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RNS

Final Results

Released 14:30 05-Dec-2017

RNS Number : 4548Y
Henderson European Focus Trust PLC
05 December 2017
 

HENDERSON EUROPEAN FOCUS TRUST PLC

Annual Financial Report for the year ended 30 September 2017

 

This announcement constitutes regulated information.

 

Investment Objective

The Company seeks to maximise total return from a focused portfolio of listed stocks, mainly in Continental Europe.

 

Performance highlights

·     The ordinary share price1 total return (including dividends reinvested) was 35.9% (2016: 8.6%).

·     The net asset value ("NAV") per ordinary share total return2 (including dividends reinvested) was 21.7% compared to a total return from the benchmark3 of 22.7%.

·     The NAV per ordinary share total return (including dividends reinvested) for the five years ended 30 September 2017 was 129.7% compared to a total return from the benchmark of 100.1%.

·     Increased proposed annual dividend: interim and final dividends of 9.00p and 20.50p per ordinary share respectively making a total of 29.50p (2016: 26.4p). 

·     Proposed special dividend of 1.40p per share.

·     The ordinary shares were trading at a premium to NAV of 1.3% (2016: -9.3%) as at 30 September 2017.

 

Total return performance for the year to 30 September 2017 (including dividends reinvested and excluding transaction costs)

 

1 year

%

3 years

%

5 years

%

10 years

%

NAV

21.7

54.0

129.7

162.8

Benchmark

22.7

46.8

100.1

85.0

Share price

35.9

55.3

167.7

183.5

AIC Europe sector4

22.8

54.0

113.8

129.9

Ranking in sector

4

3

1

2

 

Financial highlights

 

At 30 September 2017

At 30 September

2016

Shareholders' funds

 

 

Net assets attributable to ordinary

shareholders (£'000)

292,398

 

237,551

Net asset value per ordinary share

1,370.62p

1,153.12p

Mid-market price per ordinary share

1,389.00p

1,045.50p

 

 

 

Year ended

30 September 2017

Year ended

30 September 2016

Total return to equity shareholders

 

 

Net revenue return (£'000)

Net capital return (£'000)

7,024

5,507

34,679

43,535

 

-----------

-----------

 

50,559

40,186

 

======

======

Total return per ordinary share

 

 

Revenue return

33.81p

26.85p

Capital return

209.55p

169.05p

 

-----------

-----------

 

243.36p

195.90p

 

======

======

Ongoing charge for year

0.87%

0.90%

 

1 Share price total return using mid-market closing prices

2 Net Asset Value per ordinary share with income reinvested for one, three and five years and capital NAV per ordinary share plus income reinvested for ten years

3 FTSE World Europe ex UK index on a total return basis in Sterling terms

4 The AIC Europe sector is comprised of eight trusts

Sources: Morningstar Direct, Janus Henderson, Datastream

 

 

 

CHAIRMAN'S STATEMENT

 

Performance

In the financial year to 30 September 2017, the Company produced a share price total return per ordinary share of 35.9% (2016: 8.6%).  The Company's net asset value ("NAV") total return for the year was 21.7% (2016: 20.4%) compared to the total return of the benchmark, the FTSE World Europe ex UK in Sterling terms, of 22.7% (2016: 21.1%). The NAV total return per ordinary share for the five year period to 30 September 2017 was 129.7% compared with 100.1% for the benchmark.

 

The Company's shares traded at a premium for most the year, enabling the Company to issue a total of 897,500 shares during the year and up to the date of this report, raising a total of £12,370,000.

 

Dividend

The Board is recommending a final dividend of 20.50p per ordinary share which, subject to shareholder approval at the 2018 Annual General Meeting ("AGM"), will be paid on 2 February 2018. When added to the interim payment of 9.00p (2016: 7.50p) this brings the full year dividend to 29.50p, an increase of 11.7% (2016: 7.1%) over last year's distribution.

 

The Board is also recommending a special dividend of 1.40p per ordinary share which is the result of the successful return of withholding tax refunded by the French tax authority.  If approved, the special dividend will be paid at the time of the final dividend.

 

Board changes

The Board was pleased to announce on 11 September 2017 that Eliza Dungworth would be succeeding Alexander Comba as Chairman of the Audit Committee with effect from the 2018 AGM. Alexander will remain as the Senior Independent Director of the Company and offers himself for re-election at the 2018 AGM.

