Final Results

RNS Number : 9727I

Henderson High Income Trust PLC

26 March 2018

 

26 March 2018

HENDERSON HIGH INCOME TRUST PLC

Annual Financial Results for the year ended 31 December 2017

Legal Entity Identifier: 213800OEXAGFSF7Y6G11

This announcement contains regulated information

Performance Highlights

Total return performance to 31 December 2017	One year %	Five years %
Benchmark1	11.4	56.8
NAV2	13.4	86.5
Share price	8.7	76.4

	2017	2016
NAV per share3	195.65p	181.30p
Mid-market price per share	190.00p	183.63p
Revenue return per share	10.13p	9.93p
Net assets	£257.2m	£207.7m
Dividend for the year	9.40p	9.15p
Dividend yield4	4.9%	5.0%
Ongoing charge for the year	0.75%	0.81%
Gearing	21.0%	21.8%

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

⁴ Based on the dividends paid or recommended for the year and the share price at the year end

Sources: Morningstar Direct, Janus Henderson, DataStream and AIC. All data is either as at 31 December 2017 or for the year ended 31 December 2017

Chairman's Statement

Performance

I am pleased to report that the Company has continued to produce strong positive returns in the second half of the year. For the full financial year ending 31 December 2017, the Company's portfolio has delivered a total return on net assets of 13.4% (with debt at fair value), compared to the total annual return of the Company's benchmark of 11.4%. The Company's shares traded at a small premium for the majority of the year but ended the year at a discount of 2.9% to their net asset value (with debt at fair value), giving a share price total return of 8.7%.

Growth and corporate activity

As I reported at the interim stage, we were delighted to welcome to the Company those shareholders of Threadneedle UK Select Trust Limited ('UKT') who elected to roll over their holdings into the Company's shares at the end of June following UKT's scheme of reconstruction and voluntary winding up. The Company issued 15.2 million new shares to 58% of UKT's shareholders on the terms offered in the Prospectus released on 30 May 2017. We used this opportunity to issue a further 1.4 million new shares at a small premium to net asset value to new and existing shareholders on terms outlined within the same Prospectus. This combined issue of new shares raised over £32 million which enabled the Company, with the application of gearing, to increase its gross assets by 14% at the time of issuance. The share issuance was achieved at no cost to existing shareholders (apart from the proportion of transaction costs related to investing the proceeds).

We continue to believe that it is in the best interests of all our shareholders for the Company to grow and widen 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. The twelve month share issuance programme that was included in the above Prospectus and approved by shareholders closes on 29 May 2018. The separate authority to allot shares at a premium and disapply pre-emption rights, approved at the last Annual General Meeting ('AGM'), will expire at the 2018 AGM. We are therefore asking shareholders at the forthcoming AGM to renew the latter authority to enable the Company to expand further when appropriate.

Dividends

Corporate profits continued to grow in the UK over the year which generated strong underlying market dividend growth. This resulted in higher revenues for the Company which totalled 10.13p per share compared to the previous year's 9.93p. We increased the third dividend for the financial year ending 31 December 2017 to 2.375p and announced the fourth dividend at the same level, making a total of 9.40p per share for 2017, growth of 2.7% on the previous year. The dividend yield on the Company's share price as at year end was 4.9%, some 36% higher than the yield of the FTSE All-Share Index.

We have now steadily increased our annual total dividend for the last five years. At the same time, we have exercised caution by adding to our revenue reserves, thereby retaining future flexibility for more challenging conditions. 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 years ahead. In order to assess this, we continually monitor the level of income received by the Company, our investments' ability to grow dividends and the level of our own revenue reserves.

Gearing

Our policy on gearing is explained in our investment policy in the Annual Report. Our level of gearing employed through the year has reduced slightly to 21.0% at year end due to the Company's strong absolute return. Following the successful share issuance described above, we negotiated an increase in our existing floating rate loan facility with Scotiabank from £30 million to £42 million to enable the Company to maintain its level of gearing. This floating rate facility, and the long term fixed rate unsecured note of £20 million, are both particularly useful for generating additional income and enhancing the Company's total return to shareholders. About half the borrowing is employed to finance the bonds within the portfolio, currently 10.3% of total investments, which yield effectively on average 4.5%, providing an attractive margin over the Company's average cost of borrowing of 2.2%. The inclusion of bonds also helps to diversify the Company's revenue stream and aims to reduce its volatility. The remaining borrowing finances about 11% of the equity portfolio.

