Henderson International Income

Annual Financial Report
RNS Number : 3318Q
Henderson Intl. Income Trust PLC
26 October 2021
 

HENDERSON INVESTMENT FUNDS LIMITED

 

HENDERSON INTERNATIONAL INCOME TRUST PLC

 

LEGAL ENTITY IDENTIFIER: 2138006N35XWGK2YUK38

 

26 October 2021

 

HENDERSON INTERNATIONAL INCOME TRUST PLC

 

Annual Financial Report for the year ended 31 August 2021

 

This announcement contains regulated information

 

PERFORMANCE AT 31 AUGUST

Total return performance for year to 31 August

2021

2020 

NAV1 (debt at par)

22.7

(3.0)

NAV1 (debt at fair value)

23.5

(3.3)

Share price2

18.5

(5.2)

Benchmark3

26.9

8.1 

AIC Global Equity Income sector

26.1

(0.8)

 

 

Performance at 31 August

2021 

2020 

NAV per share at year end (debt at par)

181.7p

153.5p

Discount (debt at par)

(8.7)%

(5.2)%

NAV per share at year end (debt at fair value)

179.4p

150.5p

Discount (debt at fair value)

(7.5)%

(3.3)%

Share price at year end

166.0p

145.5p

Net assets

£356.2m

£300.9m 

Dividend in respect of year4

6.30p

6.00p

Dividend yield at the year end5

3.8%

4.1%

Ongoing charge for year6

0.83%

0.85%

Gearing at year end

4.5%

11.4%

 

 

Dividend growth since launch to 31 August 2021




20117

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

Total dividend

1.40p

4.00p

4.05p

4.25p

4.50p

4.65p

4.90p

5.30p

5.70p

6.00p

6.30p

 

 

Dividend yields at 31 August

2021

2020

Company

3.8

4.1

Benchmark8

1.6

1.9

AIC Global Equity Income sector

3.2

4.1

 

1 Net asset value ("NAV") total return per share (including dividends per share reinvested)

2 The Company's share price total return (assuming the reinvestment of all dividends excluding dealing expenses)

3 MSCI World (ex UK) Index (sterling adjusted)

4 Includes the fourth interim dividend in respect of the year ended 31 August 2021 declared on 26 October 2021 to be paid to shareholders on 30 November 2021

5 Calculated based on the closing share price at 31 August 2021

6 Calculated using the methodology prescribed by the Association of Investment Companies ("AIC")

7 Four-month period from launch on 28 April 2011 to 31 August 2011

8 MSCI World (ex UK) Index in US$

Source: Morningstar Direct, Funddata, Janus Henderson, Refinitiv Datastream

 

INVESTMENT OBJECTIVE

The Company's investment objective is to provide shareholders with a growing total annual dividend, as well as capital appreciation.

 

INVESTMENT POLICY

The Company will invest in a focused and internationally diversified portfolio of 50-80 companies that are either listed in, registered in, or whose principal business is in countries that are outside the UK and will be made up of shares (equity securities) and fixed interest asset classes that are diversified by factors such as geography, industry and investment size. A maximum of 25% of gross assets may be invested in fixed interest securities. The Company does not hold investments in unlisted companies unless it is through subsequent delisting of a listed security.

 

Investment in any single company (including any derivative instruments) will not, in gross terms, exceed 5% of net assets at the time of investment and no more than 15% of gross assets may be invested in other listed investment companies (including investment trusts) or collective investment schemes. No more than 10% of gross assets may be invested in companies that themselves invest more than 15% of their gross assets in UK listed investment companies or collective investment schemes.

 

The Company may use financial instruments known as derivatives for the purpose of efficient portfolio management, for investment purposes or to generate additional income while maintaining a level of risk consistent with the risk profile of the Company. The Company may hedge exposure to foreign currencies up to a maximum of 20% of gross assets and may generate up to a maximum of 20% of gross income through investment in traded options.

 

The Company can borrow to make additional investments with the aim of achieving a return that is greater than the cost of borrowing. The Company's articles of association allow borrowings up to 100% of net asset value. In normal circumstances, the manager may only utilise gearing up to 25% of net assets at the time of drawdown or investment (as appropriate) in accordance with the board's policy and for these purposes 'gearing' includes implied gearing through the use of derivatives.

 

 

CHAIRMAN'S STATEMENT

 

Performance and markets

Over the year, the net asset value ("NAV") total return per ordinary share has risen by 22.7% (debt at par) and by 23.5% (debt at fair value). The total return on the ordinary share price was 18.5%, this figure includes total dividends of 6.30p per ordinary share, an increase of 5.0% on the previous year. This year marks the tenth anniversary of the Company and the tenth increase in annualised dividend growth. These returns compare to a total return of 26.9% for the MSCI World (ex UK) Index (sterling adjusted) ("MSCI World Index" or "benchmark").

 

During the financial year the Covid pandemic has continued to disrupt the functioning of society. It has been a period of immense uncertainty and, in many places, human tragedy. A combination of government support and human ingenuity has kept economies functioning, and the advent of vaccines to reduce the transmission and impact of the virus has given the world hope it can start to return to normality.

 

Equity markets generally look forward rather than dwelling on past events, and have performed strongly since the first vaccines were created in autumn 2020. The double-digit returns generated over the period reflect the low starting point; in reality, the actual economic recovery has been uneven and punctuated by recurring lockdowns around the world.

 

The portfolio has benefited from the economic recovery, generating considerable capital appreciation plus revenue growth year-on-year. The recovery has been led by a combination of highly cyclical companies rallying on a strengthening economic recovery and high growth companies. More defensive equities have appreciated but have lagged the market. In some regions, there was a large number of dividend cuts during 2020. In the UK, for example, almost half of FTSE 100 companies cut their dividends, reinforcing the importance for investors of diversifying their income streams globally in a portfolio such as HINT's. This year, the news globally has been much more encouraging, and many companies have reinstated their dividends, indicating that dividends as a form of shareholder return will still form an important part of investors' returns.

 

Despite the reinstatement of dividends, higher dividend yield indices have underperformed the broader market again this year. As a result of the Company's income objective, portfolio composition can differ significantly from the MSCI World Index which can lead to significant variations in performance between the two. The yield on the Company's benchmark is not in line with Company's income objective. The board is reviewing the options to ascertain whether there is a more appropriate index by which to measure the Company's performance that is more aligned with its objectives, and will update shareholders on its findings in due course.  Information about the portfolio's performance over the period can be found in the fund manager's report. The Company has delivered dividend growth to shareholders again this year, however the value and income bias of the portfolio has meant that performance against some of the other KPIs has been more difficult in the short term. The key performance indicators ("KPIs") are detailed in the full annual report.

 

Strategy, growth and corporate activity

Since your Company's original listing, the board's strategy has been to provide a high and rising level of dividends as well as long-term capital appreciation, whilst building a revenue reserve.

 

The board has reviewed your Company's dividend policy and the preferences of current and prospective investors, and concluded that investors would prefer to receive a greater proportion of HINT's total return by way of an enhanced dividend. Accordingly, your board is increasing the fourth interim dividend by 20% to 1.80p per share for the quarter ended 31 August 2021 and will continue its commitment to an attractive, progressive dividend going forward. Dividends from the portfolio will remain an important contribution to the Company's distributions, but to the extent that, in any year, dividends are not fully covered by underlying revenue, your board will utilise realised capital gains. This will give shareholders confidence around future distributions and the investment team flexibility to invest in the most attractive opportunities. The board believes that the investment strategy and approach followed by our manager will deliver the best total return over the medium to long term in a combination of income and capital growth.

