TIDMHEFT
RNS Number : 5459W
Henderson European Focus Trust PLC
13 December 2023
JANUS HERSON FUND MANAGEMENT UK LIMITED
HERSON EUROPEAN FOCUS TRUST PLC
LEGAL ENTITY IDENTIFIER: 213800GS89AL1DK3IN50
HERSON EUROPEAN FOCUS TRUST PLC
Annual Financial Report for the year ended 30 September 2023
This announcement constitutes regulated information.
INVESTMENT OBJECTIVE
The Company seeks to maximise total return (a combination of
income and capital growth) from a portfolio of stocks listed in
Europe.
PERFORMANCE HIGHLIGHTS
-- Net asset value(1) per share total return rose by 24.1%
(2022: -13.1%), ahead of benchmark(2) by 3.6% (2022: -0.3)
-- Share price total return(3) was 27.7% (2022: -18.3%)
-- NAV total return outperformed peer group averages: AIC Europe
sector(4) was 19.5% and IA OEIC Europe ex-UK sector(5) was
19.0%
-- Maintained full-year dividend of 4.35p, with proposed final
dividend of 3.05p per share and interim of 1.30p per share (2022
total dividend: 4.35p)
-- NAV and share price outperformance of the benchmark index
over 1, 3, 5, 7 and 10 years
Cumulative total return performance for the year to 30 September
2023
1 Yr 3 Yrs 5 Yrs 7 Yrs 10 Yrs
----------------------------------------- ----- ------ ------ ------ -------
NAV [1] 24.1 32.2 46.1 81.1 162.5
----------------------------------------- ----- ------ ------ ------ -------
Benchmark [2] 20.5 28.3 36.9 71.4 117.8
----------------------------------------- ----- ------ ------ ------ -------
Share price [3] 27.7 34.5 43.9 78.9 143.7
----------------------------------------- ----- ------ ------ ------ -------
AIC Europe sector NAV [4] 19.5 19.7 34.7 74.9 137.5
----------------------------------------- ----- ------ ------ ------ -------
IA OEIC Europe ex-UK sector average [5] 19.0 22.3 29.0 60.4 105.5
----------------------------------------- ----- ------ ------ ------ -------
Financial highlights
At 30 September 2023 At 30 September 2022
------------------------------------- --------------------- ---------------------
Shareholders' funds
Net assets attributable to ordinary
shareholders (GBP'000) 378,997 314,419
NAV per ordinary share 178.1p 147.7p
Mid-market price per ordinary share 157.0p 127.0p
Year ended Year ended
30 September 2023 30 September 2022
------------------------------------- --------------------- ---------------------
Total return to equity shareholders
Net revenue return (GBP'000) 9,188 10,913
Net capital/(loss) return (GBP'000) 66,105 (58,341)
----------- -----------
Net total return/(loss) (GBP'000) 75,293 (47,428)
====== ======
Total return per ordinary share
Revenue return 4.32p 5.11p
Capital return 31.07p (27.32p)
----------- -----------
Total return 35.39p (22.21p)
====== ======
Ongoing charge for year 0.80% 0.77%
[1] Net asset value ("NAV") per ordinary share (including
dividends reinvested and excluding costs of reinvestment) and
calculated with debt at par
[2] FTSE World Europe (ex UK) index in sterling terms
[3] Share price using mid-market closing prices
[4] Simple average NAV for the AIC Europe sector which currently
comprises seven investment trusts
[5] Investment Association Europe ex UK sector for open-ended
investment companies ("OEICs"), which comprised 143 funds at the
year end
Sources: Morningstar Direct, Janus Henderson, Refinitiv
Datastream
CHAIR'S STATEMENT
Geopolitical risk has dominated the past financial year and with
the recent appalling events in the Middle East this looks likely to
continue. In economic terms, the jury is still out as to whether we
are headed for a hard landing or not across the region, but it
certainly seems that market participants have come round to our
Fund Managers' way of thinking that 'higher for longer' prevails.
As governments and corporates look to security of supply, whether
for energy or for product lines, the inherent capital redeployment
will be inflationary. Hence with inflation looking stickier than
many envisaged, especially in the US, the question now is how these
elevated interest rates will impact in the US, the world's largest
economy and what the implications will be for Europe, facing a
slowdown of its own.
The Fund Managers' Report explains how they consider this macro
backdrop when assessing our investee companies, as well as
potential investments, alongside some generational shifts underway
particularly in the role of technology. Much has been written about
the advance of artificial intelligence ("AI") this year but when
you look at the numbers around what it could mean, both in terms of
implications for some companies' revenues as well as the investment
required to make it happen, you start to get a feel for how it will
impact every area of our lives.
Our Fund Managers have been talking for some time now of
investing in 'Global Champions that just happen to be based in
Europe'. Many of our investments fall into this category rather
than simply being domestic plays, and are leaders in industries as
diverse as semi-conductors, healthcare, aerospace, luxury consumer
goods, and electrical components, as well as aiding the transition
to 'greener', more sustainable products in building materials and
energy supply.
With this challenging backdrop, I am pleased to report continued
net asset value ("NAV") outperformance of both benchmark and peers
after the extremely strong appreciation we saw in the first half of
the financial year. It was gratifying for Tom O'Hara and John
Bennett to be voted winners of the European Equity (Active)
category at the AJ Bell Investor Awards in September 2023,
particularly as these awards are voted on by AJ Bell customers,
some of whom are our investors.
Performance
The Company's NAV total return per share was 24.1% (2022:
-13.1%), significantly outperforming the Company's benchmark index,
which returned 20.5% (2022: -12.8%) for the year to 30 September
2023. The share price total return was 27.7% (2022: -18.3%), as the
discount at which the shares traded relative to NAV narrowed over
the year.
The Company's long-term track record is excellent, with NAV and
share price total return outperforming the benchmark over one,
three, five, seven and ten years. Our results compare favourably
with our competitors, be they in the investment trust or the
Investment Association OEIC (open-ended funds) sector. The average
NAV total return of the AIC Europe investment company sector
(comprising seven companies) was 19.5% in the year under review,
and the OEIC Europe ex-UK sector average (comprising 143 funds) was
19.0% for the same period.
Dividends
The Board is pleased to recommend a final dividend for the year
of 3.05p per share which, subject to shareholder approval at the
Annual General Meeting ("AGM"), will be paid on 5 February 2024 to
shareholders on the register at 5 January 2024. When added to the
interim payment in June 2023 of 1.30p, this brings the full-year
dividend to 4.35p per share, which is the same total dividend as
the 2022 full-year distribution of 4.35p per share, excluding the
special dividend (2022: interim at 1.20p and final at 3.15p).
Income from investments declined by around 10% in the year under
review compared with the year to 30 September 2022, primarily as a
result of lower exposure to higher-dividend-yielding stocks in
sectors such as energy. The Company has a policy of paying
progressive dividends, and we would include the maintenance of
dividend levels in tougher times as consistent with this approach.
We are fortunate to have built up revenue reserves in previous
years which we can draw on where necessary and, with the
recommendation of this final dividend, propose to use a very small
amount of these. It is worth noting that whilst income is an
important component, total return remains our primary focus.
With the year-end share price at 157p (2022: 127p), the yield of
the aggregate dividends paid and proposed for the year is 2.8%.
Share rating
Discounts have been wider throughout the investment company
sector this year than at any point since the Global Financial
Crisis (2007-08), with the average (ex 3i Group) reaching a low of
19% in October and now currently trading at 15.5%. There has been
an inevitable knock-on to the European sector, including our
Company, hence frustratingly our shares have made only a little
progress relative to NAV from when we last reported to you in
March. Our discount to NAV ended the year at 11.9%, a small but
noteworthy improvement from the end of the previous year (30
September 2022: 14.0%) given this backdrop.
During the year, the Company bought back 145,000 shares (2022:
912,658) to be held in treasury, at an aggregate cost of
GBP183,000, representing 0.01% of the issued capital of the Company
at the start of the year. This small amount of repurchase is only
marginally enhancing to NAV, but the willingness to buy back
signals that the Board is prepared to be active in the market
should the discount widen excessively, whilst being mindful not to
shrink assets needlessly. In our view, share repurchase and
issuance remain useful structural tools in the closed-ended sector,
both in helping manage the supply and demand for shares and
pricing, and as deployment of capital. Ultimately, we believe it is
investment performance, investor sentiment and demand for a
company's shares that principally determine rating.
