Henderson Opport Tst - Annual Financial Report
01/02/2024 07:00
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RNS Number : 6071B Henderson Opportunities Trust PLC 01 February 2024
JANUS HENDERSON FUND MANAGEMENT UK LIMITED
HENDERSON OPPORTUNITIES TRUST PLC
LEGAL ENTITY INDENTIFIER (LEI): 2138005D884NPGHFQS77
1 February 2024
HENDERSON OPPORTUNITIES TRUST PLC
Annual Financial Report for the year ended 31 October 2023
This announcement contains regulated information
Investment Objective
The Company aims to achieve capital growth in excess of the FTSE All-Share
Index from a portfolio of primarily UK investments.
PERFORMANCE HIGHLIGHTS
Total Return Performance to 31 October 2023
1 year 3 years 5 years 10 years
% % % %
NAV(1)(, 5) -9.3 5.7 -1.7 42.0
Share price(2) -12.2 5.4 -0.2 34.4
Benchmark(3) 5.9 39.4 21.1 58.0
Peer group NAV(4) 3.0 13.6 7.7 44.1
Year ended Year ended
31 October 31 October
2023 2022
NAV per share at year end(5) 1,035.2p 1,173.7p
Share price at year end 865.0p 1,018.0p
Total return per share(5) (103.5p) (424.7p)
Net assets £81.8m £92.7m
Discount at year end(5, 6) 16.4% 13.3%
Ongoing charge (excluding performance fee)(5) 1.02% 0.90%
Ongoing charge (including performance fee) (5, 7) 1.02% 0.90%
Dividend for year(8) 35.5p 34.0p
1 Net asset value ("NAV") per ordinary share total return (including dividends
reinvested)
2 Share price total return (including dividends reinvested)
3 FTSE All-Share Index
4 AIC UK All Companies simple average
5 Alternative performance measure
6 Calculated based on the NAV per share and share price at year end
7 The Board announced on 8 November 2023 that the performance fee arrangements
had been removed with effect from 20 October 2023. No performance fee was
payable in the year ended 31 October 2023 (2022: £nil)
8 This represents three interim dividends of 7.5p each and a proposed final
dividend of 13.0p which will be put to shareholders for approval at the Annual
General Meeting on 7 March 2024. See the Chaiman's statement for more details.
The dividend yield(5) for the year ended 31 October 2023 was 4.1% (2022: 3.3%)
based on the share price at the year end
Sources: Morningstar Direct, Janus Henderson, LSEG Datastream
A glossary of terms and alternative performance measures can be found in the
Annual Report
CHAIRMAN'S STATEMENT
Performance review
Over the past year the Company has faced significant headwinds. Against a
backdrop of high interest rates and persistent inflation, continued and
significant market volatility and negative sentiment towards the UK equity
market and smaller companies in particular, it has been a very disappointing
year for the Company in both absolute and relative terms. The NAV total return
for the year was -9.3% and the share price total return over the period was
-12.2%. In comparison, over the same period the FTSE All-Share Index, the
Company's benchmark index, rose by 5.9%, the FTSE 250 Index of medium-sized
companies fell by 1.3%, the FTSE SmallCap Index rose by 1.3% and the AIM
All-Share Index of the smallest listed UK businesses fell by 14.1%. The
performance of both the Company's NAV and share price over the longer term are
illustrated in the table in the Fund Managers' Report.
On a more positive note, it does seem as though October may have marked the
low point of sentiment towards the UK equity market. Since then, we have had a
well-received Autumn Statement from the UK Chancellor, as well as a succession
of commentators lining up to highlight the UK's relatively attractive
valuation versus its international peers. Encouragingly, the Company's share
price delivered a total return of 10.8% in November and 5.4% in December,
outperforming the 3.0% and 0.9% return from the FTSE All-Share in those months
respectively. The Fund Managers' report discusses in more detail the weakness
last year in smaller UK companies and in particular those quoted on the AIM
Index which at the year end made up 44.2% of the Company's portfolio. Last
year saw a perfect storm for smaller companies. Institutional investors were
concerned about the uncertain economic outlook for the UK and focused on
liquidity shunned companies below certain market capitalisations, favouring
investments perceived as being less risky. At the same time, many smaller
companies have also been under intense pressure due to rising interest rates
and their share prices have fallen as a result. The combined effect is that
the valuations of many AIM stocks are now very low. The Fund Managers do not
believe that these valuations reflect the prospects or potential of the
companies held in the portfolio, which overall have been operating
satisfactorily, with many reporting growing earnings and dividends.
During the year, the Board has taken a close look at the Company's investment
approach and has worked with the Fund Managers in scrutinising the level of
the Company's exposure to small companies and AIM stocks. We have also
considered the large cap and natural resource companies held in the portfolio
as "stabilisers" and their effectiveness in smoothing volatility in the
overall portfolio. The Fund Managers are very aware of the importance of
ensuring that every stock is held for its long-term growth prospects. They
also rightly recognise that there are times when stocks have to be sold.
However, the Board has noted that if the current investment approach is
maintained there should be good returns to be made when the headwinds abate.
The UK small company and AIM sectors are full of vibrant companies that can be
expected to lead the UK economy's future growth. Therefore, to be invested in
them at the current very depressed valuation levels will, we believe, prove
rewarding over the medium to longer term. A question the Board of course asks
is "when will this recovery happen?". Unsurprisingly, there is never a very
satisfactory answer as the outlook for the UK remains very uncertain. However,
since our financial year end, and as mentioned above, the UK market is showing
signs of recovery. Inflation is falling, and the belief seems to be that the
next move in interest rates will be downwards. This anticipated good news may
have unleashed the start of a recovery in some share prices, but only time
will tell.
Income review
The Fund Managers' focus is on buying companies with strong balance sheets and
good management which have the capacity to grow substantially over the long
term. Dividend growth is in the first instance an output of the portfolio
rather than a primary consideration of the Fund Managers and the Company's
earnings profile will therefore fluctuate from year to year. However, the
Company does seek dividend growth over time and so income growth is a
secondary objective. One advantage of the investment trust structure is the
Company's ability to use its revenue reserves to support dividend
distributions and the Board will use these reserves to smooth the dividends
paid to shareholders where it considers such use to be appropriate. The
Board's intention remains for the dividend to grow progressively. We have
declared a final dividend of 13.0p per share for the year ended 31 October
2023. This brings total dividends for the year to 35.5p and represents an
increase of 4.4% over last year's total dividend payment for the year of
34.0p. At the current share price of 1,002.5p (as at 30 January 2024) this
represents a yield of 3.5%. A resolution to approve the payment of the final
dividend for the year ended 31 October 2023 will be proposed at the
forthcoming Annual General Meeting ("AGM"). If the resolution is passed, the
dividend will be paid on 22 March 2024 to shareholders on the register on 16
February 2024. The shares will be quoted ex-dividend on 15 February 2024.
Fees and expenses
In November 2023, the Board announced that the performance fee arrangements in
favour of the Manager had been removed with effect from 20 October 2023. The
removal of the performance fee is designed to ensure that shareholders receive
the full benefit of any capital gains by the Company at such time as there is
a change in sentiment towards, and a potential re-rating of, UK equities and
smaller companies in particular. The management fee remains at its previous
level of 0.55% of net assets per annum. This is payable quarterly at the rate
of 0.1375% based on net assets at the end of the previous quarter. The ongoing
charge for the full year was 1.02%, compared to 0.90% in respect of the
previous financial year.
Gearing
Given the continued market volatility and as gearing detracted from the NAV
total return during 2022, the Board and the Fund Managers decided to reduce
gearing slightly this year and at the year end net gearing was 9.6% (2022:
13.9%). From a longer-term perspective gearing has been a positive contributor
to returns and the Board and the Fund Managers continue to see its use as one
of the key advantages of the investment trust structure, albeit that the
benefits now need to be balanced against the increased cost of debt. The
intention of the Fund Managers will be to continue to use some gearing where
appropriate to take advantage of attractive new investment opportunities.