Management and performance fees

The Management Engagement Committee regularly reviews the Company's management contract to ensure that the terms are fair and reasonable. In light of the growth of the Company's assets and the competitive pressure on fees in the market, the terms of the Investment Management Agreement with Janus Henderson have been amended: with effect from 1 January 2018, the management fee on average gross assets in excess of £250 million will be reduced to 0.45%, compared with the existing 0.50% up to that level. In addition, the total performance fee payable in any year is now capped at 0.40% of average gross assets, reduced from the previous cap of effectively 0.50%. More detail on the calculation of both fees is provided in the section on management and performance fees in the description of our business model in the Annual Report.

Regulation

New rules have recently been introduced by the EU Commission which impact investment products within the UK, including investment trusts: Packaged Retail and Insurance-based Investment Products Regulation ('PRIIPs') and the Markets in Financial Instruments Directive 2 ('MiFID II'). The former requires Janus Henderson as the Company's Manager, and hence defined as the manufacturer of the investment product, to prepare a Key Information Document ('KID') in respect of the Company. This is a standardised document with the procedures for calculating expected risks, returns and costs prescribed by law. The KID cannot include actual historical returns, but instead provides illustrations of potential returns under different performance scenarios. Neither historical returns nor these potential returns should be considered by investors as a guide to the Company's future performance. We would also like to draw to your attention that the composition of costs outlined in the KID differs from the ongoing charge figure recorded in the Company's annual and interim reports, factsheets and website. A large and important difference, for example, is the inclusion of the borrowing costs of the Company's loans. As stated in the Annual Report, the figures in the KID may not reflect the expected returns for the Company and anticipated performance returns cannot be guaranteed. Therefore, we encourage investors to access this wider range of information rather than confining their knowledge to the single summary KID.

The introduction of MiFID II at the beginning of 2018 has forced the "unbundling" of research costs from trading costs, which means that investment managers now have to pay directly for external research received. I am pleased to report that Janus Henderson has agreed to absorb these research costs itself and will not be passing them on to their clients, such as the Company.

Succession planning

The Nominations Committee has put together a plan to refresh the Board over the coming years and aims to achieve a sensible balance between continuity and reinvigoration in compliance with the AIC Code of Corporate Governance. Orderly changes to the Board's composition will be made to ensure that the required mix of skills, experience and corporate knowledge is retained during this process. It is anticipated that each year one of the longer standing Directors with more than nine years' service will retire until the Board has been refreshed. There may be periods when the number of Directors will increase from five to six to facilitate this. As a first step following a formal search process using external consultants, we have appointed Jeremy Rigg as a Director with effect from 1 April 2018. Jeremy brings over 20 years' experience from the investment management industry having held roles as a director of Schroder Investment Management (UK) Ltd and as a senior investment manager at Investec Asset Management. In 2004, he was a founding partner of Origin Asset Management, a boutique equity investment manager which grew successfully and was acquired by Principal Global Investors in 2011. Jeremy is currently an independent investment consultant.

Andrew Bell who has served on the Board since November 2004 will be retiring from the Board at the forthcoming Annual General Meeting. I would like to thank Andrew for his significant contribution to the Company over his tenure: his breadth and depth of knowledge and his valuable insights will be greatly missed.

Investment objective and policy

The Board has approved certain minor changes to the wording of the investment objective and policy of the Company to provide further clarity to investors. The changes were not material and they therefore did not require shareholder consent. The updated investment objective and policy are set out in full in the Annual Report.

Annual General Meeting ('AGM')

We look forward to seeing as many of you as possible at our AGM which will be held on 9 May 2018 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 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 encourage those of you who are unable to attend to use your proxy votes. For our new, former UKT shareholders, we will also be holding a similar presentation in Guernsey the day following the AGM to enable you to meet David, some of his colleagues and me.

Prospects and outlook

2017 witnessed a period of robust economic growth in the major regions of the world, resulting in some record-breaking levels of equity indices. These steady, mostly uninterrupted, increases were achieved in market conditions of extraordinarily low volatility. This was somewhat surprising considering the initial fears of rising populism in Europe, Theresa May's misjudged snap election and President Trump's temperamental outbursts in his first year in office, including his battle of words with Kim Jong-un of North Korea.

