we provide both a fair value and par
value return (see note 17.4 in the annual report for details). The fair value
of the debt reflects a theoretical market price which reflects interest rate
expectations. The reduction in interest rate expectations during the period
has increased the fair value of the debt by £1,076,000, reducing 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 £424,000 over the
year, as a result of sterling strengthening slightly against the euro.
Investment strategy
Since inception, the Company has offered investors a yield that was
significantly higher than global equity markets and a dividend that has grown
consistently over time. Higher income stocks are often value stocks (lower
valuation than the market combined with higher dividend yields), and although
value investing has worked for long periods in the past, this investment style
has been out of favour in recent years, as illustrated by the chart in the
annual report.
A focus on dividend and value has at times made it hard to gain exposure to
exciting new growth areas, or be opportunistic in times of market dislocation.
The investment team has a record of successfully identifying and investing in
companies that have grown in value considerably. The top performers since
launch have, for example, included Microsoft, Taiwan Semiconductor
Manufacturing and obesity drug creator Novo Nordisk. The board and manager
have reviewed the investment strategy and concluded that additional
flexibility to invest in these types of opportunities when they are
attractively priced can contribute to the overall total return. The Company
will continue to offer investors the income they desire but when appropriate
will use more of the flexibility provided by the investment trust structure to
distribute dividends from distributable reserves to generate higher total
returns for investors.
The investment team has started to implement this investment strategy. We
restructured the existing exposure to the Asia Pacific holdings in October
last year to focus more on structural growth beneficiaries. This has had a
positive impact; the Asian portfolio return improved from 3.3% return in the
first half of the year to 13.9% despite ongoing Chinese market weakness. In
the US the increased flexibility has been used to continue to own some lower
yielding stocks such as Microsoft, but also to add others like Oracle which
has helped to improve performance.
Whilst the market rotation experienced recently has impacted short-term
sentiment we feel confident that the increased flexibility now being employed
will help improve total returns over time. Exposure to slower growing sectors
that were primarily held for income, including telecommunications and energy,
were reduced to fund these changes.
Outlook
Now that global inflation appears to be under control, central banks have
proceeded to ease monetary policy around the world. This year real wage growth
has been positive and while wages continue to rise, this should provide
support to the consumer and aid the global economy in 2025. Since the end of
the period under review the US Federal Reserve has cut interest rates by 0.5%
(a larger cut than their normal 0.25%) and the Chinese government has
announced a number of stimulus measures in an effort to contain the severe
property market downturn and provide support to the broader economy. If China
succeeds in turning around its domestic consumption growth, it could be an
additional positive for equity markets.
Long-term structural trends such as technological innovation, decarbonisation
and supply-chain security are driving an increase in capital spending across a
range of industries. While risks persist, in the form of a weakening
employment picture and geopolitical tensions, the health of the global economy
at this stage looks better than it has over the past year.
We are confident that the companies held in the portfolio have the ability to
benefit from the long-term structural trends and to navigate the current
conditions well, aided by their strong balance sheets and cash generating
abilities. Shareholder returns being announced in terms of both dividends and
share buybacks remain positive which suggests that management teams share our
confidence in the long-term outlooks for their companies.
Ben Lofthouse
Fund Manager
30 October 2024
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 and emerging 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 17 to the
financial statements in the annual report.
The risk register has been updated during the year to reflect increasing risk
arising from the continued consolidation of the investment trust sector,
together with reflecting the lower interest rate and inflationary environment.
The risk arising from artificial intelligence ("AI") has been added as an
emerging risk.
Risk Trend Mitigation
Geopolitical risks ↑
Geopolitical risks, including ongoing political uncertainty, are causing The fund manager monitors political and economic issues and is active in the
economic volatility. Supply chains, energy supply and consequential price review of geographic and sector allocations. At each board meeting, the
increases are among the risks. These could affect the valuation of your allocation of the assets across the geographic markets and the sector relative
Company's portfolio and dividend income. weightings are discussed with the fund manager, with a focus on the current
market context. 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.
Interest rates remaining higher for longer than expected could materially The fund manager actively monitors the level of gearing in the stocks across
affect the performance of stocks with high levels of gearing. This could the portfolio and adjusts exposure where necessary. This is discussed on a
impact their cashflows and ability to pay dividends, and thus affect the regular basis with the board.
performance of the Company's 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 20%
of gross assets to mitigate against this risk.
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 UK Listing professionals. The board receives internal control reports produced by Janus
Rules could result in suspension of your Company's shares, while a breach of Henderson on a quarterly basis, which confirm legal and regulatory compliance.
the 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 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.
