Annual Financial Report - Replacement

RNS Number : 7404D

Henderson Eurotrust PLC

11 October 2018

 

The issuer advises that the following replaces the Final Results Announcement released on Friday 5 October at 12.51 p.m. under RNS Number: 1632D and now includes the ex-dividend, record and payment dates for the final dividend. All other details remain unchanged. The full amended text appears below.

HENDERSON INVESTMENT FUNDS LIMITED

HENDERSON EUROTRUST PLC

LEGAL ENTITY IDENTIFIER:  213800DAFFNXRBWOEF12

HENDERSON EUROTRUST PLC

Annual Financial Results for the year ended 31 July 2018

This announcement contains regulated information

Investment objective

Henderson EuroTrust plc ("the Company") aims to achieve a superior total return from a portfolio of high quality European (excluding the UK) investments.

Performance highlights

•           The net asset value ("NAV") per share total return (including dividends reinvested and excluding transaction costs) was 6.8% compared to a total return from the benchmark index, the FTSE World Europe (ex UK) Index of 5.8%.

•           Increased proposed annual dividend: final dividend 22.5p, (2017: 18.0p) producing a total dividend to be paid from revenue for the year of 30.5p (2017: 25.0p) an increase of 22% on the previous year.

•           As at 31 July 2018 the Company's shares were trading at a discount to NAV of 8.2%, in comparison to trading at a discount of 3.3% at the prior year end.

Total return performance (including dividends reinvested and excluding transaction costs)
	1 year %	3 years %	5 years %	10 years %
Net asset value per ordinary share1	6.8	48.4	78.4	195.1
Share price2	1.6	35.7	76.8	210.9
AIC Europe Sector (Peer Group) Average - net asset value3	10.9	46.3	74.9	156.1
FTSE World Europe (ex UK) Index	5.8	41.2	61.1	116.6



1 Source: Morningstar for the AIC using cum income fair value NAV for one, three and five years and capital NAV plus income reinvested for 10 years

2 Based on the mid-market share price

3 Size weighted average (shareholders' funds)

Source: Morningstar for the AIC

Financial Information
	31 July 2018 pence per share	31 July 2017 pence per share
Net Asset Value	1,246.7	1,192.8
Revenue Return	33.1	27.5
Dividends	30.5	25.0

CHAIRMAN'S STATEMENT

Introduction

This year was another successful one for the Company, in which we have - yet again - proven that an active management style and a stable investment policy, even in turbulent times, can add value versus an index benchmark. We have added a new "strapline" to the front page of the Annual Report, 'Seeking growth, quality and consistency'.  Our aim is to set out, as succinctly as possible, how the Company aims to achieve its investment objective. I comment on this further below. We plan to use this in our marketing of the Company, to provide a clear signpost to current and potential investors.

Performance

I am pleased to report that the net assets of the Company rose by 6.8% on a total return basis, outperforming our benchmark, the FTSE World Europe (ex UK) by 1.0% in Sterling terms, net of all fees and costs. Over the last ten years, net asset performance has exceeded the index benchmark in all but one year.

The share price total return performance, including dividends, was a positive figure of 1.6%. The share price ended the year 0.7% below the previous year end, as the discount to Net Asset Value ("NAV") widened from 3.3% to 8.2%.

Dividends

The Board proposes a final dividend to be paid from revenue of 22.5p, taking the total distribution for the year to 30.5p - an increase of 22% on last year. The Board was pleased to be able to increase the level of both the interim and final dividends and, at the same time, to add £555,000 to the revenue reserve. Dividends have been raised every year, by an average of 15.4% per annum, since 2005 (excluding special dividends). Dividend growth has averaged a particularly strong 23.5% per annum over the last two years; looking forward, however, the Fund Manager is currently of the opinion that dividend growth is likely to be more muted.

Share issues and buybacks

No shares were issued or bought back during the year. The Company's shares traded at a discount to NAV for almost the whole of the year under review and the discount of the share price to NAV stood at 10.8% as at 27 September 2018. Given the continued strong investment performance and dividend growth, this is very disappointing; however our analysis suggests that the main reason for this is lower allocations to European equities due, in part at least, to adverse political sentiments around Europe and Brexit.

Your Board continues to monitor the discount/premium actively and will take action to issue, or buy back shares, where it believes it is in the best interests of shareholders to do so.

Gearing

We have again made use of our debt facility in the year under review. At the year-end, deliberately, there was a net cash position of £8.4 million, reflecting a cautious short term view of the market outlook by our Fund Manager. We continue to take an active approach to the use of gearing, and to keep the issue of longer term debt under consideration.  During the year, we took out a new, slightly larger debt facility for a maximum of £25 million, which our Fund Manager will continue to deploy in the interests of shareholders.

