Doc re. Annual Financial Report

RNS Number : 2011U

Henderson High Income Trust PLC

27 March 2019

 

HENDERSON HIGH INCOME TRUST PLC

HENDERSON INVESTMENT FUNDS LIMITED

LEGAL ENTITY IDENTIFIER 213800OEXAGFSF7Y6G11

27 March 2019

Annual Financial Report for the year ended 31 December 2018

This announcement contains regulated information

PERFORMANCE HIGHLIGHTS

Total return performance to 31 December 2018	One year %	Five years %
Benchmark1	(7.9)	23.7
NAV2	(13.9)	21.3
Share price3	(11.3)	19.0

	2018	2017
NAV per share4	159.46p	195.65p
Mid-market price per share	159.50p	190.00p
Revenue return per share	10.06p	10.13p
Net assets	£210.8m	£257.2m
Dividend for the year	9.60p	9.40p
Dividend yield5	6.0%	4.9%
Ongoing charge for the year	0.80%	0.75%
Gearing	27.1%	21.0%

¹ The benchmark is a composite of 80% of the FTSE All-Share Index (total return) and 20% of the ICE BofAML Sterling Non-Gilts Index (total return) rebalanced annually

² Net asset value per share total return (including dividends reinvested and excluding transaction costs) with debt at fair value

³ Includes dividends reinvested

⁴ Net asset value with debt at fair value as published by the AIC

⁵ Based on the dividends paid or recommended for the year and the share price at the year end

Sources: Morningstar for the AIC, Janus Henderson, DataStream and AIC. All data is either as at 31 December 2018 or for the year ended 31 December 2018

CHAIRMAN'S STATEMENT

Performance

In last year's annual report, I anticipated that markets would continue to be volatile and capital returns more vulnerable in 2018. However, I had not foreseen the dramatic oscillations which occurred. The promising start to the year faltered quickly by the end of January as fears emerged that US interest rates would rise faster than expected. As I reported in my interim statement, the significant UK market falls recorded in the first quarter had reversed by the summer, with a return to positive territory. This trend, however, was short-lived. In the second half of the year attention turned to President Trump's trade war with China and the potential for increased monetary tightening in both the US and the UK. By the final quarter, the Federal Reserve had raised interest rates three times in the year and the Bank of England once, trade tariffs had been introduced by both China and the US and global growth expectations had reduced. This combination of factors resulted in a sharp sell-off in equity markets in the fourth quarter. 2018 ended as the worst year for global equities since the 2008 financial crisis and the FTSE All-Share Index fell by 9.5% on a total return basis. This was the fourth worst annual return for the UK market in 25 years.

As you would expect, given the Company's portfolio of predominantly UK equities, the Company has not been immune to these market gyrations. However, it is disappointing that the portfolio has declined by more than the Company's benchmark. For the full financial year ending 31 December 2018, the Company's net assets have fallen by 13.9% (with debt at fair value), compared to the 7.9% decline of the total annual return of the Company's benchmark. The year proved difficult for income fund managers to outperform with certain traditional income sectors, such as telecommunications, tobacco and financials, performing poorly, while the dramatic falls in the fourth quarter impacted the Company's medium and smaller sized companies. These factors, combined with the Company's gearing in a falling market, contributed substantially to the portfolio's underperformance in 2018. Encouragingly, the Company's net asset value has rebounded so far in 2019.

The Company's shares traded at a small discount to their net asset value (with debt at fair value) for most of the year as UK equities in general remained unloved by investors. The shares finished the year at par compared with the discount of 2.9% at the end of 2017, giving a share price total return of

-11.3%.

Dividends

Despite the pessimistic market sentiment, 2018 was a record year for dividends from UK listed companies with nearly £100 billion of dividends (including specials) distributed to investors. Indeed the companies held within the portfolio continued for the most part to deliver solid financial performance and grow their profits, generating good underlying dividend growth. This resulted in healthy revenues for the Company with earnings per ordinary share totalling 10.06p compared to the previous year's 10.13p: the main cause of the difference in earnings per share was the slight drop in the receipt of special dividends from investments. The dividend yield on the Company's share price as at year end was 6.0%, considerably higher than the FTSE All-Share Index yield of 4.5%. We had sufficient confidence in the cash generation of the portfolio to increase the Company's third dividend for the financial year ending 31 December 2018 to 2.425p per share. We have announced the fourth dividend at the same level, making a total of 9.60p per share for 2018, representing growth of 2.1% on the previous year.

We have now steadily increased our annual total dividend for the last six years. Over this period the dividend growth has comfortably outstripped inflation (as measured by the Consumer Price Index ('CPI')).