Consolidation of the investment trust sector
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.
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
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.
The development of artificial intelligence may result in a change to The board and fund manager keep abreast of developments that could affect the
operational models for portfolio companies, which may impact the valuation of portfolio. The portfolio is diversified by both geography and sector. The fund
the portfolio. manager actively reviews this allocation and the underlying companies, making
changes as necessary.
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 0.77% (2023: 0.72%).
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 has 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 6.9% at 31 August 2024 (2023: 7.4%);
• 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. The scenarios considered by the
directors in coming to this conclusion included the heightened macroeconomic
uncertainties, 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 2026 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 2027.
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. There were no amounts drawn down under this facility at
31 August 2024.
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 2024 was 4.7% of net asset value (2023:
3.9%).
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
directors 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 22 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
30 October 2024
INCOME STATEMENT
Year ended 31 August 2024 Year ended 31 August 2023
Notes Revenue Capital Total Revenue Capital Total
return return £'000 return return £'000
£'000 £'000 £'000 £'000
Gains/(losses) from investments held at fair value through profit or loss - 23,078 23,078 - (8,984) (8,984)
3 Income from investments held at fair value through profit or loss 14,942 - 14,942 16,641 - 16,641
Gain/(loss) on foreign exchange - 621 621 - (84) (84)
4 Other income 836 23 859 894 - 894
Gross revenue and capital gains/(losses) 15,778 23,722 39,500 17,535 (9,068) 8,467
5 Management fee (520) (1,558) (2,078) (500) (1,502) (2,002)
Other administrative expenses (744) - (744) (609) - (609)
Net return before finance costs and taxation 14,514 22,164 36,678 16,426 (10,570) 5,856
Finance costs (158) (475) (633) (162) (488) (650)
Net return before taxation 14,356 21,689 36,045 16,264 (11,058) 5,206
Taxation on net return (1,184) - (1,184) (2,020) - (2,020)
Net return after taxation 13,172 21,689 34,861 14,244 (11,058) 3,186
6 Return per ordinary share 6.72p 11.07p 17.79p 7.27p (5.64p) 1.63p
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
Notes Year ended Called up Share premium Special Other capital Revenue reserve Total
31 August 2024 share capital £'000 account £'000 reserve reserves £'000 £'000 £'000
£'000
At 31 August 2023 1,960 194,550 45,732 94,919 7,209 344,370
Net return for the year - - - 21,689 13,172 34,861
7 Dividends paid - - - - (15,051) (15,051)
At 31 August 2024 1,960 194,550 45,732 116,608 5,330 364,180
Notes Year ended Called up Share premium Special Other Revenue Total
31 August 2023 share capital £'000 account £'000 reserve capital reserve £'000
£'000 reserves £'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
STATEMENT OF FINANCIAL POSITION
Notes At At
31 August 31 August
2024 2023
£'000 £'000
Fixed asset investments held at fair value through profit or loss 381,168 357,671
Current assets
Investment held at fair value through profit or loss 10,011 -
Debtors 3,570 3,588
Cash at bank and in hand 9,708 18,028
23,289 21,616
Creditors: amounts falling due within one year (15,159) (9,375)
Net current assets 8,130 12,241
Total assets less current liabilities 389,298 369,912
Creditors: amounts falling due after more than one year (25,118) (25,542)
Total net assets 364,180 344,370
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 116,608 94,919
Revenue reserve 5,330 7,209
Total shareholders' funds 364,180 344,370
8 Net asset value per ordinary share 185.8p 175.7p
STATEMENT OF CASH FLOWS
Year ended Year ended
31 August 31 August
2024 2023
£'000 £'000
Cash flows from operating activities
Net return before taxation 36,045 5,206
Add back: finance costs 633 650
(Gains)/losses on investments held at fair value through profit or loss (23,078) 8,984
(Gains)/losses on foreign exchange (621) 84
Withholding tax on dividends deducted at source (1,575) (2,432)
Taxation recovered 92 56
Decrease/(increase) in debtors 313 (189)
Decrease in creditors (468) (104)
Net cash inflow from operating activities 11,341 12,255
Cash flows from investing activities
Purchase of investments (156,275) (105,273)
Sale of investments 162,106 119,914
Purchase of current asset investments (10,011) -
Proceeds from capital dividends 9 2
Net cash inflow from investing activities (4,171) 14,643
Cash flows from financing activities
Equity dividends paid (net of refund of unclaimed distributions and reclaimed (15,051) (14,503)
distributions)
Interest paid (631) (644)
Net cash outflow from financing activities (15,682) (15,147)
Net (decrease)/increase in cash and cash equivalents (8,512) 11,751
Cash at bank and in hand at start of year 18,028 6,590
Effect of foreign exchange rates 192 (313)
Cash at bank and in hand at end of year 9,708 18,028
Comprising:
Cash at bank and in hand 9,708 18,028
9,708 18,028
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 1 i) 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. An ordinary resolution
to this effect was passed by the shareholders at the annual general meeting
held on 12 December 2023. 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
2024 2023
£'000 £'000
Dividend income 14,942 16,641
14,942 16,641
4. Other income
2024 2023
£'000 £'000
Bank interest 468 318
Interest on liquidity fund 101 -
Option premium income 264 576
Other income 3 -
836 894
5. Management fee
2024 2023
Revenue return Capital return Total Revenue return Capital return Total
£'000
£'000
£'000
£'000
£'000
£'000
Management fee 520 1,558 2,078 500 1,502 2,002
A summary of the terms of the management agreement is given in the strategic
report in the annual report.