An active approach

In my report last year, I addressed some of the factors behind the Company's investment performance, in particular, a willingness to invest in companies currently believed to be capable of consistent dividend growth, even if this means incurring transaction costs to do so. Over the past year, the Fund Manager, together with the Janus Henderson Risk and Portfolio Analysis team, has put more "flesh on the bones" in terms of explaining the investment approach. This is covered in more detail in the Fund Manager's Report; in summary, this shows that over 50% of the portfolio at the year-end (26 holdings) was invested in "Compounders", almost one third of assets (16 holdings) in those deemed "Improvers", and the remaining 10% (4 holdings) in "Special Opportunities". The key point here is that it is the characteristics of individual companies that drive the allocation to one of these categories, not country or sector considerations. Quantitative analysis (Barra ex-ante Tracking Error decomposition) of the different features which distinguish the Company's portfolio from its comparator index confirms that a high percentage - approximately half - of  the risk in the portfolio is accounted for by stock specific factors (as opposed to other factors, including style, industry, geography etc.).

The Board feels that this type of information is at least as relevant to understanding the investment approach as more conventional ways of analysing the portfolio by industry and country weightings; however, I would like to stress that the picture shown through this analysis is an outcome of the investment approach, and not a driver. Just as we do not mandate geographical or sector weightings, we do not intend to use this framework to constrain the Fund Manager either.

As is to be expected, the Board reviews a wide range of risk and analytics on the portfolio and performance, including the impact of trading. A comprehensive review of trading within the portfolio during the year has confirmed that, over time and in the latest 12 months covered by the review, the impact of transactions has significantly added to performance.

Fund manager succession

Many of you will be aware of Tim Stevenson's exceptionally long tenure as the Company's Fund Manager. Tim has indicated his intention to retire during the course of 2019; by this time he will have managed the assets for 25 years, having been involved in the Company since inception in 1992. Whilst we are naturally sad to be saying goodbye to Tim next year, the Board is very pleased to announce that James (Jamie) Ross has been appointed as joint Fund Manager alongside Tim Stevenson, and will take over as the Fund Manager on Tim's departure. Jamie has supported Tim Stevenson closely over the last two years. Jamie joined Janus Henderson in 2007, and has worked in the European team since 2009, including with Tim Stevenson as joint manager for the Janus Henderson Horizon Pan European Equity Fund.

In reaching a decision to appoint Jamie as Tim's successor, the Board recognises the strength of the Janus Henderson European equities team. Having considered the matter in depth, we came to the conclusion that Jamie brings a combination of investment experience, personal characteristics and a strong belief in seeking quality, growth and consistency, which makes him the right person for this role. I would also like to point out that, today, Jamie is of a similar age to Tim when he became the Fund Manager in 1994.

On behalf of the Board, I would like to record our warmest thanks to Tim Stevenson, who has not only done an excellent job over a great many years for the shareholders as the Fund Manager, but has also been a pleasure to work with, not least because of his unfailing commitment to putting shareholders first.

Annual General Meeting ("AGM")

Our meeting will be held on Wednesday 14 November 2018 at 2.30pm at Janus Henderson Investors' offices at 201 Bishopsgate, London EC2M 3AE. Full details are set out in the Notice which has been sent to shareholders with this report. I hope as many shareholders as possible will be able to attend to take the opportunity to meet the Board and to hear a presentation from the Fund Managers.

Outlook

A year ago, I referred to Europe as being "surprisingly fashionable as a destination for investors". Since then, European equities have fallen out of vogue in the eyes of many UK investors. Not only the Company, but most companies in our peer group, are now trading on discounts in the region of 10%. One could speculate as to the causes of such change in attitudes, and the Trump-fuelled tax cuts which have produced an acceleration in growth in the US may be one such factor, but we see this as an even greater opportunity for the Company - and for our shareholders - than previously. This is because the overall sentiment has little correlation, in our opinion, with the performance of the high quality companies in the portfolio, whilst potentially making individual valuations more attractive.

It is also worth emphasising that the underlying exposure of the portfolio is very global; this year the Fund Manager's report shows that over 60% of the revenue of the companies we invest in comes from outside the region. Although the Board, and the Fund Manager, are more cautious about the outlook for markets than we have been for some time, this applies to the global outlook, rather than to European equities in particular.

Investing, or staying invested, after a long period of strong absolute returns, is never going to be comfortable. Nonetheless, the Fund Manager continues to find individual opportunities to "put money to work" and it may be that these are sufficient to warrant some use of gearing in the months ahead. The focus remains on finding the "Compounders"; those companies with strong market positions, sound financials and often very international businesses, which will enable them to achieve consistent dividend growth and, we hope, survive well through any downturn. It is in these companies that the portfolio is primarily invested.

As for Brexit, no doubt, readers will have their own hopes and fears for the outcome, though I feel that no one can be entirely satisfied with the process.   Whatever the precise outcome of Brexit, our portfolio will seek to deliver quality, growth and consistency in the years to come.