At the same time, we have managed to bolster our revenue reserves, thereby providing a cushion for more difficult periods that may lie ahead. It remains the Board's objective to increase the Company's dividend gradually, subject to investment conditions at the time and whether we determine such an increase to be sustainable in the future. To make this assessment, we monitor the level of income received by the Company, our investments' ability to grow dividends and the level of our own revenue reserves.

Investment portfolio

David Smith's Fund Manager Report provides more detail on the positioning of the portfolio and the various actions taken during the year. In light of the increased market volatility this year, the Board's strategy meeting in November focussed on different measures available to provide potentially greater protection from a fall in the capital value of the portfolio without significantly eroding future income. As a result of this assessment, the portfolio's allocation to fixed interest assets has been increased. At year end bonds had risen to 14% of the total portfolio from just over 10% at the end of 2017 and have since increased to about 15%. In particular, attractive opportunities have been identified from the higher quality investment grade borrowers of the US corporate bond market (BBB rated and above). The addition of such bonds further diversifies the Company's revenue stream and aims to reduce the overall risk in the portfolio. Half the purchases of US bonds were funded by borrowings in US dollars within the Company's existing multi-currency loan facility, thereby reducing an overall increase in the Company's exposure to the US dollar.

Gearing

Our policy on gearing is explained in our Investment Policy in the Annual Report. We have in place a floating rate revolving credit facility of £45 million with Scotiabank with approximately £40 million currently utilised. The undrawn portion provides us with future flexibility should investment opportunities arise. This floating rate facility combined with the long term fixed rate unsecured note of £20 million helps to generate additional income and increase the Company's total return to shareholders. Our level of gearing has unusually risen to 27.1% as a result of the fall in capital value of the underlying assets during the market downturn in the fourth quarter. Although gearing has reduced so far in 2019, given the rise in the Company's assets, it is important to remember that nearly two thirds of the Company's borrowings now support the fixed interest holdings within the portfolio, with an average effective yield of 4.8%, well in excess of the Company's average cost of borrowing of 2.7%. The level of gearing allocated to equities is therefore considerably lower than the reported headline gearing figure.

Growth

We continue to believe that it is in the best interest of all our shareholders for the Company to increase and diversify its range of shareholders as this should with time increase the liquidity of the Company's shares and spread the Company's fixed costs over a larger capital base. As the Company's shares traded at a discount throughout most of 2018, we did not exercise the authority to allot shares at a premium to net asset value, as granted by shareholders at the last AGM. This authority is due to expire at the forthcoming AGM and we are therefore asking shareholders to renew this authority so that the Company can expand further if and when appropriate.

Succession planning

As I explained last year, the Board has already begun to execute its plan to refresh itself over the coming years, so that a younger Board (both in age and tenure) will be in place, with five new directors joining between 2016 and 2021. We have deliberately phased the introduction of new directors over this five-year time frame to ensure that the required mix of skills, experience and corporate knowledge is retained during this process and beyond. This succession plan complies with the new AIC Code of Corporate Governance issued in February 2019. Our succession plan includes five years of service by me as Chair, following my eight years as a non-executive director on the Board, with my retirement planned in May 2021, the year following the Company's continuation vote in 2020. The Board believes this plan continues to achieve a sensible balance between continuity and reinvigoration and is in the best interests of the Company.

Janet Walker who has served as Audit Committee Chair since June 2007 will be retiring from the Board at the forthcoming AGM. I would like to thank Janet for her significant contribution to the Board's discussions and for her wise counsel over the 12 years that she has been a member of the Board. She will be very much missed.

Janet will be succeeded by Jonathan Silver who was appointed to the Board from 2 January 2019. Jonathan, a Chartered Accountant, brings a wealth of financial and audit experience, having served as Chief Financial Officer of Laird plc for over 20 years until 2015 and currently as Chairman of the Audit Committee of Spirent Communications plc and Invesco Income Growth Trust plc.

 

Annual General Meeting

We look forward to seeing as many of you as possible at our AGM which will be held at 12 noon on 8 May 2019 at the offices of Janus Henderson at 201 Bishopsgate, London, EC2M 3AE. In addition to the formal business of the meeting, David Smith, our Fund Manager, will as usual give a presentation on the Company's portfolio and performance and you will have the opportunity to talk to the Board, David and other Janus Henderson representatives. We very much welcome your comments and questions. We encourage those of you who are unable to attend to use your proxy votes and to watch the Meeting live by logging on to www.janushenderson.com/trustslive. We will also be holding a similar presentation in Guernsey on 17 May 2019 to enable our newer Guernsey based shareholders to meet David and myself again.