 

The change forms part of the ongoing programme to refresh Board membership and to ensure that the Directors bring a diverse range of skills and experience to deliberations on the Company's business.

 

Investment Objective and Policy

As part of its considerations on strategy, the Board reviewed the Company's Investment Objective and Policy. In doing so, we were cognisant of the FCA's recommendations in terms of clarifying and simplifying the wording used in this type of documentation.  We have taken the opportunity to enhance the Fund Manager's ability to focus the portfolio and have dropped the lower level of holdings to 45. We have also clarified the level of NAV which should be invested in Continental Europe. The updated Investment Objective and Policy is included in the resolutions which will be put to the 2018 AGM. We encourage shareholders to vote in favour of its adoption. Further details are provided in the Notice of Meeting.

 

Annual General Meeting ("AGM")

The AGM is due to be held on 25 January 2018 and the Directors will again be seeking to renew the authorities previously granted permitting the allotment and repurchase of the Company's ordinary shares. The Directors are also proposing a revised Remuneration Policy and amendments to the Company's Articles of Association.

 

Details on these resolutions are provided in the Notice of Meeting.

 

Manager

Henderson Group plc merged with Janus Capital Group, Inc. on 30 May 2017. I am pleased to confirm that this has not led to a change in the Fund Manager for your Company and the Board has been reassured that the strength of the European Equities team will be maintained.

 

Outlook

The period under review and extending back into 2016 has been dominated on the macro level by political concerns. There have been referenda and elections; most notably this year in the Netherlands, France and latterly Germany where the concerns of a comprehensive political upset have impacted the markets and, at the time of writing, remain unresolved. Notwithstanding that, it is clear that there are powerful discontents not far below the surface that will continue to have an influence on politics and policy making in Europe. In the last part of the financial year under review, there has been renewed unrest provoked by the Catalan "referendum", reminding everyone that the direction for Europe is far from settled. Although these events dominate the news and are clearly very important for the future of the Continent, accurately predicting every twist and turn and its impact on financial markets is, in our view, very unlikely. Consequently, as has always been the case, your Fund Manager combines a thematic approach to sector selection with a focus on a bottom up analysis of individual companies, their cash flows and trading prospects. Your portfolio is thus always a mix of stock and sector decisions based on the fundamental value of companies.  It is our view that returns to financial assets fluctuate around a long run mean return made up of the real rate of interest and the relevant equity risk premium. Actual valuations often diverge significantly from their long run return and the process of adjustment back to the mean is often called mean reversion. In the light of our strongly held view that markets have an almost universal tendency to "revert to the mean", it is worth reflecting on the fact that there has been a very strong performance from all financial assets whether bond or equities, both in developed and emerging markets. Furthermore, this exceptional asset price performance has extended out to encompass real assets from real estate to the more exotic assets like fine art, fine wines and even vintage cars. There are a range of theories as to why this has occurred, but prime amongst those reasons must be the unprecedented central bank monetisation of debt.

 

European equities have been full beneficiaries of these favourable developments and in addition to this your Company has benefited from the weakness in Sterling, particularly when compared to the Euro, which came in the wake of widespread concerns expressed after the Brexit vote last year. The significant and long-lasting bull market that we have been enjoying has also contributed to the strong NAV and share price performance of the Company. It is your Fund Manager's opinion that this bull market is in a mature phase and that, as with all asset classes, eventually there will be a reversion to the mean. Exactly when that happens is not possible to forecast and it is worth remembering that periods of exuberance can be long-lasting and potentially extreme in nature. Whilst your Fund Manager will continue to seek opportunities to add value to the fund through careful stock and sector selection, vigilance for any indicators of impending reversion will be essential.

 

 

 

Rodney Dennis

Chairman

 

 

 

FUND MANAGER'S REPORT

 

In his statement the Chairman refers to the phenomenon of mean reversion. It has, of course, forever been something of a mug's game to attempt the art (luck) of market timing. Yet, we have always been informed by a belief that most things in the financial world have a tendency to revert to the mean. We find ourselves scratching our heads as we contemplate our faith at this juncture in economic and financial market history. Following a particularly lengthy American economic recovery, fuelled by a similarly ageless supply of easy money and associated domination of western world stock markets by "growth" stocks, our attention was grabbed by a recent research report asking the question "Is Mean Reversion Dead?"1.