Continuation vote and share split
At the AGM in March 2023, although 75.8% of the votes cast were voted in
favour of the triennial resolution for the continuation of the Company, 24.2%
of the votes cast (approximately 6% of the total voting rights) were voted
against. Despite the Company encouraging shareholders to vote, only 26.6% of
the Company's total voting rights were cast. The Company also received
significant votes against the resolutions regarding the authority to allot
relevant securities and the authority to disapply pre-emption rights. The
Board believes these two additional significant votes against were connected
to the votes against the continuation of the Company. The Board has listened
to shareholders and it understands their frustration with the Company's
performance, the persistent discount to NAV at which the Company's shares
trade and the limited share liquidity. The Board does however believe that the
Company remains relevant and that the performance will turn round, which will
in time attract new long-term investors. There will be another continuation
vote in 2026.
Meanwhile, the Board and the Fund Managers are explaining the Company's
strategy to existing and potential investors and are working hard to make the
Company attractive to retail investors who, as at 31 December 2023, held 77.0%
of the Company's issued shares. Measures taken include removing the
performance fee, as referred to above, and an increased focus on marketing.
The Board is also now proposing a share split.
In the half year results announcement made in June 2023, the Board noted that,
in order to assist monthly savers and those who reinvest their dividends, or
those who are looking to invest smaller amounts (such as younger investors),
it was considering proposing a share split of the Company's ordinary shares.
The price of the Company's ordinary shares of 25p each (as at 30 January 2024)
has more than doubled over the last 10 years. The Directors believe that a
sub-division may also improve the liquidity in and marketability of the
Company's shares, which would benefit all shareholders. At the Company's AGM
in March 2024, approval from shareholders will be sought to sub-divide each
existing ordinary share of 25p each into five new ordinary shares of 5p each
(the "new Ordinary Shares") (the "Sub-division"). There will be no
interruption to trading in the Company's shares on the London Stock Exchange
when the sub-division takes place. The new Ordinary Shares will rank equally
with each other and will carry the same rights and be subject to the same
restrictions (save as to nominal value) as the existing ordinary shares,
including the same rights to participate in dividends paid by the Company.
Further details of the proposed sub-division can be found in the notice
convening this year's AGM which accompanies this report and can also be found
on the Company's website.
The discount level
During the year the Company's shares remained at a discount to net asset value
with the discount ranging from 20.2% to 7.2% and finishing the year at 16.4%.
This was largely reflective of the widening average discount levels seen
across the investment trust sector as a whole, with the AIC UK All Companies
sector finishing the year at an average discount of 13.9%, and the AIC UK
Smaller Companies sector finishing the year at an average discount of 15.4%.
There were no shares bought back during the financial year and no new shares
were issued. Given the size of the Company and its limited capacity for
buybacks, it remains the Board's view that were share buybacks to be
considered, this would be with the objective of enhancing the NAV for existing
shareholders rather than seeking to maintain any specific discount level. It
remains the Board and the Fund Managers' belief that market cyclicality over
time, the AIM market returning to favour, an increase in investor confidence
in the UK and strong performance by the Company are all likely to be key
factors in narrowing the discount.
Annual General Meeting
Our AGM will be held on Thursday, 7 March 2024 at 2.30pm at Janus Henderson
Investors' offices at 201 Bishopsgate, London EC2M 3AE. I hope as many
shareholders as possible will be able to attend to take the opportunity to
meet the Board and to hear a presentation from the Fund Managers. However, if
you are unable to attend in person, you can listen to the Fund Managers'
presentation and watch the Meeting live by visiting
www.janushenderson.com/trustslive (http://www.janushenderson.com/trustslive) .
Full details are set out in the Notice of Meeting.
The Board is keen to encourage shareholders to vote on the resolutions being
put to the AGM. Shareholders on the main register can do this by completing
and returning the proxy form which has been sent to them. If you hold your
shares on a platform via a nominee, please note that the AIC has provided
helpful information on how to vote investment company shares held on some of
the major platforms. This information can be found at
www.theaic.co.uk/how-to-vote-your-shares
(http://www.theaic.co.uk/how-to-vote-your-shares) .
If shareholders have any questions for the Board or the Fund Managers, I would
encourage you to submit these in advance of the AGM to the Corporate Secretary
at itsecretariat@janushenderson.com (mailto:itsecretariat@janushenderson.com)
.
Outlook
The period under review has undoubtedly been a very challenging one for the
Company. As uncertainty about the economy persists, many good quality smaller
companies, with sound long-term plans, are trading on very undemanding
valuations. However, we know that stockmarkets are cyclical and this gives us
confidence that today's valuations will at some point be the basis of good
future returns. In due course (and if this is not already starting to happen)
the UK market will anticipate a recovery of the economy and smaller company
share prices are likely to rebound. The Company's portfolio of quality
companies is well positioned to prosper in these circumstances and the Board
shares the Fund Managers' belief that there is considerable potential for
gains in coming years when the current clouds affecting the economic outlook
eventually clear. This should benefit shareholders over the medium to longer
term.
Finally, your views matter. Your Board greatly values shareholder comments and
I would encourage you to email me with your views at
itsecretariat@janushenderson.com (mailto:itsecretariat@janushenderson.com) .
Wendy Colquhoun
Chairman
31 January 2024
FUND MANAGERS' REPORT
Introduction
It has been an exceptionally challenging year for performance. While the UK
economy has not fallen into the feared recession, company valuations have
fallen further, reflecting a deep malaise towards UK smaller companies. This
very weak performance is, in our view, more reflective of poor sentiment and
the associated outflows from UK equities rather than a fundamental reflection
of the health of UK companies.
1 year 3 years 5 years 10 years
% % % %
Company NAV -9.3 5.7 -1.7 42.0
Company share price -12.2 5.4 -0.2 34.4
FTSE All-Share (Benchmark) 5.9 39.4 21.1 58.0
AIC UK All Companies NAV (Peer Group) 3.0 13.6 7.7 44.1
Investment backdrop
Before going into more detail on the performance of the Company, it is worth
(briefly) setting out the UK economic backdrop.
The key debates in the UK market over the last twelve months have been how
fast inflation will come down and the resilience of the economy in the face of
rising interest rates. Inflation is now successfully being brought down,
finishing the financial year at 4.6%. More importantly from a consumer
perspective, real wages are now back in modest growth (see chart below).
Data illustrating the Real wages - year on year chart in the Annual Report is
set out below:
Real Wage Growth, year on year Real Wage Contraction, year on year
% %
15 January 2007 2.7 n/a
15 January 2008 1.6 n/a
15 January 2009 n/a -2.0
15 January 2010 n/a -1.5
15 January 2011 n/a -1.3
15 January 2012 n/a -2.4
15 January 2013 n/a -1.6
15 January 2014 n/a -0.7
15 January 2015 1.5 n/a
15 January 2016 1.9 n/a
15 January 2017 0.3 n/a
15 January 2018 n/a -0.3
15 January 2019 1.6 n/a
15 January 2020 1.1 n/a
15 January 2021 4.1 n/a
15 January 2022 n/a -0.7
15 January 2023 n/a -4.2
Source: Panmure Gordon, ONS
The consumer, and indeed the wider UK economy, has been more resilient than
was feared at the start of the year. When thinking about why this is, we need
to consider both sides of the household balance sheet, in other words the
boost to interest income on household savings as well as higher interest costs
on consumer borrowings. It is possible that this time last year the effect of
the former was being underestimated versus the latter. While the two effects
will be distributed unevenly across the UK population, there are undoubtedly
some households that have seen a net benefit from the current interest rate
backdrop. This can help to explain why, for example, retail sales have proved
more resilient than some anticipated. In looking at the best performing stocks
for this Company over the past year, we can see some reflection of this. Marks
& Spencer, for example, was one of the best performers.
