Last checked at 
6 Dec 2016 11:08
HENDERSON EUROPEAN FOCUS TRUST PLC
Annual Financial Report for the year ended 30 September 2016
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 net asset value ("NAV") per ordinary share total return1 (including dividends reinvested) was 20.4% compared to a total return from the benchmark index2 of 21.1%.
• The ordinary share price3 total return (including dividends reinvested) was 8.6%.
• Increased proposed annual dividend: interim and final dividends of 7.50p and 18.90 per ordinary share respectively making a total of 26.40p (2015: 24.65p).
• The ordinary shares were trading at a discount to NAV of 9.3% (2015: premium of 0.6%) as at 30 September 20164.
Total return performance for the year to 30 September 2016 (including dividends reinvested and excluding transaction costs) | ||||
| 1 year % | 3 years % | 5 years % | 10 years % |
NAV1 | 20.4 | 44.9 | 127.9 | 112.5 |
Benchmark index2 | 21.1 | 27.1 | 83.6 | 81.1 |
Share price3 | 8.6 | 36.2 | 144.9 | 146.0 |
AIC Europe sector5 | 19.1 | 35.4 | 109.2 | 88.5 |
Ranking in sector | 4 | 2 | 2 | 2 |
Financial highlights
| At 30 September 2016 | At 30 September 2015 |
Shareholders' funds |
|
|
Net assets attributable to ordinary shareholders (£'000) |
237,551 |
194,914 |
Net asset value per ordinary share | 1,153.12p | 981.90p |
Mid-market price per ordinary share | 1,045.50p | 987.75p |
|
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|
Year ended 30 September 2016 | Year ended 30 September 2015 | |
Total return to equity shareholders |
|
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Net revenue return (£'000) Net capital return (£'000) | 5,507 34,679 | 4,406 3,053 |
| ----------- | ----------- |
| 40,186 | 7,459 |
| ====== | ====== |
Total return per ordinary share |
|
|
Revenue return | 26.85p | 23.59p |
Capital return | 169.05p | 16.35p |
| ----------- | ----------- |
| 195.90p | 39.94p |
| ====== | ====== |
Ongoing charge for year | 0.90% | 0.89% |
1 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 10 years
2 FTSE World Europe ex UK Index on a total return basis in sterling terms
3 Share price total return using mid-market closing prices
4 Calculated using published daily NAVs per ordinary share including current year revenue
5 The AIC Europe sector is combined of eight trusts
Sources: Morningstar Direct, Henderson, Datastream
CHAIRMAN'S STATEMENT
The Chairman of the Company, Rodney Dennis, reports on the year to 30 September 2016.
Performance
In the financial year to 30 September 2016, the Company produced total return NAV per ordinary share of 20.4% (2015: 5.3%). This compares to a total return of 21.1% (2015: -1.2%) for the FTSE World Europe ex UK Index in sterling terms. The Company's share price total return was 8.6% (2015: 5.2%).
The Company's shares continued to trade in a tight range relative to NAV per ordinary share, and for part of the year traded at a premium. This enabled the Company to continue to issue new ordinary shares, at a premium to the prevailing NAV per ordinary share, in order to satisfy demand in the market from investors. During the year, 750,000 new ordinary shares were issued.
Demand from investors was such that the authority to issue shares was exhausted part way through the year and the Company issued a prospectus in October relating to the issue of additional further shares. This authority expired on 22 September 2016.
Dividend
The Board is recommending a final dividend of 18.90 per ordinary share which, subject to shareholder approval, will be paid on 10 February 2017. When added to the interim payment of 7.50p this brings the full year dividend to 26.40, an increase of 7.1% over last year's distribution.
Board changes
The Board was pleased to announce the appointment of Robin Archibald as a director in March 2016. Robin brings with him 25 years' experience of corporate finance specialising in the UK closed-ended funds sector. He will stand for election by shareholders for the first time at the Annual General Meeting in February 2017.
Annual General Meeting ("AGM")
At the AGM on 1 February 2017, the Directors will again be seeking to renew the authorities previously granted to allot and to buy-back ordinary shares for cancellation or to be held in treasury. The passing of these resolutions will continue to provide the Board with flexibility to add shareholder value should the opportunity arise. Shareholders are being asked to renew the authority to call general meetings at short notice.