Capital structure and use of debt
The Company issued long-term structural debt (25 and 30-year) by
way of private placement loan notes in January 2022. With a
weighted average interest rate of 1.57% it was fortuitously timed
and gives us welcome flexibility.
Fully utilised, the debt provided gearing of some 8% (at the
time it was taken on) but it is of sufficiently low-interest cost
that, should the Fund Managers want to move to cash and take out
the leverage, they can without suffering from a cash drag from the
cost of debt. The Fund Managers' Report explains in more detail how
they have done just this and have managed the level of gearing over
the course of the year from a high of nearly 11% in March to a
current net cash level of 4%, taking into account the short-dated
gilts as cash equivalents rather than investments.
Fund management changes
A significant piece of news to report, not least since many will
have been shareholders in the Company for a long time, is that John
Bennett intends to retire next year, leaving behind an excellent
performance record, a strong team and long-standing investment
philosophy to continue looking after the Janus Henderson European
funds, including the Company. John became the Fund Manager in
November 2010. Since then, shareholders have enjoyed significant
NAV outperformance of the benchmark, with an annualised total
shareholder return of 10.6% per annum.
The Board extends their heartfelt thanks to John for his
tremendous stewardship of the Company and the orderly way in which
he is handing over the leadership reins to his well-established
colleagues, including Tom O Hara, his Co-Manager. We wish him all
the very best.
Board changes
Following Eliza Dungworth's retirement in May 2023, and in line
with our long-term succession plan, we have now returned to a Board
of five members through the appointment of Melanie Blake who joined
on 3 July 2023. With over 20 years' experience in the financial
services industry, Melanie brings deep insight and expertise across
risk, compliance and governance, a valuable addition to the Board
following Eliza's departure.
Our Senior Independent Director, Robin Archibald, has succeeded
Eliza as Audit and Risk Committee Chair, and Stephen Macklow-Smith
has taken on the role of the Board's marketing representative. We
consider that we have a well-balanced and experienced Board,
succession planning firmly in our sights, as well as governance
guidelines on Board constitution, which we meet in every respect.
Please refer to the Annual Report for a fuller disclosure on Board
constitution.
Governance, shareholder engagement and AGM
We are pleased to invite shareholders to attend the AGM in
person at our registered office on Thursday, 25 January 2024 at
11.30 am and join us afterwards for refreshments. This is an
opportunity to meet the Fund Managers and our Board. We hope that
an earlier time may suit some shareholders better. Shareholders who
prefer to join virtually may do so via Zoom. There will be live
voting only for those physically present at the AGM and we would
encourage all shareholders to have their say and vote their shares
on all resolutions put forward. All the resolutions are recommended
and supported by your directors. Shareholders holding their shares
through investor platforms are also encouraged to attend, and to
vote, ahead of the proxy voting deadline of Tuesday 23 January 2024
through their nominee platforms. Do be aware that the deadlines for
voting through platforms may be earlier than our proxy voting
deadline.
In addition to the routine business to be considered at this
year's AGM, the Company is also proposing resolutions to its
shareholders to cancel the amounts standing to the credit of the
share premium account and the capital redemption reserve and which,
subject to confirmation by the Court, will be credited to a new
special distributable reserve. Cancelling such reserves is a
routine procedure that is undertaken by investment trusts and was
last carried out by the Company in July 2007. The cancellation of
these reserves (as explained in more detail in the Annual Report)
to create distributable reserves is an administrative matter which
will provide the Board with flexibility to use such distributable
reserves should it wish to do so for shareholder distributions in
the future.
Please see the Annual Report for the AGM Notice and more
information on joining and voting.
If you have questions for either the Board or the Fund
Management team in advance of the AGM - or indeed at any time of
the year - please get in touch. Do visit our website at
www.hendersoneuropeanfocus.com which has regular updates, and
subscribe for regular information using the sign-up function. In
particular, I would highlight the video on the website of Tom
O'Hara discussing these results and performance during the
year.
Outlook
With US bond yields not far off the levels last seen in the
Global Financial Crisis, geopolitical risks that have continued to
rise and the very real threat of recessionary forces, it is not a
surprise that your Fund Managers are erring on the side of caution
and, for the first time that I can remember, investing in UK gilts
(albeit for the very short term) to de-gear the Company. However,
for active stockpickers (as opposed to index huggers or passive
funds), when markets get volatile and uncertainty increases,
opportunities arise and good investment returns can accrue for the
medium to longer term. Indeed, this is the environment we now face
and which your Fund Managers are embracing. Meetings with the
underlying company management teams continue and, for some, the
future is very bright. Your Board remains confident in your Fund
Managers' ability to uncover these opportunities and for the
Company to continue to prove a good long-term investment for its
shareholders.
Vicky Hastings
Chair of the Board
FUND MANAGERS' REPORT
Hard-landing? Soft-landing? No landing? Peak interest rates?
These questions have dominated market discourse during the
financial year. The obvious truth is that neither we nor anyone
else can be certain if, when, or how deep any contraction might be.
Moreover, whilst we have started to see some cracks in the hitherto
resilient US consumer demand - causing weakness in share prices
spanning clothing, luxury goods, spirits and other discretionary
goods - economic activity has generally surprised positively.
Accordingly, the market has had to regularly recalibrate its view
of the likely duration of high inflation levels and correspondingly
elevated interest rates ("elevated", that is, relative to only
recent history).
Much of the market commentary still calls for a hard-landing,
followed by an inevitable central bank capitulation to lower rates.
This cannot be eliminated as a risk, especially if the speed of
rate hikes causes an accident somehow, somewhere in the financial
system (the UK Gilt tantrum of late 2022 and the mini-banking
crisis of early 2023 serve as cautionary reminders that something
can lurk out of sight). But it is always worth considering the
motive of those making such a forecast; many participants wish for
a hard-landing, having made a lucrative career out of zero interest
rates (think fixed income managers, or equity investors with
growth, technology or ESG mandates). They would understandably wish
for those good times to return. If it must come via a painful
economic contraction, then so be it.
It is also worth taking a step back from the never-ending cycle
of macro-monetary noise emanating from media outlets such as
Bloomberg, which are of course incentivised to make you as
insecure, as reactive and as trigger happy as possible in financial
markets; you need live pricing, you need access to research and
datasets and you need live analysis of the latest earth-shattering
event, be it a CPI print, a non-farm payrolls figure or the latest
utterance of 'Fedspeak' by a central bank official at a random
conference. This is the edge you need to make money. No serious
investor could possibly operate without it - or so they would have
you think.
A new capex supercycle - de-globalisation and artificial
intelligence will define geopolitics
There is a lot to constantly distract an investor from more
meaningful developments. When we as a team debate the outlook for
inflation and the corresponding cost of capital, we try to take a
longer-term view of changes across society and their potential
impact on economic activity. In this respect, political discourse -
and increasingly policy action - suggests something different and
powerful is going on underneath the near-term focused chatter. Yes,
central banks are raising rates and reversing that great
"innovation" of the financial crisis - quantitative easing ("QE") -
in order to rein in inflation by cooling economic activity. But
many governments, not least that of the United States, are making
their job much harder. Economic hardship does not go down well with
voters. De-globalisation and pro-labour populism are strong
mandates for those who command the national coffers. The US is
running an historically high budget deficit of 7%, as various
stimulus packages - collectively known as 'Bidenomics' - splurge
over $1trillion on highways, rail and other infrastructure, while
providing
generous incentives for corporates to deploy their capital into
the 'onshoring' of critical supply chains in everything from
semiconductors to electric vehicles and energy security. This is
more than the US government mobilised in response to the Global
Financial Crisis. Not even the profligate Europeans are engaging in
such fiscal largesse; France and Italy are 'only' running budget
deficits of around 5%. The OECD is averaging over 4%. We have never
seen the likes of this government activity during peacetime
(although it may be optimistic to describe the current geopolitical
backdrop as such).
These trends don't appear to be fads, just as zero interest rate
policy ("ZIRP") and QE were not short-lived phenomena. There are
currently 35,000 trade protectionist measures in place globally, up
from only 9,000 a decade ago, according to Global Trade Alert.