This more resilient economic backdrop is yet to be reflected in UK valuations,
which remain at a historic low relative to other global equity markets (see
chart below). Therefore, we would summarise the domestic economic backdrop as
"ok" (if not stellar), but with the equity market valued as though the actual
outcome will be much worse. This strikes us as anomalous.
Data illustrating the UK valuations chart in the Annual Report is set out
below:
MSCI UK 12m Fwd P/E relative to MSCI World Median +2 Stdev -2 Stdev
20 January 1995 0.76 0.84 0.99 0.68
20 January 1996 0.82 0.84 0.99 0.68
20 January 1997 0.78 0.84 0.99 0.68
20 January 1998 0.86 0.84 0.99 0.68
20 January 1999 0.88 0.84 0.99 0.68
20 January 2000 0.79 0.84 0.99 0.68
20 January 2001 0.89 0.84 0.99 0.68
20 January 2002 0.81 0.84 0.99 0.68
20 January 2003 0.78 0.84 0.99 0.68
20 January 2004 0.76 0.84 0.99 0.68
20 January 2005 0.82 0.84 0.99 0.68
20 January 2006 0.85 0.84 0.99 0.68
20 January 2007 0.84 0.84 0.99 0.68
20 January 2008 0.86 0.84 0.99 0.68
20 January 2009 0.83 0.84 0.99 0.68
20 January 2010 0.85 0.84 0.99 0.68
20 January 2011 0.83 0.84 0.99 0.68
20 January 2012 0.84 0.84 0.99 0.68
20 January 2013 0.87 0.84 0.99 0.68
20 January 2014 0.87 0.84 0.99 0.68
20 January 2015 0.89 0.84 0.99 0.68
20 January 2016 0.98 0.84 0.99 0.68
20 January 2017 0.89 0.84 0.99 0.68
20 January 2018 0.85 0.84 0.99 0.68
20 January 2019 0.83 0.84 0.99 0.68
20 January 2020 0.77 0.84 0.99 0.68
20 January 2021 0.69 0.84 0.99 0.68
20 January 2022 0.67 0.84 0.99 0.68
20 January 2023 0.67 0.84 0.99 0.68
20 November 2023 0.61 0.84 0.99 0.68
Source: JP Morgan
Attribution
Turning in more detail to performance, it has been an exceptionally
challenging year for managing a portfolio with small and medium-sized company
exposure. This comes on the back of an already poor financial year ended 31
October 2022 and reflects very weak sentiment towards UK equities. This
sentiment is at its most extreme in domestic, smaller companies. As the chart
below shows, medium-sized UK companies have underperformed the FTSE 100 by
more than 30% over the last two years and smaller companies by more than 50%.
Data illustrating the Performance of large, medium and small companies over
the last two years chart in the Annual Report is set out below:
FTSE 100 FTSE 250 FTSE AIM All-Share
31 October 2021 100.0 100.0 100.0
31 January 2022 103.6 95.3 89.8
29 April 2022 106.2 90.6 84.0
29 July 2022 105.2 88.9 76.1
31 October 2022 101.7 79.5 66.8
31 January 2023 112.0 88.8 72.2
28 April 2023 114.9 87.7 69.3
31 July 2023 113.4 87.1 64.2
31 October 2023 109.0 78.5 57.4
Source: LSEG Datastream as at 31 October 2023. Total return, GBP, rebased to
100 as at 31 October 2021
In the previous financial year there were clear reasons for the FTSE 100
outperformance. Following the war in Ukraine, sharp rises in commodity prices
caused large benchmark weights such as Shell and BP to materially outperform.
This year, the FTSE 100 outperformance reflects weaker sentiment towards the
domestic economy, with FTSE 100 company earnings being significantly more
international than those of smaller companies. With interest rates rising and
real wages (until recently) declining, the concern has been that domestic
earnings will come under pressure. Markets are always forward looking and
therefore these concerns are reflected in share prices ahead of earnings being
adjusted downwards. While we are now seeing some earnings downgrades coming
through in select areas such as building materials and media, it is
interesting to note that both of those concerns could now have come to an end
- real wages are rising again, and interest rate rises (at least for now)
appear to have stopped.
Before we go into the stock specific drivers of performance, it is worth
looking at the size allocation of the portfolio and the effect this has had on
performance. This Company has enviable flexibility in being able to invest
across the breadth of the UK market. It remains our view that the best
opportunities for long-term sales and earnings growth can be found outside of
the FTSE 100, and indeed on a longterm basis almost all of the top relative
contributors to performance have been smaller companies. Therefore, while the
portfolio holds more than it has done in previous years in the FTSE 100, it
remains significantly "underweight" large companies relative to its benchmark
(comparing the first and second columns in the table in the next column). This
means that the biggest drag on performance this year has been size allocation
rather than stock selection, as shown by the waterfall chart in the next
column.
It is very important to make clear that this is not justification for the
portfolio's underperformance. We have no set market cap allocation, therefore
it was entirely within our gift to have more than we have had in the FTSE 100.
However, while we were adding to the large company weight and reducing fast
growing smaller companies in the period following the Covid recovery, in
practice we did not go far enough.
Index: Company weighting Benchmark weighting Index total return (%)
(%) (%)
FTSE 100 31.7 84.8 7.2
FTSE 250 13.3 13.0 -1.3
FTSE Small-Cap 9.4 2.2 1.3
FTSE AIM All-Share 44.2 - -14.1
Company and Benchmark weights are as at financial year end, 31 October 2023.
The Company weights do not add up to 100 as a small portion of the portfolio
sits outside of major UK indices.
Data illustrating the attribution returns chart in the Annual Report is set
out below:
Benchmark 5.89
Size allocation -15.70
Stock selection 2.31
Gearing -1.29
Company -8.79
Source: Janus Henderson Investors, Factset
Turning to the stock specific drivers of performance, there is a clear
recurring theme in the best performers - four of the top ten were what we
class as "Recovery" shares, in other words companies in the midst of a
turnaround, whether because of historic self-inflicted errors or challenging
end markets. (It could even be argued that five of the top ten are in Recovery
- we have taken Marks & Spencer out of the category given its recent
turnaround in profitability, but there is arguably further to go). The reason
for "Recovery" outperformance this year could be that in a challenging
economic backdrop, in order to outperform companies needed to have a strong
self-help element. That could include sizeable cost cutting (such as
Rolls-Royce and Babcock) and a return to their core area of focus (for example
Kier focusing on smaller regional projects). Where smaller companies performed
well outside of recovery was often where sizeable share buybacks were taking
place - Vertu Motors was frequently in the market buying back its own shares.
In the face of low valuations, we have seen several smaller companies enter
the market this year and initiate buybacks.
The top 10 contributors to relative return during the financial year were:
Company name Contribution to relative return to Benchmark (%) Share price total return (%) Portfolio classification
1. Vertu Motors 1.5 72.1 Small & mid cap compounders
2. British American Tobacco (not held) 1.0 -22.5 n/a
3. Rolls-Royce 0.9 175.4 Recovery
4. Marks & Spencer 0.7 105.5 Large cap
5. Diageo (not held) 0.6 -11.6 n/a
6. International Personal Finance 0.5 83.3 Recovery
7. IQGeo 0.5 22.6 Growth small cap
8. Kier 0.4 68.3 Recovery
9. Glencore (not held) 0.3 -4.3 n/a
10. Babcock 0.3 41.9 Recovery
The top 10 detractors from relative return during the financial year were:
Company name Contribution to relative return to Benchmark (%) Share price total return (%) Portfolio classification
1. ZOO Digital -2.4 -74.8 Recovery
2. Deltic Energy -1.4 -67.5 Natural resources
3. Springfield Properties -1.4 -41.5 Small & mid cap compounders
4. Jersey Oil & Gas -1.2 -31.1 Natural resources
5. Next 15 -0.9 -26.5 Growth small cap
6. Surface Transforms -0.8 -40.6 Early stage companies
7. HSBC (underweight) -0.6 40.2 Large cap
8. Serica Energy -0.6 -13.8 Natural resources
9. Jadestone Energy -0.6 -56.6 Natural resources
10. Jubilee Metals -0.6 -53.4 Natural resources
Turning to the detractors, there are a few themes to draw out. Firstly,
natural resource companies were a clear detractor, with five of the top ten
largest detractors in the area as commodity prices normalised (to a degree)
following the war in Ukraine. Therefore, from a top down perspective, one of
the "stabilisers" within the portfolio did not act as a stabiliser, instead
falling alongside some of the faster growing companies within "tomorrow's
leaders" (see more details on these classifications in the section below). The
other theme to draw out from the detractors is that there are effectively
recessionary conditions in some end markets such as housebuilding (Springfield
Properties) and advertising (Next 15).