The start of 2018 has proven somewhat different with fears about mounting inflation and the need for greater than anticipated rises in interest rates in the US. The major world stock and bond markets experienced a sharp spike in volatility in February, prompting an arguably overdue market correction. Regardless of whether such strong global economic growth can sustain momentum throughout 2018 without fuelling inflationary pressures, it is likely that markets will continue to be more volatile and capital returns more vulnerable this year, as central banks around the world begin to withdraw monetary stimulus. In particular, the UK's economy, in contrast with the US and the Eurozone, has begun to slow and uncertainty over the outcome of Brexit negotiations may persist throughout 2018.

Despite these potential setbacks and more challenging times, I believe there are still attractive opportunities to invest in high quality, cash-generative companies, with good management that can provide a reliable and growing level of dividends while retaining the potential for capital growth over the longer term. I am confident that David Smith, our Fund Manager, will continue to use his investment skills to create and manage a well-diversified portfolio of large and smaller companies, both domestically and internationally focussed, to sustain a high income yield for our shareholders in these more volatile markets.

Margaret Littlejohns

Chairman

Fund Manager's Report

Review of the year

The UK stock market continued to make strong gains over the year with the FTSE All-Share Index rising 13.1% on a total return basis. Despite a slowdown in UK economic growth, global GDP remained robust and broadened further in 2017, which supported UK companies with overseas exposure. The Company's NAV performed strongly, returning 13.4% during the year, outperforming the benchmark's gain of 11.4%.

UK economic growth and consumer confidence slowed during the year, due to ongoing uncertainties surrounding Britain's future relationship with the EU and the Conservative Party's weakened position in government post the surprise General Election in May. This fed through into earnings disappointments from some consumer cyclical companies. Brexit negotiations, however, arguably made some progress towards the end of the year, with Theresa May, gaining an agreement on certain issues and the principles of a final settlement. For the first time in a decade, the Bank of England raised interest rates to 0.5% in November, due to rising inflation and falling unemployment.

Although the equity portfolio rose 11.5% during the year, it struggled to keep up with the strong return of the FTSE All-Share Index. Despite the portfolio benefitting from positions in financials and multinational companies, the performance of certain domestic cyclical stocks hindered returns. On the positive side, the Company's holdings in Intermediate Capital, Jupiter Fund Management and Victrex aided performance. Intermediate Capital and Jupiter both reported strong inflows into their investment funds during the period, which helped deliver good profit growth. Victrex announced robust results and their intention to pay a 68p per share special dividend. The shares were also supported by a favourable change in the company's tax rate, due to UK patent legislation which encourages UK research and development. Not all domestic stocks were weak in 2017, with those linked to the strong housing market, such as homebuilder Persimmon and building materials manufacturer Marshalls, performing well.

On the negative side, the Company's positions in BT Group and ITV detracted from returns. BT discovered an accounting fraud in its Italian division while ITV experienced a slowdown in advertising spending. Within travel & leisure the Company's holdings in Go-Ahead and Greene King were also detrimental to performance. Go-Ahead underperformed due to ongoing strike issues on its GTR rail franchise and weakness in its bus operations. Greene King also announced lacklustre trading, highlighting consumer weakness and price competition in the casual dining out market.

The fixed income portfolio had another strong year returning 13.4%, outperforming the 4.3% return from the ICE BofAML Sterling Non-Gilts Index. The portfolio benefitted from its exposure to high yield bonds given their outperformance over investment grade credit and government bonds in the period. The portfolio's holdings in financial bonds, such as Nationwide Building Society and Barclays Bank, were also positive for performance as investors sought their attractive coupons.

The income return over the year was solid at 10.13p per share, 2% growth on 2016 (9.93p per share). The level of special dividends declined in the year but this was more than offset by good underlying dividend growth from the portfolio. Within the mid and small cap area of the market, the Company's holdings in Cranswick, Hilton Food and Big Yellow all delivered significant dividend growth with increases of 18%, 17% and 11% respectively. The Company raised its own full year dividend for the fifth year in succession to 9.40p per share, an increase of 2.7%. Despite growing the dividend ahead of revenues, the Company finished the year with retained revenues of approximately £887,000 thereby further strengthening the revenue reserves. The outlook for market dividend growth for this year could be more muted, especially given that sterling strength against the US dollar will create a headwind for large cap companies that declare dividends in dollars.