Further details are provided in a separate letter to shareholders which includes the Notice of AGM. I hope you will give these resolutions your full consideration and support. The Company's AGM will be broadcast live on the internet. If you are unable to attend in person you can watch the meeting live by visiting www.henderson.com/trustslive.
Outlook
In my interim report six months ago, as well as last year's Annual Report, I referred to the effect of currencies on returns to investors. I did so conscious of the fact that we live in extraordinary times, in which central bank policies have been aimed at staving off deflation. A battle ongoing since the crisis of 2008, these efforts by policy makers have at times looked increasingly desperate. Essentially, they target two variables: the bond yield curve and the currency of the country in question. Whenever politicians or central banks meddle in markets it is usually wise to be vigilant: unintended consequences often ensue. We now have a situation where elements of the assets of pension funds, insurance companies and other savings pools are invested in sovereign bonds delivering negative yields.
One unintended consequence of political events has benefited British based investors in the past year: Brexit. Although the UK media uniformly reported all manner of doomsday forecasts, (none of which has come to pass), the UK in fact showed remarkable flexibility. The adjustments involved a change in leadership of the ruling Conservative party and, crucially, the currency. Sterling's devaluation has been substantial and the mathematical fact is that it has benefited UK investors in foreign assets. It has also provided leeway to the British economy in a way that will be the envy of some on the Continent, notably the more fragile and inflexible parts, such as France.
As a result of its sterling denomination, your Company has benefited accordingly.
As our manager has often said, the investor in Europe is rarely far away from the next geopolitical event. At the time of writing, we await the results of the December Italian referendum. As we enter 2017 and the US swears in a new President with a sharply different agenda to the more recent past, there is the prospect of further political and policy disruption with the French and German elections later in the year.
Closer to home, we note the intended merger of our appointed investment manager, Henderson, with Janus Capital Group Inc. The transaction is expected to close in the second quarter of 2017. We will monitor progress with interest.
Successful investors always stick to what they are good at. We continue to believe in the approach that has served the Company and its investors well over the years: picking stocks and sectors. The graph below shows the returns from your Company, in share price as well as NAV terms, over the past one, three and five years, compared to the relevant benchmark.
In a world where the active fund management industry often seems to be found wanting when compared to passive investment strategies, an approach built upon disciplined, well analysed stock selection, can deliver something no index tracker can hope to: substantial value added in the form of meaningful long-term outperformance. Notwithstanding a tricky year behind us, where returns have been largely the result of currency movements, we believe that our active approach, as discussed in the Manager's Report to follow, will continue to serve our investors well.
Rodney Dennis
Chairman
FUND MANAGER'S REPORT
As indicated in our interim report, this year has served up headwinds as well as tailwinds. Indeed, we have found ourselves, as an investment team, lamenting the fickle rotation which has characterised European markets throughout the year. While this can often be ascribed to the usual "macro" noise - from putative China meltdown to European banking crisis to Brexit - our read is that there is an underlying lack of conviction among investors. As far as market direction is concerned it has to be said that we share this sense of unease. Our own queasiness has less to do with macro or geopolitical dramas and more to do with the fact that bargains remain hard to come by. It was this key point that led us to enter 2016 cautioning that delegating the task of making money to an equity index was unlikely to prove rewarding. This doesn't seem to have been wide of the mark as indices have struggled since the turn of the year.
The principal headwind for our portfolio in the last year has been the pharmaceutical sector. Since our decision to favour this industry in the spring of 2010 it has yielded ample reward. Yet, the past year has seen it stall. Much of this can be attributed to the electioneering of the US Presidential candidates, with Hillary Clinton particularly voluble on the sector. To dismiss the debate on drug pricing as wholly irrelevant would be a mistake. Our analysis tells us that the direction of travel is indeed to a tougher pricing environment but - and it is an important but - those companies discovering and launching drugs which meet unmet clinical needs will secure their patents, their pricing and their future. It is the me-too brigade who should be afraid. Our health care overweight is now focused around the two Swiss names Novartis and Roche as well as Germany's Fresenius.