Supply chains must adjust to new constraints, often through capital
redeployment. Many of our investee companies are either seeing
evidence of this in their order books and/or utilising their own
strong balance sheets to invest. Construction spend on
manufacturing facilities in the US has already reached almost 0.6%
of GDP, a level not seen since before the World Trade Organisation
was established in the early 1990s. Furthermore, a record 67% of
Americans have a favourable view of trade unions, suggesting that
'America First' is a policy objective likely to be pursued,
regardless of who secures the White House in 2024. In turn, other
major economic blocs such as Europe feel obliged to follow with
their own measures. One of the strands of our investment 'DNA' (for
which we have introduced a dedicated section this year) is 'Believe
in Cycles'. We believe that we are at an inflection point in the
long-cycle politics of globalisation, with corresponding
long-duration implications for capital expenditure, wages,
inflation and interest rates. Capital investment cycles tend to be
long term in nature, for the simple reason that building stuff
takes time. This affords many of our exposed investee companies a
good degree of visibility under all but the most extreme scenarios
for near-term economic momentum. Hard-landing or not, there will
probably be 'shovels going into the ground'.
Aside from industrial policy objectives, it is worth considering
the strength of private sector capital deployment, as it highlights
a key segment of the opportunities we are pursuing in European
equities. It is well known that Europe does not possess the 'Big
Tech' superstars. But, importantly, it does possess many of the
enablers, or 'picks and shovels', that will be necessary as this
exclusive club embarks on an unprecedented period of capital
intensity. In 2019 the combined capital expenditure of Microsoft,
Google, Meta (formerly Facebook), Amazon and Apple was around
$70bn. In 2024 it will reach around $190bn, up by $35bn on 2023.
The magnitude of this should not be understated; it equates to
almost 20% of the "Bidenomics" bazooka: a sizeable spend even when
set against an historic stimulus package in the largest economy on
Earth. Moreover, it will be repeated each year for the foreseeable
future, so that cumulatively it is likely to eclipse the fiscal
programme.
To repeat: this is the capex outlook for only five companies.
Dominant though they are, there is also a long tail of large, cash
generative, well-financed companies across the globe which are
investing into a critical juncture in both geopolitics and
technological progress. This will create change.
Europe's globally dominant 'picks and shovels'
The pursuit of the vast AI and cloud computing opportunity is
both fixed-asset and energy intensive for the titans of tech.
Microsoft, which is lifting capex as a percentage of sales from 11%
in 2019 to 19% in 2024, plans to build an additional 120 or so data
centres, filled with leading AI-ready semiconductors. Most of those
chips will be bought from US stock market darling, Nvidia, which
does not produce its own chips, but outsources it to manufacturing
specialists like Taiwan Semiconductor ("TSMC"). TSMC in turn must
procure the latest manufacturing equipment for its 'fabs'
(factories) to fulfil Nvidia's requirements. Enter Europe's 'Global
Champions' in semiconductor capital equipment - ASML, ASM
International and BE Semiconductor - which provide the 'picks and
shovels' to enable the production of ever more complex chips. Atlas
Copco, another portfolio company, supplies vacuum technology to
this highly demanding manufacturing environment.
Digging a little deeper, we find that European 'Global
Champions' abound all along the 'capex supercycle' supply
chain.
Data centres and semiconductor factories, which are
resource-intensive, require robust foundations and supporting
water, energy and telecommunications infrastructure.
Irish-headquartered but US-heavy construction materials business,
CRH, has already flagged healthy orderbooks as shovels go into the
ground for these facilities (CRH is also arguably the number one
beneficiary of all the highway investments being made in the US,
acting as a one-stop-shop for state departments of transport).
The average data centre has the same energy requirement as
80,000 households, meaning Microsoft's plan alone will add the
equivalent power demand of a city of over 10 million people. Energy
efficiency is therefore critical to operating costs; Siemens and
Schneider Electric supply the infrastructure management hardware
and software to optimise these hungry facilities (they also happen
to be global leaders in industrial automation, another secular
growth category as supply chains are 'on-shored' in the years
ahead).
'Big is beautiful' continued
We have written about our belief that a return to zero interest
rates is unlikely. Accordingly, one must be sensitive to valuation
when selecting stocks. Thankfully, the desire to not overpay has
always been part of our DNA and has, at times, been to our
detriment, notably during peak-ZIRP. However, the real economy
implications of this shift will take time to bear out. This will
present opportunities to stockpickers. As economic rationality
returns from a lengthy absence, the threat of disruption - from
lavishly-funded, unprofitable startups - will recede. The powerful,
well-funded incumbents across many industries are likely to become
yet more powerful in the era ahead of us.
Regular readers will be familiar with our 'Big is beautiful'
mantra for this new investment paradigm. We used Anheuser-Busch
InBev - the world's biggest brewer - as an example of this theme at
work in the portfolio. More recently we purchased German software
company SAP, which commands a high global market share in the
boring but business critical world of Enterprise Resource Planning
("ERP"). We had avoided this company for a long time owing to poor
governance and poor capital discipline. It sells the software that
forms the operating backbone of mid to large companies: supply
chain, logistics, payroll and finance - all fundamental functions
of the modern corporate. Many of these companies are in the process
of transitioning their ERP systems from 'on premise' to the 'cloud'
(another reason for all that data centre capex). This process has
proven a lucrative opportunity for SAP to 'cross-sell' additional
applications such as HR services, travel and expenses management
and, soon, new AI-augmented tools. We see strong prospects for well
over 10% annual earnings growth in the coming years, driven by this
transition.
The end of the free money era is likely to make SAP's clients -
who are eager to be digitally optimised and AI-ready - more
reluctant to bear the risk of changing their ERP supplier through
such a complex and critical project, while also reducing the
likelihood of a startup competitor to SAP given the vast amounts of
funding - and patience - that would be required to erode the
incumbent's economic moat. Of course, being 'big' alone does not
bestow a divine right to success upon a company. There must be a
value proposition to customers. SAP possesses the scale and the
resources (and a net cash balance sheet) to invest in developing
the applications its corporate customers require in the era of
cloud-hosted, AI-augmented ERP. Helpfully, once the client has
transitioned their system to the cloud, new innovations can be more
easily adopted via download, practically overnight.
We hope these provide some good examples of our investment
thinking in what many would consider challenging times and times of
change, with the spectre of geopolitical risk hanging over world
markets, just after Covid and compounded by recent events in the
Middle East.
Performance
The NAV of the Company increased by 24.1% during the financial
year, 3.6% ahead of the 20.5% benchmark return. Major contributors
included our semiconductor capital equipment stocks BE
Semiconductor and ASM International, along with long-term holding
Holcim and diabetes and obesity 'category killer' Novo Nordisk,
which has now become Europe's largest company by market
capitalisation.
Detractors included insurer ASR Nederland, which became mired in
a potential historic mis-selling scandal, oil major Shell, which we
sold in June and recycled into TotalEnergies and AkerBP (though
have recently reintroduced) and Finnish pulp and paper manufacturer
UPM Kymmene.
It is worth noting the somewhat distorting effect of the period
of measurement. The September end of financial year 2022 coincided,
almost to the day, with the European market trough, following which
we saw a sustained rally in almost everything through to spring
2023, with the previous laggards outperforming. Two of our bigger
detractors - Shell and UPM - were less due to investments gone
wrong (both stocks actually gained during financial year 2023), but
courtesy of large position sizes that lagged the rapid recovery in
the benchmark during 2023. It provides a good example of why we
always encourage performance to be judged on at least three years.
Even good investments can have a "bad" 12 months measured against a
benchmark. UPM remains our largest overweight position, while we
also retain a sizeable overweight exposure to oil and gas, which we
view as strategically critical given the geopolitical backdrop.
Energy also provides us with a useful tool in protecting our
shareholders' capital against the inflationary effects of what will
probably be more frequent commodity spikes. Oil and semiconductors,
both held in size, offer a true economic barbell for the multipolar
world.