As the largest detractor it is worth discussing ZOO Digital in more detail.
ZOO provides media services (such as dubbing and subtitling) to global content
producers, the largest of which is Disney. This financial year two factors
came together that caused ZOO sales to roughly half. The first was the US
writer and actors strike, which caused an abrupt fall in the volume of content
production (and therefore pipeline of work for ZOO). These strikes have now
been materially resolved, which bodes well for work restarting in 2024. The
second, and more structural factor, was that global content producers, having
been in almost an arms race of producing more and more content, had cost
discipline forced upon them as global interest rates rose. Disney was not
immune from this and reduced its spend with ZOO as a result. While this is a
disappointment, in our view ZOO is still in the foothills of its potential
growth - Disney is one (albeit very large) customer and there are other
significant content producers with whom ZOO has the potential to gain market
share.
Data illustrating the ZOO Digital share price since first purchase (pence)
chart in the Annual Report is set out below:
Date Share price in pence
17 July 2018 165.0
31 January 2019 85.5
31 July 2019 79.5
31 January 2020 72.5
31 July 2020 61.5
29 January 2021 97.0
30 July 2021 137.0
31 January 2022 145.0
29 July 2022 127.5
31 January 2023 175.5
31 July 2023 71.0
31 October 2023 41.0
Source: Bloomberg. Share price since first purchase in July 2018
Portfolio review
As the portfolio is flexible in its approach, with the ability to invest
across the breadth of the UK market, we divide it into the classifications
below. This serves two purposes. Firstly, from a portfolio construction
perspective, it helps to create a framework for the portfolio and serves to
challenge us if the current portfolio weight falls outside of the indicative
ranges in the table below. Secondly, from the perspective of our shareholders,
we find the below descriptions to be helpful in understanding the diverse
nature of the portfolio. The current split of the portfolio across
classifications is shown below:
Total Indicative range % Largest three holdings
(gross assets)(1) %
Stabilisers
Large cap (£1b +) 25 (+1) 10-30 Barclays, HSBC,
These stocks are usually familiar to all investors. They are ballast for the
portfolio and often generators of income as individual companies. We believe Standard Chartered
they remain capable of long-term earnings growth.
Natural resources 13 (-4) 5-15 Serica Energy, Rio Tinto,
These are companies that will benefit from rising commodity prices. The
majority of this classification are smaller companies (outside of the FTSE Jersey Oil &
100) that are less well understood and where, in our view, we can add more
value by paying close attention. Gas
Tomorrow's leaders
Growth small cap 13 (-4) 20-40 Boku, Next 15, Tracsis
These are companies that in our view can be substantially larger businesses in
time. They have strong management capability and they
operate in fast growing end markets or are disruptors within more established
markets.
Recovery 16 (+6) 0-30 Rolls-Royce, Redcentric, International Personal Finance
Some of these companies, for example those exposed to the aerospace industry,
have fallen into the recovery classification as a result of the pandemic.
However, as the global economy recovers, earnings should be able to grow from
current suppressed levels.
Early stage companies 6 (-1) 0-20 Surface Transforms, AFC Energy, Creo Medical
These are companies that could serve large end markets with potentially
disruptive technologies, however they are at an early stage of their life
cycle and whether the technology becomes fully commercialised remains, to a
degree, binary. They should perform largely independently of the broader
economic cycle.
Small & mid cap compounders 27 (+2) 20-40 Springfield Properties, Vertu Motors, Van Elle
These are good quality, long-term holdings with experienced management teams.
Over time we expect them to steadily grow sales and earnings.
( )
(1) The number in brackets is the change in percentage compared to the
previous financial year end
As discussed in the attribution section of this report, Recovery was the best
performing classification this year, led by holdings such as Rolls-Royce.
Larger company shares, such as Marks & Spencer and HSBC, also performed
well. In contrast the worst performing areas were early stage companies,
natural resources and growth smaller companies.
Portfolio activity
The largest five purchases during the financial year were:
1. Marshalls
2. Legal & General
3. Hvivo
4. Reach
5. Oxford Nanopore
The main purchases are a diverse list of companies with Marshalls being the
largest. They are a very high quality operation. Marshalls invest well into
their assets and the management is forward thinking. It is a changed business
from the past, but it remains cyclical and this has concerned investors and
has created the investment opportunity. There is economic cyclicality also
with Reach (tied to advertising spend), while Oxford Nanopore depends on the
quality of its technology which we believe is world leading. Financials
generally have been oversold and Legal & General have been added to the
mix as, in spite of the headwinds, they continue to grow their book of
business.
The largest five sales during the financial year were:
1. K3 capital
2. IQGeo
3. Vodafone
4. NatWest
5. Finsbury Food
Takeover activity has resulted in K3 and Finsbury Foods leaving the portfolio
while Vodafone and NatWest were sold to make room for better growth
opportunities. There was some profit taking in IQGeo.
Income
This financial year saw a fall in revenue per share from elevated levels the
previous year - earnings per share fell to 33.5p including special dividends,
compared to 40.6p in the financial year ended 31 October 2022. In a broader
context, investment income remained above its 2019 pre pandemic level of 29.9p
per share. The Company also received £183,000 (2022: £197,000) net income
from its participation in the securities lending programme (see Notes 4 and
15.3 in the Annual Report for more information). The Board has used the
flexibility of the investment trust structure to smooth dividends and the
dividend paid to shareholders has continued to grow, totalling 35.5p during
the year.
Looking in more detail at what caused the fall in investment income:
· In the previous financial year, there were special dividends from banks such
as NatWest that did not repeat. This year special dividends totalled £32,000
(comprised of special dividends from Hollywood Bowl and Hvivo), compared to
£278,000 the previous year.
· A fall in some commodity prices caused the miners held to significantly reduce
their dividend payments. For example Anglo American reduced its ordinary
dividend by 47% in the calendar year 2023 compared to 2022.
· There were selective dividend cuts elsewhere in challenging end markets. For
example Scottish housebuilder Springfield Properties cancelled its dividend as
buyers held back on making house purchases in the face of rising interest
rates.
Outlook
We are hoping that in the above reports we are talking about a period that has
passed. In the period since the year end the market backdrop appears to have
altered; those that were first are last and last are first. The bear market
might have ended but we will not know for sure for a while. Every bear market
has short violent bull runs within it. When we look back in time, if the
autumn proves to have been the bottom we will say the catalyst was the peaking
of rates. It is really that simple. At the moment, rather than keep worrying
about the market phase, we need to keep focused on stocks as, for many, things
are changing fast. In the big companies there has in recent months been a
major change of view about Rolls-Royce and Marks & Spencer. We had bought
worthwhile holdings in both in advance of the recovery, recognising that
change was underway. In hindsight, we should have bought more, as the recovery
came faster than we expected. The speed of change at both the operating level
and in stock market perception is fast. We recognise this and will build some
new positions, and also cut some old ones if the market has genuinely moved
into a new phase of economic recovery.