 

We remain willing to issue further shares at appropriate times. This is to provide greater liquidity in our shares and to lower our fixed costs per share. Since inception, management fee reductions combined with the increase in the size of the Company have been the two principal factors that have led to a fall in the ongoing charge from 1.38% (as at 31 August 2012) to 0.83% this year.

 

Earnings and dividends

We are pleased to announce a total dividend increase from 6.00p to 6.30p per ordinary share for the year to 31 August 2021. The year consisted of a first, second and third interim dividend of 1.50p per ordinary share, and the fourth interim dividend of 1.80p, which will be paid on 30 November 2021.

 

The revenue returns increased year-on-year by 10% to £11,733,000. Whilst most of the portfolio's holdings have paid dividends, there are still a few that have delayed until after the year end.  As a result, it has been necessary to use a relatively moderate amount of revenue reserves to support dividends this year (£27,000 of the £7,164,000 at the start of the year). We continue to recognise the importance of regular dividend income to our shareholders and will continue to use reserves to complement the income generated by the portfolio.

 

Gearing

Well-judged gearing enhances returns to shareholders. The board's current policy is to permit the fund manager to gear up to 25% of net assets at the time of drawdown or investment, as appropriate. Borrowing limits for this purpose include implied gearing through the use of derivatives. The gearing at the period end was 4.5% (31 August 2020: 11.4%).

 

Liquidity and discount management

The board continues to monitor the premium/discount to NAV and will consider appropriate action if the relationship between the NAV and share price moves and remains out of line with the Company's peer group. Nonetheless, there is a distinct limit to the board's ability to influence the premium or discount to NAV. We consider that it is not in shareholders' interests to have a specific issuance or buy-back policy. However, to retain flexibility, we reserve the ability to implement share issues or buy-backs, where appropriate, and subject to market conditions.

 

Ongoing charge

The ongoing charge for the year to 31 August 2021, as calculated in accordance with the Association of Investment Companies ("AIC") methodology was 0.83% (2020: 0.85%).

 

Annual general meeting

The eleventh annual general meeting ("AGM") of the Company will be held, subject to any Covid restrictions, on Tuesday, 7 December 2021 at the offices of Janus Henderson Investors, 201 Bishopsgate, London EC2M 3AE. The notice of meeting and details of the resolutions to be proposed are set out in a separate document which accompanies the annual report. Ben Lofthouse, the fund manager, will give a presentation at the meeting.

 

For any shareholders unable to travel, I invite you to join by Zoom webinar, and details of how to register are set out in the notice of meeting. As is our normal practice, there will be live voting for those physically present at the AGM. However, due to technical restrictions, we cannot offer live voting by Zoom, and we therefore request all shareholders, and particularly those who cannot attend physically, to submit their votes by proxy to ensure that their vote counts at the meeting.

 

Board composition

Following the retirement of Bill Eason and Kasia Robinski at last year's AGM, Jo Parfrey was appointed as a director and the new chair of the audit committee on 1 January 2021. Jo is a chartered accountant and brings to the board strong investment and financial, analytical and risk management skills.

 

As previously reported, I will be standing down as chairman of the board and a director of the Company at the conclusion of the 2022 AGM. This will conclude five years' service as chairman of the board, following six years' service as audit committee chairman. It is anticipated that the nominations and remuneration committee will start looking for my replacement in early 2022.

 

Outlook

The Company was launched with a flexible mandate with which to achieve the aim of offering investors income and capital growth, with the protection of diversification by sector and geography. The last few years have tested that adaptability; the US has entered a new phase regarding its relationship with China, the UK has left the European Union, and a pandemic has brought the world to a standstill. Whilst asset values have experienced volatility over the period, investors have seen their income and capital grow. The nature of an investment company gives it some advantages over other investment vehicles, including a fixed pool of assets so sales are not forced at the wrong time, the ability to maintain distributions through the cycle, and the ability to utilise gearing to enhance returns. Hopefully the world is through the worst of the pandemic, and investors can look forward to a smoother ride. Change is inevitable though, and the board believes that the revised dividend policy will add to the advantages the Company has to serve investors' needs in coming years.

 

The board and investment team remain focused on delivering the Company's objectives and, where possible, taking advantage of opportunities as they arise. Interest rates remain at record lows, and against this backdrop the Company's objective of delivering an appealing income from a diversified portfolio of holdings remains highly relevant. The Company will continue with its existing strategy of identifying companies that are attractively valued, pay a sustainable dividend and have the capacity to grow their earnings and dividends over the medium to long term.

 

 

Simon Jeffreys

Chairman

26 October 2021



PORTFOLIO INFORMATION

Ten largest investments at 31 August 2021

Rank 2021

Rank 2020

Company

Country

Sector

Market value

£'000

Market value at time of investment

£'000

Yield1

%

1

1

Microsoft

US

Technology

17,699

         4.8

2,342

0.7

2

3

Taiwan Semiconductor Manufacturing

Taiwan

Technology

10,568

         2.8

1,835

1.7

3

2

Nestlé

Switzerland

Consumer staples

  10,157

         2.7

6,713

2.2

4

14

OZ Minerals

Australia

Basic materials

10,005

         2.7

4,720

2.1

5

57

AXA

France

Financials

   9,485

         2.6

8,752

5.9

6

10

Coca-Cola

US

Consumer staples

   8,257

         2.2

6,578

3.1

7

4

Verizon Communications

US

Telecommunications

   8,083

         2.2

8,034

4.7

8

13

Cisco Systems

US

Telecommunications

7,985

         2.1

4,460

2.7

9

7

Sanofi

France

Health care

   7,455

         2.0

6,469

3.8

10

5

Novartis

Switzerland

Health care

    7,424

         2.0

6,090

3.9










Top 10





97,118

26.1

55,993











1 Dividend yield is based upon historic dividends, including special dividends where known, and is not representative of future yield

 

 

Geographic exposure at 31 August

As a percentage of the investment portfolio

excluding cash

 


Sector exposure at 31 August

As a percentage of the investment portfolio

excluding cash


2021
%

2020
%



2021
%

2020
%

US

38.0

34.0


Financials

20.4

16.8

Hong Kong

8.5

9.1


Technology

19.2

16.1

Switzerland

7.4

14.2


Health care

13.7

15.4

France

5.7

5.6


Telecommunications

9.9

14.0

Taiwan

5.5

3.3


Consumer discretionary

9.1

4.5

Korea

5.4

3.0


Industrials

8.7

9.6

Netherlands

4.3

3.7


Consumer staples

7.7

10.0

Australia

4.1

4.0


Basic materials

5.6

2.8

China

3.4

3.1


Utilities

3.1

3.5

Italy

3.1

3.4


Real estate

2.6

7.3

Sweden

3.1

1.2





Finland

2.9

0.9





Canada

2.4

2.9





Japan

2.3

0.9





Denmark

1.2

-





Spain

1.2

1.3





Germany

0.9

4.6





Indonesia

0.6

0.6





Norway

-

1.3





New Zealand

-

1.2





Singapore

-

1.1





Ireland

-

0.6





 

Source: Janus Henderson



Investment portfolio as at 31 August 2021

 

Company

 