 

Admittedly lumbered for life with a curmudgeonly scepticism for the "this time it's different" refrain (which usually accompanies the euphoric stage of bull markets) we had to take notice. The research drew some very reasonable conclusions, essentially arguing that mean reversion has not been allowed to function since the crisis of 2008, as central bankers have kept the foot to the pedal of the money printing machine. It is hard to argue with the contention that higher Return on Equity (ROE) businesses, far from seeing their returns eroded as competitive capital has come in to drive down returns, have enjoyed unusually persistent profitability. Similarly, it is hard to contest that low return companies have been allowed to stay in existence, courtesy of the extend and pretend approach to debt financing that accompanies near zero interest rates. 

 

In essence, the above argues that Quantitative Easing policies have not only distorted asset prices, but have short circuited one of the principle rules of capitalism: mean reversion.  Were we to engage in debate over this topic we would undoubtedly fall on the side of those who believe that mean reversion has been delayed rather than cancelled. At the risk of missing out on trees that grow to heaven (or Unicorns or Cryptocurrencies) we would rather hold onto a belief in mean reversion and express that belief via the stocks and sectors we commit capital to. Just one stock example serves to highlight our way of thinking:

 

Carlsberg

Carlsberg is a company operating in a mature sector: beer is not a growth industry (if measured by the top line). Historically we have avoided owning shares in Carlsberg, not because the industry was mature but because of the company's strategy: Carlsberg previously thought it could be a high growth company in a low growth industry.  This often results in overreach, usually via acquisitions. Bankers often make the same mistake. In our view that very mistake, fuelled by leverage, is what led the banking system into trouble in the past. It is notable that our ownership of bank stocks is concentrated in those banks who are not in the business of overreaching, neither for yield nor growth, but are happy to stay "boring". This means they stay largely in their domestic markets, as they prioritise profits over revenue.

 

Having met with the management of Carlsberg earlier this year we became comfortable that here was a brewer finally ready to focus on profits rather than revenue.

 

Taken from the company's recent Capital Markets Day, Carlsberg's margins are a shadow of its competitors'. This is where the mean reversionist gets interested. It is not necessary to believe that Carlsberg can approach the eye watering profitability of Anheuser-Busch InBev ('ABInBev'). Indeed, the key reason that we have avoided owning ABInBev is that it sports optimised profit margins and a valuation to match.

 

We need only get comfort that Carlsberg has a decent chance of nearing the profitability of Heineken. Indeed we firmly believe that this is what is, belatedly, driving the company's management.  Only in the hands of the right management team will our thesis have a chance of playing out. In that regard it is worth highlighting that the CEO and CFO are newcomers to the group and recent meetings with both have confirmed that the nettle has been grasped.

 

Unlike investors in Unicorns, Bitcoin or Tesla the investor in Carlsberg is not required to believe in new paradigms. And unlike such apparently alluring stories, beer is an industry that is unlikely to face existential or technological shocks. We need, therefore, only believe that the "iron law" of mean reversion will assert itself to the profit margins of Carlsberg. We need also to remind ourselves, however, that the commodity most precious to the mean reversionist is the commodity in short supply in modern financial markets: patience.  We shall enjoy a glass of Grimbergen, a monastery beer dating from the year 1128 and now owned by Carlsberg, while we wait.

 

Medium Sized Companies

Once again the Company's year was influenced by a number of mid cap holdings. Particularly strong share price performance came from Interpump (73.5%), Tessenderlo (38.4%), IMA (36.0%) and IMCD (32.8%). We retain positions in each of these companies.

 

At the year end the portfolio's commitment to companies capitalised at less than €10 billion stood at 38.6%. We will always endeavour to be stock specific but we see the mid cap end of the market as a continuing source of alpha for the portfolio.

 

Outlook

Forever aware that market timing is best left to others, we are nevertheless somewhat cautious for near term prospects. As valuation conscious investors we struggle to contend that value is in plentiful supply across our markets. Rather, we believe that stock selection will be particularly crucial in the year ahead. It is no coincidence that portfolio gearing has been lowered and stands at 0.9% at the time of writing.

 

Personal Holding

As at 30 September 2017 my beneficial interest in the Company amounted to 314,850 shares.

 

 

 

John Bennett

Fund Manager

 

1 Alliance Bernstein September 2017

 

 

Principal risks and uncertainties

 

The Board, with the assistance of the Manager, has carried out a robust assessment of the principal risks facing the Company including those that would threaten its business model, future performance, solvency or liquidity. The assessment included consideration of the market uncertainty arising as a result of the UK referendum to leave the European Union.  The Board has drawn up a matrix of risks facing the Company and has put in place a schedule of Investment Limits and Restrictions, appropriate to the Company's Investment Objective and Policy, in order to mitigate these risks as far as practicable. The principal risks and mitigating steps are as follows:

 

Market risk

The Company's performance is dependent on the performance of the companies and markets in which it invests.