James Henderson and Laura Foll
Fund Managers
31 January 2024
MANAGING OUR RISKS
The Board, with the assistance of the Manager, has carried out a robust
assessment of the principal risks and uncertainties facing the Company,
including those that would threaten its business model, future performance,
solvency, liquidity and reputation. The principal risks and uncertainties
facing the Company relate primarily to investing in the shares of companies
that are listed in the UK, including small companies. Although the Company
invests almost entirely in securities that are listed on recognised markets,
share prices may move rapidly, whether upwards or downwards, and it may not be
possible to realise an investment at the Manager's assessment of its value.
Falls in the value of the Company's investments can be caused by unexpected
external events. The companies in which investments are made may operate
unsuccessfully, or fail entirely, such that shareholder value is lost. The
Company is also exposed to the operational risk that one or more of its
contractors or sub-contractors may not provide the required level of service.
The Board considers regularly the principal risks facing the Company in order
to mitigate them as far as practicable. The Board monitors the Manager, its
other service providers and the internal and external environments in which
the Company operates to identify new and emerging risks. The Board's policy on
risk management has not materially changed from last year. "Shareholder base
and voting on platforms" has been added as a new category.
The Board has drawn up a risk map which identifies the substantial risks to
which the Company is exposed. The Board has also put in place a schedule of
investment limits and restrictions, appropriate to the Company's Investment
Objective and Investment Policy. These principal risks fall broadly under the
following categories:
Risk Trend Controls and mitigation
Investment activity and strategy ↑ The Manager provides the Directors with management information including
performance data reports and portfolio analyses on a monthly basis. The Board
An inappropriate investment strategy (for example, in terms of asset monitors the implementation and results of the investment process with the
allocation, stock selection, failure to anticipate external shocks or the Fund Managers, who attend all Board meetings, and reviews regularly data that
level of gearing) may lead to a reduction in NAV, underperformance against the monitors risk factors in respect of the portfolio. The Manager operates in
Company's benchmark and the Company's peer group; it may also result in the accordance with investment limits and restrictions determined by the Board;
Company's shares trading on a wider discount to NAV. these include limits on the extent to which borrowings may be used. The Board
reviews its investment limits and restrictions regularly and the Manager
confirms its compliance with them each month. The Board reviews investment
strategy at each Board meeting.
The Board seeks to manage these risks by ensuring a diversification of
investments. The Board has regular meetings with the Fund Managers to review
performance and the extent of borrowings.
Shareholder base and voting on platforms NEW The Manager, Board and Fund Managers regularly consider shareholder views and
look to implement initiatives that benefit all shareholders. Through general
The Company has a large number of retail shareholders, many of whom hold their communications in Company documents they also seek to identify ways of
shares via platforms. The Company has no way of communicating directly with assisting shareholders with voting through platforms, for example, by
these shareholders or encouraging them to vote at general meetings. If these referring shareholders to guidance made available by the Association of
shareholders do not vote, there is a risk that the outcome of any votes may Investment Companies.
represent the views of a relatively small number of shareholders and that the
decision reached may not reflect the views of, or be in the best interests of,
the majority of the Company's shareholders
Financial instruments and the management of risk ↔ An analysis of these financial risks, including liquidity and gearing, and the
Company's policies for managing them are set out in the Annual Report.
By its nature as an investment trust, the Company is exposed in varying
degrees to market risk, interest rate risk, liquidity risk, currency risk and
credit and counterparty risk. Market risk arises from uncertainty about the
future prices of the Company's investments.
Operational and cyber ↔ The Board monitors the services provided by the Manager and its other
suppliers and receives reports on the key elements in place to provide
Disruption to, or failure of, the Manager's accounting, dealing or payment effective internal control. During the year the Board received reports on the
systems or the Custodian or the Depositary's records could prevent the Manager's approach to information security and cyber attack defence.
accurate reporting and monitoring of the Company's financial position. The
Company is also exposed to the operational risk that one or more of its
services providers may not provide the required level of service. The Company
may also be exposed to the risk of cyber-attack on its service providers.
Accounting, legal and regulatory ↔ The Manager is contracted to provide investment, corporate secretarial,
administration and accounting services through qualified professionals. The
A breach of Section 1158 could lead to a loss of investment trust status, Board receives internal controls reports produced by Janus Henderson on a
resulting in capital gains realised within the portfolio being subject to quarterly basis, which confirm regulatory compliance.
corporation tax. A breach of the FCA's Listing Rules could result in
suspension of the Company's shares, while a breach of the Companies Act 2006
could lead to criminal proceedings, or financial or reputational damage.
Failure of Janus Henderson ↔ The Board meets regularly with representatives of the Manager's Investment
Management, Risk, Compliance, Internal Audit and Investment Trust teams and
A failure of the Manager's business, whether or not as a result of regulatory reviews internal control reports from the Manager on a quarterly basis. The
failure, cyber risk or other failure could result in the Manager being unable failure of the Manager would not necessarily lead to a loss of the Company's
to meet its obligations and its duty of care to the Company. assets, however, and this risk is mitigated by the Company's ability to change
its investment manager if necessary, subject to the terms of its management
agreement.
Details of how the Board monitors the services provided by Janus Henderson and
its other suppliers, and the key elements designed to provide effective
internal control, are explained further in the internal controls section of
the Corporate Governance report and the Audit and Risk Committee report in the
Annual Report.
Emerging risks
In addition to the principal risks facing the 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:
· Decline in popularity of the investment trust sector
Interest rate rises and external pressures.
· Demographic change
Ageing population, increasing financial inequality and new trends in social
attitudes.
· Technological change
Artificial intelligence, sector disruption, changes to existing job roles,
ethical oversight of technological change, autonomous vehicles,
electrification and healthcare impact.
· Environmental sustainability
Climate change, decarbonisation, extreme bad weather events, increasing
legislation/political action, resource scarcity and reputational consequences.
· Political and economic change
Tax risk (including impact on dividends paid by the Company to shareholders)
and impact on performance if the UK were to remain out of favour.
The Company's emerging risks are macro-economic and political in nature and
over which the Company has no control (including ongoing heightened
macro-economic uncertainty from political events such as Brexit, Russia's
invasion of Ukraine and the conflict in the Middle East). The Board monitors
these emerging risks and, if specific action relating to the investments, or
the Company's marketing approach were to arise, the Board would take
appropriate action.
BORROWINGS
The Company has an unsecured loan facility in place which allows it to borrow
as and when appropriate. £30m (2022: £30m) is available under the facility.
Net gearing is limited by the Board to 25% of net assets. The maximum amount
drawn down in the period under review was £18.2m (2022: £21.4m), with
borrowing costs for the year totalling £817,000 (2022: £345,000). £10.2m
(2022: £14.1m) of the facility was in use at the year end. Net gearing at 31
October 2023 was 9.6% (2022: 13.9%) of net asset value.
VIABILITY STATEMENT AND GOING CONCERN
The Company is a long-term investor. The Board believes it is appropriate to
assess the Company's viability over a five year period in recognition of its
long-term investment horizon and what the Board believes to be investors'
investment horizons, taking account of the Company's current position and the
potential impact of the principal risks and uncertainties as documented in the
Strategic Report in the Annual Report.
The assessment considered the impact and likelihood of the principal risks and
uncertainties facing the Company. Key areas of focus were investment strategy
and performance against benchmark, including a consideration of the risks
around asset allocation, stock selection and gearing. Market risk was also
assessed in terms of the impact of severe but plausible scenarios and the
effectiveness of the mitigating controls in place.
The Directors took into account the liquidity of the portfolio and the
borrowings in place when considering the viability of the Company over the
next five years and its ability to meet liabilities as they fall due. This
included consideration of the duration of the Company's borrowing facilities
and the ability to renew such facilities, consideration of the impact of
rising interest rates and how a breach of any covenants could impact the
Company's net asset value and share price. The Board has reviewed three
additional model scenarios which evaluate the impact on the revenue forecast
and reserves. These range from a worst case scenario which includes a 5%
reduction in income and net assets, through to a scenario where there is no
income growth and no reduction in income or net assets. Increasing dividends
to shareholders could continue under all three scenarios, although the Company
would need to use its capital reserves in some cases. None of the results of
the scenarios used would therefore threaten the viability of the Company.