Country

Market value

£'000

% of

portfolio

Basic materials




OZ Minerals

Australia

              10,005

2.7

UPM-Kymmene

Finland

                 5,486

1.5

Air Products & Chemicals

US

                 5,308

1.4



20,799

5.6





Consumer discretionary




Panasonic

Japan

                 6,108

1.6

China Yongda Automobiles

China

                 5,489

1.5

Vivendi

France

                 3,931

1.1

VF Corporation

US

                 3,498

0.9

Stellantis

Netherlands

                 3,447

0.9

Daimler

Germany

                 3,423

0.9

Anta Sports

China

                 3,348

0.9

Nintendo

Japan

                 2,622

0.7

McDonald's

US

                 2,244

0.6



34,110

9.1





Consumer staples




Nestlé

Switzerland

              10,157

2.7

Coca-Cola

US

                 8,257

2.2

Pepsico

US

                 5,338

1.4

Mondelez

US

                 5,322

1.4



29,074

7.7





Financials




AXA

France

                 9,485

2.6

Citigroup

US

                 7,122

1.9

Travelers Companies

US

                 5,455

1.5

ING

Netherlands

                 5,270

1.4

Sampo OYJ

Finland

                 5,229

1.4

Macquarie

Australia

                 5,189

1.4

AIA

Hong Kong

                 5,014

1.4

Manulife Financial

Canada

                 4,688

1.3

CTBC Financial

Taiwan

                 4,637

1.2

Banca Farmafactoring

Italy

                 4,613

1.2

Citic Securities

Hong Kong

                 4,313

1.2

BOC

Hong Kong

                 3,861

1.0

KB Financial Group

Korea

                 3,739

1.0

Van Lanschot

Netherlands

                 3,642

1.0

CME Group

US

                 3,501

0.9



75,758

20.4

 

Health care




Sanofi

France

                 7,455

2.0

Novartis

Switzerland

                 7,424

2.0

Merck & Co

US

                 6,901

1.9

Bristol-Myers Squibb

US

                 6,888

1.9

Roche

Switzerland

                 6,771

1.8

Medtronic

US

                 5,499

1.5

Abbvie

US

                 5,332

1.4

Novo Nordisk

Denmark

                 4,270

1.2



50,540

13.7









Industrials




nVent Electric

US

                 7,069

1.9

Volvo

Sweden

                 6,204

1.7

Honeywell International

US

                 5,325

1.4

Swire Pacific

Hong Kong

                 5,135

1.4

LG Corp

Korea

                 5,025

1.4

ABB

Switzerland

                 3,429

0.9



32,187

8.7





Real Estate




Crown Castle

US

                 5,649

1.5

Sun Hung Kai Properties

Hong Kong

                 3,993

1.1



9,642

2.6





Technology




Microsoft

US

              17,699

4.8

Taiwan Semiconductor Manufacturing

Taiwan

              10,568

2.8

Corning

US

                 7,087

1.9

Texas Instruments

US

                 6,196

1.7

Broadcom

US

                 6,075

1.6

Samsung

Korea

                 5,612

1.5

Quanta Computer

Taiwan

                 5,459

1.5

Tencent Holdings

Hong Kong

                 5,283

1.4

Chinasoft International

China

                 3,867

1.0

BE Semiconductor

Netherlands

                 3,834

1.0



71,680

19.2

 

Telecommunications




Verizon Communications

US

                 8,083

2.2

Cisco Systems

US

                 7,985

2.1

SK Telecom

Korea

                 5,498

1.5

Tele2

Sweden

                 5,137

1.4

Telus

Canada

                 4,053

1.1

HKT Trust and HKT Ltd

Hong Kong

                 3,524

1.0

Telekomunikasi

Indonesia

                 2,219

0.6



36,499

9.9





Utilities




Enel

Italy

                 7,188

1.9

Iberdola

Spain

                 4,578

1.2



11,766

3.1





Total investments


372,055

100.0





 



FUND MANAGER'S REPORT

 

The world has spent the year trying to deal with the ongoing impact of the Covid pandemic. At the start of the Company's financial year, many countries were only starting to react to the first wave of infections, and vaccine development was in its early stages. At the time of writing, many countries are still experiencing outbreaks of Covid, but thankfully numerous vaccines have been created and the question is how to get them rolled out. It is too early to say the world is back to normal, but significant progress has been made in terms of understanding and treating Covid and the outlook has improved dramatically.

 

In the corporate world, it has been remarkable how companies have managed to adapt to new challenges, ranging from remote working to disrupted supply chains and wildly fluctuating input prices. Many companies have emerged from the crisis with significantly higher profit margins and cash flows than expected, in fact in some cases margins have exceeded previous peaks. Whilst some of this new-found profitability is due to hard work and ingenuity, it is worth noting the other unprecedented development over the period: the scale of government and central bank support extended to society in response to the pandemic. Each country and institution has extended support in different ways, ranging from cheques in the post to rent moratoriums and furlough schemes. This support has protected the financial system, keeping bankruptcies low and cushioning the impact of mass unemployment. The environment has been supportive for financial markets and equities around the world have rallied as a result. Investors are closely watching what happens from here to see how some of these schemes are exited, how the support is paid for, and what the normalised level of economic activity post Covid might be.

 

The table below illustrates in economic terms both the impact of the pandemic and the broad-based extent of the recovery. At this time, 2022 is forecast to be another period of strong growth, albeit moderating from 2021's rebound.

 

Real GDP growth by region (%)

 

Region

2020 

2021F

2022F

World

(3.8)

5.9

4.5

Developed

(4.9)

5.2

4.0

Emerging

(0.6)

6.6

5.2

US

(3.5)

5.9

4.2

UK

(10.1)

6.7

5.4

Eurozone

(6.8)

4.9

4.3

China

2.3 

8.4

5.6

Japan

(5.1)

2.4

2.5

 

Source: Janus Henderson, Bloomberg, as at 21 September 2021

 

Performance review

The portfolio produced a total return of 23.5% in NAV (debt at fair value) per ordinary share over the period. This return includes dividends totalling 6.30p per share in respect of the financial year, an increase of 5.0% as compared to the same period in 2020.

 

Dividend performance

The Company's investment process focuses on companies with attractive dividend yields, strong cash flow generation and the potential to grow capital values via earnings and dividends in the future. They are often leaders in their respective industries, with established competitive advantages.  As a result of this focus, the majority of the companies in the portfolio have either continued to pay their dividends or have reinitiated dividend payments. The revenue return for the Company has increased by 10% year-on-year.

 

Some regions and sectors experienced significant dividend cuts during 2020, particularly amongst UK and European companies. The experience globally was less severe, illustrating the importance of diversifying portfolios across regions and sectors. As the year progressed, the dividend trends stabilised and it was only those companies whose businesses were most affected by the pandemic, such as travel and leisure, that did not recommence distributions. The duration of the economic impact of Covid was very hard to predict, but there were also questions as to whether there might be political constraints around dividend payments. This concern turned out to be unfounded and it has been a relief to see dividend trends strongly recovering this year.

 

All of the top ten holdings increased their dividends. Dividend increases have come from a wide range of sectors, including utility company Enel, bank and asset management company Macquarie, food producer Mondelez, and technology companies Broadcom and Cisco. There have also been special dividends from Samsung, Stellantis and Volvo. Some of these companies halted their dividends last year due to the uncertain outlook, only to find that they have been less disrupted than expected, and as a result have paid the deferred dividends plus a dividend for this year. The European banking sector has also recently received approval from regulators to restart dividends and holdings including BFF Banking Group, ING and Van Lanschot have announced the intention to pay dividends but cannot pay until after October 2021.