Activity
It is useful to begin with an explanation of our year end net
gearing levels (or lack thereof). We ended the financial year with
a net cash position of 4%. This means that not only was the
available structural gearing (equivalent to over 7% of NAV)
undeployed, but we also held additional cash. Part of this was a
result of selling activity late in the financial year. We took some
profits in semiconductor stocks during late August/early September,
while also starting to reduce our holding in Hugo Boss and fully
exiting shortly after the year end, as we feel the brand turnaround
story is now relatively well-appreciated and the stock will be more
sensitive to general consumer sentiment. We also sold the last of
our banks in early September as we think the near-term tailwinds
from net interest margin expansion have peaked and the long-term
threat of greater regulatory scrutiny and government constraint has
only intensified. In the era of increased statism, not only do we
think it wise to gain exposure to the many quality 'enablers' we
have listed, but it is equally important to avoid the 'donors.'
Banks will continue to be a source of funds for hungry governments,
likely via recurring 'one-off' taxes on profits.
On a related note, we own no utility companies on a similar
basis; profits mandated by the government are never wholly reliable
profits. They are likely to be even less so in the years ahead. As
a sector it also benefitted from an abundance of cheap debt to fund
projects. Not anymore.
Our net-cash position therefore was partially temporary. At the
time of writing we have returned to a neutral position, with the
gearing undeployed. We feel no urgency to wade into the market; we
are near-term cautious on market direction given the rapid rise in
interest rates (during the writing of this commentary the US
10-year treasury yield touched 5% for the first time since 2007),
nor do we feel any stocks or sectors have reached the 'valuation
margin of safety' threshold that warranted full deployment of the
gearing in September 2022. We will be patient and we can afford to
be; the interest rate payable on our loan notes is 1.57%, locked in
for 25 and 30 years across two tranches. We can earn 2.75% by
depositing the cash in the bank. More interestingly (and another
indication of the challenge to banks) we can earn 5% in short-dated
UK gilts. At the time of writing, we have approximately 5% of NAV -
around two-thirds of the value of the loan notes - deployed into
these 'cash equivalent' sovereign debt instruments. They are 'cash
equivalent' as they are held to maturity (early 2024) and therefore
both interest and capital value are determined. We are enjoying
'positive carry' and will therefore bide our time for more
attractive equity opportunities.
Outlook
We have illustrated why we believe Europe's 'makers' and 'doers'
will stand to benefit - and are benefitting already - from the
profound growth in both publicly funded capital expenditure and the
utilisation of enormous reserves of 'dry powder' sat on corporate
balance sheets. This may, in part, explain the absence of the
much-feared hard-landing, at least so far. But, even if it does not
prevent a painful economic downturn, it serves as a reminder that
economies are not binary, but always nuanced. There will always be
attractive opportunities for businesses to pursue. There will
always be areas of economic resilience. Thus, where there is
nuance, there is opportunity for stockpickers. Whatever the
macroeconomic backdrop, we want to be invested in the right
companies, which are competing in the right places and - critically
- at the right share price. Europe's big, beautiful, global
champions offer a compelling opportunity set.
Tom O'Hara and John Bennett
Fund Managers
PRINCIPAL RISKS
The Board, with the assistance of the Manager, has carried out a
robust assessment of the principal risks facing the Company,
including those which would threaten its business model, future
performance, solvency, liquidity in its shares and reputation. The
assessment includes consideration of economic and political risks,
most of which are outside the Board's direct control. The Board has
drawn up a detailed matrix of risks facing the Company, together
with a strategic heat map charting the top ten risks, which it has
distilled into six categories of principal risks, as shown in the
Annual Report. To assist in mitigating the decision-taking risks as
far as practicable, it has put in place a schedule of investment
limits and restrictions, appropriate to the Company's investment
objective and policy, which it reviews at each board meeting.
The Company's principal risks and mitigating steps are as
follows:
Risk Risk Controls and mitigation
Market Investment risk is spread by holding a diversified
The Company's absolute performance in terms of net asset portfolio of investee companies, typically
value total return and share price with strong balance sheets and good growth prospects. The
total return is dependent on the performance of the Company does not currently embark
investee companies and markets in which on any currency or market movement hedging strategies,
the Company invests. Performance is also impacted by though it has the ability to do so.
currency and interest rate movements,
as well as by political and economic events. The Company's investment strategy is reviewed formally by
the Board at least annually, and
takes into account shareholder views, developments in the
marketplace and how the structure
of the Company is positioned to meet them.
----------------------------------------------------------
Investment performance The Board is responsible for ensuring that the investment
The relative performance of the Company against its policy is met. The day-to-day management
benchmark and European open and closed-ended of the Company's assets is delegated to the Manager under
peers depends principally on asset allocation and stock investment guidelines, with close
selection, which, in turn, require monitoring of the guidelines.
investment skills. In exercising these skills, the
Manager is responsible for adhering to The Board meets the Manager on a regular basis and keeps
the investment policy and investment guideline investment performance, in terms
restrictions set by the Board and amended from of both capital and income returns, under close review.
time to time. The Management Engagement Committee
reviews the Manager's performance annually. Although the
Company is not invested against any
income criteria, the net income of the Company and the
revenue reserves are monitored against
dividend pay-outs and anticipated future net income.
Investment performance is monitored over the short,
medium and longer term against the Company's
benchmark and against a wider peer group of open and
closed-ended investment vehicles investing
in listed European equities.
The Board also reviews the performance attribution
analysis against benchmark in detail, to
understand the main drivers of performance in reporting
periods. The Fund Managers keep the
global political and economic picture under review as
part of the investment process and provide
the Board with frequent updates to enable the directors
to monitor and manage risks of geopolitical
disruption and global economic risks. Climate risk is
assessed within the individual stock
selection process and is reported within quarterly Fund
Manager board reports.
----------------------------------------------------------
Business strategy and market rating The Board monitors the Company's ordinary share price
A number of factors, including the setting of an relative to net asset value per share
appropriate investment proposition, changing and reviews changes in shareholdings in the Company to
investor demand or investment performance may lead to an understand short or longer-term trends
increase or decrease in demand for in demand for and supply of the shares.
and/or supply of the Company's shares and will impact how
the shares are priced in relation The Company is able, when appropriate, to issue or to buy
to the Company's underlying net asset value per share. back shares in order to help maintain
an orderly secondary market in the Company's shares, but
not against any prescribed discount
or premium levels, other than avoiding dilution to
existing shareholders' interests through
share issuance at a discount. The Board also monitors the
rating of the Company's shares against
other closed-ended investment companies in the sector.
The Company is 'evergreen' and does not have a liquidity
event, such as periodic tenders or
continuation votes. The liquidity of the portfolio is
monitored and is considered sufficient
for the purposes of a closed-ended fund, including where
the Company buys back its own shares.
----------------------------------------------------------
Gearing The Company's investment policy sets a limit on borrowing
The Fund Managers have authority to use gearing in line of 20% of net assets at the time
with the Company's investment policy. the borrowing is assumed, and the Board monitors the
In the event of a significant or prolonged fall in equity level of gearing at each meeting.
markets any gearing in place would
exacerbate the effect of the falling market on the The Manager makes active use of the Company's gearing
Company's net asset value and, consequently, with close oversight of borrowings and
its share price. Gearing would have the opposite effect cash management from the Board when gearing is extended
in the event of a significant or prolonged or contracted in relation to different
rise in equity markets in which the Company is invested. market conditions and as applied to different investment
and disinvestment opportunities.
----------------------------------------------------------
Operational The Management Engagement Committee reviews each service
The Company is reliant on third-party service providers provider at least annually, and,
for all its operational activities, in conjunction with the Audit and Risk Committee,
including reliance on Janus Henderson as investment considers reports on internal controls,
manager, corporate secretary and administrator including any reported breaches, throughout the year,
to the Company. from all the service providers. This
reporting covers such matters as business resilience and
The Company depends on the diligence, skill and judgement cyber security risk as well as matters
of the Manager's investment team. that are subject to review as part of the annual audit of
Continuity of service of the team and individuals in the the Company.
team could impact the future success
of the Company. Janus Henderson has a strong European Equities team,
which supports the Fund Managers in the
Failure of third parties' operational or internal control management of the Company's portfolio. Constructive
systems could prevent the accurate challenge, succession and continuity planning
reporting or monitoring of the Company's financial are key elements of the management of the team and are
position. Janus Henderson subcontracts reported closely to the Board with
some of the operational functions (principally those consultation on any major changes.
relating to trade processing, investment
administration and accounting) to BNP Paribas. The Board reviews the internal control structure and
reporting for the Company from all agents
Failure of controls could also impact the Company meeting and meets with their representatives throughout the year
its regulatory obligations. to make enquiry on the systems and
controls. The Board considers climate risk in respect of
operational capability in its review
meetings with service providers.
