Annual Financial Report

RNS Number : 1506O

Henderson Opportunities Trust PLC

25 January 2019

 

HENDERSON INVESTMENT FUNDS LIMITED

HENDERSON OPPORTUNITIES TRUST PLC

LEGAL ENTITY INDENTIFIER (LEI):  2138005D884NPGHFQS77

25 January 2019

HENDERSON OPPORTUNITIES TRUST PLC

Annual Financial Report for the year ended 31 October 2018

This announcement contains regulated information

Investment Objective

The Company aims to achieve capital growth in excess of the FTSE All-Share Index from a portfolio of UK investments.

PERFORMANCE HIGHLIGHTS

Total Return Performance to 31 October

	1 year %	3 years %	5 years %	10 years %
NAV¹	-5.6	23.0	44.4	351.2
Share price²	-5.3	15.9	34.7	421.6
Sector Average NAV³	-2.6	20.5	35.1	222.1
Benchmark4	-1.5	25.4	30.5	156.7

Sources: Morningstar for the AIC, Datastream

	Year ended 31 October 2018	Year ended 31 October 2017
NAV per share at year end	1,179.4p	1,269.9p
NAV total  return1	-5.6%	29.5%
Share price at year end	990.0p	1,066.0p
Share price total return2	-5.3%	32.3%
Total return per share	-70.0p	292.2p
Dividend for year5	21.0p	20.0p
Dividend yield6	2.1%	1.9%
Discount at year end	16.1%	16.1%
Net gearing at year end	6.7%	13.3%
Net assets	£94.4m	£101.6m
Ongoing Charge7	0.84%	0.89%
Number of investments at year end8	85	98

1 Net Asset Value (NAV) per ordinary share total return with income reinvested

2 Share price total return using mid-market closing price with income reinvested

3 Average NAV of the AIC UK All Companies Sector with income reinvested

4 FTSE All-Share Index total return

5 This represents an interim dividend of 6.5p and a proposed final dividend of 14.5p.

6 Based on the ordinary dividends paid and payable for the year and the mid-market closing price at the year end

7 Ongoing charge excludes performance fee. Ongoing charge including performance fee is 0.84% (2017: 1.91%)

8 Excluding investments written down to zero

A glossary of terms is available in the Annual Report

Sources: Morningstar for the AIC, Janus Henderson, Datastream

 

CHAIRMAN'S STATEMENT

Review of Performance

The NAV total return for Henderson Opportunities Trust plc ('HOT') fell by 5.6% in the year, compared with a fall of 1.5% in our benchmark, the FTSE All-Share Index. There was pressure on UK focused AIM stocks, especially in the months preceding the end of the financial year, and HOT's heavy weighting in this area significantly impacted overall performance. October 2018 was a particularly difficult month in which HOT's NAV fell by 11.5%, broadly following the AIM All-Share Index which fell 11.1%. The underperformance in the year also reflected valuation corrections in some portfolio stocks which had performed strongly in the previous year, when HOT's total return increased by 29.5% compared with a 13.4% rise in the benchmark. These negative impacts were mitigated by the Fund Managers with anticipatory reductions in some holdings on valuation grounds and sales (£38.7m) outstripping purchases (£30.8m) over the year. This brought the gearing down from 13.3% as at the end of October 2017 to 6.7% as at the end of October 2018. Although the underperformance in the year was disappointing, the Board believes that the Fund Managers' timely and appropriate adjustments to the portfolio have positioned HOT to benefit from market opportunities over the coming months.

(see chart in the Annual Report)

Earnings and Dividends

The revenue return was 20.2p compared to 21.8p last year. The slight fall in revenue return was caused by the trimming of the portfolio to bring about the reduction in gearing. There was also a slight shift in the portfolio away from large cap stocks which tend to pay a higher dividend yield. The FTSE 100 weighting as at the end of October 2018 was 14% compared to 19% at the end of October 2017.

The final dividend of 14.5p to be paid from revenue will be payable on 22 March 2019, subject to shareholder approval at the Annual General Meeting. The shares will be marked ex-dividend on 14 February 2019. The total dividend for the year is 1.0p higher than the previous year. The focus in the investment approach is not solely on companies that pay dividends but often cash generative businesses will find dividend paying a good discipline. The Board is therefore optimistic that the progressive dividend policy of recent years can be maintained, although this may from time to time require resort to the revenue reserve.