Nicola Ralston

Chairman

PRINCIPAL RISKS AND UNCERTAINTIES

The Board, with the assistance of the Manager, has carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency and liquidity. In carrying out this assessment, the Board considered the market uncertainty arising from the result of the UK's negotiations to leave the European Union.

With the assistance of the Manager, the Board has drawn up a risk map 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 Board's policy on risk management has not materially changed from last year. The principal risks which have been identified and the steps taken by the Board to mitigate these are as follows:

·      Investment activity and performance

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.

·      Portfolio and market

Although the Company invests almost entirely in securities that are quoted 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. The Board reviews the portfolio at each meeting and mitigates risk through diversification of investments in the portfolio.

·      Regulatory

A breach of Section 1158 could lead to a loss of investment trust status, resulting in capital gains realised within the portfolio being subject to corporation tax. A breach of the UKLA Listing Rules could result in suspension of the Company's shares, while a breach of the Companies Act 2006 could lead to criminal proceedings, or financial or reputational damage. The Manager is contracted to provide investment, company secretarial, administration and accounting services through qualified professionals. The Board receives internal controls reports produced by Janus Henderson on a quarterly basis, which confirm regulatory compliance.

·      Operational

Disruption to, or failure of, the Manager'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 risk that one or more of its service providers may not provide the required level of service.

Details of how the Board monitors the services provided by Janus Henderson and its other suppliers, and the key elements designed to provide effective internal control, are explained further in the internal controls section of the Corporate Governance Statement in the Annual Report. Further details of the Company's exposure to market risk (including market price risk, currency risk and interest rate risk), liquidity risk and credit and counterparty risk and how they are managed are contained in the Notes to the Financial Statements within the Annual Report.

BORROWINGS

The Company has in place an unsecured loan facility which allows it to borrow as and when appropriate. £25 million is available under the facility (2017: £20 million). The maximum amount drawn down in the year under review was £20.3 million (2017: £20.0 million), with borrowing costs for the year totalling £52,000 (2017: £50,000). None of the facility was in use at the year end (2017: £2.9 million). Actual gearing at 31 July 2018 was nil (2017: 0.1%) of net asset value.

VIABILITY STATEMENT

The Company is a long term investor; the Board believes it is appropriate to assess the Company's viability over a five year period in recognition of the Company's long term horizon and what the Board believes to be investors' horizons, taking account of the Company's current position and the potential impact of the principal risks and uncertainties as documented in the Strategic Report contained in the Annual Report.

The assessment has considered the impact of the likelihood of the principal risks and uncertainties facing the Company, in particular investment strategy and performance against benchmark, whether from asset allocation or the level of gearing, and market risk, in severe but plausible scenarios, and the effectiveness of any mitigating controls in place.

The Directors took into account the liquidity of the portfolio and the borrowings in place when considering the viability of the Company over the next five years and its ability to meet liabilities as they fall due. This included consideration of the duration of the Company's borrowing facilities and how a breach of any covenants could impact on the Company's net asset value and share price.

The Directors 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 due to the UK's negotiations 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 Board has a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next five year period.

RELATED PARTY TRANSACTIONS

The Company's transactions with related parties in the year were with its Directors and the Manager. There have been no material transactions between the Company and its Directors during the year and the only amounts paid to them were in respect of expenses and remuneration for which there were no outstanding amounts payable at the year end. Directors' shareholdings are disclosed in the Annual Report.

In relation to the provision of services by the Manager, other than fees payable by the Company in the ordinary course of business and the provision of sales and marketing services, there have been no material transactions with the Manager affecting the financial position of the Company during the year under review. More details on transactions with the Manager, including amounts outstanding at the year end, are given in the Notes to the Financial Statements within the Annual Report.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

In accordance with Disclosure Guidance and Transparency Rule 4.1.12, each of the Directors confirms that, to the best of his or her knowledge:

(a) the Company's Financial Statements, which have been prepared in accordance with UK Accounting Standards, give a true and fair view of the assets, liabilities, financial position and profit of the Company; and

(b) the Strategic 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.

For and on behalf of the Board

Nicola Ralston

Chairman

5 October 2018
 

FUND MANAGER'S REPORT

Summary

The year ended 31 July 2018 has been another testing one for a European (ex UK) fund manager. I am pleased that we have managed to perform slightly better than the benchmark index, with the total return of the Company coming in at 6.8% compared with 5.8% for the FTSE World Europe (ex UK) Index. Furthermore we have once again increased the revenue significantly, which has enabled the Board to be able to propose an increase in the total dividend by a further 22% from the previous level, and at the same time manage to add £555,000 to the revenue reserve as a buffer if tougher times lie ahead. Revenue was further enhanced during the year by the use of a substantial amount of our available gearing at the time of dividend payments in the first part of the 2018 calendar year. The dividend has been increased every year since 2005, and the dividend yield at year end share price is 2.7%.