6. Return per ordinary share
2024 2023
£'000 pence £'000 pence
Revenue return 13,172 6.72 14,244 7.27
Capital return 21,689 11.07 (11,058) (5.64)
Total return 34,861 17.79 3,186 1.63
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 2024 2023
£'000 £'000
4(th) interim dividend - 1.92p 9 November 2023 10 November 2023 30 November 2023 3,763 -
1(st) interim dividend - 1.92p 1 February 2024 2 February 2024 29 February 2024 3,763 -
2(nd) interim dividend - 1.92p 9 May 2024 10 May 2024 31 May 2024 3,763 -
3(rd) interim dividend - 1.92p 25 July 2024 26 July 2024 30 August 2024 3,762 -
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
15,051 14,503
A fourth interim dividend in respect of the year ended 31 August 2024 of 1.95p
per share has been declared and will be paid to shareholders on 29 November
2024 with record date 8 November 2024. The Company's shares will go
ex-dividend on 7 November 2024.
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
reserves brought forward, out of which total amount the dividend is to be
paid.
2024 2023
£'000 £'000
Revenue available for distribution by way of dividend for the year 13,172 14,244
Interim dividends of 5.76p paid (2023: 5.55p) (11,288) (10,877)
Fourth interim dividend for the year ended 31 August 2024 of 1.95p (based on (3,822) (3,763)
195,978,716 ordinary shares in issue as at 29 October 2024) (2023: 1.92p)
Transfer from revenue reserve(1) (1,938) (396)
(1) The deficit of £1,938,000 (2023: deficit of £396,000) has been
transferred from 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:
2024 2023
Net assets attributable (£'000) 364,180 344,370
Number of ordinary shares in issue 195,978,716 195,978,716
Net assets per ordinary share (pence) 185.8 175.7
The movements during the year of the assets attributable to the ordinary
shares were as follows:
2024 2023
£'000 £'000
Net assets at start of the year 344,370 355,687
Total net return after taxation 34,861 3,186
Dividends paid on ordinary shares in the period (15,051) (14,503)
Total net assets attributable to the ordinary shares at 31 August 364,180 344,370
9. Called up share capital
Number of shares Number of shares entitled to dividend
Ordinary shares 1p each £'000
At 31 August 2024 195,978,716 195,978,716 1,960
At 31 August 2023 195,978,716 195,978,716 1,960
No shares were issued or bought back during the year (2023: same).
10. Share premium account
2024 2023
£'000 £'000
At the start of the year 194,550 194,550
At 31 August 194,550 194,550
11. 2024 financial information
The figures and financial information for the year ended 31 August 2024 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 2024 have been
audited but have not yet been delivered to the Registrar of Companies. The
auditors' report on the 2024 financial statements was unqualified and did not
contain any statements under sections 498(2) and 498(3) of the Companies Act
2006.
12. 2023 financial information
The figures and financial information for the year ended 31 August 2023 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 2024
will be posted to shareholders in early November 2024 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, 10 December 2024 at 2.30pm
at the offices of Janus Henderson Investors, 201 Bishopsgate, London EC2M 3AE,
or alternatively, shareholders can join the meeting via Zoom webinar. 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 PR Director, Investment Trusts
Janus Henderson Investors Janus Henderson Investors
Telephone: 020 7818 4458 Telephone: 020 7818 2919
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