Within health care, by far the biggest disappointment has been Bayer. Having seen Syngenta being bid for by ChemChina, it appears that the Company has been bounced into a blockbuster acquisition of its own, in the shape of Monsanto. We engaged actively with Bayer's management in an effort to persuade them to call off the wedding but, alas, to no avail. As often happens, M&A in any given industry can unleash the "fear of missing out" ("FOMO") and a headlong rush toward gigantism. Long suffering investors in Europe's hapless banking sector would no doubt attest.
Bayer's management team isn't the first and won't be the last to succumb to FOMO. We may, of course, be proven wrong but our number crunching suggests to us that this deal is unlikely to prove value accretive to Bayer shareholders anytime soon. Thus, we voted with our feet and sold our holding.
If we turn our attention to the tailwinds of the past year we should repeat the Chairman's point regarding currency. Sterling's accelerated devaluation post Brexit has provided a useful boon to the NAV, for which we should be grateful in an otherwise tough year for European indices. Yet, it would be wrong to believe that only the currency has provided succour. Upon assuming management responsibility for the portfolio in December 2010, I was keen to increase the Company's exposure to small and mid-cap companies. Europe is much maligned for its "macro", its politics and its "leaders" with their unmatched ability to take an eternity to decide on seismic issues such as whether we should have still or sparkling water. Yet, when we do stick to our knitting, we are reminded of this Continent's opportunity. This is no better highlighted than by its wealth of small and mid-cap stocks. As we often remind investors, we don't care where our companies were born: we care about what they go on to do.
Investors will note that those companies capitalised at up to €5 billion now represent some 29.5% of NAV. We don't have any fixed target for this segment of the market: it is necessarily opportunity driven. But it is that very opportunity which excites us: it remains our steadfast conviction that a closed ended fund is the ideal vehicle via which to access small and mid-cap companies and blend them with holdings in their larger brethren. This is the strategy which has produced good returns for our shareholders through the last five or so years and which we believe will continue to do so.
While a number of the above stocks were purchased during the year, it is notable that Tessenderlo Chemie, Warehouses de Pauw and Veidekke make a repeat show. Of course, no table of winners should stand unchallenged: we have had some smaller cap disappointments too. Our exposure to the European cable media sector has been a particular drag, with shares in Euskaltel and NOS failing by 14.0% and 15.7% respectively during the year. Nevertheless, we remain invested in both stocks as we see potential for pricing power and strong cash generation in what remains a consolidating sector.
From "growth" to "value"
While forever wary of style labels, we are of the view that we are at the beginning of a major change in market leadership. For the best part of a decade investors have found comfort in so called "quality growth" stocks, prime examples being staples as well as other perceived "safe" businesses. The powerful tailwind that such stocks have received in the form of ever lower interest rates looks to have blown itself out. The corollary of this - the headwind - has been felt by the banking sector in particularly. Thus, for the first time in many a year we favour European banks in our portfolio. Rarely is this a sector for the faint hearted. Nevertheless, we believe that its lengthy bear market is ending as a combination of rehabilitated capital ratios and an inflection in interest rates makes the industry once again investable. It will be a volatile ride, not least given the European political agenda for the year ahead, but we will seek to hold on.
Personal Holding
As at 10 October 2016, my personal holding in the Company had risen to 309,700 shares.
John Bennett
Fund Manager
Principal risks and uncertainties
The Board, with the assistance of Henderson, 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. In carrying out this assessment, the Board has considered the market uncertainty arising from the 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 which have been identified, and the steps taken by the Board to mitigate these as far as possible, 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. A significant proportion of the holdings in the Company's portfolio may not be represented in the benchmark index. An analysis of the Company's portfolio and geographical weightings compared to the benchmark index is included in the Annual Report 2016.
The Board considers this risk to have remained unchanged throughout the year under review.
• Gearing
Henderson 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 rigorous due diligence by Henderson. 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, Henderson's accounting, dealing or payment systems or the custodian's records could prevent the accurate reporting or monitoring of the Company's financial position. 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 Henderson, BNP and the depositary (which appoints the custodian) to mitigate against 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 has considered the increased threat of cyber activity on Henderson's operations during the year and is comfortable with the controls and procedures put in place in this regard. This will be an ongoing area of consideration.
• Key man risk
The Company depends on the diligence, skill and judgement of Henderson's investment team. The continued service of these individuals, and in particular John Bennett, could impact the future success of the Company.