Prospects and outlook

The global economic outlook is without doubt less optimistic than it appeared at the start of last year and recent news about China's dip in GDP growth in the fourth quarter of 2018 has cast longer shadows on the horizon. I have managed to avoid even mentioning Brexit so far and with good reason. It takes a braver, or more foolhardy, person than me to predict the outcome of the UK's potential withdrawal from the European Union or for that matter even its timing! Needless to say, domestic politics are adding to future uncertainty in the UK markets.

The shares of many companies with defensive characteristics are now trading on a low price to earnings ratio and some may provide appealing investment opportunities for the portfolio. There still exist high quality companies, with talented management teams that have the ability to generate consistently strong and dependable cash flows, resulting in healthy dividend pay-outs to investors regardless of these unpredictable times. We rely on David's research and active investment skills to select those investments that should provide capital appreciation over the long term and a high and sustainable income stream, valued understandably by our shareholders in this continuing low interest rate environment.

Margaret Littlejohns

Chairman

FUND MANAGER'S REPORT

Review of year

Despite the UK stock market reaching all-time highs in May, share prices fell sharply in the second half of the year leading to a 9.5% decline in the FTSE All-Share Index on a total return basis in 2018. Concerns over a rise in wage growth and its subsequent impact on the pace of US monetary tightening, further fuelled by increased trade tensions between the US and China, led to a sharp sell-off in global equity markets. The Company's net asset value declined 13.9% in the year, underperforming the benchmark's fall of 7.9%. Although the weak market conditions made it difficult for the Company, stock selection within the equity portfolio was disappointing while gearing further detracted from returns.

Brexit uncertainties continued to weigh on UK consumer and business sentiment while economic growth remained subdued and below the historical average. Although Prime Minister Theresa May managed to agree a draft withdrawal agreement with the EU towards the end of the year, it provoked much criticism from both sides of the political divide. Its publication led, in quick succession, to further ministerial resignations, the postponement of the meaningful vote in Parliament and a no-confidence motion in Theresa May, which she survived. Sterling weakened further post this while UK equities lagged other developed market indices.

The equity portfolio fell 11.3% during the year, underperforming the FTSE All-Share Index return. Amid the weak market backdrop the Company's holdings in financials, such as Standard Life Aberdeen and Jupiter Fund Management were detrimental to performance. The companies were further impacted by weak fund flows and pressure on fee margins. Elsewhere, the holdings in Galliford Try and packaging company DS Smith were negative to performance. Despite trading at Galliford Try's main housebuilding division remaining robust, the company suffered from woes in its construction business which led to the company cutting its dividend and raising equity to strengthen its balance sheet. DS Smith continued to produce good results, however, the shares came under pressure towards the end of the year as investors feared that increased competition and a slowing global economy would impact profitability going forward. The portfolio's holding in tobacco company Imperial Brands also detracted from returns given the threat of increased US regulation and market share gains from vaping competitor JUUL.

On the positive side, the Company's holdings in Jardine Lloyd Thompson and John Laing Infrastructure Fund benefitted performance after both companies received bid approaches in the period. Whitbread's shares were also strong over the year, after the company announced the sale of its Costa Coffee division to Coca-Cola at a price significantly above expectations. Given the difficult market conditions, the Company's positions in more defensive holdings, such as Bunzl, RELX and Diageo, also aided performance.

The fixed income portfolio had a more stable year than equities, declining 0.7% but outperforming the 1.6% fall in the ICE BofAML Sterling Non-Gilts Index. The portfolio benefitted from its holdings in long dated Tesco bonds, given the company's solid deleveraging process, as well as the attractive coupons from high yield issuers such as Virgin Media and Service Corp International.

The revenue return over the year was robust at 10.06p per share, broadly in line with 2017(10.13p per share). Good underlying dividend growth from the holdings in the portfolio was offset by a lower level of special dividends in the year. Despite the turbulent markets, certain mid-cap holdings produced strong growth in their dividends with Cranswick, Hilton Food and Victrex increasing their pay-outs by 21%, 12% and 11% respectively. The Company raised its own full year dividend for the sixth year in succession to 9.60p per share, an increase of 2.1%. Despite growing the dividend ahead of revenues, the Company finished the year with retained revenues of £656,000, thereby further strengthening the revenue reserves.

Portfolio activity

Towards the end of the period the Company started to increase its exposure to bonds and move more defensively given the belief that equity markets were displaying late cycle characteristics. Utilising the Company's ability to own overseas assets, we took advantage of attractive yields on US investment grade corporate credit by buying bonds from the likes of Amazon, McDonald's and cable company Comcast. These are high quality companies with strong cash flows and should help reduce the credit risk within the fixed interest portfolio. Holdings in the bonds of US private hospital operator HCA and animal healthcare company Elanco were also purchased.