 

Investment risk is spread by holding a diversified portfolio of companies with strong balance sheets and above average growth prospects.

 

The Board considers this risk to have remained unchanged throughout the year under review.

 

Gearing

The Fund Manager has authority to use gearing in line with the Company's Investment Policy. In the event of a significant or prolonged fall in equity markets gearing would exacerbate the effect of the falling market on the Company's NAV and, consequently, its share price.

 

The Board has set a limit on gearing of 20% of net assets and monitors the level of gearing at each meeting.

 

The Board considers this risk to have remained unchanged throughout the year under review.

 

Other financial risks

The financial risks faced by the Company include market price risk, interest rate risk, liquidity risk, currency risk and credit and counterparty risk.

 

The Company minimises the risk of a counterparty failing to deliver securities or cash by dealing through organisations that have undergone due diligence by the Manager. The Company holds its liquid funds, which are mostly denominated in Euros, almost entirely in interest bearing bank accounts in the UK or on short-term deposit. This, together with a portfolio which comprises mainly investments in large and medium-sized companies, mitigates the Company's exposure to liquidity risk.

 

The majority of the Company's assets and liabilities are denominated in currencies other than Sterling. No hedging of the currency exposure is undertaken. Consequently, exchange rate fluctuations reduce or enhance returns for Sterling based investors.

 

The Board considers this risk to have remained unchanged throughout the year under review.

 

Operational risks

Disruption to, or the failure of, the Manager's accounting, dealing or payment systems or the custodian's records could prevent the accurate reporting or monitoring of the Company's financial position. Janus Henderson contracts some of the operational functions (principally those relating to trade processing, investment administration and accounting) to BNP.

 

The Board receives regular reports on the internal controls in place at Janus Henderson, BNP and the Depositary, HSBC Bank Plc (which appoints the custodian) to mitigate the risk of failure of the systems. These include reports on business continuity planning and the procedures in place in relation to cyber risk.

 

The Board monitors the services provided by its third-party service providers and receives reports on the key elements in place to provide effective control.

 

Key man risk

The Company depends on the diligence, skill and judgement of the Manager's investment team. The continued service of these individuals could impact the future success of the Company.

 

The Board has been assured by the Manager that the Fund Manager and the European Equities team are appropriately remunerated and incentivised in their roles in a manner consistent with industry best practice and the applicable FCA regulation. The Company's performance fee provides an additional incentive. Janus Henderson has a strong European Equities team which supports the Fund Manager in the management of the Company's portfolio and looks to develop managers with the capability to succeed him in the fullness of time.

 

The Board considers this risk to have remained unchanged throughout the year under review.

 

VIABILITY STATEMENT

 

The Board considers it is appropriate to assess the viability of the Company over a three-year period. The Directors believe this is a reasonable period reflecting the longer term investment horizon of the Company, as well as that of its investors, and the inherent shorter term uncertainties in equity markets.

 

The Board considers the Company's viability as part of their continuing programme of monitoring risk. In carrying out their assessment the Board takes account of the likely impact of the principal risks and uncertainties facing the Company materialising in severe, but plausible scenarios. The effectiveness of any mitigating controls currently in place is considered as part of the process.

 

The Board takes into account the liquidity of the portfolio, the gearing and 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 on the Company's ability to pay dividends to shareholders over that period. Detailed 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 three-year period as a means of assessing whether the Company can continue in operation.

 

The Board concluded that the Company's assets are liquid, its commitments are limited and that the Company intends to continue operating as an investment trust. No significant changes to the Company's principal risks, or the mitigating controls in place, are anticipated over the period, and the Board is not aware of any events that would prevent the Company from continuing to operate in its current capacity.

 

Based on this assessment, the Board has a reasonable expectation that the Company will be able to continue in operation and meets it liabilities as they fall due over the next three-year period.

 

RELATED PARTY TRANSACTIONS

 

The Company's transactions with related parties in the year were with the Directors and the Manager. There have been no material transactions between the Company and its Directors during the year other than amounts paid to them in respect of expenses and remuneration for which there were no outstanding amounts payable at the year end. In relation to the provision of services by Janus Henderson, other than fees payable by the Company in the ordinary course of business and the provision of sales and marketing services, there have been no transactions with the Manager affecting the financial position of the Company during the year under review. 