The Board has been assured by Henderson that John Bennett and the European Equities team are appropriately remunerated and incentivised in their roles. The Company's performance fee provides an additional incentive. Henderson has a strong European Equities team which supports John Bennett in the management of the Company's portfolio and looks to develop managers with the capability to succeed John in the fullness of time.
The Board considers this risk to have remained unchanged throughout the year under review.
VIABILITY STATEMENT
The Company is a long-term investor and the Directors believe it is appropriate to assess the viability of the Company over a three-year period in recognition of its long-term horizon and what is believed to be investors' horizons, taking account of the Company's current position and the potential impact of the principal risks and uncertainties documented in this Strategic Report.
The assessment has considered the impact of the likelihood of the principal risks and uncertainties facing the Company, in particular market, gearing, financial and operational risks, in severe but plausible scenarios, and the effectiveness of any mitigating controls in place.
The Directors took into account the liquidity of the portfolio, the gearing and the income stream from the portfolio in considering the viability of the Company over the next three-years and its ability to meet liabilities as they fall due. This included 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 in line with its current dividend policy. Whilst detailed forecasts are only made over a shorter timeframe, the nature of the Company's business as an investment trust 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 Directors conducted this review for a period of three-years because they consider this to be an appropriate period over which they do not expect there to be any significant change in the current principal risks and adequacy of the mitigating controls in place. Also the Directors do not envisage any change in strategy or objectives or any events that would prevent the Company from continuing to operate over that period as the Company's assets are liquid, its commitments are limited and the Company intends to continue to operate as an investment trust. Only a substantial financial crisis affecting the global economy could have an impact on this assessment. Whilst there is currently uncertainty in the markets following the UK referendum result to leave the European Union, the Board does not believe that this will have a long-term impact on the viability of the Company and its ability to continue in operation.
Based on this assessment, 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 next three-year period.
RELATED PARTY TRANSACTIONS
The Company's transactions with related parties in the year were with the Directors and Henderson. 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 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 Henderson 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 Annual 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 2016
Company |
Sector | Country of listing | Valuation £'000 | Percentage of portfolio |
Novartis | Pharmaceuticals & Biotechnology | Switzerland | 18,542 | 7.35 |
Roche | Pharmaceuticals & Biotechnology | Switzerland | 16,532 | 6.56 |
Nestlé | Food Producers | Switzerland | 12,696 | 5.04 |
GALP Energia | Oil & Gas Producers | Portugal | 8,749 | 3.47 |
Com Hem | Fixed Line Telecommunications | Sweden | 7,963 | 3.16 |
Autoliv | Automobiles & Parts | Sweden | 7,656 | 3.04 |
SAP | Software & Computer Services | Germany | 7,122 | 2.83 |
Henkel | Chemicals | Germany | 6,572 | 2.61 |
Nordea | Banks | Sweden | 5,865 | 2.33 |
Tessenderlo Chemie |
Chemicals |
Belgium |
5,820 |
2.31 |
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| ---------- | ---------- |
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| 97,517 | 38.70 | |
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| ====== | ====== | |
Sector exposure
As at 30 September 2016
As a percentage of the investment portfolio excluding cash
%
Health care | 19.5 |
Industrials | 19.1 |
Financials | 16.0 |
Consumer goods | 15.8 |
Basic materials | 10.4 |
Consumer services | 6.3 |
Telecommunications | 4.3 |
Technology | 3.8 |
Oil & gas | 3.5 |