It has been frustrating to see the solid economic and earnings backdrop evident last year drift into the background over the last 12 months. It has been replaced by political uncertainty both on a global basis (Trump's protectionist rhetoric and constant anti-European diatribes and Brexit fairy tales from the UK) and on a domestic basis as Germany, Italy and, to a lesser extent, Spain have all seen politics gain too much air time.

European economies have continued to provide a backdrop that in some circumstances would have combined with good earnings growth to support equities. However, against this more uncertain political environment European equities have struggled to make progress. Politics has served as a handy excuse (albeit not without some justification) for global investors to shun the whole European region.

Portfolio changes and approach

I remain convinced that an approach which concentrates on quality, reliable companies that can increase the return to us as shareholders will continue to succeed. As our financial year progressed, evidence mounted that the economic situation in Europe (and possibly worldwide) was as good as it was going to get. We look set to drift back into the low growth, low inflation era, a period of time that one could argue we never left. Debt levels prevent an irresponsible increase in government borrowing and companies are understandably reluctant to embark on major investment in a world where tariff barriers may spring up as quickly as someone can write a tweet. This, to some extent, explains why ten year bond yields only briefly touched 0.7% in Germany before drifting back to a level of about 0.4% or less. Meanwhile in the USA the yield curve has flattened to levels not seen since just before the Global Financial Crisis ("GFC"), and some see this as an ominous sign.

The gradual reversal of Quantitative Easing ("QE") that some would argue rescued world economies after the GFC, and others have argued has simply fuelled the bull market in bonds and equities, looks to have started worldwide. While it seems highly unlikely that the European Central Bank ("ECB") will actually increase interest rates for quite some time (well into late 2019 at the earliest in my opinion), the ECB will nevertheless continue to "taper" the amount of Bond buying (or to put it more simply, buy fewer and fewer government bonds). This also might accentuate the gradual drying up of liquidity and pose a challenge.

The sector analysis shows that we have increased exposure to materials, although this is due to the classification of Koninklijke DSM, Umicore and Linde in that sector rather than a move into mining companies. We see Umicore as potentially one of the most interesting growth companies in Europe due to its strength in the development of scale production of batteries for electric vehicles, while Koninklijke DSM is one of the world's leading nutrition and specialist material companies. Linde is in the process of merging with its American peer Praxair, and as such all these three companies have drivers which are vastly different from the more cyclically sensitive mining companies.

Technology has also increased - reflecting the size of the positions in Amadeus, SAP and Dassault Systèmes as well as the addition of Ericsson towards the end of the Company's financial year. In these companies we see European listed names which are genuine world leaders in their field, with the only question mark about whether their area of activity might be vulnerable to disruption from a new entrant. We think this unlikely in our holdings for the foreseeable future. We have held on to our "non-bank" financials such as Munich Re., Amundi, Deutsche Börse and Partners Group, all of which are in our view cheaply valued and have growth drivers which are stronger than purely lending or net interest margins. However, we have sold out of insurance company Axa and pure banks such as Nordea and Intesa Sanpaolo, the latter on concerns (which remain) about the Italian political situation. The exposure to financials overall was reduced to 20.4% of the portfolio from 26.7% at the end of July 2017, reflecting mainly the reduction in banks and the sale of Axa. In total we have sold 15 positions and added ten, leaving the portfolio with a total of 46 holdings.

There is little to be gleaned from the geographical split which shows where our holdings are actually listed (see below). We have made a decision to treat Italy with a fair amount of caution in the short term, as alluded to above, but apart from that it has always been more important for us to know where our companies undertake their activities, to the extent that we can. The analysis of this is in the underlying revenue exposure table below and shows our holdings have a slightly larger exposure to sales in the UK and the USA, and are less exposed to Europe and Asia relative to the benchmark index. I would not for one minute wish for anyone to infer that this reflects an unduly optimistic view of the USA and even less so for the UK, but it is simply that companies such as Fresenius Medical Care have about 60% of their sales in the USA (to take one example).

Underlying revenue exposure

Data illustrating the underlying revenue exposure is set out below:

	Asia and Emerging Markets %	North America %	UK %	Europe Ex UK %
Trust	30.8	22.4	5.5	37.9
Benchmark Index	35.6	19.8	4.3	39.9

The table (see below) showing the top contributors to performance makes for interesting reading. As in previous years, I have not included the "double negative" (and therefore positive!) effect of avoiding holdings in banks which have generally performed very badly in Europe. We have suffered from holding Crédit Agricole, ING and Nordea, but have sold only the latter as we feel the others are assuming an unreasonably gloomy view of Europe. It is encouraging to see terrific long term compounders such as Dassault Systèmes and Hermès feature among the top performers, along with another long term holding such as Amadeus. Koninklijke DSM, which has been (and continues to be) amongst the five largest positions, has been the single largest contributor as the market has recognised the extensive turnaround achieved. On the detractors to performance, we have sold Sodexo in the last year as the whole industry of outsourcing continues to be under intense pricing pressure. BIC, Publicis and Siemens have all been sold. It could be argued that all these companies face deep seated long term structural challenges, and perhaps our mistake was not to have recognised this earlier.