----------------------------------------------------------
Regulatory and reporting The Board is apprised regularly of impending regulatory
The Company operates in a highly regulated environment and reporting changes and monitors
which could inter alia affect the listing closely, through its various agents, the Company's
of the Company's shares and the Company's tax status, as adherence to existing requirements, including
well as how the Company conducts maintaining investment trust and listed company status.
its affairs in the market more generally.
The Board is also kept apprised of corporate governance
The Company has strict reporting requirements that need developments and, as far as practicable,
to be adhered to both internally and adheres to corporate governance guidelines that are
externally to the market. applicable to an investment company.
----------------------------------------------------------
THE COMPANY'S VIABILITY
The AIC Code of Corporate Governance includes a requirement for
the Board to assess the future prospects for the Company, and to
report on that assessment within the Annual Report. The Board
considers that certain characteristics of the Company's business
model and strategy are relevant to this assessment:
-- the Board aims to ensure that the Company seeks to deliver
long-term performance;
-- the Company's investment objective, strategy and policy,
which are subject to regular Board monitoring, mean that the
Company is invested mainly in readily realisable, listed securities
and that the level of borrowings is restricted; and
-- the Company is a closed-ended investment company and
therefore does not suffer from the liquidity issues arising from
unexpected redemptions.
Also relevant were certain aspects of the Company's operational
agreements:
-- the Company retains title to all assets held by the custodian
under the terms of formal agreements with the custodian and
depositary;
-- revenue and expenditure forecasts are reviewed by the
directors at each board meeting; and
-- cash is held with approved banks.
In addition, the directors carried out a robust assessment of
the principal risks and uncertainties which could threaten the
Company's business model, including future performance, liquidity
and solvency, climate change, and considered emerging risks that
could have a future impact on the Company. The Board takes into
account the liquidity of the portfolio, short-term and structural
gearing, the income stream from the portfolio, and the Company's
ability to meet its liabilities as they fall due. This includes
consideration of how the forecast income stream, expenditure and
levels of reserves could impact the Company's ability to pay
dividends to shareholders over that period. Detailed income and
expense forecasts are made over a shorter time frame. However, the
nature of the Company's business means that such forecasts are
equally valid to be considered over the longer five-year period as
a means of assessing whether the Company can continue in
operation.
The directors assess viability over five-year rolling periods,
taking account of foreseeable severe but plausible scenarios. This
included consideration of the duration of the Company's loan and
borrowing facilities and how a breach of any covenants could impact
the Company's NAV and share price. The Board has assessed the risks
associated with the various geopolitical, economic and health
crises in recent years and has concluded that these events have not
affected the long-term viability of the Company, and its ability to
continue in operation, notwithstanding any short-term uncertainty
they have caused in the markets.
In common with investment companies generally, the viability
statement does not take into account corporate events which might
be initiated by the Company or to which the Company might be
subject, and where the Company's circumstances might be
dramatically changed. An investment company has relatively liquid
assets, compared to industrial or commercial companies, and can,
therefore, be subject to major and unexpected strategic change. No
such event or change affecting the Company's viability is known or
currently in contemplation by the Company. The directors believe
that a rolling five-year period best balances the Company's
long-term objective, its financial flexibility and scope with the
difficulty in forecasting economic conditions affecting the Company
and its shareholders.
Based on their assessment, and in the context of the Company's
business model, strategy and operational arrangements set out in
the Annual Report, the directors have a reasonable expectation that
the Company will be able to continue in operation and meet its
liabilities as they fall due over the five-year period to September
2028.
RELATED-PARTY TRANSACTIONS
The Company's transactions with related parties in the year were
with the directors and the Manager. There were no material
transactions between the Company and its directors during the year
other than amounts paid to them in respect of remuneration and
expenses, for which there were no outstanding amounts payable at
the year end. Directors' shareholdings in the Company are disclosed
in the Annual Report.
In respect of the provision of services by Janus Henderson,
other than fees payable by the Company in the ordinary course of
business and the facilitation of marketing activities with third
parties, there were no material transactions with the Manager
affecting the financial position of the Company during the year
under review. More details on transactions with the Manager,
including amounts outstanding at the year end, are given in the
Annual Report.
STATEMENT OF DIRECTORS' RESPONSIBILITIES UNDER DTR 4.1.12
Each director, as listed below, confirms that, to the best of
their knowledge:
-- the financial statements, which have been prepared in
accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards comprising FRS 102
and applicable law) give a true and fair view of the assets,
liabilities, financial position and return of the Company; and
-- the Strategic Report includes a fair review of the
development and performance of the business and the position of the
Company, together with a description of the principal risks and
uncertainties that it faces.
On behalf of the Board
Vicky Hastings
Chair of the Board
PORTFOLIO INFORMATION
Top 10 investments at 30 September 2023
Company Sector Country of listing Valuation GBP'000 Percentage of portfolio
----------------- --------------------------- -------------------- ------------------ ------------------------
UPM-Kymmene Forestry and Paper Finland 24,022 6.25
--------------------------- -------------------- ------------------ ------------------------
Pharmaceuticals and
Novo Nordisk Biotechnology Denmark 23,175 6.03
--------------------------- -------------------- ------------------ ------------------------
UK Government
Bond 0.125%
31/01/24 Government Bonds United Kingdom 19,682 5.12
--------------------------- -------------------- ------------------ ------------------------
TotalEnergies Oil, Gas and Coal France 16,572 4.31
--------------------------- -------------------- ------------------ ------------------------
Saint-Gobain Construction and Materials France 15,636 4.07
--------------------------- -------------------- ------------------ ------------------------
Safran Aerospace and Defence France 13,692 3.56
--------------------------- -------------------- ------------------ ------------------------
Airbus Aerospace and Defence France 13,389 3.49
--------------------------- -------------------- ------------------ ------------------------
LVMH Moët
Hennessy Louis
Vuitton Personal Goods France 13,154 3.43
--------------------------- -------------------- ------------------ ------------------------
Holcim Construction and Materials Switzerland 12,684 3.30
--------------------------- -------------------- ------------------ ------------------------
Schneider Electronic and Electrical
Electric Equipment France 11,724 3.05
--------------------------- -------------------- ------------------ ------------------------
------------ ---------
--------------------------- -------------------- ------------------ ------------------------
Total (10 largest) 163,730 42.61
------------------ ------------------------
======= =====
------------------ ------------------------
Sector exposure 2023 2022
at 30 September % %
-------------------------------------------------------------------- ------------------ ------------------------
Industrials 26.7 18.4
------------------ ------------------------
Basic Materials 14.1 11.5
------------------ ------------------------
Consumer Discretionary 12.0 11.1
------------------ ------------------------
Health Care 11.6 14.7
------------------ ------------------------
Energy 8.9 14.7
------------------ ------------------------
Technology 8.9 4.4
------------------ ------------------------
Consumer Staples 6.5 11.6
------------------ ------------------------
Financials 6.2 10.9
------------------ ------------------------
Government Bonds 5.1 -
------------------ ------------------------
Utilities - 2.7
------------------ ------------------------
Geographic exposure 2023 2022
at 30 September % %
---------------------- ------ -----
France 30.5 27.8
Germany 16.8 13.7
Netherlands 11.2 10.5
Finland 8.4 8.1
United Kingdom 6.8 10.3
Belgium 6.2 1.9
Denmark 6.0 6.5
Switzerland 5.0 11.8
Sweden 3.4 2.0
Norway 2.9 2.6
Italy 1.4 1.3
Spain 1.4 2.2
Portugal - 1.3
INCOME STATEMENT
Year ended Year ended
30 September 2023 30 September 2022
Revenue Capital Total Revenue Capital Total
return return return return return return
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Gains/(losses) on investments
held at fair value through
profit or loss - 68,293 68,293 - (55,148) (55,148)
Exchange losses on currency
transactions - (5) (5) - (1,142) (1,142)
Income from investments
(note 2) 11,206 - 11,206 12,529 - 12,529
Other income 224 - 224 25 - 25
---------- ---------- ---------- ---------- ---------- ----------
Gross revenue and capital
gains/(losses) 11,430 68,288 79,718 12,554 (56,290) (43,736)
Management fee (note 6) (587) (1,762) (2,349) (548) (1,642) (2,190)
Other fees and expenses (639) - (639) (561) - (561)
---------- ---------- ---------- ---------- ---------- ----------
Net return before finance
costs and taxation 10,204 66,526 76,730 11,445 (57,932) (46,487)
Finance costs (129) (385) (514) 38 (272) (234)
---------- ---------- ---------- ---------- ---------- ----------
Net return before taxation 10,075 66,141 76,216 11,483 (58,204) (46,721)
Taxation on net return
(note 7) (887) (36) (923) (570) (137) (707)
---------- ---------- ---------- ---------- ---------- ----------
Net return after taxation 9,188 66,105 75,293 10,913 (58,341) (47,428)
====== ====== ====== ====== ====== ======
Return per ordinary share
(note 8) 4.32p 31.07p 35.39p 5.11p (27.32p) (22.21p)
====== ====== ====== ====== ====== ======
The total columns of this statement represents the Income
Statement of the Company. The revenue return and capital return
columns are supplementary to this and are prepared under guidance
published by the Association of Investment Companies. All revenue
and capital items in the above statement derive from continuing
operations. The Company had no recognised gains or losses other
than those disclosed in the Income Statement.