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES UNDER DTR 4.1.12

 

Each of the Directors confirms that, to the best of his or her 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 profit 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.

 

 

For and on behalf of the Board

 

 

 

Alexander Comba

Director

 

 

Top 10 investments as at 30 September 2017

 

Company

 

Sector

Country of listing

Valuation £'000

Percentage of portfolio

Autoliv

Automobiles & Parts

Sweden

10,846

3.43

Nestlé

Food Producers

Switzerland

10,649

3.37

Novartis

Pharmaceuticals & Biotechnology

Switzerland

10,114

3.20

Carlsberg

Beverages

Denmark

9,847

3.12

Bayer

Chemicals

Germany

9,618

3.05

United Internet

Software & Computer Services

Germany

9,436

2.99

Tessenderlo

Chemicals

Belgium

9,203

2.91

Galp Energia

Oil & Gas Producers

Portugal

9,121

2.89

ABN Amro

Banks

Netherlands

8,950

2.83

ING

Banks

Netherlands

8,141

2.58

 

 

 

----------

----------

Total (10 largest)

 

95,925

30.37

 

 

======

======

 

Sector exposure as at 30 September 2017

(as a percentage of the investment portfolio excluding cash)

 

                                                         %

Financials

28.1

Industrials

16.5

Consumer goods

15.1

Health care

12.9

Basic materials

10.1

Technology

7.5

Oil & gas

5.1

Consumer services

3.1

Utilities

1.6

Telecommunications

-

 

 

Geographic exposure as at 30 September 2017    

(as a percentage of the investment portfolio excluding cash)

 

                                                         %

Germany

17.1

Netherlands

11.7

Italy

10.6

France

10.5

Sweden

9.8

Switzerland

8.9

Denmark

6.3

Belgium

6.2

Finland

6.0

Spain

3.3

Portugal

2.9

Norway

2.4

United Kingdom

2.1

Ireland

1.2

Austria

1.0

 

 

Income Statement

 

 

Year ended

30 September 2017

Year ended

30 September 2016

 

 

 

Revenue

return

£'000

Capital

return

£'000

Total

return

£'000

Revenue

return

£'000

Capital

return

£'000

Total

return

£'000

Gains on investments held at fair value through profit or loss

-

46,560

46,560

-

37,048

37,048

Exchange losses on currency transactions

-

(1,214)

(1,214)

-

(906)

(906)

Income from investments (note 3)

8,770

-

8,770

7,139

-

7,139

Other income

229

-

229

1

-

1

 

----------

----------

----------

----------

----------

----------

Gross revenue and capital gains

8,999

45,346

54,345

7,140

36,142

43,282

Management fee (note 4)

(441)

(1,324)

(1,765)

(359)

(1,077)

(1,436)

Performance fee (note 4)

-

-

-

-

-

-

Other fees and expenses

(557)

-

(557)

(472)

-

(472)

 

----------

----------

----------

----------

----------

----------

Net return on ordinary activities before finance costs and taxation

8,001

44,022

52,023

6,309

35,065

41,374

Finance costs

(247)

(487)

(734)

(129)

(386)

(515)

 

----------

----------

----------

----------

----------

----------

Net return on ordinary activities before taxation

7,754

43,535

51,289

6,180

34,679

40,859

 

 

 

 

 

 

 

Taxation on net return on ordinary activities (note 5)

(730)

-

(730)

(673)

-

(673)

 

----------

----------

----------

----------

----------

----------

Net return on ordinary activities after taxation

7,024

43,535

50,559

5,507

34,679

40,186

 

======

======

======

======

======

======

Return per ordinary share (note 6)

     33.81p

      209.55p

    243.36p

     26.85p

      169.05p

    195.90p

 

======

======

======

======

======

======

 

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 other comprehensive income other than that disclosed in the Income Statement. The net return is both the profit for the year and the total comprehensive income.