The Directors do not expect there to be any significant change to the
principal risks and adequacy of the mitigating controls in place. Large cap
stocks are held as ballast for the portfolio and for liquidity, and the
percentage of the portfolio holding of these stocks generally exceeds the
gearing percentage. The Board actively monitors investment performance and
considers factors such as significant falls in the NAV, ongoing heightened
macro-economic uncertainty from political events such as Brexit, Russia's
invasion of Ukraine and the conflict in the Middle East. Any recent experience
has not materially affected the long-term viability of the Company, including
the significant falls in the NAV at the height of the Covid-19 pandemic (which
exceeded 25% in March 2020) when liquidity requirements and covenant
restrictions were all met. The Board is therefore confident that significant
market collapses would not impact the Company's viability. Also, the Directors
do not envisage any change in strategy or objectives or any events that would
prevent the Company from continuing to operate over that period as the
majority of the Company's assets are liquid, its commitments are limited, and
the Company intends to continue to operate as an investment trust. In coming
to this conclusion, the Board has considered the factors aforementioned and
does not believe that they will have a long-term impact on the viability of
the Company and its ability to continue in operation, notwithstanding the
short-term uncertainty they have caused in the markets.
Whilst the Directors recognise that there is a continuation vote that is due
to take place at the AGM in 2026, the Directors currently believe that the
Company will continue to exist for the foreseeable future, and at least for
the period of assessment.
Based on this assessment, the Board has a reasonable expectation that the
Company will be able to continue in operation and meet its liabilities as they
fall due over the next five-year period.
The Directors consider it appropriate to adopt the going concern basis of
accounting in preparing the Financial Statements (see the Annual Report for
further details).
RELATED PARTY TRANSACTIONS
The Company's transactions with related parties in the year were with its
Directors and the Manager. There have been no material transactions between
the Company and its Directors during the year and 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. Directors' shareholdings are
disclosed in the Annual Report.
In relation to the provision of services by the Manager, other than fees
payable by the Company in the ordinary course of business and the facilitation
of marketing activities with third parties, there have been no material
transactions with the Manager affecting the financial position of the Company
during the year under review. More details on transactions with the Manager,
including amounts outstanding at the year end, are given in the Notes to the
Financial Statements in the Annual Report.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
In accordance with Disclosure Guidance and Transparency Rule 4.1.12, each of
the Directors, who are listed in Note 13, confirms that, to the best of his or
her 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 returns 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
Wendy Colquhoun
Chairman
31 January 2024
Twenty largest holdings at 31 October 2023
The stocks in the portfolio are a diverse mix of businesses operating in a
wide range of end markets.
Ranking % of Approximate market capitalisation Valuation Purchases Sales Appreciation/ Valuation
2023 (2022) portfolio 2022 £'000 £'000 (depreciation) 2023
Company £'000 £'000 £'000
1 (1) Barclays 3.6 £19.8b 3,620 - - (396) 3,224
2 (11) Vertu Motors¹ 3.5 £259.0m 2,505 - (1,029) 1,644 3,120
3 (9) Boku¹ 3.2 £408.1m 2,645 68 - 144 2,857
4 (3) Serica Energy¹ 3.0 £910.9m 3,444 - - (767) 2,677
5 (12) Rio Tinto 2.9 £88.5b 2,269 - - 358 2,627
6 (8) HSBC 2.8 £115.3b 2,821 - (1,129) 858 2,550
7 (14) Standard Chartered 2.7 £16.9b 2,003 - - 423 2,426
8 (2) Jersey Oil & Gas¹ 2.7 £65.6m 3,477 - - (1,103) 2,374
9 * Rolls-Royce 2.6 £18.1b 847 - - 1,483 2,330
10 (6) Next 15¹ 2.5 £630.6m 3,073 - - (864) 2,209
11 (10) Anglo American 2.3 £25.7b 2,543 - - (499) 2,044
12 * Tesco 2.0 £19.1b 1,452 - - 368 1,820
13 (13) Tracsis¹ 2.0 £208.8m 2,210 - - (416) 1,794
14 * Marks & Spencer 1.9 £4.3b 843 - - 891 1,734
15 (5) Springfield Properties¹ 1.9 £61.6m 3,090 - - (1,377) 1,713
16 (20) Van Elle¹ 1.8 £42.1m 1,522 - - 85 1,607
17 * Cohort¹ 1.7 £198.7m 1,519 - (118) 96 1,497
18 * Redcentric¹ 1.7 £168.1m 1,425 176 - (117) 1,484
19 * Babcock 1.6 £2.0b 1,033 - - 433 1,466
20 * SigmaRoc¹ 1.6 £337.2m 1,521 - (143) 80 1,458
At 31 October 2023 these investments totalled £43,011,000 or 48.1% of the
portfolio.
* Not in the top 20 largest investments last year
(1) Quoted on AIM
( )
Portfolio by sector
As a percentage of the investment portfolio excluding cash
31 October 2023 31 October 2022
% %
Basic Materials 6.6 6.7
Consumer Discretionary 18.0 17.1
Consumer Staples 3.0 3.1
Energy 9.2 13.1
Financials 20.6 20.6
Health Care 4.3 3.4
Industrials 27.4 21.1
Real Estate 1.2 0.9
Technology 8.6 11.7
Telecommunications 1.1 2.3
100.0 100.0
Portfolio by index
As a percentage of the investment portfolio excluding cash
31 October 2023 31 October 2022
% %
FTSE 100 31.7 27.9
FTSE 250 13.3 10.5
FTSE SmallCap 9.4 7.8
FTSE AIM 44.2 52.6
Other(1) 1.4 1.2
100.0 100.0
( )
(1)Other also includes AIM investments outside the FTSE AIM Index and shares
listed on the main market which are not included in the FTSE All-Share Index
Market capitalisation of the portfolio at 31 October 2023
Portfolio Weight Benchmark Weight
% %
Greater than £2b 32.5 89.3
£1b - £2b 4.7 5.6
£500m - £1b 14.6 2.4
£200m - £500m 19.6 2.1
£100m - £200m 10.2 0.5
£50m - £100m 12.2 0.1
Less than £50m 5.6 -
Other 0.6 -
100.0 100.0
A glossary of terms can be found in the Annual Report
Sources: Morningstar Direct, Janus Henderson, LSEG Datastream
INCOME STATEMENT
Year ended 31 October 2023 Year ended 31 October 2022
Notes Revenue Capital Revenue Capital
return return Total return return Total
£'000 £'000 return £'000 £'000 return
£'000 £'000
2 Losses on investments held at fair value through profit or loss - (9,892) (9,892) - (36,112) (36,112)
3 Income from investments held at fair value through profit or loss 3,269 - 3,269 3,715 - 3,715
4 Other interest receivable and other income 242 - 242 205 - 205
--------- ---------- ---------- --------- ---------- ----------
Gross revenue and capital losses 3,511 (9,892) (6,381) 3,920 (36,112) (32,192)
5 Management and performance fees (151) (351) (502) (173) (404) (577)
Other administrative expenses (466) - (466) (433) - (433)
--------- ---------- ---------- --------- ---------- ----------
Net return before finance costs and taxation 2,894 (10,243) (7,349) 3,314 (36,516) (33,202)
Finance costs (245) (572) (817) (104) (241) (345)
----------- ---------- ---------- ----------- ---------- ----------
Net return before taxation 2,649 (10,815) (8,166) 3,210 (36,757) (33,547)
Taxation (6) - (6) (1) - (1)
----------- ---------- ---------- ----------- ---------- ----------
Net return after taxation 2,643 (10,815) (8,172) 3,209 (36,757) (33,548)
====== ====== ====== ====== ====== ======
6 Net return per ordinary share - basic and diluted 33.46p (136.92p) (103.46p) 40.63p (465.37p) (424.74p)
====== ======= ====== ====== ======= ======
The total columns of this statement represent the Profit and Loss Account of
the Company. The revenue return and capital return columns are supplementary
to this and are prepared under guidance published by the Association of
Investment Companies. All revenue and capital items in the above statement
derive from continuing operations. The Company had no recognised gains or
losses other than those disclosed in the Income Statement.