 

These companies are paying dividends from a position of strength as many have spent years reducing debt and restructuring their businesses. We would not want the companies we hold to scrimp on investment for the future, and it is reassuring to see companies across a number of sectors, including Taiwan Semiconductor, Samsung, Daimler and Medtronic, all investing in new technologies to ensure their future relevance.

 

Capital performance

The Company's portfolio is relatively concentrated consisting typically of 50-80 positions, so performance can be impacted by stock specific news and events as well as regional equity market performance and sector news.

 

The table below highlights the most significant stock contributors to performance over the year. It shows relative return versus the benchmark, so registers the impact of both stocks held in the portfolio and those not held but which have been significant drivers of the benchmark. The top performers all returned on average over 50% over the period, illustrating the speed of the recovery.

 

Top ten contributors to and bottom ten detractors from relative return vs benchmark

 


%

BE Semiconductor

0.92

Amazon.com*

0.87

Taiwan Semiconductor Manufacturing

0.86

Anta Sports

0.70

Samsung

0.63

OZ Minerals

0.61

Chinasoft International

0.59

Apple*

0.59

ABB

0.48

ING

0.41



Hengan International

-0.37

CyrusOne

-0.40

Novartis

-0.42

Enel

-0.46

Sanofi

-0.51

Tencent Holdings

-0.67

Verizon Communications

-0.69

Anhui Conch Cement Company

-0.71

Nestlé

-0.79

Alphabet*

-0.87

 

* Stock not held

Source: Janus Henderson, as at 31 August 2021

 

The period under review has been characterised by a sharp relief rally for equities, triggered by the discovery of Covid vaccines. Generally, the best performing sectors in the market and portfolio were those that benefit most from economic recovery. Whilst the total return of the portfolio has been strong, it has underperformed the benchmark. The net asset value total return per ordinary share was 23.5% (debt at fair value) compared to the benchmark return of 26.9%.

 

The portfolio has a significant exposure to the financial services sector (20.4% as at 31 August 2021) and many of the holdings, such as European bank ING Group, insurer AXA and private bank Van Lanschot, have been strong performers, recovering much of their Covid-induced losses. Whilst the sector has been volatile, the lessons of the financial crisis have been learnt and those companies went into the crisis with strong balance sheets, which has allowed them to emerge from this crisis in a much better position than previous recessions.

 

Technology is the second largest industry exposure in the portfolio. Whilst in previous economic cycles the technology sector was at times highly cyclical, it has seen a continuation of the structural demand trends that existed pre-pandemic, and in some cases an acceleration of adoption. The portfolio benefited significantly from its exposure to the semiconductor industry. We have written before about the increasing structural demand for semiconductors and computer memory (increased data storage and processing, artificial intelligence and, more recently, electric and self-driving vehicle developments) and this theme has continued to drive significant appreciation in the portfolio's holdings of BE Semiconductor, Taiwan Semiconductor Manufacturing and Samsung. All these stocks were amongst the largest positive contributors to performance over the year.

 

Other notable contributors included software testing company Chinasoft International, engineer ABB and Chinese sportswear manufacturer and retailer Anta Sports.

 

The most significant detractors from performance over the period have been stocks in the pharmaceutical (Sanofi, Merck), utilities (Enel), telecommunications (Verizon) and consumer staples (Nestlé) sectors. These companies weathered 2020 well; they have stable earnings that are not significantly impacted by economic trends, often providing essential services or goods, and have managed to deliver them throughout the various lockdowns. Generally, they have generated positive total returns, but have lagged the overall equity markets. Some Chinese holdings were very strong performers, but others have been impacted by increased regulation. These include cement manufacturer Anhui Conch and internet and gaming company Tencent. Both positions have been sold.

 

Amazon and Apple are shown as positive contributors because they were not held but represent material stocks in the benchmark that lagged the market this year. Alphabet is shown as a negative contributor to performance as it was also not held but performed strongly.

 

Stock selection accounted for approximately 5.0% of underperformance versus the benchmark. This was partly offset by asset allocation. Asset allocation is discussed in the following section. Our investment bias toward sustainable income stocks has detracted from performance relative to the benchmark. Many of the strongest performers in equity markets have been those that cut dividends due to earnings or balance sheet concerns. The exposure to recovery stocks was increased throughout the year and gearing enhanced returns, but with the benefit of hindsight, we underestimated the extent of the fiscal and monetary support that was extended and its ability to cushion the impact of lockdown disruptions. Dividend stalwarts like consumer staples, telecommunications and pharmaceuticals have not rerated with the market, despite their obvious yield attractions in this low interest rate environment.

 

The chart in the annual report shows the performance of different regions of the world over the Company's financial year. The North American and European markets recovered most strongly from the pandemic, but Asia Pacific lagged. The portfolio is organised in regional sleeves: North America, Europe and Asia Pacific. All three regions generated over 20% returns. The geographical position generated approximately 1.2% relative underperformance versus the benchmark as a result of being overweight the Asia Pacific region, with an average overweight position of 29%. The Asia Pacific region performed strongly in the first half of the year, but Covid outbreaks and increased Chinese regulation impacted the markets in the second half of the year. The asset allocation in the region was offset by strong stock selection as discussed earlier. The regional asset allocation was offset by gearing, which was a positive contributor to performance over the period, enhancing the positive portfolio returns by approximately 4.4%. The Company's gearing was on average over 11% for the period under review.

 

The currency impact of the Company's euro-denominated long-term financing was also positive as sterling strengthened against the euro. The Company's long-term financing means that a fair value and par value return is quoted. The fair value of the debt reflects a theoretical market price and is impacted by changes in interest rate expectations in the financial markets. The rise in interest rate expectations during the period has reduced the fair value of the debt, enhancing the fair value net asset value return.

 

Portfolio positioning

Stock selection for the portfolio is driven by a combination of the attractiveness of the company in question (competitive positioning, cash flow generation, sustainability of business model) combined with its valuation. Over the last 12-18 months there has been a considerable change in the operating environment for companies and we have made some significant changes to the portfolio in response. There have been several periods of market volatility since the Company was launched, and they have generally provided good long-term investment opportunities.

 

The largest individual stock changes are shown below.

 

Purchases

Sales

Citigroup

+2.0%

Allianz

-2.6%

nVent Electric

+2.0%

Pfizer

-2.5%

Volvo

+1.7%

Zurich Insurance

-1.8%

Broadcom

+1.7%

SGS

-1.7%

China Yongda Automobiles

+1.5%

Munich Re

-1.7%

 

Source: Janus Henderson, as at 31 August 2021

 

The most significant asset allocation change in the portfolio was the sale early in the financial year of all the US dollar-denominated corporate bonds (4.2% of the portfolio at the prior year end) and reinvestment of the proceeds. The corporate bonds had performed well since purchase, benefiting from normalisation of the credit markets, and we saw more long-term growth and income opportunity available in a number of sectors and countries. Positions added include Chinese software testing company Chinasoft International, Korean industrial conglomerate LG Corp and Hong Kong holding company Swire Pacific. All of these companies were trading at significant discounts to their historical valuations that overly discounted the long-term impact of the pandemic on their businesses and hence long-term valuations.