Top ten contributors to and bottom detractors from absolute performance

Data illustrating the top ten contributors to absolute performance is set out below:

	%
Koninklijke DSM	1.23
Equinor	1.05
Amadeus	0.91
Novo-Nordisk	0.83
Hermès	0.79
Total	0.76
Dassault Systèmes	0.70
Deutsche Börse	0.68
SAP	0.56
L'Oréal	0.53

Data illustrating the bottom ten detractors from absolute performance is set out below:

	%
Nordea Bank	-0.19
Sodexo	-0.20
Amundi	-0.21
Publicis	-0.22
Deutsche Post	-0.27
ING	-0.39
Crédit Agricole	-0.41
Signify	-0.45
Austrian Micro Systems	-0.46
Vestas Wind Systems	-1.05

Turnover, as expressed by the lower of purchases or sales as a percentage of average assets, was 66%, which is an increase on the previous year's level of 49% reflecting the use of a higher level of gearing during the year and moving the portfolio to a net cash position at the end of July.

In this report we include for the first time some work on the broad classification of our holdings, splitting the portfolio into "Compounders" (defined as companies which, in our view, have been and look set to continue to be reliable and consistent high return companies), "Improvers" (on the way, in our view, to achieving "Compounder" status) and "Special Opportunities" (as the name implies but including being a source of income). Details are in the table below which also gives consensus data on valuation, growth and quality. Long term investors in the Company would obviously expect the "Compounder" basket to be the largest, and at year end, on our internal analysis using Factset Data, it accounted for 54% of the portfolio, with 32% in the "Improvers" and 10% in "Special Opportunities" when looking at the entire portfolio including banks. The (average) financial metrics of these companies are also set out in the table below which shows the quality and growth of our holdings compared with the benchmark index. There is a wealth of information in this table, but it is those criteria of growth and quality which stand out most firmly in my opinion.

Classification of holdings as at 31 July 2018

	Compounders	Improvers	Special Opportunities	Company	Index
	Average	Average	Average	Average	Average
Market Capitalisation (£'000)	46,941	29,966	70,736	43,317	15,722
Price/book (x)	6.3	1.9	1.9	4.4	3.3
Trailing 12 month dividend yield (%)	2.0	3.4	4.2	2.7	2.9
Trailing 12 month price/earnings (x)	28.9	19.7	19.8	25.0	22.9
Forward 2019 price/earnings (x)	21.5	15.9	12.3	18.8	17.1
Historical 3 year earnings per share growth per annum (%)	9.4	19.4	12.8	13.1	16.3
Return on equity (%)	23.1	8.0	9.6	16.7	15.4
Operating margin (%)	21.5	12.1	13.3	17.5	16.0
Long Term Debt to Capital (%)	23.0	36.9	41.0	29.4	32.6
Number of Securities	26	16	4	46	513
Weight (%)1	54.4	32.2	10.2

Source: Factset/ Fundamentals in GBP. Arithmetic Averages

¹ The remainder (3.2%) was held as cash

Outlook

There are perhaps more challenges ahead for the next year than has been the case for a number of years. Firstly, I think it realistic to expect that growth will be slower than over the past few years. For this reason, the ECB has repeatedly confirmed that it will take a very prudent approach to the reduction in QE, and is unlikely to increase official interest rates until well into 2019 (if at all). Profits growth, which has been supportive for the last few years, should remain positive. Politics looks a major worry and I hope it will be possible to ignore that, as Angela Merkel draws towards the end of her "reign" and Italian machinations continue, while France should be a haven of relative stability. Brexit, which I continue to believe, is a disaster for the UK and offers not a single solution to any real problem, will also be damaging to Europe, albeit to a much lesser extent. In this climate I continue to believe that good quality companies which reliably invest in the further growth of their business will still do well.

Finally, I have informed the Board that I intend to retire during the course of 2019. The Board has appointed Jamie Ross, who has been supporting me closely over the last two years and has been at Janus Henderson for over ten years, as joint Fund Manager with effect from 5 October 2018.  Jamie will become the sole Fund Manager upon my retirement. Jamie is backed up by the excellent European Team at Janus Henderson, and I think he will do a fantastic job for the Company's shareholders.