STATEMENT OF CHANGES IN EQUITY
Year ended 31 October 2023 Called up Share Capital Other Total shareholders' funds
share premium redemption capital Revenue £'000
capital account reserve reserves reserve
£'000 £'000 £'000 £'000 £'000
At 1 November 2022 2,000 14,838 2,431 70,739 2,693 92,701
Ordinary dividends paid - - - - (2,764) (2,764)
Net return after taxation - - - (10,815) 2,643 (8,172)
-------- ---------- ---------- ---------- ----------- ---------
At 31 October 2023 2,000 14,838 2,431 59,924 2,572 81,765
===== ====== ====== ====== ====== =====
Called up Share Capital Other Revenue Total shareholders' funds
Year ended 31 October 2023 share premium redemption capital reserve £'000
capital account reserve reserves £'000
£'000 £'000 £'000 £'000
At 1 November 2021 2,000 14,838 2,431 107,496 1,732 128,497
Ordinary dividends paid - - - - (2,251) (2,251)
Refund of unclaimed dividends over 12 years old - - - - 3 3
Net return after taxation - - - (36,757) 3,209 (33,548)
-------- ---------- ---------- ---------- ----------- ----------
At 31 October 2022 2,000 14,838 2,431 70,739 2,693 92,701
===== ====== ====== ====== ====== ======
STATEMENT OF FINANCIAL POSITION
31 October 2023 31 October 2022
£'000 £'000
Fixed assets
Investments held at fair value through profit or loss
Listed at market value 50,270 50,786
Quoted on AIM at market value 38,703 54,392
Unlisted at market value 513 517
------------ ------------
89,486 105,695
------------ ------------
Current assets
Investment held at fair value through profit or loss 2 2
Debtors 487 216
Cash at bank and in hand 2,315 1,219
------------ ------------
2,804 1,437
Creditors: amounts falling due within one year (10,525) (14,431)
----------- -----------
Net current liabilities (7,721) (12,994)
----------- -----------
Total assets less current liabilities 81,765 92,701
----------- -----------
Net assets 81,765 92,701
======= =======
Capital and reserves
Called up share capital 2,000 2,000
Share premium account 14,838 14,838
Capital redemption reserve 2,431 2,431
Other capital reserves 59,924 70,739
Revenue reserve 2,572 2,693
------------ ------------
Total shareholders' funds 81,765 92,701
======= =======
Net asset value per ordinary share - basic and diluted 1,035.2p 1,173.7p
======= =======
STATEMENT OF CASH FLOWS
Year ended Year ended
31 October 31 October
2023 2022
£'000 £'000
Cash flows from operating activities
Net loss before taxation (8,166) (33,547)
Add: finance costs 817 345
Add: losses on investments held at fair value through profit or loss 9,892 36,112
Increase in other debtors (81) (127)
Decrease in creditors (12) (1,361)
---------- ----------
Net cash inflow from operating activities 2,450 1,422
---------- ----------
Cash flows from investing activities
Purchase of investments (7,527) (15,811)
Sale of investments 13,647 20,625
Proceeds from capital dividends - 483
------------ ------------
Net cash inflow from investing activities 6,120 5,297
------------ ------------
Cash flows from financing activities
Equity dividends paid (2,764) (2,248)
Net loans repaid (3,937) (4,261)
Interest paid (773) (351)
----------- -----------
Net cash outflow from financing activities (7,474) (6,860)
----------- -----------
Net increase/(decrease) in cash at bank and in hand 1,096 (141)
Cash at bank and in hand at start of year 1,219 1,360
---------- ----------
Cash at bank and in hand at end of year 2,315 1,219
====== ======
Comprising:
Cash at bank and in hand 2,315 1,219
====== ======
NOTES TO THE FINANCIAL STATEMENTS
1. Accounting policies
(a) 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. These policies have
been consistently applied to all the years presented. The Financial Statements
have been prepared under the historical cost basis except for the measurement
of fair value of investments. In applying FRS 102, financial instruments have
been accounted for in accordance with Sections 11 and 12 of the standard. All
of the Company's operations are of a continuing nature.
(b) Going concern
The Company's Articles of Association require that at every third AGM, an
ordinary resolution be put to approve the continuation of the Company. The
resolution put to the AGM in 2023 was duly passed. The next triennial
continuation resolution will be put to the AGM in 2026. The assets of the
Company consist almost entirely of securities that are listed (or quoted on
AIM) and are readily realisable. The net current liabilities are primarily due
to borrowings under the loan facility, and the Company's portfolio is
sufficiently liquid to meet the net current liabilities in the unlikely event
that the loan needed to be fully repaid. The Board has considered the
portfolio's liquidity and covenant compliance in event of significant and
prolonged market falls. The securities lending programme entered into by the
Company (see Note 15.3 in the Annual Report for more information) is supported
by indemnification and therefore does not impact the liquidity of the
portfolio or the Company's going concern. 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 and the principal risks, as well as
considering the ongoing macro-economic factors referred to in the viability
statement above, the Directors considered it appropriate to adopt the going
concern basis of accounting in preparing the Financial Statements.
2. Losses on investments held at fair value through profit or loss 2023 2022
£'000 £'000
(Losses)/gains on the sale of investments based on historical cost (3,497) 8,286
Revaluation gains/(losses) recognised in previous years 4,342 (6,736)
---------- ----------
Gains on investments sold in the year based on carrying value at previous 845 1,550
Statement of Financial Position date
Revaluation losses on investments held at 31 October (10,737) (37,662)
---------- ----------
(9,892) (36,112)
====== ======
Included within (losses)/gains on investments are special capital dividends of
£nil (2022: £483,000). These are accounted for in accordance with accounting
policy 1f) (see Annual Report for more detail)
3. Income from investments held at fair value through profit or loss 2023 2022
£'000 £'000
UK:
Dividends from listed investments 1,384 2,668
Dividends from AIM investments 1,795 979
------- -------
3,179 3,647
------- -------
Non-UK:
Dividends from listed investments 90 68
------- -------
90 68
------- -------
3,269 3,715
==== ====
4. Other interest receivable and other income 2023 2022
£'000 £'000
Deposit interest 56 7
Stock lending commission 183 197
Underwriting commission (allocated to revenue) 3 1
------- -------
242 205
==== ====
At 31 October 2023, the total value of securities on loan by the Company for
stock lending purposes was £11,760,000 (2022: £9,691,000). The maximum
aggregate value of securities on loan at any one time during the year ended 31
October 2023 was £19,850,000 (2022: £17,350,000). The Company's agent holds
collateral at 31 October 2023 with the value of £12,380,000 (2022:
£10,203,000) in respect of securities on loan, the value of which is reviewed
on a daily basis and comprises CREST Delivery By Value ("DBVs") and Government
Bonds with a market value of 105% (2022: 105%) of the market value of any
securities on loan.
During the year the Company was not required to take up shares in respect of
underwriting commission; no commission was taken to capital (2022: same).
5. Management and performance fees
2023 2022
Revenue Capital Total Revenue Capital Total
return return return return return return
£'000 £'000 £'000 £'000 £'000 £'000
Management fee 151 351 502 173 404 577
Performance fee - - - - - -
-------- --------- --------- -------- --------- ---------
151 351 502 173 404 577
===== ===== ===== ===== ===== =====
The basis on which the management fee is calculated is set out in the
strategic report contained in the Annual Report. Performance fee provisions
were removed with effect from 20 October 2023 and no performance fee was
payable in the year ended 31 October 2023 (2022: £nil).