 

The financial sector is the largest sector represented in the portfolio. The exposure is diverse across sector, region and currency. Many financial companies remain on depressed valuations which underestimate their earnings outlook and potential capital return profiles. New positions added included Korean bank KB Financial Group, Citigroup in the US and Nordic insurer Sampo. We do not have a strong view on future interest rate trends, but these companies are operating well in the low prevailing rate environment, and would potentially benefit if interest rates started to rise. Exposure to the insurance sector has been reduced, via the sales of Allianz, Zurich and Munich Re. These positions were purchased to take advantage of the market's misunderstanding of insurers' exposure to Covid claims, and related uncertainty regarding their dividends. All of the companies were able to pay their dividend throughout the crisis, and have subsequently rerated closer to what we see as fair value.

 

A common theme that has stood out in company meetings is that many companies are investing more in technological innovation. Technology is the second largest sector exposure and has increased due to both share price appreciation and new positions in semiconductor company Broadcom, Chinese software testing company Chinasoft International and equipment manufacturer Quanta Computer.

 

Historically, these companies' growth has been driven by the technology and communications sectors, but they are now seeing new revenue streams emerge as other industries digitalise. As an example, many truck and car suppliers have spent several years restructuring their businesses and this activity is starting to bear fruit in terms of stronger balance sheets, higher cash flows and higher margins, even in a downturn. They are investing heavily in the transition to electrification and are much more advanced than they were even two years ago, when they seemed to be in denial about the future. As a result, the technology content on the new products is much higher than before (power management, connectivity, sensors, software), resulting in higher growth for many of their suppliers in the technology space.

 

These investments in technology also address some of the criticisms of many 'mature' industries, that they were not investing enough for their future. We initiated positions in Daimler and Volvo over the year on the view that their future is brighter than reflected in their share prices. They have also recommenced their dividends earlier than expected.

 

Another sector that has showcased new innovation is the pharmaceutical industry. Several companies held in the portfolio have contributed to Covid treatments, including Roche, Merck and Pfizer. There is a lot of innovation in the sector which in our view is not reflected in the valuations of the companies held. A new position was initiated in Danish health care company Novo Nordisk, which is a specialist in diabetes medicines. It has been working on utilising its expertise in this area in the treatment of obesity for several years, but only recently saw its drugs pass key trials this year. Initial demand has been much higher than expected. The sector exposure was reduced slightly because of the sale of the Pfizer and Johnson & Johnson positions. Both companies have had successful vaccine development programmes, but longer term, we see more opportunity elsewhere in the health care sector.

 

Exposure to the property sector was reduced over the period via sales of the positions in gaming REIT Vici Properties, data centre REIT CryusOne and Chinese property company China Vanke. These positions had performed well and might prove to be sensitive to higher interest rates due to the use of debt in their business models.

 

The telecommunications sector exposure was also reduced because of sales of Scandinavian company Telenor, New Zealand operator Spark NZ and some of the telecommunication bonds. These were sold to fund other opportunities.

 

Outlook

As the result of the pandemic, many countries are still operating below their potential capacity. Hopefully, as vaccines reach more of the world's population, this situation should improve. Government support has meant that employment levels are much higher than expected and appear to have recovered more quickly than during previous recessions. On the face of it, consumers have significant accumulated savings that could be spent. There are some themes materialising in the post Covid world that could be drivers of ongoing change and investment, including onshoring of supply chains, infrastructure plans and electrification of transport. Whilst this consumer and capital investment support might be needed to help offset the withdrawal of government support, we expect the broadening out of growth discussed earlier to be reflected in a narrowing of some of the valuation discrepancies in the market.

 

The Company's objective is to provide shareholders with a growing total annual dividend, as well as capital appreciation. The outlook for both is much clearer than it was at the start of the year. Since the Company launched, disruption has been an ongoing trend, and this year has been an extreme example of that. It is encouraging to see strong dividend growth returning across the portfolio, and we believe the holdings are undervalued in relation to their earnings potential. Equity income strategies often have an element of value investing to them. The last decade has seen a trend whereby investors have focused on growth and certainty, which has led to extreme valuation differentials between regions, sectors and stocks. Whilst markets have performed well in recent years, there are still opportunities to be had and the Company is well positioned to take advantage of them.

 

 

Ben Lofthouse

Fund Manager

26 October 2021



PRINCIPAL RISKS AND UNCERTAINTIES

The board, with the assistance of Janus Henderson, has carried out a robust assessment of the principal risks and uncertainties, including emerging risks, facing the Company, including those that would threaten its business model, future performance, solvency or liquidity and reputation.

 

The board regularly considers the principal risks facing the Company and has drawn up a matrix of risks. The board 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 which have been identified and the steps taken by the board to mitigate these are set out in the table below. The principal financial risks are detailed in note 16 to the financial statements in the annual report.

 

The board does not consider the principal risks to have materially changed during the course of the reporting period and up to the date of this report. Given that the UK has exited from the European Union, the risk from Brexit has been reviewed and updated.

 

With the continued progression of Covid over the year, the global pandemic risk has also been reviewed and updated.

 

Risk

Mitigation

Global pandemic

The consequences of Covid could continue to give rise to political and economic volatility, which increases the risks faced by the Company in both the investment and operational side of the business.

 

The fund manager maintains close oversight of the Company's portfolio and monitors the dividend flows from investee companies.

 

The board continues to monitor the ongoing consequences of Covid and the potential risk and impact these could have on the operations of the Company and its service providers, and on the Company's performance and dividend flows.

 

Investment activity and performance risks

An inappropriate investment strategy (for example, in terms of asset allocation or the level of gearing) may result in underperformance against the Company's benchmark index and the companies in its peer group.

 

 

The board monitors investment performance at each board meeting and regularly reviews the extent of its borrowings, when in use.

Portfolio and market price risks

Although the Company invests almost entirely in securities that are listed on recognised markets, share prices may move rapidly. The companies in which investments are made may operate unsuccessfully, or fail entirely. A fall in the market value of the Company's portfolio would have an adverse effect on shareholders' funds.

 

Most of the Company's assets, liabilities, income and expenses are denominated in currencies other than sterling (the Company's functional currency and presentational currency). As a result, movements in exchange rates may affect the sterling value of those items.

 

The manager seeks to maintain a diversified portfolio to mitigate against this risk. The board regularly reviews the portfolio, activities and performance.

 

The fund manager monitors the Company's exposure to foreign currencies daily and reports to the board at each meeting. The fund manager measures the risk to the Company of the foreign currency exposure by considering the effect on the Company's net asset value and total return of a movement in the exchange rates to which the Company's assets, liabilities, income and expenses are exposed.

 

The board has set an investment limit on currency hedging to a maximum of 25% of gross assets to mitigate against this risk.

 

Brexit/political risks

There remain ongoing challenges presented by the UK's exit from the European Union ("Brexit"), in particular foreign exchange movements which could impact the valuation of the Company's portfolio and dividend income.

 

 

The board actively engages in dialogue with the fund manager to ensure an ongoing review of the portfolio and reallocation, if considered appropriate, to adjust stocks or geographical allocation.

Tax and regulatory risks

A breach of section 1158/9 of the Corporation Tax Act 2010 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 Listing Rules could result in suspension of the Company's shares, while a breach of the Companies Act could lead to criminal proceedings, or financial or reputational damage.

 

 

The manager has been contracted to provide investment, company secretarial, administration and accounting services through qualified professionals. The board receives internal control reports produced by Janus Henderson on a quarterly basis, which confirm regulatory compliance.