Portfolio activity

Throughout 2017 the Company maintained an overweight allocation to equities compared to bonds with 90% of the investment portfolio in equities. Although bond yields moved higher in the second half of last year, equities still offer better value on a yield basis. Until that dynamic changes and opportunities arise to own good quality credit with attractive coupons, I do not foresee the allocation changing dramatically.

Within the equity portfolio we bought a new holding in Tesco, the UK's largest food retailer. Although conditions in the industry remain tough, the company's turnaround strategy is starting to gain momentum. Cost savings are being reinvested to improve customer service, quality and price competitiveness which should drive volume growth, the key to a sustainable margin recovery over the medium to longer term. There is a renewed focus on cash generation that has enabled the company to recommence dividends which have the potential to grow rapidly in the next couple of years.

Elsewhere we bought positions in Ted Baker and Schroders and participated in the IPO of Sabre Insurance. Ted Baker is a British designer brand that has consistently invested in the business and its distribution capabilities. Margin upside can be expected to be supported by the increased penetration of online sales along with better retail productivity in overseas markets which, together with strong sales growth, will drive attractive dividend growth. Schroders has a strong brand and distribution capabilities and is well diversified through a spread of investment styles and geographies. Sabre Insurance is a specialist UK only motor insurer and is very disciplined when pricing new business. Given its high cash generation, the company came to market on a very attractive dividend yield.

Sales during the year included Persimmon and Marshalls. While both companies continue to trade well, their respective margins and valuations are now at peak levels which could come under pressure given expected cost inflation or any slowdown in the housing market. The holdings in M&S and Tate & Lyle were also sold in the period. As a legacy mid-market retailer, M&S continues to suffer from structural and competitive threats which are putting strain on the company's cash flow. We sold Tate & Lyle given continued regulatory pressure on its bulk sugar division.

Within the fixed income portfolio, the positions in Iron Mountain and Orange were increased. Iron Mountain is the global leader in document storage and represents a core holding within our allocation to high yield non-financial bonds. Orange is the incumbent telecoms operator in France and is committed to its investment grade rating and a conservative balance sheet. The position in the RAC, the second largest roadside assistance provider in the UK was sold following an aggressive distribution to shareholders resulting in a significant increase in leverage. Profits were also taken on the holding in National Grid, where credit spreads had tightened to a very low level.

Outlook

The current equity bull market is now the second longest in history but it has been plagued by continued fears around underlying economic growth and a subsequent lack of earnings recovery especially in Europe. Economists, however, have consistently upgraded global GDP forecasts over the last 12 months with good global economic growth now expected. This outlook should be supportive for corporate earnings but equity valuations, now above the long term average, have started to discount this. Although valuations do not appear particularly cheap, they will be justifiable as long as growth comes through as expected.

Uncertainties around Brexit negotiations continue to dominate sentiment in the UK. Expectations are for the UK economy to grow below trend, however, this could be exacerbated if confidence is lost in the fragile government or talks with the EU fail to make further headway. There has been a distinct variation in sector performances within the UK market with the relative valuation of domestic cyclicals now as low as they were in the depth of the financial crisis. This feels extreme given that monetary and fiscal policies remain supportive, the banking sector is robust, unemployment is low and business investment intentions remain positive. With this is mind the Company maintains some exposure to domestic cyclicals but is focussed on high quality companies with defendable business models, strong balance sheets and attractive dividends.

While I remain broadly positive on equities given the robust global economic outlook, I recognise we are closer to the end of the current cycle than the beginning. Risks to current equity market levels could come from any global growth disappointment or higher, more permanent, inflation causing aggressive tightening of monetary policies by central banks. The Company remains well diversified owning good quality companies that have the ability to pay and grow their dividends into 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 following the June 2016 referendum result. 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 objectives and policy, in order to mitigate these risks as far as practicable. The principal risks which have been identified, and the steps taken by the Board to mitigate these as far as practicable, are as follows:

Principal risks	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.	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 the Annual Report. The Directors review the income statement and income forecasts at each Board meeting and monitor the Company's revenue reserves.
Operational 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.	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 Corporate Governance Statement in the Annual Report.
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 Corporate Tax Act 2010 ('Section 1158') which exempts capital gains from being taxed within investment trusts.	The Company's legal and regulatory obligations are delegated to Henderson Secretarial Services Limited and are monitored by Janus Henderson's Compliance and Audit functions. Janus Henderson regularly reviews and confirms compliance with Section 1158 to protect the Company's status as an investment trust. Janus Henderson actively and constructively engages with regulators, tax and industry bodies in order to understand and influence future developments. The Directors receive a quarterly internal controls report from Janus Henderson which confirms regulatory compliance.