Utilities | 1.3 |
Geographic exposure
As at 30 September 2016
As a percentage of the investment portfolio excluding cash
%
Switzerland | 21.6 |
Germany | 17.1 |
Sweden | 16.9 |
France | 7.8 |
Netherlands | 7.0 |
Italy | 5.9 |
Belgium | 5.2 |
Portugal | 4.4 |
Denmark | 3.9 |
Spain | 3.5 |
Finland | 2.9 |
Norway | 2.6 |
United Kingdom | 1.2 |
Ireland | - |
Income Statement
|
Year ended 30 September 2016 | (Restated) Year ended 30 September 2015 | ||||
| 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 | - | 37,048 | 37,048 | - | 3,585 | 3,585 |
Exchange (loss)/gain on currency transactions | - | (906) | (906) | - | 2,176 | 2,176 |
Income from investments (note 3) | 7,139 | - | 7,139 | 5,786 | - | 5,786 |
Other income | 1 | - | 1 | 40 | - | 40 |
| ---------- | ---------- | ---------- | ---------- | ---------- | ---------- |
Gross revenue and capital gains | 7,140 | 36,142 | 43,282 | 5,826 | 5,761 | 11,587 |
Management fee (note 4) | (359) | (1,077) | (1,436) | (308) | (923) | (1,231) |
Performance fee (note 4) | - | - | - | - | (1,300) | (1,300) |
Other fees and expenses | (472) | - | (472) | (467) | - | (467) |
| ---------- | ---------- | ---------- | ---------- | ---------- | ---------- |
Net return on ordinary activities before finance costs and taxation | 6,309 | 35,065 | 41,374 | 5,051 | 3,538 | 8,589 |
Finance costs | (129) | (386) | (515) | (162) | (485) | (647) |
| ---------- | ---------- | ---------- | ---------- | ---------- | ---------- |
Net return on ordinary activities before taxation | 6,180 | 34,679 | 40,859 | 4,889 | 3,053 | 7,942 |
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Taxation on net return on ordinary activities (note 5) | (673) | - | (673) | (483) | - | (483) |
| ---------- | ---------- | ---------- | ---------- | ---------- | ---------- |
Net return on ordinary activities after taxation | 5,507 | 34,679 | 40,186 | 4,406 | 3,053 | 7,459 |
| ====== | ====== | ====== | ====== | ====== | ====== |
Return per ordinary share (note 6) | 26.85p | 169.05p | 195.90p | 23.59p | 16.35p | 39.94p |
| ====== | ====== | ====== | ====== | ====== | ====== |
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 items of other comprehensive income and therefore the net return on ordinary activities after taxation is also the total comprehensive income.
Statement of Changes in Equity
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 |
Capitalreserve £'000 |
Revenuereserve £'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 |
Shares issued | 375 | - | 7,260 | - | - | - | - | 7,635 |
Share issue cost | - | - | (6) | - | - | - | - | (6) |
Ordinary dividend 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 |
| ====== | ====== | ===== | ===== | ====== | ====== | ====== | ====== |
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Year ended 30 September 2015 | Called up share capital £'000 |
Special distributable reserve £'000 |
Share premium account £'000 |
Merger reserve £'000 |
Capital redemption reserve £'000 |
Capitalreserve £'000 |
Revenuereserve £'000 |
Total £'000 |
At 30 September 2014 | 9,102 | 24,833 | 3,796 | 61,344 | 9,421 | 51,574 | 10,918 | 170,988 |
Net return on ordinary activities after taxation | - | - | - | - | - | 3,053 | 4,406 | 7,459 |
Shares sold from treasury | - | 1,013 | 857 | - | - | - | - | 1,870 |
Shares issued | 894 | - | 18,287 | - | - | - | - | 19,181 |
Share issue cost | - | - | (120) | - | - | - | - | (120) |
Ordinary dividend paid | - | - | - | - | - | - | (4,464) | (4,464) |
| ---------- | ---------- | --------- | --------- | ---------- | ---------- | ---------- | ---------- |
At 30 September 2015 | 9,996 | 25,846 | 22,820 | 61,344 | 9,421 | 54,627 | 10,860 | 194,914 |
| ====== | ====== | ===== | ===== | ====== | ====== | ====== | ====== |
Statement of Financial Position
| At 30 September 2016 £'000 | At 30 September 2015 £'000 |
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Fixed assets |
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Investments at fair value through profit or loss | 252,102 | 212,338 |
| ---------- | ---------- |
Current assets |
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Debtors | 7,969 | 304 |
Cash at bank | 16,575 | 25,039 |
| ---------- | ---------- |
| 24,544 | 25,343 |
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Creditors: amounts falling due within one year | (39,095) | (42,767) |