Operational and cyber risks

Disruption to, or failure of, Janus Henderson's accounting, dealing or payment systems or the custodian's records could prevent the accurate reporting and monitoring of the Company's financial position. The Company is also exposed to the operational and/or cyber risk that one or more of its service providers may not provide the required level of service in the event of a cyber attack.

 

The board monitors the services provided by the manager and its other third-party suppliers and receives reports on the key elements in place to provide effective internal controls, including the impact of Covid on their day-to-day operations. The board also receives assurances from the manager's chief information security officer that the manager maintains robust cyber and information security policies, processes and procedures.

 

The board also monitors the principal business risks faced by the Company which are recorded in a risk map which is reviewed regularly. Systems are in operation to safeguard the Company's assets and shareholders' investments, to maintain proper accounting records and to ensure that financial information used within the business, or published, is reliable.

 

Risks associated with the senior unsecured notes

A breach of the covenants of the senior unsecured notes would trigger an "event of default" clause in the note purchase agreement, at which point the outstanding amount may become automatically and immediately repayable.

 

The manager monitors the Company's compliance with the covenants of the senior unsecured notes through the Charles River compliance tool (see note 16 to the financial statements in the annual report for further details). The senior unsecured notes are conservatively coded into this tool so that the manager would be alerted well in advance of a potential breach of covenant conditions.

 

The board monitors compliance with the covenants of the senior unsecured notes through a monthly investment limits and restrictions schedule that is provided at each board meeting.

 

Other "events of default" not relating to covenant conditions are also monitored.

 

 

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:

 

Emerging risk

Mitigation

Continued consolidation of the wealth management industry resulting in a narrower customer base and the increasing importance of being on the "buy list".

 

The board, through the manager and corporate broker, maintains ongoing close contact with all wealth managers. A key focus is on performance and to ensure that the Company meets buy list requirements. The manager makes use of PR and marketing in order to reach individual buyers.

 

Consolidation of the investment trust sector leading to a greater average size of investment trusts becoming the norm.

The board regularly reviews the market to identify and grasp consolidation opportunities and looks to the manager to provide performance to improve the Company's chances for growth.

 

Unfavourable regulatory changes, including tax changes and the possible imposition of a wealth tax.

The board and the manager monitor potential changes on an ongoing basis.

 

Increased regulation and focus by investors on climate change and ESG developments.

The board, through the manager and corporate broker, maintains a regular dialogue with major shareholders and discusses the Company's objectives with them. The feedback from this, together with the investment strategy in the context of performance, is regularly reviewed by the board.

 

Increasing inflation could impact the performance of markets internationally, with greater market price volatility having a consequential impact on the performance of the portfolio.

The fund manager monitors political and economic issues and regularly reviews geographic and sector allocation. The risk is spread through holding a diverse portfolio.

 

 

 

VIABILITY STATEMENT AND GOING CONCERN

The AIC Code of Corporate Governance includes a requirement for the board to assess the future prospects for the Company, and to report on the assessment within the annual report. The board considers that certain characteristics of the Company's business model and strategy are relevant to this assessment:

 

the board looks to ensure that the Company seeks to deliver long-term performance;

 

the Company's investment objective, strategy and policy, which are subject to regular board monitoring, mean that the Company is invested mainly in readily realisable listed securities and that the level of borrowings is restricted;

 

the Company is a closed-end investment company and therefore does not suffer from the liquidity issues arising from unexpected redemptions; and

 

the Company has an ongoing charge of 0.83%.

 

Also relevant were a number of aspects of the Company's operational agreements:

 

the Company retains title to all assets held by the custodian under the terms of the formal agreement with the depositary;

 

long-term borrowing is in place, being the 2.43% senior unsecured notes 2044, which are also subject to a formal agreement, including financial covenants with which the Company complied in full during the period since issuance. The value of long-term borrowing is relatively small in comparison to the value of net assets, being 7.2% at 31 August 2021 (2020: 8.8%);

 

revenue and expenditure forecasts are reviewed by the directors at each board meeting; and

 

cash is held with an approved bank.

 

In addition, the directors carried out a robust assessment of the principal risks and uncertainties which could threaten the Company's business model, including future performance, liquidity or solvency and reputation.

 

The principal risks identified as relevant to the viability assessment were those relating to investment activity and performance, portfolio and market price risks. The board took into account the liquidity of the Company's portfolio, the existence of the long-term fixed rate borrowings, the effects of any significant future falls in investment values and income receipts on the ability to repay and re-negotiate borrowings, grow dividend payments and retain investors and the potential need for share buy-backs to maintain a narrow share price discount. The directors assess viability over three-year rolling periods, taking account of foreseeable severe but plausible scenarios. In coming to this conclusion, the directors have considered the impact of the Covid pandemic, in particular the impact on income and the Company's ability to meet its investment objective, and the impact on loan covenants.

 

The directors believe that a rolling three-year period best balances the Company's long-term objective, its financial flexibility and scope with the difficulty in forecasting economic conditions affecting the Company and its shareholders.

 

The directors recognise that there is a continuation vote that is due to take place at the annual general meeting in 2023. 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 their assessment, and in the context of the Company's business model, strategy and operational arrangements set out above, the directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the three-year period to 31 August 2024.

 

The directors consider it appropriate to adopt the going concern basis of accounting in preparing the financial statements (see below for further details).

 

 

BORROWINGS

Where the fund manager believes that gearing will enhance returns to shareholders, the Company may borrow up to 25% of its gross assets at the time of drawdown or investment (as appropriate), as set out in the investment policy. Borrowings for these purposes would include implied gearing through the use of derivatives. The Company's short-term gearing facility allows borrowing of up to £30m in sterling and other currencies by way of an overdraft facility with HSBC Bank plc. Under this facility the Company borrowed in both sterling and euros in the year under review.

 

On 30 April 2019, the Company issued €30m fixed rate 25-year senior unsecured notes at an annualised coupon of 2.43%. This long-term fixed rate euro denominated financing was obtained at a price that the board considered attractive. The senior unsecured notes are expected to enhance long-term investment performance.

 

Within the terms of the senior unsecured notes are clauses that would be enacted in certain scenarios should the notes be prepaid by the Company before maturity. These clauses could impact the total amount repayable. The directors have assessed these and have concluded that these clauses are highly unlikely to occur.

 

The level of gearing at 31 August 2021 was 4.5% of net asset value (2020: 11.4%).

 

 

RELATED PARTY TRANSACTIONS

The Company's transactions with related parties in the year were with the directors and the manager. There have been no material transactions between the Company and its directors during the year. The only amounts paid to 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 provision of marketing services) there have been no material transactions with the manager affecting the financial position or performance of the Company during the year under review. More details on transactions with the manager, including amounts outstanding at the year end, are given in note 21 of the annual report.