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 this 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. 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 Directors have also taken into account the liquidity of the portfolio, the income stream from the portfolio and the Company's ability to meet liabilities as they fall due. This included consideration of how the forecast income stream, expenditure and levels of reserves could impact on the Company's ability to pay dividends to shareholders over that period in line with its dividend policy. Whilst detailed forecasts are only made over a shorter timeframe, the nature of the Company's business as an investment trust means that such forecasts are equally valid to be considered over the longer 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 Annual General Meeting 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. 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. 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 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 Annual Report.

Statement of Directors' Responsibilities

Statement under DTR 4.1.12

Each of the Directors, with the exception of Jeremy Rigg, who will join the Board on 1 April 2018, confirms that, to the best of his or her knowledge:

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

•     the Annual Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

For and on behalf of the Board

Margaret Littlejohns

Chairman

26 March 2018

 

 

Income Statement

	Year ended 31 December 2017			Year ended 31 December 2016
	Revenue return £'000	Capital return £'000	Total £'000	Revenue return £'000	Capital return £'000	Total £'000
Gains on investments held at fair value through profit or loss (note 2)	-	17,779	17,779	-	9,561	9,561
Income from investments held at fair value through profit or loss (note 3)	13,512	-	13,512	12,306	-	12,306
Other interest receivable and similar income (note 4)	12	-	12	57	-	57
	----------	----------	----------	----------	----------	----------
Gross revenue and capital gains	13,524	17,779	31,303	12,363	9,561	21,924
Management and performance fees (note 5)	(532)	(798)	(1,330)	(481)	(721)	(1,202)
Other administrative expenses	(385)	-	(385)	(378)	-	(378)
	----------	----------	----------	----------	----------	----------
Net return on ordinary activities before finance costs and taxation	12,607	16,981	29,588	11,504	8,840	20,344
Finance costs	(287)	(860)	(1,147)	(279)	(836)	(1,115)
	----------	----------	----------	----------	----------	----------
Net return on ordinary activities before taxation	12,320	16,121	28,441	11,225	8,004	19,229
Taxation on net return on ordinary activities	(119)	40	(79)	(159)	72	(87)
	----------	----------	----------	----------	----------	----------
Net return on ordinary activities after taxation	12,201	16,161	28,362	11,066	8,076	19,142
	======	======	======	======	======	======
Return per ordinary share (note 6)	10.13p	13.42p	23.55p	9.93p	7.25p	17.18p
	======	======	======	======	======	======
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.

 

Statement of Changes in Equity

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 on ordinary shares after taxation	-	-	-	16,161	12,201	28,362
Issue of new shares	833	31,188	-	-	-	32,021
Fourth interim dividend (2.325p per share) for the year ended 31 December 2016, paid 27 January 2017	-	-	-	-	(2,603)	(2,603)
First interim dividend (2.325p per share) for the year ended 31 December 2017, paid 28 April 2017	-	-	-	-	(2,603)	(2,603)
Second interim dividend (2.325p per share) for the year ended 31 December 2017, paid 28 July 2017	-	-	-	-	(2,603)	(2,603)
Third interim dividend (2.375p per share) for the year ended 31 December 2017, paid 27 October 2017	-	-	-	-	(3,054)	(3,054)
	--------	-----------	---------	---------	---------	----------
At 31 December 2017	6,430	126,783	26,302	88,818	8,910	257,243
	=====	======	=====	=====	=====	======
Year ended 31 December 2016	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 2016	5,553	94,038	26,302	64,581	6,637	197,111
Net return on ordinary shares after taxation	-	-	-	8,076	11,066	19,142
Issue of new shares	44	1,557	-	-	-	1,601
Fourth interim dividend (2.275p per share) for the year ended 31 December 2015, paid 29 January 2016	-	-	-	-	(2,527)	(2,527)
First interim dividend (2.275p per share) for the year ended 31 December 2016, paid 29 April 2016	-	-	-	-	(2,531)	(2,531)
Second interim dividend (2.275p per share) for the year ended 31 December 2016, paid 29 July 2016	-	-	-	-	(2,531)	(2,531)
Third interim dividend (2.275p per share) for the year ended 31 December 2016, paid 28 October 2016	-	-	-	-	(2,542)	(2,542)
	--------	---------	---------	---------	---------	----------
At 31 December 2016	5,597	95,595	26,302	72,657	7,572	207,723
	=====	=====	=====	=====	=====	======