I would like to thank the colleagues with whom I have been lucky enough to work during my almost 33 years at Janus Henderson. They have provided numerous great investment ideas which I have sometimes used for the Company.  Many have been highly successful and I am afraid that I have often taken the credit for their work! I would also like to thank the Board for their support over the years. Markets have not always been easy, but the Board has appropriately questioned me and always been supportive. It has been fun investing in some truly great companies, many of which are still in the portfolio. I look forward to continuing to work with Jamie over the coming months. Thank you.

Tim Stevenson

Fund Manager

TWENTY LARGEST INVESTMENTS AS AT 31 JULY 2018

	Company		Country	Sector	Market Value 2018 £'000	Percentage of Portfolio 2018
1	Deutsche Post		Germany	Air Freight and Logistics	11,012	4.31
2	Novo-Nordisk		Denmark	Pharmaceuticals and Biotechnology	10,516	4.12
3	Koninklijke DSM		Netherlands	Specialist Nutrition and Materials Supplier	10,269	4.02
4	Amundi		France	Bank and Asset Manager	9,493	3.72
5	Munich Re.		Germany	Insurance	9,297	3.64
6	Roche		Switzerland	Pharmaceuticals and Biotechnology	8,048	3.15
7	Equinor (formerly known as Statoil)		Norway	Oil and Gas Producers	7,961	3.12
8	Koninklijke Philips		Netherlands	Medical Equipment	7,815	3.06
9	SAP		Germany	Enterprise Software	7,719	3.02
10	Total		France	Oil and Gas Producers	7,664	3.00
Top 10					89,794	35.16
11	Deutsche Telekom	Germany		Telecommunications	7,131	2.79
12	Partners Group	Switzerland		Private Equity Asset Manager	6,976	2.73
13	SGS	Switzerland		Industrial Testing, Verification and Certification	6,844	2.68
14	Crédit Agricole	France		Banks	6,763	2.65
15	Nestlé	Switzerland		Food Producer	6,753	2.65
16	Amadeus	Spain		Travel Software	6,665	2.61
17	Geberit	Switzerland		Sanitary Systems	6,620	2.59
18	Deutsche Börse	Germany		Financial Services	6,422	2.52
19	Legrand	France		Electrical Installations	6,082	2.38
20	ING	Netherlands		Banks	5,602	2.19
Top 20					155,652	60.95

Sector exposure

As a percentage of the investment portfolio excluding cash

	31 July 2018	31 July 2017
Basic Materials	8.8	4.3
Consumer Goods	10.8	10.2
Consumer Services	1.7	8.3
Financials	20.4	26.7
Health Care	17.2	14.2
Industrials	18.2	18.7
Oil & Gas	7.4	5.8
Technology	9.7	6.0
Telecommunications	4.4	3.2
Utilities	1.5	2.6

Geographic exposure

As a percentage of the investment portfolio excluding cash

	31 July 2018	31 July 2017
Belgium	1.3	0.0
Denmark	6.3	5.9
France	24.6	32.0
Germany	24.7	25.1
Ireland	0.0	1.4
Italy	0.0	1.9
Netherlands	11.7	12.3
Norway	3.1	2.0
Spain	5.7	4.6
Sweden	4.5	2.5
Switzerland	18.1	12.3

Market capitalisation of the portfolio at 31 July 2018

Market cap	% Portfolio weight	% Benchmark weight
>€20bn	64.1	64.5
€10bn - €20bn	27.2	18.4
€5bn - €10bn	6.4	11.9
€1bn - €5bn	1.5	5.1
<€1bn	0.8	0.1

Source: Janus Henderson Investors

AUDITED INCOME STATEMENT

	Year ended 31 July 2018			Year ended 31 July 2017
	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 (note 2)	-	11,264	11,264	-	45,190	45,190
Investment income (note 3)	8,758	-	8,758	7,407	-	7,407
Other income	3	-	3	-	-	-
	---------	----------	---------	---------	----------	---------
Gross revenue and capital gains	8,761	11,264	20,025	7,407	45,190	52,597
Management and performance fees	(331)	(1,325)	(1,656)	(306)	(1,222)	(1,528)
Other administrative expenses	(491)	-	(491)	(463)	-	(463)
	---------	----------	---------	---------	----------	---------
Net return before finance costs and taxation	7,939	9,939	17,878	6,638	43,968	50,606
Finance costs	(10)	(42)	(52)	(10)	(40)	(50)
	---------	----------	---------	---------	----------	---------
Net return before taxation	7,929	9,897	17,826	6,628	43,928	50,556
Taxation on net return	(912)	-	(912)	(811)	-	(811)
	---------	----------	---------	---------	----------	---------
Net return after taxation	7,017	9,897	16,914	5,817	43,928	49,745
	=====	=====	=====	=====	=====	=====
Return per ordinary share- basic and diluted (note 4)	33.1p	46.7p	79.8p	27.5p	207.3p	234.8p
	=====	=====	=====	=====	=====	=====

The total return column of this statement represents the Income Statement of the Company.