 

 

DIRECTORS' RESPONSIBILITY STATEMENT

Each of the directors, who are listed below, 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 on a going concern basis, give a true and fair view of the assets, liabilities, financial position and return of the Company; and

 

the strategic report, directors' 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

 

Simon Jeffreys

Chairman

26 October 2021



INCOME STATEMENT

 



Year ended 31 August 2021

Year ended 31 August 2020

 

 

Notes

 

 

 

Revenue 

return 

£'000 

Capital 

return 

£'000 

 

Total 

£'000 

Revenue 

return 

£'000 

Capital 

return 

£'000 

 

Total 

£'000 


Gains/(losses) from investments held at fair value through profit or loss

56,790 

56,790 

-

(19,672)

(19,672)

3

Income from investments held at fair value through profit or loss

14,080 

14,080 

12,482 

188 

12,670 


Profit on foreign exchange

733 

733 

417 

417 

4

Other income

527 

527 

879 

26 

905 










Gross revenue and capital gains/(losses)

14,607 

57,523 

72,130 

13,361 

(19,041)

(5,680)


Management fee

(538)

(1,615)

(2,153)

(481)

(1,444)

(1,925)


Other administrative expenses

(600)

(600)

(611)

(611)










Net return before finance costs and taxation

13,469 

55,908 

69,377 

12,269 

(20,485)

(8,216)










Finance costs

(207)

(629)

(836)

(192)

(539)

(731)










Net return before taxation

13,262 

55,279 

68,541 

12,077 

(21,024)

(8,947)










Taxation on net return

(1,529)

(15)

(1,544)

(1,459)

53 

(1,406)










Net return after taxation

11,733 

55,264 

66,997 

10,618 

(20,971)

(10,353)









6

Return per ordinary share

5.99p

28.20p

34.19p

5.53p

(10.91p)

(5.38p)

 

The total column of this statement represents the Income Statement of the Company. The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies.

 

All revenue and capital items derive from continuing operations. The Company had no recognised gains or losses other than those disclosed in the Income Statement.

 

 



STATEMENT OF CHANGES IN EQUITY

 

 

 

 

Notes

 

 

Year ended

31 August 2021

Called up

share capital £'000

Share premium

account £'000

 

Special

reserve

£'000

Other capital

reserves £'000

 

Revenue reserve 

£'000 

 

 

Total 

£'000 


At 31 August 2020

1,960

194,550

45,732

51,509

7,164 

300,915 


Net return for the year

-

-

-

55,264

11,733 

66,997 

7

Dividends paid

-

-

-

-

(11,760)

(11,760)










At 31 August 2021

1,960

194,550

45,732

106,773

7,137 

356,152 

















 

 

 

Notes

 

 

Year ended

31 August 2020

 

Special

reserve

£'000


At 31 August 2019

1,876

181,007

45,732

72,480 

8,081 

309,176 

9, 10

New shares allotted

84

13,543

-

13,627 


Net return for the year

-

-

-

(20,971)

10,618 

(10,353)

7

Dividends paid

-

-

-

(11,535)

(11,535)










At 31 August 2020

1,960

194,550

45,732

51,509 

7,164 

300,915 











STATEMENT OF FINANCIAL POSITION

 

 

 

Notes

 

 

 

 

At 

31 August 

2021 

£'000 

At 

31 August 

2020 

£'000 


Fixed asset investments held at fair value through profit or loss

372,055 

335,243 






Current assets




Debtors

2,567 

10,621 


Cash and cash equivalents

17,199 







19,766 

10,621 






Bank overdraft

(4,900)


Creditors: amounts falling due within one year

(10,102)

(13,423)






Net current assets/(liabilities)

9,664 

(7,702)






Total assets less current liabilities

381,719 

327,541 


Creditors: amounts falling due after more than one year

(25,567)

(26,626)






Total net assets

356,152 

300,915 






Capital and reserves



9

Called up share capital

1,960 

1,960 

10

Share premium account

194,550 

194,550 


Special reserve

45,732 

45,732 


Other capital reserves

106,773 

51,509 


Revenue reserve

7,137 

7,164 






Total shareholders' funds

356,152 

300,915 





8

Net asset value per ordinary share

181.7p

153.5p

 

 

 



STATEMENT OF CASH FLOWS

 


Year ended 

31 August 

2021 

£'000 

Year ended 

31 August 

2020 

£'000 

Cash flows from operating activities



Net return before taxation

68,541 

(8,947)

Add back: finance costs

836 

731 

Less: (gains)/losses on investments held at fair value through profit or loss

(56,790)

19,672 

Less: gains on foreign exchange

(733)

(417)

Withholding tax on dividends deducted at source

(1,992)

(2,128)

Taxation recovered

74 

39 

Decrease in debtors

23 

88 

Increase in creditors

160 

30 




Net cash inflow from operating activities

10,119 

9,068 




Cash flows from investing activities



Purchase of investments

(146,982)

(173,890)

Sale of investments

171,884 

135,281 




Net cash inflow/(outflow) from investing activities

24,902 

(38,609)




Cash flows from financing activities



Equity dividends paid (net of refund of unclaimed distributions and reclaimed distributions)

(11,760)

(11,535)

Proceeds from issue of ordinary shares

13,627 

Interest paid

(831)

(728)




Net cash (outflow)/inflow from financing activities

(12,591)

1,364 




Net increase/(decrease) in cash and cash equivalents

22,430 

(28,177)

Cash and cash equivalents at start of year

(4,900)

23,189 

Effect of foreign exchange rates

(331)

88 




Cash and cash equivalents at end of year

17,199 

(4,900)




Comprising:



Cash at bank

17,199 

-

Bank overdraft

(4,900)





17,199 

(4,900)




 



NOTES TO THE FINANCIAL STATEMENTS

 

1.   Accounting policies

Basis of accounting

The Company is a registered investment company as defined in section 833 of the Companies Act 2006 and is incorporated in the United Kingdom. It operates in the United Kingdom and is registered at 201 Bishopsgate, London EC2M 3AE.

 

The financial statements have been prepared in accordance with the Companies Act 2006, FRS 102, the Financial Reporting Standard applicable in the UK and Republic of Ireland, and with the Statement of Recommended Practice: Financial Statements of Investment Trust Companies and Venture Capital Trusts (the "SORP") issued in October 2019.

 

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

 

Following the issue of the senior unsecured notes on 30 April 2019 it was determined that the Company would adopt the recognition and measurement provisions of IFRS 9 (Financial Instruments), as permitted by sections 11 and 12 of FRS 102. This was determined to better reflect the directors' assessment of the carrying value of the senior unsecured notes and has no impact on the carrying value of the Company's financial assets.

 

The financial statements are prepared under the historical cost basis except for the measurement at fair value of investments.

 

The preparation of the Company's financial statements on occasion requires the directors to make judgements, estimates and assumptions that affect the reported amounts in the primary financial statements and the accompanying disclosures. These assumptions and estimates could result in outcomes that require a material adjustment to the carrying amounts of assets or liabilities affected in current and future periods, depending on circumstances. The directors have considered the accounting treatment of the senior unsecured notes as set out in accounting policy 1i) in the annual report to be an area of judgement, in particular with reference to clauses that would be enacted should the notes be prepaid before maturity and concluded the adoption of IFRS 9 described above is the most appropriate and complies with accounting standards.

 

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

 

2.    Going concern

The assets of the Company consist of securities that are readily realisable and, accordingly, the directors believe that the Company has adequate resources to continue in operational existence for at least twelve months from the date of approval of the financial statements. Having assessed these factors, the principal risks, as well as considering the additional risks related to Covid-19 and other matters discussed in connection with the viability statement, the board has determined that it is appropriate for the financial statements to be prepared on a going concern basis.