Both are stable businesses with good cash flows that are expected to be upgraded to investment grade in the near future. Sales during the year included bonds in Orange, the French Telecom operator and RSA Insurance. As at the end of December, the bond weighting had risen to 14% of the investment portfolio and has subsequently increased a little further since year end.

Within the equity portfolio we initiated new positions in Coca-Cola HBC and Bunzl. Non-alcoholic beverage bottler Coca-Cola HBC owns the right to distribute Coca-Cola products in certain European and emerging markets. The company is expected to deliver resilient revenue growth and margin upside which should support attractive dividend growth. The strong balance sheet could also see further cash returns to shareholders. Bunzl is the market leader in supplying low value but essential non-food consumables to stable end markets such as food service and health care.

New holdings in St. James's Place and TI Fluid Systems were also purchased during the year. St. James's Place is the UK's leading wealth manager with a strong brand and distribution model. The business is highly cash generative and has an attractive dividend yield. TI Fluid Systems is a global market leading auto supplier operating in process and safety critical systems. The business is well diversified by geography and end customers and should benefit from the increased penetration of hybrid and electric vehicles. Elsewhere in the portfolio we added to our existing holdings of GlaxoSmithKline ('GSK') and Johnson Matthey. GSK owns a number of attractive assets within its vaccines and consumer health divisions while the new management team are becoming more focused on enhancing research and development productivity to improve returns in their pharmaceutical division. Although fears over the long term sustainability of diesel powered engines has impacted Johnson Matthey's share price in the short term, the company is investing in new long term growth markets such as battery technology for electric vehicles. The current valuation, in our view, has fallen to a very attractive level given the quality of their industry leading science and technology.

During the year we reduced the portfolio's exposure to financials, selling European banks Swedbank and ING, given fears over the health of the European economy and the risk of rising loan impairments. We also sold out of utility company Centrica and wealth manager Brewin Dolphin. Profitability at Centrica is under pressure from competitive and political threats hence the dividend could be unsustainable given the stretched balance sheet. After a period of restructuring, Brewin Dolphin had reached their margin target with further upside more limited while the valuation was full, in our opinion. Post the takeovers of Jardine Lloyd Thompson and John Laing Infrastructure Fund we exited both positions.

Outlook

Equity markets in our view are starting to exhibit late cycle characteristics and with global growth slowing from its recent peak, volatility has increased. Certain US economic lead indicators are pointing to a slowdown while European industrial production and Chinese economic data are weak. With the US Federal Reserve now temporarily halting its rate hiking cycle and China increasing its stimulus plans, attention will focus on the US and China trade war, the other main risk to markets. However, after the significant falls in equities, valuations are much more attractive especially in the UK with the FTSE All-Share Index trading below its long term average.

Brexit continues to impact sentiment in the UK and despite Parliament voting against a no-deal Brexit, the method of leaving the EU and Britain's future trading relationship with the bloc currently remains unclear. Despite this uncertainty, valuations for domestic companies are historically low hence the portfolio maintains some exposure here but with a bias towards those with robust business models and balance sheets.

While I do not believe we are at the end of the current cycle, I recognise that the outlook for economies in general has become less clear. With this in mind it seems prudent to favour those companies with defensive characteristics or a robust earnings profile. Where more cyclical companies are owned, these are typically in high quality businesses with attractive valuations. The Company remains well diversified owning good quality companies with strong cash flows and balance sheets which support their ability to pay and grow dividends over the long term.

David Smith

Fund Manager

PRINCIPAL RISKS AND UNCERTAINTIES

The Board, with the assistance of Janus 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 UK's negotiations to leave the European Union and as a result an additional risk relating to 'Brexit' has been included for the year under review. 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. The principal risks which have been identified, and the steps taken by the Board to mitigate these as far as practicable, are as follows:

Principal risks	Controls and Mitigation
Investment risk Risk of long term underperformance of the Company against the benchmark and/or peer group. This could result in the shares of the Company trading at a discount and reduced liquidity in the Company's shares. Risk that insufficient income generation could lead to a cut in the dividend.	Janus Henderson provides the directors with regular investment management information including investment performance statistics against the benchmark and the peer group. The implementation of investment strategy and results of the investment process for which the Fund Manager is responsible are discussed with Janus Henderson and reviewed at each Board meeting. The premium/discount and the trading volume of the Company's shares are also regularly reviewed, taking account of market conditions. The directors maintain close contact with the Company's brokers to understand and regulate the supply and demand of shares.
Market/financial risk Risk that market conditions lead to a fall in the value of the portfolio (magnified by any gearing) and/or a reduction of income. This could result in loss of capital value for shareholders and/or a cut in the dividend payment.	The directors review the portfolio regularly. The portfolio is diverse, containing a sufficient range of investments to ensure that no single investment puts undue risk on the sustainability of the income generated by the portfolio or indeed the capital value. Regard is also given to having a broad mix of companies in the portfolio, as well as a spread across a range of economic sectors. Janus Henderson operates within investment limits and restrictions set by the Board, including limits for gearing and derivatives. A monthly schedule of current positions against all established limits is reviewed by the directors and Janus Henderson confirms adherence to them each month. Any particularly high risks are highlighted and discussed. A detailed analysis of all financial risks for the Company can be found in note 15 of the Annual Report. The directors review the income statement and income forecasts at each Board meeting and monitor the Company's revenue reserves.
Operational and cyber risk Risk of losses through inadequate or failed internal processes, systems, human error or external events. This includes the risk of loss arising from failing to manage key outsourced service providers properly, and the risk arising from major disruptions to their businesses and their markets, including cyber risks.	Control systems of Janus Henderson are designed and tested to ensure that operational risks are mitigated to an acceptable level. Business continuity plans are maintained and tested to ensure that, in the event of business disruption, operations can be maintained. Janus Henderson has cyber security controls in place to protect against attacks. Agreements are in place with all other key service providers and their controls are monitored by Janus Henderson's assurance functions. The directors receive a quarterly internal controls report from Janus Henderson to assist with the ongoing review of risks and control procedures used to manage those risks. More details on internal control and risk management can be found in the Annual Report on pages 29 and 30.
Tax, legal and regulatory risk Risk that a breach of or a change in laws and regulations could materially affect the viability and appeal of the Company, in particular Section 1158 of the Corporation Tax Act 2010 which exempts capital gains from being taxed within investment trusts.	Janus Henderson has been contracted to provide investment, company secretarial, administration and accounting services through qualified professionals. The Board receives internal control reports produced by Janus Henderson on a quarterly basis, which confirm tax, legal and regulatory compliance.
Risks associated with Brexit Risk that whatever the outcome of the UK Parliament's negotiations with the European Union over the terms of any Brexit deal, the portfolio will be subject to greater market price risk volatility and specific stock risk as a result. Risk that the Company's key service providers will be negatively impacted by the outcome.	It is difficult to evaluate all of the potential implications on the Company's business and the wider economy. However in light of the increased risk of market volatility, the portfolio's allocation to fixed interest assets has been increased and allocation to equities decreased. The addition of such bonds further diversifies the Company's revenue stream and aims to reduce the overall risk in the portfolio. Janus Henderson has a detailed Brexit plan in place. This plan has included assessing whether the Company's other key service providers will continue to operate and service the Company. The Board are confident that the Manager and its other key service providers will continue to operate for the foreseeable future whatever the outcome.

Other than the risks associated with Brexit, the Board considers these risks to have remained unchanged throughout the year under review.

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 our long term horizon and what we believe to be investors' time horizons, taking account of the Company's current position and the potential impact of the principal risks and uncertainties as documented in the Annual Report.

The assessment has considered the impact and the likelihood of the principal risks and uncertainties facing the Company in severe but reasonable scenarios, and the effectiveness of any mitigating controls in place. The directors consider five years to be an appropriate period during which they do not expect there to be any significant change in the current principal risks and adequacy of the mitigating controls in place, other than greater certainty on the outcome of Brexit. 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. The Company's assets are liquid, its commitments are limited and the Company intends to continue to operate as an investment trust. Despite the uncertainty in the UK regarding Brexit the Company is well positioned to withstand the potential volatile market conditions that any of the potential Brexit outcomes could create; it has a well-diversified portfolio and the underlying positions have been carefully selected by the Fund Manager to enhance the Company's revenue stream. Long term income prospects are a core part of the investment selection process.

The directors also 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 five years and its ability to meet liabilities as they fall due. This included consideration of the duration of the Company's long term borrowings, how a breach of the gearing covenants could impact on the Company's net asset value and share price and 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 time frame, the nature of the Company's business as an investment trust means that such forecasts are equally valid to be considered over the longer five year period as a means of assessing whether the Company can continue in operation.

The directors recognise that there is a continuation vote due to take place at the AGM following the 31 December 2019 year end. The directors support the continuation of the Company and expect that the Company will continue to exist for the foreseeable future, at least for the period of the assessment.

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 five year period.