All revenue and capital items in the above statement derive from continuing operations. 

The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies. 

The Company had no recognised gains or losses other than those disclosed in the Income Statement.

 

AUDITED STATEMENT OF CHANGES IN EQUITY

Year ended 31 July 2018	Called up share capital £'000	Share premium account £'000	Capital redemption reserve £'000	Capital reserves £'000	Revenue reserve £'000	Total Shareholders' funds £'000
At 1 August 2017	1,060	41,032	263	203,164	7,191	252,710
Net return after taxation	-	-	-	9,897	7,017	16,914
Final dividend paid in respect of the year ended 31 July 2017 (paid 22 November 2017)	-	-	-	-	(3,813)	(3,813)
Interim dividend paid in respect of the year ended 31 July 2018 (paid 27 April 2018)	-	-	-	-	(1,695)	(1,695)
	----------	-----------	----------	-----------	----------	------------
At 31 July 2018	1,060	41,032	263	213,061	8,700	264,116
	======	======	======	=======	======	=======

Year ended 31 July 2017	Called up share capital £'000	Share premium account £'000	Capital redemption reserve £'000	Capital reserves £'000	Revenue reserve £'000	Total Shareholders' funds £'000
At 1 August 2016	1,060	41,032	263	159,236	5,823	207,414
Net return after taxation	-	-	-	43,928	5,817	49,745
Final dividend paid in respect of the year ended 31 July 2016 (paid 23 November 2016)	-	-	-	-	(2,966)	(2,966)
Interim dividend paid in respect of the year ended 31 July 2017 (paid 28 April 2017)	-	-	-	-	(1,483)	(1,483)
	----------	-----------	----------	-----------	----------	------------
At 31 July 2017	1,060	41,032	263	203,164	7,191	252,710
	======	======	======	=======	======	=======

 

AUDITED STATEMENT OF FINANCIAL POSITION

	As at 31 July 2018 £'000	As at 31 July 2017 £'000
Fixed assets Fixed asset investments held at fair value through profit or loss
Listed at market value  -  overseas	255,372	252,926
	----------	----------
Current assets
Debtors	1,049	865
Cash and cash equivalents	8,372	2,494
	----------	---------
	9,421	3,359
Creditors: amounts falling due within one year	(677)	(3,575)
	----------	---------
Net current assets/(liabilities)	8,744	(216)
	----------	---------
Total assets less current liabilities	264,116	252,710
	----------	---------
Net assets	264,116	252,710
	======	======
Capital and reserves
Called up share capital	1,060	1,060
Share premium account	41,032	41,032
Capital redemption reserve	263	263
Capital reserves	213,061	203,164
Revenue reserve	8,700	7,191
	-----------	-----------
Total shareholders' funds	264,116	252,710
	======	======
Net asset value per ordinary share   (basic and diluted)	1,246.7p	1,192.8p
	======	======

 

NOTES TO THE FINANCIAL STATEMENTS

1.	Accounting policies
(a)	Basis of preparation
	The Company is a registered investment company as defined in section 833 of the Companies Act 2006 and is incorporated in the United Kingdom. It operates in the United Kingdom and is registered at 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 was effective for periods commencing on or after 1 January 2015) and with the Statement of Recommended Practice: Financial Statements of Investment Trust Companies and Venture Capital Trusts ("the SORP") issued in November 2014 and updated in February 2018. 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. 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 31 July 2017. As an investment company the Company has the option, which it has taken, not to present a cash flow statement. A cash flow statement is not required when an investment company meets all the following conditions: substantially all of the entity's investments are highly liquid, substantially all of the entity's investments are carried at market value, and the entity provides a statement of changes in equity. The Directors have assessed that the Company meets all of these conditions. The Financial Statements have been prepared under the historical cost basis except for the measurement at fair value of investments. In applying FRS102, 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.
(b)	Going concern The assets of the Company consist of securities that are readily realisable and, accordingly, the Directors believe that the Company has adequate resources to continue in operational existence for at least 12 months from the date of approval of the Financial Statements. Having assessed these factors, the principal risks and other matters discussed in connection with the viability statement, the Board has determined that it is appropriate for the Financial Statements to be prepared on a going concern basis.