 

3.    Income from investments held at fair value through profit or loss

 


2021

£'000

2020

£'000

Dividend income

13,943

12,206

Bond and loan interest

137

276




Income credited to income return

14,080

12,482

Income credited to capital return1

-

188





14,080

12,670




1 The income credited to capital return relates to capital distributions from US real estate investment trusts



 

4.    Other income

 


2021

£'000

2020

£'000

Bank interest

-

9

Option premium income

527

870

Other income credited to income return

527

879

Other income credited to capital return1

-

26





527

905

 

1 The other income credited to capital return relates to a class action compensation

 

5.    Management fee


2021

2020


Revenue return
£'000

Capital return
£'000

Total
£'000

Revenue return
£'000

Capital return
£'000

Total
£'000

 

Management fee

538

1,615

2,153

481

1,444

1,925

 








 

A summary of the terms of the management agreement is given in the strategic report in the full annual report.

 

6.    Return per ordinary share

 


2021

2020


£'000 

pence 

£'000 

pence 

Revenue return

11,733

5.99

10,618 

5.53 

Capital return

55,264

28.20

(20,971)

(10.91)






Total return

66,997

34.19

(10,353)

(5.38)






Weighted average number of ordinary shares

195,978,716

192,134,317 

 

7.   Dividends paid on ordinary shares for the year to 31 August

 


Ex-dividend date

Record date

Payment date

2021

£'000

2020

£'000

4th interim dividend - 1.50p

5 November 2020

6 November 2020

30 November 2020

                2,940

-

1st interim dividend - 1.50p

4 February 2021

5 February 2021

26 February 2021

                2,940

-

2nd interim dividend - 1.50p

6 May 2021

7 May 2021

28 May 2021

                2,940

-

3rd interim dividend - 1.50p

29 July 2021

30 July 2021

31 August 2021

                2,940

-

4th interim dividend - 1.50p

7 November 2019

8 November 2019

29 November 2019

-

               2,814

1st interim dividend - 1.50p

13 February 2020

14 February 2020

28 February 2020

-

               2,891

2nd interim dividend - 1.50p

7 May 2020

11 May 2020

29 May 2020

-

               2,891

3rd interim dividend - 1.50p

30 July 2020

31 July 2020

28 August 2020

-

               2,939











11,760

11,535

 

A fourth interim dividend in respect of the year ended 31 August 2021 of 1.80p per ordinary share was declared on 26 October 2021 and will be paid to shareholders on 30 November 2021 with record date 5 November 2021. The Company's shares will go ex-dividend on 4 November 2021.

 

The total dividends payable in respect of the financial year which form the basis of section 1158 of the Corporation Tax Act 2010 are set out below. At the point of declaring each dividend, the directors consider the revenue earned during the financial period to date as well as the distributable revenue reserves brought forward, out of which total amount the dividend is to be paid.

 


2021 

£'000 

2020 

£'000 

Revenue available for distribution by way of dividend for the year

11,733 

10,618 

Interim dividends of 4.50p paid (2020: 4.50p)

(8,820)

(8,721)

Fourth interim dividend for the year to 31 August 2021 of 1.80p (based on 195,978,716 ordinary shares in issue as at 25 October 2021) (2020: 1.50p)

(3,528)

(2,939)




Transfer from revenue reserve1

(615)

 (1,042)

 

1 The deficit of £615,000 (2020: £1,042,000) has been transferred from the revenue reserve

 

8.    Net asset value per ordinary share

The net asset value per ordinary share and the net assets attributable to ordinary shares at the end of the year were as follows:

 


2021

2020  

Net assets attributable (£'000)

356,152

300,915  

Number of ordinary shares in issue

195,978,716

195,978,716  

Net assets per ordinary share (pence)

181.7

153.5  

 

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

 

 

 

2021 

£'000 

2020 

£'000 

Net assets at start of the year

300,915 

309,176 

Total net return after taxation

66,997 

(10,353)

Dividends paid on ordinary shares in the period

(11,760)

(11,535)

Issue of ordinary shares less issue costs

13,627 




Total net assets attributable to the ordinary shares at 31 August

356,152 

300,915 

 

9.    Called up share capital

 

2021

Number of shares

Number of shares entitled to dividend

 

£'000

Ordinary shares 1p each




At 31 August 2021

195,978,716

195,978,716

1,960





No shares were issued during the year.

 

 

2020

Number of shares

Number of shares entitled to dividend

 

£'000

Ordinary shares 1p each




At 31 August 2019

187,583,716

187,583,716

1,876

New shares allotted in year

8,395,000

8,395,000

84





At 31 August 2020

195,978,716

195,978,716

1,960

 

During the year ended 31 August 2020, the Company issued 8,395,000 ordinary shares for a total consideration of £13,627,000 after deduction of issue costs of £83,000.

 

10.   Share premium account


2021 

£'000 

2020 

£'000 

At the start of the year

194,550

181,007 

Ordinary shares allotted in year

-

13,626 

Issue costs

-

(83)




At 31 August

194,550

194,550 




 

11.   2021 financial information

The figures and financial information for the year ended 31 August 2021 are extracted from the Company's annual financial statements for that year and do not constitute statutory financial statements for that year. The Company's annual financial statements for the year ended 31 August 2021 have been audited but have not yet been delivered to the Registrar of Companies. The auditors' report on the 2021 financial statements was unqualified and did not contain any statements under sections 498(2) and 498(3) of the Companies Act 2006.

 

12.   2020 financial information

The figures and financial information for the year ended 31 August 2020 are extracted from financial statements for that year and do not constitute statutory financial statements for that year. Those financial statements have been delivered to the Registrar of Companies and included the report of the auditors which was unqualified and did not contain any statements under sections 498(2) or 498(3) of the Companies Act 2006.

 

13.   Annual report and financial statements

The annual report and financial statements for the year ended 31 August 2021 will be posted to shareholders in early November 2021 and copies will be available on the Company's website

www.hendersoninternationalincometrust.com or in hard copy format from the Company's registered office, 201 Bishopsgate, London EC2M 3AE.

 

14.   Annual general meeting

The annual general meeting will be held on Tuesday, 7 December 2021 at 2.30pm. The notice of the annual general meeting will be posted to shareholders with the annual report and financial statements.

 

15.   General information

 

Company Status

Henderson International Income Trust plc is a UK domiciled investment trust company.

 

ISIN number / SEDOL: ordinary shares: GB00B3PHCS86/B3PHCS8

London Stock Exchange (TIDM) Code: HINT

Global Intermediary Identification Number (GIIN): WRGF5X.99999.SL.826

Legal Entity Identifier (LEI): 2138006N35XWGK2YUK38

Company Registration Number: 7549407


Registered Office

201 Bishopsgate, London EC2M 3AE

 

Directors and Secretary

The directors of the Company are Simon Jeffreys (chairman), Jo Parfrey (audit committee chair), Richard Hills (senior independent director), Aidan Lisser and Lucy Walker.

 

The corporate secretary is Henderson Secretarial Services Limited, represented by Sally Porter, ACG.


Website

Details of the Company's share price and net asset value, together with general information about the Company, monthly factsheets and data, copies of announcements, reports and details of general meetings can be found at www.hendersoninternationalincometrust.com.

 

For more information please contact:

 

Ben Lofthouse

Fund Manager

Henderson International Income Trust plc

Telephone: 020 7818 5187


 

James de Sausmarez

Director and Head of Investment Trusts

Henderson Investment Funds Limited

Telephone: 020 7818 3349

 

Laura Thomas

Investment Trust PR Manager

Janus Henderson Investors

Telephone: 020 7818 2636  

 

 

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

 

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