 

Statement of Changes in Equity

 

Year ended

30 September 2017

Called up share capital

£'000

Special distributable reserve

 £'000

Share premium account £'000

Merger reserve

£'000

Capital redemption

reserve

 £'000

Capital
reserve

£'000

Revenue
reserve

£'000

Total

£'000

At 30 September 2016

10,371

25,846

30,074

61,344

9,421

89,306

11,189

237,551

Net return on ordinary activities after taxation

-

-

-

-

-

43,535

7,024

50,559

Shares issued

366

-

9,683

-

-

-

-

10,049

Ordinary dividends paid

-

-

-

-

-

-

(5,761)

(5,761)

 

----------

----------

---------

---------

----------

----------

----------

----------

At 30 September 2017

10,737

25,846

39,757

61,344

9,421

132,841

12,452

292,398

 

======

======

=====

=====

======

======

======

======

 

 

 

Year ended

30 September 2016

Called up share capital

£'000

 

Special distributable reserve

 £'000

 

Share premium account £'000

 

 

Merger reserve

£'000

 

Capital redemption

reserve

 £'000

 

 

Capital
reserve

£'000

 

 

Revenue
reserve

£'000

 

 

 

Total

£'000

At 30 September 2015

9,996

25,846

22,820

61,344

9,421

54,627

10,860

194,914

Net return on ordinary activities after taxation

-

-

-

-

-

34,679

5,507

40,186

Ordinary dividends paid

-

-

-

-

-

-

(5,178)

(5,178)

At 30 September 2016

10,371

25,846

30,074

61,344

9,421

89,306

11,189

237,551

 

======

======

=====

=====

======

======

======

======

 

 

Statement of Financial Position

 

 

At 30 September

2017

£'000

At 30 September

2016

£'000

 

 

 

Fixed assets

 

 

Investments at fair value through profit or loss

315,841

252,102

 

----------

----------

Current assets

 

 

Debtors

3,536

7,969

Cash at bank

21,362

16,575

 

----------

----------

 

24,898

24,544

 

 

 

Creditors: amounts falling due within one year

(48,341)

(39,095)

 

----------

----------

Net current liabilities

(23,443)

(14,551)

 

----------

----------

Net assets

292,398

237,551

 

======

======

Capital and reserves

 

 

Called up share capital

10,737

10,371

Special distributable reserve

25,846

25,846

Share premium account

39,757

30,074

Merger reserve

61,344

61,344

Capital redemption reserve

9,421

9,421

Capital reserve

132,841

89,306

Revenue reserve

12,452

11,189

 

----------

----------

Shareholders' funds

292,398

237,551

 

======

======

Net asset value per ordinary share (note 7)

         1,370.62p

         1,153.12p

 

=======

=======

 

 

 

Cash flow statement

 

Year ended 30 September 2017

£'000

Year ended 30 September 2016 £'000

Cash flows from operating activities

 

 

Net return on ordinary activities before taxation

51,289

40,859

Add back: finance costs

734

515

Less gains on investments held at fair value through profit or loss

(46,560)

(37,048)

Stock dividend

-

(274)

Taxation paid

(383)

(673)

Increase in debtors

(308)

(274)

Increase/(decrease) in creditors

169

(1,173)

 

----------

----------

Net cash inflow from operating activities*

4,941

1,932

 

----------

----------

Cash flows from investing activities

 

 

Sales of investments held at fair value through profit or loss

336,042

239,936

Purchases of investments held at fair value through profit or loss

(347,278)

(252,055)

 

------------

------------

Net cash outflow from investing activities

(11,236)

(12,119)

 

------------

------------

Cash flows from financing activities

 

 

Issue of new ordinary shares

10,049

7,635

Share issue expenses

-

(126)

Equity dividends paid

(5,761)

(5,178)

Drawdown/(repayment) of bank overdraft

7,190

(42)

Interest paid

(396)

(566)

 

--------

--------

Net cash inflow from financing activities

11,082

1,723

 

--------

--------

Net increase/(decrease) in cash and equivalents

4,787

(8,464)

Cash and cash equivalents at beginning of period

16,575

25,039

 

---------

---------

Cash and cash equivalents at end of period

21,362

16,575

 

---------

---------

Comprising:

 

 

Cash at bank

21,362

16,575

 

=====

=====

 

*Cash inflow from dividends net of taxation was £8,387,000 (2016: £6,166,000) and cash inflow from interest was £229,000 (2016: £1,000).

 

NOTES TO THE FINANCIAL STATEMENTS

 

1.

Accounting policies

 

 

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 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, which is effective for periods commencing on or after 1 January 2015, and with the Statement of Recommended Practice: Financial Statements of Investment Trust Companies and Venture Capital Trusts (the 'SORP') issued in November 2014 and updated in January 2017 with consequential amendments. The Company has early adopted the amendments to FRS 102 in respect of fair value hierarchy disclosures as published in March 2016.