RELATED PARTY TRANSACTIONS

The Company's transactions with related parties in the year were with the directors and Janus Henderson. There have been no material transactions between the Company and its directors during the year. The only amounts paid to the directors were in respect of remuneration for which there were no outstanding amounts payable at the year end. In relation to the provision of services by the Manager, other than fees payable by the Company in the ordinary course of business and the facilitation of marketing activities with third parties, there have been no material transactions with the Manager affecting the financial position of the Company during the year under review. More details on transactions with the Manager, including amounts outstanding at the year end, are given in the Annual Report.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

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

•     the financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards comprising FRS 102 and applicable law) give a true and fair view of the assets, liabilities, financial position and profit of the Company; and

•     the Strategic Report in the Annual Report for the year-ended 31 December 2018 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

Margaret Littlejohns

Chairman

27 March 2019

 
 

AUDITED INCOME STATEMENT

	Year ended 31 December 2018			Year ended 31 December 2017
	Revenue return £'000	Capital return £'000	Total £'000	Revenue return £'000	Capital return £'000		Total £'000
(Losses)/gains on investments held at fair value through profit or loss (note 2)	-	(45,211)	(45,211)	-	17,779		17,779
Income from investments held at fair value through profit or loss (note 3)	14,329	-	14,329	13,512	-		13,512
Other interest receivable and similar income (note 4)	35	-	35	12	-		12
	----------	----------	----------	----------	----------		----------
Gross revenue and capital (losses)/gains	14,364	(45,211)	(30,847)	13,524	17,779		31,303
Management and performance fees (note 5)	(590)	(885)	(1,475)	(532)	(798)		(1,330)
Other administrative expenses	(429)	-	(429)	(385)	-		(385)
	----------	----------	----------	----------	----------		----------
Net return before finance costs and taxation	13,345	(46,096)	(32,751)	12,607	16,981		29,588
Finance costs	(338)	(1,015)	(1,353)	(287)	(860)		(1,147)
	----------	----------	----------	----------	----------		----------
Net return before taxation	13,007	(47,111)	(34,104)	12,320	16,121		28,441
Taxation on net return	(71)	-	(71)	(119)	40		(79)
	----------	----------	----------	----------	----------		----------
Net return after taxation	12,936	(47,111)	(34,175)	12,201	16,161		28,362
	======	======	======	======	======		======
Net return per ordinary share (note 6)	10.06p	(36.63p)	(26.57p)	10.13p		13.42p	23.55p
	======	=======	======	======		=====	======
The total columns of this statement represent the Income Statement of the Company. All capital and revenue items derive from continuing operations. No operations were acquired or discontinued during the year. The Company has no other comprehensive income other than those items recognised in the Income Statement.

AUDITED STATEMENT OF CHANGES IN EQUITY

Year ended 31 December 2018	Called up share capital £'000	Share premium account £'000	Capital redemption reserve £'000	Other capital reserves £'000	Revenue reserve £'000	Total  £'000
At 1 January 2018	6,430	126,783	26,302	88,818	8,910	257,243
Net return after taxation	-	-	-	(47,111)	12,936	(34,175)
Dividends paid (note 8)	-	-	-	-	(12,280)	(12,280)
	--------	-----------	---------	---------	---------	----------
At 31 December 2018	6,430	126,783	26,302	41,707	9,566	210,788
	=====	======	=====	=====	=====	======
Year ended 31 December 2017	Called up share capital £'000	Share premium account £'000	Capital redemption reserve £'000	Other capital reserves £'000	Revenue reserve £'000	Total £'000
At 1 January 2017	5,597	95,595	26,302	72,657	7,572	207,723
Net return after taxation	-	-	-	16,161	12,201	28,362
Issue of new shares	833	31,188	-	-	-	32,021
Dividends paid (note 8)	-	-	-	-	(10,863)	(10,863)
	--------	---------	---------	---------	---------	----------
At 31 December 2017	6,430	126,783	26,302	88,818	8,910	257,243
	=====	======	=====	=====	=====	======

AUDITED STATEMENT OF FINANCIAL POSITION

	At 31 December 2018 £'000	At 31 December 2017 £'000
Fixed assets
Investments held at fair value through profit or loss	267,966	311,295
	----------	----------
Current assets
Debtors	1,767	1,680
Cash at bank and in hand	2,581	1,245
	----------	----------
	4,348	2,925
	----------	----------
Creditors: amounts falling due within one year	(41,705)	(37,164)
	----------	----------
Net current liabilities	(37,357)	(34,239)
Total assets less current liabilities	230,609	277,056
	----------	----------
Creditors: amounts falling due after more than one year	(19,821)	(19,813)
	----------	----------
Net assets	210,788	257,243
	======	======
Capital and reserves
Called up share capital	6,430	6,430
Share premium account	126,783	126,783
Capital redemption reserve	26,302	26,302
Other capital reserves	41,707	88,818
Revenue reserve	9,566	8,910
	----------	----------
Total shareholders' funds	210,788	257,243
	======	======
Net asset value per ordinary share (basic and diluted) (note 7)	163.91p	200.04p
	======	======

