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
%
|
NAV1, 5
|
-9.3
|
5.7
|
-1.7
|
42.0
|
Share price2
|
-12.2
|
5.4
|
-0.2
|
34.4
|
Benchmark3
|
5.9
|
39.4
|
21.1
|
58.0
|
Peer
group NAV4
|
3.0
|
13.6
|
7.7
|
44.1
|
|
Year ended
31 October
2023
|
Year
ended
31
October
2022
|
NAV
per share at year end5
|
1,035.2p
|
1,173.7p
|
Share price at year end
|
865.0p
|
1,018.0p
|
Total return per share5
|
(103.5p)
|
(424.7p)
|
Net
assets
|
£81.8m
|
£92.7m
|
Discount at year end5, 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 year8
|
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 yield5 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.
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.
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.
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.
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
(gross assets)1 %
|
Indicative range %
|
Largest three holdings
|
Stabilisers
|
Large cap (£1b +)
These stocks are usually familiar to
all investors. They are ballast for the portfolio and often
generators of income as individual companies. We believe they
remain capable of long-term earnings growth.
|
25
(+1)
|
10-30
|
Barclays, HSBC,
Standard Chartered
|
Natural resources
These are companies that will
benefit from rising commodity prices. The majority of this
classification are smaller companies (outside of the FTSE 100) that
are less well understood and where, in our view, we can add more
value by paying close attention.
|
13
(-4)
|
5-15
|
Serica
Energy, Rio Tinto,
Jersey Oil &
Gas
|
Tomorrow's leaders
|
Growth small cap
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.
|
13
(-4)
|
20-40
|
Boku, Next
15, Tracsis
|
Recovery
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.
|
16
(+6)
|
0-30
|
Rolls-Royce, Redcentric, International Personal
Finance
|
Early stage companies
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.
|
6
(-1)
|
0-20
|
Surface
Transforms, AFC Energy, Creo Medical
|
Small & mid cap compounders
These are good quality, long-term
holdings with experienced management teams. Over time we expect
them to steadily grow sales and earnings.
|
27
(+2)
|
20-40
|
Springfield
Properties, Vertu Motors, Van Elle
|
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
An inappropriate investment strategy
(for example, in terms of asset allocation, stock selection,
failure to anticipate external shocks or the level of gearing) may
lead to a reduction in NAV, underperformance against the Company's
benchmark and the Company's peer group; it may also result in the
Company's shares trading on a wider discount to NAV.
|
↑
|
The Manager provides the Directors
with management information including performance data reports and
portfolio analyses on a monthly basis. The Board monitors the
implementation and results of the investment process with the Fund
Managers, who attend all Board meetings, and reviews regularly data
that monitors risk factors in respect of the portfolio. The Manager
operates in accordance with investment limits and restrictions
determined by the Board; 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
The Company has a large number of
retail shareholders, many of whom hold their shares via platforms.
The Company has no way of communicating directly with these
shareholders or encouraging them to vote at general meetings. If
these shareholders do not vote, there is a risk that the outcome of
any votes may 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
|
NEW
|
The Manager, Board and Fund Managers
regularly consider shareholder views and look to implement
initiatives that benefit all shareholders. Through general
communications in Company documents they also seek to identify ways
of assisting shareholders with voting through platforms, for
example, by referring shareholders to guidance made available by
the Association of Investment Companies.
|
Financial instruments and the management of
risk
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.
|
↔
|
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.
|
Operational and cyber
Disruption to, or failure of, the
Manager's accounting, dealing or payment systems or the Custodian
or the Depositary's records could prevent the 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.
|
↔
|
The Board monitors the services
provided by the Manager and its other suppliers and receives
reports on the key elements in place to provide effective internal
control. During the year the Board received reports on the
Manager's approach to information security and cyber attack
defence.
|
Accounting, legal and regulatory
A breach of Section 1158 could lead
to a loss of investment trust status, resulting in capital gains
realised within the portfolio being subject to 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.
|
↔
|
The Manager is contracted to provide
investment, corporate secretarial, administration and accounting
services through qualified professionals. The Board receives
internal controls reports produced by Janus Henderson on a
quarterly basis, which confirm regulatory compliance.
|
Failure of Janus Henderson
A failure of the Manager's business,
whether or not as a result of regulatory failure, cyber risk or
other failure could result in the Manager being unable to meet its
obligations and its duty of care to the Company.
|
↔
|
The Board meets regularly with
representatives of the Manager's Investment Management, Risk,
Compliance, Internal Audit and Investment Trust teams and reviews
internal control reports from the Manager on a quarterly basis. The
failure of the Manager would not necessarily lead to a loss of the
Company's 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
2023 (2022)
|
Company
|
% of
portfolio
|
Approximate market
capitalisation
|
Valuation
2022
£'000
|
Purchases
£'000
|
Sales
£'000
|
Appreciation/
(depreciation)
£'000
|
Valuation
2023
£'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
|
Other1
|
1.4
|
1.2
|
|
100.0
|
100.0
|
1Other 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
return
£'000
|
Capital
return
£'000
|
Total
return
£'000
|
Revenue
return
£'000
|
Capital
return
£'000
|
Total
return
£'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
£'000
|
Share
premium
account
£'000
|
Capital
redemption
reserve
£'000
|
Other
capital
reserves
£'000
|
Revenue
reserve
£'000
|
Total shareholders'
funds
£'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
|
|
=====
|
======
|
======
|
======
|
======
|
=====
|
Year ended 31 October 2023
|
Called
up
share
capital
£'000
|
Share
premium
account
£'000
|
Capital
redemption
reserve
£'000
|
Other
capital
reserves
£'000
|
Revenue
reserve
£'000
|
Total
shareholders' funds
£'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
£'000
|
31 October
2022
£'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
31 October
2023
|
Year
ended
31
October
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
£'000
|
2022
£'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 Statement of Financial Position date
|
845
|
1,550
|
|
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
£'000
|
2022
£'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
£'000
|
2022
£'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
return
£'000
|
Capital
return
£'000
|
Total
return
£'000
|
Revenue
return
£'000
|
Capital
return
£'000
|
Total
return
£'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
£'000
|
2022
£'000
|
|
|
|
|
|
Revenue return
|
2,643
|
3,209
|
|
Capital loss
|
(10,815)
|
(36,757)
|
|
|
-----------
|
-----------
|
|
Total loss
|
(8,172)
|
(33,548)
|
|
|
======
|
======
|
|
Weighted average number of ordinary shares
|
7,898,375
|
7,898,375
|
|
|
========
|
========
|
|
|
|
|
|
|
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
£'000
|
2022
£'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
£'000
|
2022
£'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
£'000
|
2022
£'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
ended
31 October
2023
|
Year
ended
31
October
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 the 7,898,375 ordinary
shares in issue at 31 January 2024) (2022: 13.0p on 7,898,375
ordinary shares)
|
(1,027)
|
(1,027)
|
|
|
-----------
|
-----------
|
|
Transferred (from)/to revenue
reserve1
|
(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
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.
|
For further information, please
contact:
James Henderson
Fund Manager
Henderson Opportunities Trust
plc
Telephone: 020 7818 4370
|
|
Laura Foll
Fund Manager
Henderson Opportunities Trust
plc
Telephone: 020 7818 6364
|
Dan Howe
Head of Investment Trusts
Janus Henderson Investors
Telephone: 020 7818 4458
|
|
Harriet Hall
PR Director, Investment
Trusts
Janus Henderson Investors
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.