   

Statement of Financial Position

	At 31 December 2017 £'000	At 31 December 2016 £'000
Fixed assets
Investments held at fair value through profit or loss	311,295	252,990
	----------	----------
Current assets
Debtors	1,680	1,340
Cash at bank	1,245	1,742
	----------	----------
	2,925	3,082
	----------	----------
Creditors: amounts falling due within one year	(37,164)	(28,543)
	----------	----------
Net current liabilities	(34,239)	(25,461)
Total assets less current liabilities	277,056	227,529
	----------	----------
Creditors: amounts falling due after more than one year	(19,813)	(19,806)
	----------	----------
Net assets	257,243	207,723
	======	======
Capital and reserves
Share capital	6,430	5,597
Share premium account	126,783	95,595
Capital redemption reserve	26,302	26,302
Other capital reserves	88,818	72,657
Revenue reserve	8,910	7,572
	----------	----------
Total shareholders' funds	257,243	207,723
	======	======
Net asset value per ordinary share (basic and diluted) (note 7)	200.04p	185.56p
	======	======

Cash Flow Statement

	2017	2016
	£'000	£'000
Cash flows from operating activities
Net return on ordinary activities before taxation	28,441	19,229
Add back: finance costs	1,147	1,115
Less: gains on investments held at fair value through profit or loss	(17,779)	(9,561)
Withholding tax on dividends deducted at source	(79)	(87)
Taxation recovered	8	5
(Increase)/decrease in prepayments and accrued income	(348)	4
Increase/(decrease) in accruals and deferred income	438	(1,396)
	----------	----------
Net cash inflow from operating activities	11,828	9,309
	----------	----------
Cash flows from investing activities
Sales of investments held at fair value through profit or loss	46,265	46,171
Purchases of investments held at fair value through profit or loss	(71,289)	(46,468)
	----------	----------
Net cash outflow from investing activities	(25,024)	(297)
	----------	----------
Cash flows from financing activities
Issue of ordinary share capital	16,516	1,601
Equity dividends paid	(10,863)	(10,131)
Drawdown of loans	8,078	1,191
Interest paid	(1,139)	(1,105)
	----------	----------
Net cash flow from financing activities	12,592	(8,444)
	----------	----------
Net (decrease)/increase in cash and cash equivalents	(604)	568
Cash and cash equivalents at beginning of year	1,742	1,223
Exchange movements	107	(49)
	----------	----------
Cash and cash equivalents at end of year	1,245	1,742
	----------	----------
Comprising:
Cash at bank	1,245	1,742
	======	======

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') issued in November 2014 and updated in January 2017 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.

2.  Gains on investments held at fair value through profit or loss

	2017 £'000	2016 £'000
Gains on the sale of investments based on historical cost	9,638	4,517
Revaluation gains recognised in previous years	(6,265)	(4,933)
	---------	---------
Gains/(losses) on investments sold in the year based on carrying value at previous statement of financial position date	3,373	(416)
	---------	---------
Net movement on revaluation of investments	14,403	11,197
Exchange gains/(losses)	3	(1,220)
	---------	---------
	17,779	9,561
	=====	=====

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

	2017 £'000	2016 £'000
UK dividend income - listed	9,972	8,720
UK dividend income - special dividends	411	581
	-------	-------
	10,383	9,301
	-------	-------
Interest income - listed	1,208	1,288
Overseas and other dividend income - listed	1,921	1,717
	-------	-------
	3,129	3,005
	-------	-------
	13,512	12,306
	=====	=====

4.   Other interest receivable and similar income

	2017 £'000	2016 £'000
Underwriting commission (allocated to revenue)	12	57
	-----	-----
	12	57
	===	===

5.   Management and performance fees

	2017			2016
	Revenue return £'000	Capital return £'000	Total £'000	Revenue return £'000	Capital return £'000	Total £'000
Management fee	532	798	1,330	481	721	1,202
Performance fee	-	-	-	-	-	-
	------	-------	-------	------	-------	-------
Total fee	532	798	1,330	481	721	1,202
	===	====	====	===	====	====

No performance fee was earned during the year (2016: £nil).