AUDITED CASH FLOW STATEMENT

	2018	2017
	£'000	£'000
Cash flows from operating activities
Net return before taxation	(34,104)	28,441
Add back: finance costs	1,353	1,147
Less: losses/(gains) on investments held at fair value through profit or loss	45,211	(17,779)
Withholding tax on dividends deducted at source	(71)	(79)
Taxation recovered	21	8
Decrease in prepayments and accrued income	(108)	(348)
Increase in accruals and deferred income	37	438
	----------	----------
Net cash inflow1	12,339	11,828
	----------	----------
Cash flows from investing activities
Sales of investments held at fair value through profit or loss	56,765	46,265
Purchases of investments held at fair value through profit or loss	(58,316)	(71,289)
	----------	----------
Net cash outflow from investing activities	(1,551)	(25,024)
	----------	----------
Cash flows from financing activities
Issue of ordinary share capital	-	16,516
Equity dividends paid	(12,280)	(10,863)
Drawdown of loans	4,159	8,078
Interest paid	(1,346)	(1,139)
	----------	----------
Net cash flow from financing activities	(9,467)	12,592
	----------	----------
Net increase/(decrease) in cash and cash equivalents	1,321	(604)
Cash and cash equivalents at beginning of year	1,245	1,742
Exchange movements	15	107
	----------	----------
Cash and cash equivalents at end of year	2,581	1,245
	----------	----------
Comprising:
Cash at bank	2,581	1,245
	======	======

¹ Cash inflow from dividends was £13,006,000 (2017: £12,050,000) and cash inflow from interest was £1,383,000 (2017: £1,141,000)

Notes to Financial Statements:

1.  Basis of preparation

The Company is a registered investment company as defined in Section 833 of the Companies Act 2006. It operates in England and Wales and is registered at the address 201 Bishopsgate, London EC2M 3AE.

The financial statements have been prepared in accordance with the Companies Act 2006, FRS 102 - The Financial Reporting Standard applicable in the UK and Republic of Ireland, and with the Statement of Recommended Practice: Financial Statements of Investment Trust Companies and Venture Capital Trusts (the 'SORP') which was updated by the Association of Investment Companies in February 2018 for consequential amendments.

The principal accounting policies applied in the presentation of these financial statements are set out below. These policies have been consistently applied to all the years presented.

The financial statements 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 directors do not believe that any accounting judgments 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.

2.  (Losses)/gains on investments held at fair value through profit or loss

	2018 £'000	2017 £'000
Gains on the sale of investments based on historical cost	1,800	9,638
Revaluation losses recognised in previous years	(4,515)	(6,265)
	---------	---------
(Losses)/gains on investments sold in the year based on carrying value at previous Statement of Financial Position date	(2,715)	3,373
	---------	---------
Net movement on revaluation of investments	(42,165)	14,403
Exchange (losses)/gains	(331)	3
	---------	---------
	(45,211)	17,779
	======	=====

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

	2018 £'000	2017 £'000
UK dividend income - listed	10,708	9,972
UK dividend income - special dividends	312	411
	-------	-------
	11,020	10,383
	-------	-------
Interest income - listed	1,291	1,208
Overseas and other dividend income - listed	2,018	1,921
	-------	-------
	3,309	3,129
	-------	-------
	14,329	13,512
	=====	=====

4.   Other interest receivable and similar income

	2018 £'000	2017 £'000
Deposit interest	3	-
Underwriting commission (allocated to revenue)	32	12
	-----	-----
	35	12
	===	===

5.   Management and performance fees

	2018			2017
	Revenue return £'000	Capital return £'000	Total £'000	Revenue return £'000	Capital return £'000	Total £'000
Management fee	590	885	1,475	532	798	1,330
Performance fee	-	-	-	-	-	-
	------	-------	-------	------	-------	-------
Total fee	590	885	1,475	532	798	1,330
	===	====	====	===	====	====

No performance fee was earned during the year (2017: £nil).

6.  Return/ (loss) per ordinary share

The return per ordinary share figure is based on the loss attributable to the ordinary shares of £34,175,000 (2017 gain: £28,362,000) and on the 128,596,278 weighted average number of ordinary shares in issue during the year (2017: 120,429,018).

The Company had no securities in issue that could dilute the return per ordinary share.