| ---------- | ---------- |
Net current liabilities | (14,551) | (17,424) |
| ---------- | ---------- |
Net assets | 237,551 | 194,914 |
| ====== | ====== |
Capital and reserves |
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|
Called up share capital | 10,371 | 9,996 |
Special distributable reserve | 25,846 | 25,846 |
Share premium account | 30,074 | 22,820 |
Merger reserve | 61,344 | 61,344 |
Capital redemption reserve | 9,421 | 9,421 |
Capital reserve | 89,306 | 54,627 |
Revenue reserve | 11,189 | 10,860 |
| ---------- | ---------- |
Shareholders' funds | 237,551 | 194,914 |
| ====== | ====== |
Net asset value per ordinary share (note 7) | 1,153.12p | 981.90p |
| ======= | ====== |
Cash flow statement
|
Year ended 30 September 2016 £'000 | (Restated) Year ended 30 September 2015 £'000 |
Cash flows from operating activities |
|
|
Net return on ordinary activities before taxation | 40,859 | 7,942 |
Add back: finance costs | 515 | 647 |
Less gains on investments held at fair value through profit or loss | (37,048) | (3,585) |
Stock dividend | (274) | (18) |
Taxation paid | (673) | (483) |
Increase in debtors | 9274) | (7) |
Decrease in creditors | (1,173) | (142) |
| ---------- | ---------- |
Net cash inflow from operating activities* | 1,932 | 4,354 |
| ---------- | ---------- |
Cash flows from investing activities |
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Sales of investments held at fair value through profit or loss | 239,936 | 254,949 |
Purchases of investments held at fair value through profit or loss | (252,055) | (275,451) |
| ------------ | ---------- |
Net cash used in investing activities | (12,119) | (20,502) |
| ------------ | ---------- |
Cash flows from financing activities |
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Shares issued from treasury | - | 1,870 |
Issue of new ordinary shares | 7,635 | 19,181 |
Share issue expenses | (126) | - |
Equity dividends paid | (5,178) | (4,464) |
(Repayment)/drawdown of bank overdraft | (42) | 7,278 |
Interest paid | (566) | (621) |
| -------- | ---------- |
Net cash used in financing activities | 1,723 | 23,244 |
| -------- | ---------- |
Net (decrease)/increase in cash and equivalents | (8,464) | 7,096 |
Cash and cash equivalents at beginning of period | 25,039 | 17,943 |
| --------- | ---------- |
Cash and cash equivalents at end of period | 16,575 | 25,039 |
| --------- | ---------- |
Comprising: |
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Cash at bank | 16,575 | 25,039 |
| ===== | ====== |
*Cash inflow from dividends was £6,166,000 (2015: £5,303,000) and cash inflow from interest was £1,000 (2015: £40,000).
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. The date of transition to FRS 102 was 1 October 2014.
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. Following the application of the revised reporting standards there have been no significant changes to the accounting policies compared to those set out in the Company's Annual Report for the year ended 30 September 2015.
There has been no impact on the Company's Income Statement, Statement of Financial Position (previously called the Balance Sheet) or Statement of Changes in Equity (previously called the Reconciliation of Movements in Shareholders' Funds) for periods previously reported. The Cash Flow Statement previously reported has been restated to comply with the new presentation and disclosure requirements of the revised reporting standard.
In line with FRS 102 and the revised SORP, transaction costs incidental to the purchase and sale of investments have been re-classified and included as part of the gain on investments held at fair value through profit or loss instead of being shown separately on the face of the Income Statement as a capital expense.
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 Section 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.
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| 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.
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2. | Dividend |
| The Board has proposed a final dividend of 18.90p per share. The dividend will be paid on 10 February 2017 to shareholders on the register on 6 January 2017. The shares will be marked ex-dividend on 5 January 2017.