2.	Gains on investments held at fair value through profit or loss
		2018 £'000	2017 £'000
	Gains on sale of investments based on historical cost	32,850	26,010
	Less: Revaluation gains recognised in previous years	(38,236)	(20,233)
		------------	------------
	(Losses)/gains on investments sold in the year based on carrying value at previous statement of financial position date	(5,386)	5,777
	Revaluation of investments held at 31 July	16,545	40,020
	Exchange gains/(losses)	105	(607)
		----------	----------
		11,264	45,190
		======	======

3.	Investment income		2018 £'000	2017 £'000
	Overseas dividend income		8,758	7,407
			----------	----------
			8,758	7,407
			=====	=====
4.	Return per ordinary share - basic and diluted
	The total return per ordinary share is based on the net return attributable to the ordinary shares of £16,914,000 (2017: £49,745,000) and on 21,185,541 ordinary shares (2017: 21,185,541), being the weighted average number of shares in issue during the year. The total return can be further analysed as follows:
		2018 £'000		2017 £'000
	Revenue return	7,017		5,817
	Capital return	9,897		43,928
		----------		----------
	Total return	16,914		49,745
		======		======
	Weighted average number of ordinary shares	21,185,541		21,185,541
		2018 Pence		2017 Pence
	Revenue return per ordinary share	33.1		27.5
	Capital return per ordinary share	46.7		207.3
		----------		----------
	Total return per ordinary share	79.8		234.8
		======		======
	The Company has no securities in issue that could dilute the return per ordinary share. Therefore the basic and diluted return per ordinary share are the same.

5.	Dividends on ordinary shares
						2018 £'000
	Revenue available for distribution by way of dividend for the year					7,017
	Interim dividend of 8.0p paid 27 April 2018					(1,695)
	Proposed final dividend for the year ended 31 July 2018 of 22.5p (based on 21,185,541 ordinary shares in issue at 2 October 2018)					(4,767)
						-----------
	Undistributed revenue for section 1158 purposes*					555
						======
	*Undistributed revenue comprises 6.3% of the total income of £8,761,000. The proposed final dividend of 22.5p per share for the year ended 31 July 2018 is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these Financial Statements. The proposed final dividend of 22.5p per ordinary share will be paid on 21 November 2018 to shareholders on the register of members at the close of business on 19 October 2018. The shares will be quoted ex-dividend on 18 October 2018. All dividends have been paid or will be paid out of revenue profits.
6.	Net asset value per ordinary share (basic and diluted)
	The net asset value per ordinary share of 1,246.7p (2017: 1,192.8p) is based on the net assets attributable to ordinary shares of £264,116,000 (2017: £252,710,000) and on 21,185,541 (2017: 21,185,541) ordinary shares in issue at the year end. There were 20,000 shares held in Treasury at the year end (2017: 20,000).
7.	Called up share capital
			Number of shares entitled to dividend	Total number of shares	Nominal value of shares £'000
	Allotted and issued ordinary shares of 5p each at the end of the year ended 31 July 2017		21,185,541	21,205,541	1,060
			-----------------	----------------	----------
	At 31 July 2018		21,185,541	21,205,541	1,060
			=========	=========	=====
	During the year the Company issued no shares (2017: none). During the year the Company repurchased no shares (2017: none). Shares held in treasury (2018: 20,000; 2017: 20,000) are not entitled to receive a dividend. Since 31 July 2018, no further shares have been repurchased or issued (2017: nil).
8.	2018 financial information
	The figures and financial information for the year ended 31 July 2018 are extracted from the Company's Annual Financial Statements for that period and do not constitute statutory financial statements for that period. The Company's Annual Financial Statements for the year ended 31 July 2018 have been audited but have not yet been delivered to the Registrar of Companies. The Independent Auditors' Report on the 2018 Financial Statements was unqualified, did not include a reference to any matter to which the Auditors drew attention without qualifying the report, and did not contain any statements under sections 498(2) and 498(3) of the Companies Act 2006.
9.	2017 financial information
	The figures and financial information for the year ended 31 July 2017 are extracted from the Company's Annual Financial Statements for that period and do not constitute statutory financial statements for that period. The Company's Annual Financial Statements for the year ended 31 July 2017 have been audited and delivered to the Registrar of Companies. The Independent Auditors' Report on the 2017 Financial Statements was unqualified, did not include a reference to any matter to which the Auditors drew attention without qualifying the report, and did not contain any statements under sections 498(2) and 498(3) of the Companies Act 2006.
10.	Annual Report and Annual General Meeting
	The Annual Report for the year ended 31 July 2018 will be posted to shareholders in October 2018 and copies will be available from the Corporate Secretary at the Company's Registered Office, 201 Bishopsgate, London EC2M 3AE. The Annual General Meeting will be held at the registered office on Wednesday 14 November 2018 at 2.30pm. The Notice of the Annual General Meeting will be posted to shareholders with the Annual Report.
11.	Website This document, and the Annual Report for the year ended 31 July 2018, will be available on the following website: www.hendersoneurotrust.com.

For further information please contact:

Tim Stevenson Fund Manager, Henderson EuroTrust plc Telephone: [phone]	James de Sausmarez Director and Head of Investment Trusts, Janus Henderson Investors Telephone: [phone]
Laura Thomas Investment Trust PR Manager Janus Henderson Investors Tel: [phone]

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.

 

END

 

 

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