6.  Return per ordinary share

The return per ordinary share figure is based on the gains attributable to the ordinary shares of £28,362,000 (2016: £19,142,000) and on the 120,429,018 weighted average number of ordinary shares in issue during the year (2016: 111,434,989).

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:

	2017 £'000	2016 £'000
Net revenue return	12,201	11,066
Net capital return	16,161	8,076
	----------	----------
Total return	28,362	19,142
	======	======
Weighted average number of ordinary shares	120,429,018	111,434,989
Revenue return per ordinary share	10.13p	9.93p
Capital return per ordinary share	13.42p	7.25p
	----------	----------
Total return per ordinary share	23.55p	17.18p
	======	======

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 £257,243,000 (2016: £207,723,000) and on the 128,596,278 ordinary shares in issue at 31 December 2017 (2016: 111,942,365).

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

	2017 £'000	2016 £'000
Net assets at start of year	207,723	197,111
Total net return on ordinary activities after taxation	28,362	19,142
Dividends paid on ordinary shares in the period	(10,863)	(10,131)
Issue of ordinary shares less issue costs	32,021	1,601
	----------	----------
	257,243	207,723
	======	======

8.   Dividends

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:

	£'000
Revenue available for distribution by way of dividend for the year	12,201
First interim dividend (2.325p per share) paid on 28 April 2017	(2,603)
Second interim dividend (2.325p per share) paid on 28 July 2017	(2,603)
Third interim dividend (2.375p per share) paid on 27 October 2017	(3,054)
Fourth interim dividend (2.375p per share) paid on 26 January 2018	(3,054)
Undistributed revenue for Section 1158 purposes	--------
	887
	=====

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

9. Subsequent events

Since the year end, the Board declared a first interim dividend of 2.375p per ordinary share, in respect of the year ending 31 December 2018. This will be paid on 27 April 2018 to holders registered at the close of business on 6 April 2018. This dividend is to be paid from the Company's revenue account. The Company's shares will go ex-dividend on 5 April 2018.

Since the year end the Board announced the following amendments to the fee arrangements with Janus Henderson. The current arrangement, whereby the management fee is charged at 0.5% of the average adjusted gross assets, will continue to apply to the first £250 million of average adjusted gross assets (average being the average of the adjusted gross assets as shown in the audited accounts of the Company on the two financial year-ends immediately preceding the financial year for which the base management fee is payable). With effect from 1 January 2018 a reduced management fee of 0.45% on average adjusted gross assets above £250 million will apply.

From the same date, the cap on total fees (being the base management fee plus performance fee) of 1.0% of average adjusted gross assets (average being the average of the adjusted gross assets over the four quarter ends in the relevant financial year) will be replaced by a cap on the performance fee of 0.4% of average adjusted gross assets in any one year: the calculation of the performance fee and the average adjusted gross assets remains unchanged.

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 Annual General Meeting 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.   2017 Financial information

The figures and financial information for 2017 are extracted from the Annual Report and Financial Statements for the year ended 31 December 2017 and do not constitute the statutory accounts for the year. The Annual Report and Financial Statements includes the Independent Auditors' Report which is unqualified and does not contain a statement under either Section 498(2) or Section 498(3) of the Companies Act 2006.  The Annual Report and Financial Statements have not yet been delivered to the Registrar of Companies.

12.   2016 Financial information

The figures and financial information for 2016 are extracted from the Annual Report and Financial Statements for the year ended 31 December 2016 and do not constitute the statutory accounts for the year. The Annual Report and Financial Statements includes the Independent Auditors' Report which is unqualified and does not contain a statement under either Section 498(2) or Section 498(3) of the Companies Act 2006. 

13.   Annual Report and Financial Statements

The Annual Report and Financial Statements for the year ended 31 December 2017 will be posted to shareholders in early April 2018 and will be available thereafter on the Company's website (www.hendersonhighincome.com) or from the Company's registered office, 201 Bishopsgate, London, EC2M 3AE.

14.    Annual General Meeting

The Annual General Meeting will be held on Wednesday 9 May 2018 at 12.00 noon at the Company's registered office, 201 Bishopsgate, London EC2M 3AE. The notice convening the Annual General Meeting will shortly be available on the Company's website www.hendersonhighincome.com 

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]

Sarah Gibbons-Cook

Investor Relations and PR Manager Investment Trusts

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

 

 

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