6. Net return per ordinary share - basic and diluted
The total loss per ordinary share is based on the total loss attributable to
the ordinary shares of £8,172,000 (2022: total loss of £33,548,000) and on
7,898,375 ordinary shares (2022: 7,898,375) being the weighted average number
of shares in issue during the year.
The return per ordinary share can be further analysed as follows:
2023 2022
£'000 £'000
Revenue return 2,643 3,209
Capital loss (10,815) (36,757)
----------- -----------
Total loss (8,172) (33,548)
====== ======
7,898,375 7,898,375
Weighted average number of ordinary shares
======== ========
2023 2022
Revenue return per ordinary share 33.46p 40.63p
Capital loss per ordinary share (136.92p) (465.37p)
------------ ------------
Total loss per ordinary share - basic and diluted (103.46p) (424.74p)
======= =======
7. Net asset value per ordinary share - basic and diluted
The net asset value per ordinary share at the year end was 1,035.2p (2022:
1,173.7p). The net asset value per ordinary share is based on the net assets
attributable to the ordinary shares of £81,765,000 (2022: £92,701,000) and
on the 7,898,375 ordinary shares in issue at 31 October 2023 (2022:
7,898,375). There are no dilutive securities so the basic and diluted net
asset value per ordinary share are the same.
The movements during the year of the assets attributable to the ordinary
shares were as follows:
2023 2022
£'000 £'000
Total net assets at 1 November 92,701 128,497
Total net loss (8,172) (33,548)
Dividends paid in the year (2,764) (2,248)
----------- -----------
Total net assets at 31 October 81,765 92,701
====== ======
8. Called up share capital 2023 2022
£'000 £'000
Allotted and issued ordinary shares of 25p each 7,898,375
(2022: 7,898,375) 1,974 1,974
Ordinary shares of 25p each held in treasury 102,483 (2022: 102,483) 26 26
---------- ----------
2,000 2,000
====== ======
During the year ended 31 October 2023 no ordinary shares of 25p each were
issued or repurchased by the Company (2022: none). Shares held in treasury do
not carry a right to receive dividends or vote.
9. Ordinary dividends paid Record date Payment date 2023 2022
£'000 £'000
Amounts recognised as distributions to equity holders in the year:
Third interim dividend for the year ended 31 October 2021 of 6.5p 19 November 2021 17 December 2021 - 513
Final dividend for the year ended 31 October 2021 of 8.0p 18 February 2022 25 March 2022 - 632
First interim dividend for the year ended 31 October 2022 of 7.0p 20 May 2022 24 June 2022 - 553
Second interim dividend for the year ended 31 October 2022 of 7.0p 19 August 2022 23 September 2022 - 553
Third interim dividend for the year ended 31 October 2022 of 7.0p 18 November 2022 16 December 2022 553 -
Final dividend for the year ended 31 October 2022 of 13.0p 17 February 2023 24 March 2023 1,027 -
First interim dividend for the year ended 31 October 2023 of 7.5p 19 May 2023 23 June 2023 592 -
Second interim dividend for the year ended 31 October 2023 of 7.5p 18 August 2023 22 September 2023 592
Refund of unclaimed dividends over 12 years old - (3)
--------- ---------
2,764 2,248
===== =====
The Board declared a third interim dividend of 7.5p per ordinary share, paid
on 15 December 2023 to shareholders on the register of the Company at the
close of business on 17 November 2023. The ex-dividend date was 16 November
2023. Based on the number of ordinary shares in issue on 31 October 2023, the
cost of this dividend was £592,000.
Subject to approval at the AGM, the proposed final dividend of 13.0p per
ordinary share will be paid on 22 March 2024 to shareholders on the register
of members at the close of business on 16 February 2024. The shares will be
quoted ex-dividend on 15 February 2024.
The total dividends payable in respect of the financial year, which form the
basis of the test under Section 1158 of the Corporation Tax Act 2010, are set
out below:
Year Year
ended ended
31 October 31 October
2023 2022
£'000 £'000
Revenue available for distribution by way of dividends for the year 2,643 3,209
First interim dividend for the year ended 31 October 2023: 7.5p (2022: 7.0p) (592) (553)
Second interim dividend for the year ended 31 October 2023: 7.5p (2022: 7.0p) (592) (553)
Third interim dividend for the year ended 31 October 2023: 7.5p (2022: 7.0p) (592) (553)
Proposed final dividend for the year ended 31 October 2023: 13.0p (based on (1,027) (1,027)
the 7,898,375 ordinary shares in issue at 31 January 2024) (2022: 13.0p on
7,898,375 ordinary shares)
----------- -----------
Transferred (from)/to revenue reserve(1) (160) 523
======= =======
( )
All dividends have been paid or will be paid out of revenue profit and the
revenue reserve.
( )
(1) Undistributed revenue comprises nil% of income from investments (2022:
13.3%)
10. 2023 Financial Information
The figures and financial information for the year ended 31 October 2023 are
extracted from the Company's Annual Financial Statements for that period and
do not constitute statutory financial statements for that period. The
Company's Annual Financial Statements for the year ended 31 October 2023 have
been audited but have not yet been delivered to the Registrar of Companies.
The Independent Auditor's Report on the 2023 Financial Statements was
unqualified, did not include a reference to any matter to which the Auditors
drew attention without qualifying the report, and did not contain any
statements under Sections 498(2) and 498(3) of the Companies Act 2006.
11. 2022 Financial Information
The figures and financial information for the year ended 31 October 2022 are
extracted from the Company's Annual Financial Statements for that period and
do not constitute statutory financial statements for that period. The
Company's Annual Financial Statements for the year ended 31 October 2022 have
been audited and delivered to the Registrar of Companies. The Independent
Auditor's Report on the 2022 Financial Statements was unqualified, did not
include a reference to any matter to which the Auditors drew attention without
qualifying the report, and did not contain any statements under Sections
498(2) and 498(3) of the Companies Act 2006.
12. Annual Report and Annual General Meeting
The Annual Report for the year ended 31 October 2023 will be posted to
shareholders in February 2024 and will be available on the Company's website
www.hendersonopportunitiestrust.com
(http://www.hendersonopportunitiestrust.com) or from the Corporate Secretary
at the Company's Registered Office, 201 Bishopsgate, London EC2M 3AE.
The Annual General Meeting will be held on Thursday, 7 March 2024 at 2.30pm at
201 Bishopsgate, London, EC2M 3AE. The Notice of the Annual General Meeting
will be posted to shareholders with the Annual Report and will be available on
the Company's website.
13. General Information
Company Status:
Henderson Opportunities Trust plc is registered in England and Wales (No.
01940906), has its registered office at 201 Bishopsgate, London EC2M 3AE and
is listed on the London Stock Exchange.
SEDOL/ISIN: 0853657/GB0008536574
London Stock Exchange (TIDM) Code: HOT
Global Intermediary Identification Number (GIIN): LVAHJH.99999.SL.826
Legal Entity Identifier (LEI): 2138005D884NPGHFQS77
Directors and Corporate Secretary:
The Directors of the Company are Wendy Colquhoun (Chairman), Frances Daley
(Audit and Risk Committee Chairman), Davina Curling and Harry Morgan. The
Corporate Secretary is Janus Henderson Secretarial Services UK Limited,
represented by Melanie Stoner (Fellow of the Chartered Governance Institute).
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.hendersonopportunitiestrust.com
(http://www.hendersonopportunitiestrust.com) .
For further information, please contact:
James Henderson Laura Foll
Fund Manager Fund Manager
Henderson Opportunities Trust plc Henderson Opportunities Trust plc
Telephone: 020 7818 4370 Telephone: 020 7818 6364
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
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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