 

The principal accounting policies applied in the presentation of these financial statements are set out below. 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 at 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.

 

The preparation of the Company's financial statements on occasion requires the Directors to make judgements, estimates and assumptions that affect the reported amounts in the primary financial statements and the accompanying disclosures. These assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in the current and future periods, depending on circumstance.

 

The Directors do not believe that any accounting judgements or estimates have been applied to this set of financial statements that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year.

 

 

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 12 months from the date of approval of the financial statements. Having assessed these factors, the principal risks and other matters discussed in connection with the viability statement, the Board has determined that it is appropriate for the financial statements to be prepared on a going concern basis.

 

2.

Dividend

 

The Board is recommending a final dividend of 20.50p per ordinary share which, subject to shareholder approval at the 2017 Annual General Meeting ("AGM"), will be paid on 2 February 2018. The shares will be marked ex-dividend on 4 January 2018. When added to the interim payment of 9.00p (2016: 7.50p) this brings the full year dividend to 29.50p, an increase of 11.7% (2016: 7.1%) over last year's distribution.  The Board is also recommending a special dividend of 1.40p per ordinary share which is the result of the successful return of withholding tax refunded by the French tax authority.  If approved, the special dividend will be paid at the time of the final dividend.

 

3.

Income from investments

 

 

2017

 £'000

2016

 £'000

 

 

Listed investments:

 

 

 

 

Overseas dividends

8,703

6,618

 

 

UK dividends

67

247

 

 

Stock dividends

-

274

 

 

 

---------

---------

 

 

 

8,770

7,139

 

 

 

=====

=====

 

 

 

 

2017

2016

4.

 

Management and

performance fees

Revenue

£'000

Capital

£'000

Total

£'000

Revenue

£'000

Capital

£'000

Total

£'000

           

Management fee

441

1,324

1,765

359

1,077

1,436

 

Performance fee

-

-

-

-

-

-

 

 

----------

----------

 ----------

----------

----------

 ----------

 

 

441

1,324

1,765

359

1,077

1,436

 

 

======

======

=====

======

======

=====

 

 

Management fees are allocated 25% to revenue and 75% to capital in the Income Statement. The performance fee (when payable) is allocated 100% to capital.

 

 

 

Year ended 30 September 2017

Year ended 30 September 2016

5.

Taxation on net return on ordinary activities

Revenue

return
£'000

Capital

return
£'000

Total

return

£'000

Revenue return

£'000

Capital return

£'000

Total

return

£'000

           

a) Analysis of charge for the year

 

 

 

 

 

 

 

Corporation tax payable due to refund of French withholding tax

347

-

347

-

-

-

 

Overseas tax suffered

885

-

885

673

-

673

 

Refund of French withholding tax

(502)

-

(502)

-

-

-

 

 

----------

----------

----------

----------

----------

----------

 

Total tax charge for the year

730

-

730

673

-

673

 

 

======

======

======

======

======

======

 

 

 

Year ended 30 September 2017

Year ended 30 September 2016

 

b) Factors affecting the tax charge for the year

Revenue

return
£'000

Capital

return
£'000

Total

return

£'000

Revenue return

£'000

Capital return

£'000

Total

return

£'000

           

 

 

 

 

 

 

 

 

Return on ordinary activities before taxation

7,754

43,535

51,289

6,180

34,679

40,859

 

 

----------

----------

----------

----------

----------

----------

 

Corporation tax at 19.5% (2016: 20.0%)

1,512

8,489

10,001

1,236

6,936

8,172

 

 

 

 

 

 

 

 

 

Effects of:

 

 

 

 

 

 

 

Non-taxable capital profits

-

(8,842)

(8,842)

-

(7,229)

(7,229)

 

Non-taxable income

(1,658)

-

(1,658)

(1,364)

-

(1,364)

 

Current year expenses not utilised

146

353

499

128

293

421

 

Overseas tax

885

-

885

673

-

673

 

Refund of French withholding tax

(502)

-

(502)

-

-

-

 

Corporation tax payable due to refund of French withholding tax

347

-

347

-

-

-

 

 

----------

----------

----------

----------

----------

----------

 

Total tax charge

730

-

730

673

-

673

 

 

======

======

======

======

======

======

 

 

 

 

 

 

 

 

 

 

 

The Company's profit for the accounting year is taxed at an effective rate of 19.5% (2016: 20.0%). The standard rate of corporation tax has been 19.0% since 1 April 2017.