STATEMENT OF CHANGES IN EQUITY
Year ended Share
30 September 2023 Called-up premium Capital Revenue Other
share capital account reserve reserve reserves Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------- --------------- -------------- ----------- ----------- --------------- -----------
At 30 September
2022 10,819 41,995 151,154 13,840 96,611 314,419
Net return after
taxation - - 66,105 9,188 - 75,293
Buyback of ordinary
shares for treasury - - (183) - - (183)
Ordinary dividends
paid (note 4) - - - (10,532) - (10,532)
---------- ---------- ---------- ---------- ---------- ----------
At 30 September
2023 10,819 41,995 217,076 12,496 96,611 378,997
====== ====== ====== ====== ====== ======
Year ended Called-up Share premium Capital Revenue
30 September 2022 share capital account reserve reserve Other reserves Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------- --------------- -------------- ----------- ----------- --------------- -----------
At 30 September
2021 10,819 41,995 210,819 10,492 96,611 370,736
Net return after
taxation - - (58,341) 10,913 - (47,428)
Buyback of ordinary
shares for treasury - - (1,324) - - (1,324)
Ordinary dividends
paid (note 4) - - - (7,565) - (7,565)
---------- ---------- ---------- ---------- ---------- ----------
At 30 September
2022 10,819 41,995 151,154 13,840 96,611 314,419
====== ====== ====== ====== ====== ======
STATEMENT OF FINANCIAL POSITION
At 30 September At 30 September
2023 2022
GBP'000 GBP'000
------------------------------------------------------- ---------------- ----------------
Fixed assets
Investments held at fair value through profit or loss 384,249 320,289
------------- -------------
Current assets
Debtors 11,745 7,355
Cash at bank 15,857 21,272
------------- -------------
27,602 28,627
Creditors: amounts falling due within one year (2,655) (3,949)
------------- -------------
Net current assets 24,947 24,678
------------- -------------
Total assets less current liabilities 409,196 344,967
Creditors: amounts falling due after one year (30,199) (30,548)
------------- -------------
Net assets 378,997 314,419
======== ========
Capital and reserves
Called-up share capital 10,819 10,819
Share premium account 41,995 41,995
Capital reserve 217,076 151,154
Revenue reserve 12,496 13,840
Other reserves 96,611 96,611
------------- -------------
Shareholders' funds 378,997 314,419
======== ========
Net asset value per ordinary share (note 9) 178.13p 147.67p
======== ========
CASH FLOW STATEMENT
Year ended Year ended
30 September 30 September 2022 GBP'000
2023
GBP'000
------------------------------------------------------------------------ ------------- --------------------------
Cash flows from operating activities
Net return/(loss) before taxation 76,216 (46,721)
Add back: finance costs 514 234
(Gains)/losses on investments held at fair value through profit or loss (68,293) 55,148
Losses on foreign exchange 5 1,142
Taxation paid (1,389) (780)
Increase in debtors (163) (87)
Increase/(decrease) in creditors 1,099 (144)
------------- -------------
Net cash inflow from operating activities* 7,989 8,792
------------- -------------
Cash flows from investing activities
Sales of investments held at fair value through profit or loss 288,351 277,186
Purchases of investments held at fair value through profit or loss (290,172) (273,147)
------------- -------------
Net cash (outflow)/inflow from investing activities (1,821) 4,039
------------- -------------
Cash flows from financing activities
Buyback of ordinary shares for treasury (183) (1,324)
Equity dividends paid (10,532) (7,565)
Repayment of bank overdraft - (10,558)
Issue of unsecured loan notes - 29,275
Costs relating to issue of unsecured loan notes - (173)
Interest paid (863) (271)
------------- -------------
Net cash (outflow)/inflow from financing activities (11,578) 9,384
------------- -------------
Net (decrease)/increase in cash at bank (5,410) 22,215
Cash at bank at beginning of period 21,272 199
Losses on foreign exchange (5) (1,142)
------------- -------------
Cash at bank at end of period 15,857 21,272
------------- -------------
Comprising:
Cash at bank 15,857 21,272
======== ========
* Cash inflow from dividends was GBP9,394,000 (2022:
GBP11,266,000) and cash inflow from interest was GBP213,000 (2022:
GBP25,000)
NOTES TO THE FINANCIAL STATEMENTS
1. Accounting policies
a) Basis of preparation
The Company is a registered investment company as defined in
section 833 of the Companies Act 2006 and is incorporated in
the United Kingdom. It operates in the United Kingdom and is
registered at the address below.
The financial statements have been prepared in accordance with
the Companies Act 2006, FRS 102 - The Financial Reporting Standard
applicable in the UK and Republic of Ireland and with the Statement
of Recommended Practice: Financial Statements of Investment Trust
Companies and Venture Capital Trusts (the "SORP") amended in
July 2022 by the Association of Investment Companies.
The principal accounting policies applied in the presentation
of these financial statements are set out in the Annual Report.
These policies have been consistently applied to all the years
presented.
The accounts have been prepared under the historical cost basis
except for the measurement of investments at fair value. In applying
FRS102, financial instruments have been accounted for in accordance
with sections 11 and 12 of the Standard. All of the Company's
operations are of a continuing nature.
The preparation of the Company's financial statements requires
the directors to make judgements, estimates and assumptions that
affect the reported amounts in the primary financial statements
and the accompanying disclosures. These assumptions and estimates
could result in outcomes that require a material adjustment to
the carrying amount of assets or liabilities affected in the
current and future periods, depending on circumstance.
The directors do not believe that any accounting judgements have
been applied to this set of financial statements that have a
significant risk of causing a material adjustment to the carrying
amount of assets and liabilities. Nor do they believe that there
are any estimates that have a significant risk of causing a material
adjustment to the carrying amount of assets and liabilities within
the next financial year. In line with UK GAAP, the fair values
of investments are used, whereby quoted prices are used to value
the investments in active markets and thereby reflect participants'
views of climate change risk.
b) Going concern
The assets of the Company consist of securities that are readily
realisable and, accordingly, the directors believe that the Company
has adequate resources to continue in operational existence for
at least twelve months from the date of approval of these financial
statements. In coming to this conclusion, the directors have
considered the nature of the portfolio, being that the securities
held are readily realisable, the strength of its distributable
reserves, and the ongoing costs of the Company. The directors
have also reviewed the revenue forecast and size of the Company's
long-term debt and stress-tested its financial covenants.
As part of their usual assessment of risks facing the Company,
the directors have further considered the global economic and
geopolitical environment including the repercussions of the Covid-19
pandemic, the ongoing war in Ukraine and conflict in the Middle
East, the impact of these on supply chains and the possible impact
of climate change risk on the value of the portfolio. The directors
have concluded that the Company is able to meet its financial
obligations, including the interest payments for its loan notes,
as they fall due for a period of at least twelve months from
the date of this report.