The return per ordinary share can be analysed between revenue and capital as shown below:

	2018 £'000	2017 £'000
Net revenue return	12,936	12,201
Net capital return	(47,111)	16,161
	----------	----------
Total return	(34,175)	28,362
	======	======
Weighted average number of ordinary shares	128,596,278	120,429,018
Revenue return per ordinary share	10.06p	10.13p
Capital return per ordinary share	(36.63p)	13.42p
	----------	----------
Total return per ordinary share	(26.57p)	23.55p
	======	======

 

7.   Net asset value per ordinary share

The net asset value per ordinary share is based on the net assets attributable to the ordinary shares of £210,788,000 (2017: £257,243,000) and on the 128,596,278 ordinary shares in issue at 31 December 2018 (2017: 128,596,278).

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

	2018 £'000	2017 £'000
Net assets at start of year	257,243	207,723
Total net return after taxation	(34,175)	28,362
Dividends paid in the year	(12,280)	(10,863)
Issue of ordinary shares less issue costs	-	32,021
	----------	----------
	210,788	257,243
	======	======

8.   Dividends paid on ordinary shares

	Payment date	2018 £'000	2017 £'000
Fourth interim dividend (2.325p per share) for the year ended 31 December 2016	27 January 2017	-	2,603
First interim dividend (2.325p per share) for the year ended 31 December 2017	28 April 2017	-	2,603
Second interim dividend (2.325p per share) for the year ended 31 December 2017	28 July 2017	-	2,603
Third interim dividend (2.375p per share) for the year ended 31 December 2017	27 October 2017	-	3,054
Fourth interim dividend (2.375p per share) for the year ended 31 December 2017	26 January 2018	3,054	-
First interim dividend (2.375p per share) for the year ended 31 December 2018	27 April 2018	3,054	-
Second interim dividend (2.375p per share) for the year ended 31 December 2018	27 July 2018	3,504	-
Third interim dividend (2.425p per share) for the year ended 31 December 2018	26 October 2018	3,118	-

The total dividends payable in respect of the financial year which form the basis of the test under Section 1158 of the Corporation Tax Act 2010 are set out below:

	2018 £'000	2017 £'000
Revenue available for distribution by way of dividend for the year	12,936	12,201
First interim dividend (2.375p per share) paid on 27 April 2018	(3,054)	(2,603)
Second interim dividend (2.375p per share) paid on 27 July 2018	(3,054)	(2,603)
Third interim dividend (2.425p per share) paid on 26 October 2018	(3,118)	(3,054)
Fourth interim dividend (2.425p per share) paid on 25 January 2019	(3,118)	(3,054)
	--------	----------
	592	887
	=====	=====

All dividends have been paid or will be paid out of revenue profits.

9. Subsequent events

Since the year end, the Board announced a first interim dividend of 2.425p per share, in respect of the year ending 31 December 2019. This will be paid on 26 April 2019 to holders registered at the close of business on 5 April 2019. This dividend is to be paid from the Company's revenue account. The Company's shares will become ex-dividend on 4 April 2019.

Furthermore, on 20 February 2019 the Company increased its committed loan facility with Scotiabank by a further £3 million, which allows it to borrow up to £45 million in sterling or the equivalent in US dollars or Euros, as and when appropriate.

10.   Going concern statement

The assets of the Company consist of securities that are readily realisable and, accordingly, the directors believe that the Company has adequate resources to continue in operational existence for at least twelve months from the date of approval of the financial statements. The Company's shareholders are asked every five years to vote for the continuation of the Company. An ordinary resolution to this effect was passed by the shareholders at the AGM held on 5 May 2015. Having assessed these factors, the principal risks and other matters discussed in connection with the viability statement, the directors considered it appropriate to adopt the going concern basis of accounting in preparing the financial statements.

11. 2018 financial information

The figures and financial information for the year ended 31 December 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 December 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.

12. 2017 financial information

The figures and financial information for the year ended 31 December 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 December 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.

13.   Annual Report

The Annual Report for the year ended 31 December 2018 will be posted to shareholders in early April 2019 and will be available thereafter on the Company's website (www.hendersonhighincome.com) or from the Corporate Secretary at the Company's registered office, 201 Bishopsgate, London EC2M 3AE.

14.    Annual General Meeting

The AGM will be held on Wednesday 8 May 2019 at 12 noon at the Company's registered office, 201 Bishopsgate, London EC2M 3AE. The Notice of Meeting will be posted to shareholders with the Annual Report and will be available on the Company's website shortly.

For further information please contact:

David Smith

Fund Manager

Janus Henderson Investors

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

Telephone: [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

 

 

DOCUBOURKAAOUAR