 

 

No provision for deferred taxation has been made in the current or prior accounting year. The Company has not provided for deferred tax on capital gains or losses arising on the revaluation and disposal of investments as it is exempt from tax on these items because of its investment trust status. The Company has not recognised a deferred tax asset totalling £2,811,000 (2016: £2,370,000) based on a prospective corporation tax rate of 17% (2016: 17%). The deferred tax asset arises as a result of having unutilised management expenses and unutilised non-trade loan relationship deficits. These expenses will only be utilised, to any material extent, if the Company has profits chargeable to corporation tax in the future because changes are made either to the tax treatment of the capital gains made by investment trusts or to the Company's investment profile which require or enable them to be used.

 

During the year the Company received a refund of French withholding tax of £502,000 with an additional interest amount of £229,000 relating to tax suffered in 2007 and 2008. This may result in an element of these amounts being payable to HMRC as both corporation tax payable and an interest payment there on. The Company has therefore recognised the net of these amounts totalling £299,000 as income available for distribution to shareholders as a dividend in the current year.

 

6.

Return per ordinary share

 

The return per ordinary share is based on the net return attributable to the ordinary shares of £50,559,000 (2016: net return of £40,186,000) and on 20,775,686 ordinary shares (2016: 20,513,466) being the weighted average number of ordinary shares in issue during the year. The return per ordinary share can be further analysed between revenue and capital as below.

 

 

2017

£'000

2016

£'000

 

Net revenue return

7,024

5,507

 

Net capital return

43,535

34,679

 

 

---------

---------

 

Net total return

50,559

40,186

 

 

=====

=====

 

 

 

 

 

Weighted average number of ordinary shares in issue during the year

20,775,686

20,513,466

 

Revenue return per ordinary share

         33.81p

         26.85p

 

Capital return per ordinary share

        209.55p

        169.05p

 

 

----------

----------

 

Total return per ordinary share

        243.36p

        195.90p

 

 

======

======

 

 

 

 

 

The Company does not have any dilutive securities, therefore the basic and diluted returns per share are the same.

 

7.

Net Asset Value ("NAV") per ordinary share

The NAV per ordinary share is based on the net assets attributable to the ordinary shares of £292,398,000 (2016: £237,551,000) and on 21,333,261 (2016: 20,600,761) shares in issue on 30 September 2017, excluding Treasury shares.                      

 

The movements during the year of the assets attributable to the ordinary shares were as follows:

 

2017

£'000

2016

£'000

Total net assets at 1 October

237,551

194,914

Total net return on ordinary activities after tax

50,559

40,186

Issue of new ordinary shares

10,049

7,629

Net dividends paid in the year:

 

 

Ordinary shares

(5,761)

(5,178)

 

-----------

-----------

Net assets attributable to the ordinary shares at 30 September

292,398

237,551

 

======

======

8.

2017 financial information

The figures and financial information for 2017 are extracted from the annual report for that period and do not constitute the statutory accounts.  The Company's annual report for the year ended 30 September 2017 has been audited but has not yet been delivered to the Registrar of Companies. The Independent Auditor's Report on the 2017 annual report was unqualified, did not include a reference to any matter to which the auditor drew attention without qualifying the report, and did not contain any statements under Section 498 of the Companies Act 2006 (the "Act").

 

9.

2016 financial information

The figures and financial information for 2016 are extracted from the published annual report and financial statements for the year ended 30 September 2016 and do not constitute the statutory accounts for that year.  The 2016 annual report and financial statements have been delivered to the Registrar of Companies and included the Independent Auditor's Report which was unqualified and did not contain a statement under Section 498 of the Act.

 

10.

Annual Report

Copies of the Annual Report will be posted to shareholders in December 2017 and will be available on the Company's website www.hendersoneuropeanfocus.com or in hard copy format from the Registered Office, 201 Bishopsgate, London  EC2M 3AE.

 

11.

Annual General Meeting

The Company's Annual General Meeting will be held on Thursday 25 January 2018 at 2.30pm at 201 Bishopsgate, London EC2M 3AE.

 

 

For further information contact:

 

James de Sausmarez

Director and Head of Investment Trusts

Janus Henderson Investors

Tel: 020 7818 3349

Sarah Gibbons-Cook

Investor Relations and PR Manager

Janus Henderson Investors

Tel: 020 7818 3198

 

 

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.


This information is provided by RNS
The company news service from the London Stock Exchange
 
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