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3. | Income from investments | |||
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| 2016 £'000 | 2015 £'000 |
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| Listed investments: |
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| Overseas dividends | 6,618 | 5,340 |
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| UK dividends | 247 | 428 |
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| Stock dividends | 274 | 18 |
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| 7,139 | 5,786 |
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| 2016 | 2015 | ||||
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| Management and performance fees | Revenue £'000 | Capital £'000 | Total £'000 | Revenue £'000 | Capital £'000 | Total £'000 |
| Management fee | 359 | 1,077 | 1,436 | 308 | 923 | 1,231 |
| Performance fee | - | - | - | - | 1,300 | 1,300 |
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| ---------- | ---------- | ---------- | ---------- | ---------- | ---------- |
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| 359 | 1,077 | 1,436 | 308 | 2,223 | 2,531 |
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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. | ||||||
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| Year ended 30 September 2016 | Year ended 30 September 2015 | ||||
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 |
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| Overseas tax suffered | 673 | - | 673 | 483 | - | 483 |
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| Total tax charge for the year | 673 | - | 673 | 483 | - | 483 |
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| Year ended 30 September 2016 | Year ended 30 September 2015 | ||||
| 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 |
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| Return on ordinary activities before taxation | 6,180 | 34,679 | 40,859 | 4,889 | 3,053 | 7,942 |
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| Corporation tax at 20.0% (2015: 20.5%) | 1,236 | 6.936 | 8,172 | 1,002 | 626 | 1,628 |
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| Effects of: |
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| Non-taxable capital profits | - | (7,229) | (7,229) | - | (1,181) | (1,181) |
| Non-taxable income | (1,364) | - | (1,364) | (1,175) | - | (1,175) |
| Current year expenses not utilised | 126 | 293 | 421 | 173 | 555 | 728 |
| Overseas tax | 673 | - | 673 | 483 | - | 483 |
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| Total tax charge | 673 | - | 673 | 483 | - | 483 |
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| The Company's profit for the accounting year is taxed at an effective rate of 20.0% (2015: 20.5%). The standard rate of corporation tax has been 20.0% since 1 April 2015.
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| 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 £2,788,000 (2015: £2,357,000) based on a prospective corporation tax rate of 17.0% (2015: 20.0%). The UK Government announced in July 2015 that the corporate tax rate is set to be cut to 19.0% in 2017 and 18.0% in 2020. These reductions in the standard rate of corporation tax were substantially enacted on 26 October 2015 and became effective from 18 November 2015. The rate for 2020 was subsequently reduced to 17.0% by the Finance Act 2016. 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 them to be used. | ||||||
6. | Return per ordinary share | ||
| The return per ordinary share is based on the net return attributable to the ordinary shares of £40,186,000 (2015: net return of £7,459,000) and on 20,513,466 ordinary shares (2015: 18,676,353) 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. | ||
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| 2016 £'000 | 2015 £'000 |
| Net revenue return | 5,507 | 4,406 |
| Net capital return | 34,679 | 3,053 |
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| Net total return | 40,186 | 7,459 |
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| Weighted average number of ordinary shares in issue during the year | 20,513,466 | 18,676,353 |
| Revenue return per ordinary share | 26.85p | 23.59p |
| Capital return per ordinary share | 169.05p | 16.35p |
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| Total return per ordinary share | 195.90p | 39.94p |
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| 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 £237,551,000 (2015: £194,914,000) and on 20,600,761 (2015: 19,991,419) shares in issue on 30 September 2016, excluding treasury shares. | |||
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The movements during the year of the assets attributable to the ordinary shares were as follows: | |||
| 2016 £'000 | 2015 £'000 | |
Total net assets at 1 October | 194,914 | 170,988 | |
Total net return on ordinary activities after taxation | 40,186 | 7,459 | |
Issue of new ordinary shares | 7,629 | 19,061 | |
Shares sold from treasury | - | 1,870 | |
Net dividends paid in the year: |
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Ordinary shares | (5,178) | (4,464) | |
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Net assets attributable to the ordinary shares at 30 September | 237,551 | 194,914 | |
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8. | 2016 financial information The figures and financial information for 2016 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 2016 has been audited but has not yet been delivered to the Registrar of Companies. The Independent Auditor's Report on the 2015 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").
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9. | 2015 financial information The figures and financial information for 2015 are extracted from the published annual report and financial statements for the year ended 30 September 2015 and do not constitute the statutory accounts for that year. The 2014 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.
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10. | Annual report Copies of the annual report will be posted to shareholders in December 2016 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.
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11. | Annual General Meeting The Company's annual general meeting will be held on Wednesday 1 February 2017 at 2.30pm at 201 Bishopsgate, London EC2M 3AE. | ||
For further information contact:
James de Sausmarez Director of Investment Trusts Henderson Global Investors Limited Tel: 020 7818 3349 | Sarah Gibbons-Cook Investor Relations and PR Manager Henderson Global Investors Limited 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.