2. Income from investments
2023 2022
GBP'000 GBP'000
----------------- ------------------ ---------------
Listed
investments:
----------------- ------------------ ---------------
Overseas dividends 10,143 12,181
--------------------------------- ------------------ ---------------
UK dividends 969 348
--------------------------------- ------------------ ---------------
UK fixed-income 94 -
interest
----------------- ------------------ ---------------
--------- ---------
----------------- ------------------ ---------------
11,206 12,529
--------------------------------- ------------------ ---------------
===== =====
----------------- ------------------ ---------------
3. Dividend
The Board recommends a final dividend of 3.05p per share (2022:
3.15p). When added to the interim payment of 1.30p (2022: 1.20p),
this will bring the full-year dividend to 4.35p per share. Subject
to approval at the AGM on 25 January 2024, the final dividend
will be payable on 5 February 2024 to shareholders on the register
at 5 January 2024.The shares will be quoted ex-dividend on 4
January 2024.
4. Dividends paid and payable on ordinary shares
Dividends on 2023 2022
ordinary shares Record date Payment date GBP'000 GBP'000
----------------- ------------------ --------------- ------------------- ---------------
Final dividend (2.35p*)
for the year ended 7 January 4 February
30 September 2021 2022 2022 - 5,019
--------------------------------- ------------------ --------------- ------------------- ---------------
Interim dividend (1.20p)
for the year ended
30 September 2022 6 June 2022 27 June 2022 - 2,563
--------------------------------- ------------------ --------------- ------------------- ---------------
Final dividend 6 January 6 February
(3.15p) 2023 2023
for the year
ended
30 September
2022 6,702 -
----------------- ------------------ --------------- ------------------- ---------------
Special dividend 6 January 6 February
(0.50p) 2023 2023
for the year
ended
30 September
2022 1,064 -
----------------- ------------------ --------------- ------------------- ---------------
Interim dividend 2 June 2023 27 June 2023
(1.30p)
for the year
ended
30 September
2023 2,766 -
----------------- ------------------ --------------- ------------------- ---------------
Unclaimed dividends over
12 years old - (17)
--------------------------------- ------------------ --------------- ------------------- ---------------
---------- -----------
----------------- ------------------ --------------- ------------------- ---------------
10,532 7,565
--------------------------------- ------------------ --------------- ------------------- ---------------
====== ======
----------------- ------------------ --------------- ------------------- ---------------
* Figures have been restated due to the subdivision of each ordinary
share of 50p into ten ordinary shares of 5p each on 7 February
2022
The final dividend for the year ended 30 September 2023 has not
been included as a liability in these financial statements. The
total dividend payable in respect of the financial year, which
forms the basis of the retention test under Section 1158 of the
Corporation Tax Act, is set out below.
--------------------------------------------------------------------------------------------
2023 2022
GBP'000 GBP'000
------------------------------------------------------ ------------------- ---------------
Revenue available for distribution by way of
dividend for the year 9,188 10,913
---------------------------------------------------------------------- ------------------- ---------------
Interim dividend (1.30p) for the year ended
30 September 2023
(based on 212,768,122 ordinary shares in issue
at 2 June 2023) (2,766) -
------------------------------------------------------ ------------------- ---------------
Final dividend (3.05p) for the year ended 30
September 2023
(based on 212,768,122 ordinary shares in issue
at 8 December 2023) (6,489) -
------------------------------------------------------ ------------------- ---------------
Interim dividend (1.20p) for the year ended
30 September 2022
(based on 213,565,480 ordinary shares in issue
at 6 June 2022) - (2,563)
---------------------------------------------------------------------- ------------------- ---------------
Final dividend (3.15p) for the year ended 30
September 2022
(based on 212,768,122 ordinary shares in issue
at 6 January 2023) - (6,702)
---------------------------------------------------------------------- ------------------- ---------------
Special dividend (0.50p) for the year ended
30 September 2022
(based on 212,768,122 ordinary shares in issue
at 6 January 2023) - (1,064)
---------------------------------------------------------------------- ------------------- ---------------
------------ -------------
------------------------------------------------------ ------------------- ---------------
Undistributed revenue for section 1158 purposes (67) 584
---------------------------------------------------------------------- ------------------- ---------------
======= =======
------------------------------------------------------ ------------------- ---------------
All dividends have been paid or will be paid out of revenue profits
or revenue reserves.
--------------------------------------------------------------------------------------------
5. Called-up share capital
Number of Nominal
shares entitled Shares value of
to dividend held in Total number shares
treasury of shares GBP'000
----------------- ------------------ --------------- ------------------- -----------------
At 30 September 2022 212,913,122 3,476,788 216,389,910 10,819
Buy back into treasury
of 145,000 shares (145,000) 145,000 - -
----------------- -------------- ------------------ -----------
At 30 September 2023 212,768,122 3,621,788 216,389,910 10,819
========== ======== ========== ======
At 30 September 2021 21,382,578 256,413 21,638,991 10,819
Buy back into treasury
of 26,030 shares (26,030) 26,030 - -
---------------- ------------ ----------------- -----------
21,356,548 282,443 21,638,991 10,819
---------------- ------------ ----------------- -----------
Issue of new ordinary
shares following 10
for 1 stock split 192,208,932 2,541,987 194,750,919 -
Buy back into treasury
of 652,358 shares (652,358) 652,358 - -
----------------- -------------- ----------------- -----------
At 30 September 2022 212,913,122 3,476,788 216,389,910 10,819
=========== ========= =========== =======
6. Management fee
Year ended Year ended
30 September 2023 30 September 2022
------------------ ---------------------------------------- -----------------------------------------
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------ ------------ ------------ ------------ ----------- ------------- -------------
Management fee 587 1,762 2,349 548 1,642 2,190
------------------------ ------------ ------------ ------------ ----------- ------------- -------------
====== ====== ====== ====== ====== ======
------------------ ------------ ------------ ------------ ----------- ------------- -------------
A description of the basis for calculating the management fee is given in the Annual Report.
Management fees are allocated 25% to revenue and 75% to capital in the Income Statement.
-------------------------------------------------------------------------------------------------------
7. Taxation
----------------------------------------------------------------------------------------------------------
(a) Analysis of charge for the year
----------------------------------------------------------------------------------------------------------
Year ended Year ended
30 September 2023 30 September 2022
------------------ ---------------------------------------- -----------------------------------------
Revenue Capital Total Revenue Capital Revenue
return return return return return return
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------ ------------ ------------ ------------ ----------- ------------- -------------
Corporation tax
prior year adjustment - - - (584) - (584)
------------------------ ------------ ------------ ------------ ----------- ------------- -------------
Overseas tax
suffered 887 36 923 1,154 137 1,291
------------------------ ------------ ------------ ------------ ----------- ------------- -------------
---------- ---------- ---------- ---------- ---------- ----------
------------------ ------------ ------------ ------------ ----------- ------------- -------------
Total taxation
for the year 887 36 923 570 137 707
------------------------ ------------ ------------ ------------ ----------- ------------- -------------
====== ====== ====== ====== ====== ======
------------------ ------------ ------------ ------------ ----------- ------------- -------------
b) Factors affecting the tax charge for the year
----------------------------------------------------------------------------------------------------------
Year ended Year ended
30 September 2023 30 September 2022
------------------ ---------------------------------------- -----------------------------------------
Revenue Capital Total Revenue Capital Total
return return return return return return
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------ ------------ ------------ ------------ ----------- ------------- -------------
Return before
taxation 10,075 66,141 76,216 11,483 (58,204) (46,721)
------------------------ ------------ ------------ ------------ ----------- ------------- -------------
---------- ---------- ---------- ---------- ---------- ----------
------------------ ------------ ------------ ------------ ----------- ------------- -------------
Corporation tax
at an effective
rate of 22.0%
(2022:19.0%) 2,217 14,551 16,768 2,182 (11,059) (8,877)
------------------------ ------------ ------------ ------------ ----------- ------------- -------------
Effects of:
------------------ ------------ ------------ ------------ ----------- ------------- -------------
Non-taxable capital
(profits)/losses - (15,023) (15,023) - 10,695 10,695
------------------------ ------------ ------------ ------------ ----------- ------------- -------------
Non-taxable overseas
income (2,445) - (2,445) (2,375) - (2,375)
------------------------ ------------ ------------ ------------ ----------- ------------- -------------
Expenses not
deductible for
tax purposes - - - 1 - 1
------------------------ ------------ ------------ ------------ ----------- ------------- -------------
Tax effect of
expensed
double-taxation
relief - - - (5) - (5)
------------------------ ------------ ------------ ------------ ----------- ------------- -------------
Corporation tax
prior-year adjustment - - - (584) - (584)
------------------------ ------------ ------------ ------------ ----------- ------------- -------------
Current-year
expenses not
utilised 228 472 700 197 364 561
------------------------ ------------ ------------ ------------ ----------- ------------- -------------
Overseas tax 887 36 923 1,154 137 1,291
------------------------ ------------ ------------ ------------ ----------- ------------- -------------
---------- ---------- ---------- ---------- ---------- ----------
------------------ ------------ ------------ ------------ ----------- ------------- -------------
887 36 923 570 137 707
------------------------ ------------ ------------ ------------ ----------- ------------- -------------
====== ====== ====== ====== ====== ======
------------------ ------------ ------------ ------------ ----------- ------------- -------------
The UK corporation tax is an effective rate of 22.0% (2022: 19.0%). The tax charge for the
year is lower than the corporation tax rate.
In the prior year, the Company filed a claim with HMRC, on the basis of the principles set
out in the Franked Investment Income Group Litigation Order ("FII/GLO") claim, for corporation
tax unduly paid in respect of periods prior to 1 July 2009. The claim was filed on the basis
that the relevant UK tax legislation was in breach of EU law for these periods.
Additionally, the claim was successfully settled with HMRC and the provision for corporation
tax previously provided and the associated interest thereon (relating to the refund of French
withholding tax received in 2017) was removed and this was accounted for in year ended 30
September 2022.
The total of the claim and the write-back of tax previously accrued for is GBP584,000 and
reflected in the 2022 tax charge.
No provision for deferred tax has been made in the current or prior accounting year. At the
period end, after offset against income taxable on receipt, there is a potential deferred
tax asset of GBP8,389,000 (2022: GBP7,597,000) in relation to surplus management expenses.
It is unlikely that the Company will generate sufficient taxable profits in the future to
utilise these amounts and therefore no deferred tax asset has been recognised.
-------------------------------------------------------------------------------------------------------
8. Return per ordinary share
----------------------------------------------------------------------------------------------------------
The return per ordinary share is based on the net return attributable to the ordinary shares
of GBP75,293,000 (2022: net loss of GBP47,428,000) and on 212,776,067 ordinary shares (2022:
213,530,236) being the weighted average number of ordinary shares in issue during the year
excluding shares held in treasury. The return per ordinary share can be further analysed between
revenue and capital as below.
-------------------------------------------------------------------------------------------------------
2023 2022
GBP'000 GBP'000
------------------------------------------------------------------------- ------------- -------------
Net revenue return 9,188 10,913
------------------------------------------------------------------------------- ------------- -------------
Net capital return/(loss) 66,105 (58,341)
------------------------------------------------------------------------------- ------------- -------------
------------ ------------
------------------------------------------------------------------------- ------------- -------------
Net total return/(loss) 75,293 (47,428)
------------------------------------------------------------------------------- ------------- -------------
======= =======
------------------------------------------------------------------------- ------------- -------------
Weighted average number of ordinary shares
in issue during the year 212,776,067 213,530,236
------------------------------------------------------------------------------- ------------- -------------
Revenue return per ordinary share 4.32p 5.11p
------------------------------------------------------------------------------- ------------- -------------
Capital return per ordinary share 31.07p (27.32p)
------------------------------------------------------------------------------- ------------- -------------
---------- ------------
------------------------------------------------------------------------- ------------- -------------
Total return per ordinary share 35.39p (22.21p)
------------------------------------------------------------------------------- ------------- -------------
====== =======
------------------------------------------------------------------------- ------------- -------------
The Company does not have any dilutive securities and therefore the basic and diluted returns
per share are the same.
-------------------------------------------------------------------------------------------------------
9. Net asset value ("NAV") per share
----------------------------------------------------------------------------------------------------------
The NAV per ordinary share is based on the net assets attributable to the ordinary shares
of GBP378,997,000 (2022: GBP314,419,000) and on 212,768,122 (2022: 212,913,122) shares in
issue on 30 September 2023, excluding treasury shares.
The movements during the year of the assets attributable to the ordinary shares were as follows:
-------------------------------------------------------------------------------------------------------
2023 2022
GBP'000 GBP'000
------------------------------------------------------------------------- ------------- -------------
Total net assets at start of year 314,419 370,736
------------------------------------------------------------------------------- ------------- -------------
Net return for the year after tax 75,293 (47,428)
------------------------------------------------------------------------------- ------------- -------------
Buyback of ordinary shares for treasury (183) (1,324)
------------------------------------------------------------------------------- ------------- -------------
Dividends paid on ordinary shares (10,532) (7,565)
------------------------------------------------------------------------------- ------------- -------------
----------- -----------
------------------------------------------------------------------------- ------------- -------------
Net assets attributable to the ordinary shares
at 30 September 378,997 314,419
------------------------------------------------------------------------------- ------------- -------------
====== ======
------------------------------------------------------------------------------- ------------- -------------
10. 2023 financial information
The figures and financial information for 2023 are extracted
from the Annual Report for that period and do not constitute
statutory accounts. The Company's Annual Report for the year
ended 30 September 2023 has been audited but has not yet been
delivered to the Registrar of Companies. The Independent Auditor's
Report on the 2023 Annual Report is unqualified, does not include
a reference to any matter to which the auditor draws attention
without qualifying the report, and does not contain any statements
under s498 Companies Act 2006 (the "Act").
11. 2022 financial information
The figures and financial information for 2022 are extracted from the published Annual Report
for the year ended 30 September 2022 and do not constitute statutory accounts for that year.
The 2022 Annual Report has been delivered to the Registrar of Companies and includes an unqualified
Independent Auditor's Report, does not include a reference to any matter to which the auditor
draws attention without qualifying the report, and does not contain a statement under s498
of the Act.
12. Annual Report 2023
The Annual Report for the year ended 30 September 2023 will be posted to shareholders in December
2023 and will be available at www.hendersoneuropeanfocus.com and in hard-copy format from
the registered office at 201 Bishopsgate, London, EC2M 3AE.
13. General information
Company status
Henderson European Focus Trust plc is registered in England and Wales (company number 00427958),
has its registered office at 201 Bishopsgate, London EC2M 3AE and is listed on the main market
of the London Stock Exchange.
SEDOL/ISIN: Ordinary shares: BLSNGB0/GB00BLSNGB01
London Stock Exchange ("TIDM") Code: HEFT
Global Intermediary Identification Number ("GIIN"): THMNPN.99999.SL.826
Legal Entity Identifier ("LEI") number: 213800GS89AL1DK3IN50
Directors and secretary
The directors of the Company are Vicky Hastings (Chair), Robin Archibald (Senior Independent
Director and Chairman of the Audit and Risk Committee), Stephen Macklow-Smith, Marco Maria
Bianconi and Melanie Blake. The Corporate Secretary is Janus Henderson Secretarial Services
UK Limited.
Website
Details of the Company's share price and net asset value, together with general information
about the Company, monthly factsheets, insights, announcements, reports and details of general
meetings can be found at www.hendersoneuropeanfocus.com .
For further information, please contact:
-------------------------------------------------------------------------------------------------------
Vicky Hastings Dan Howe
Chair of the Board Head of Investment Trusts
Henderson European Focus Trust plc Janus Henderson Investors
Telephone: 020 7818 2220 Telephone: 020 7818 4458
Tom O'Hara Harriet Hall
Fund Manager Investment Trust PR Manager
Janus Henderson Investors Janus Henderson Investors
Telephone: 020 7818 2197 Telephone: 020 7818 2919
---------------------------------------------
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END
ACSFFUFWEEDSEFE
(END) Dow Jones Newswires
December 13, 2023 02:00 ET (07:00 GMT)
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