During the year the Company began stock lending and it has proved to be a useful addition to income. Stock lending commenced on 25 April 2018 and so far it has generated £49,000 in income.

Fees and Expenses

The disappointing results this year meant there is no performance fee payable. A performance fee of £0.9m was paid in 2017 when there was marked outperformance. The combined management and performance fees are capped at 1.5% of the average net assets (calculated quarterly) during the year. This year the ongoing charge was 0.84%.

Continuation Vote

There was a continuation vote at the AGM in 2017. The next continuation vote will be in March 2020 following the three year cycle.

Buy-backs and Share Issuance

The Company's share price ended the year at a 16.1% discount to NAV.  We regularly review the discount level and, as a result of the discount widening to 17.5% in December on the back of general market weakness, the Board took the decision to buy back shares under the authority granted by the shareholders at the AGM in March 2018.  Since the year end, 69,510 ordinary shares have been bought back under this authority at a cost of £640,000.  The shares are being held in treasury.

AGM

Our Annual General Meeting will be held at 2.30pm on 14 March 2019 at the registered office, 201 Bishopsgate, London EC2M 3AE. The Notice of Meeting accompanies this Annual Report. The Directors will vote their own shareholdings in favour of all the resolutions to be put to the AGM and the Directors recommend that the shareholders support all the resolutions.

In addition to the formal business of the meeting, the Fund Managers, James Henderson and Laura Foll, will give a presentation following which tea will be served.

Investment Strategy

The objective of our Fund Managers is to find and hold stocks that are good businesses with attractive valuations, diverse customer bases and sound prospects, and which are capable of delivering sustainable growth over time. These companies are to be found across the market capitalisation range but there will usually be a focus on smaller companies, many of which are overlooked or under-researched and offer greater potential for outperformance in the longer term.

Your Board believes that clear focus on stock picking rather than on making macro-economic calls is the best way to add value for shareholders. The Fund Managers therefore spend a great deal of time researching and meeting with investment companies.

Gearing

Gearing at the year end was 6.7%. It is a distinct advantage to have the ability to gear and the approach is to make use of this when the Fund Managers are finding good opportunities. The level of gearing will be adjusted to reflect the Board's views on the market and economic climate but will not normally exceed 20%. The gearing in the short term is determined by the opportunities that are presented.

The Board

Following the departure of Peter May at the AGM last year, we are very pleased that Wendy Colquhoun joined the Board on 1 September 2018. She brings with her a long track record of advising investment trust boards on advisory and transactional matters having served as a partner at law firms including Dickson Minto, Linklaters and (currently) CMS Cameron McKenna Nabarro Olswang.

Fund Managers

During the course of the year Colin Hughes retired as joint Fund Manager of the Company. He had worked on the portfolio for over 20 years and the Board would like to thank him for his considerable contribution to performance. He worked at Janus Henderson (or companies that became part of the Janus Henderson group) for 42 years.

Laura Foll was appointed as joint Fund Manager with effect from September 2018.  Laura manages a number of portfolios alongside James Henderson including Lowland Investment Company. She has been actively involved in managing the Company's investments alongside Colin and James for a number of years.

Outlook

Market volatility is likely to continue until there is less uncertainty in respect of the UK's future relationship with the EU. Until that matter is resolved, the Board will maintain a cautious approach in respect of gearing and our Fund Managers will continue to focus on delivering value through careful stock selection. The Board remains confident of the long term value in our portfolio and this conviction has been reflected in our decision to buy back shares in the recent market weakness in December and January.

Peter Jones

Chairman

25 January 2019

 

FUND MANAGERS' REPORT

Portfolio Review

As at 31 October 2018 there were 85 stocks in the portfolio. The stocks are a diverse collection of companies serving a wide range of geographies and end markets. The objective is to produce strong capital growth while the blend of stocks in the portfolio is intended to reduce volatility.

There is always a large degree of subjectivity in valuing a company today on the future cash flow it may produce in several years' time. This is particularly true of fast growing companies. There is no one set of parameters that can be applied indiscriminately across all types of companies. A company that is in an early high growth phase should command a higher multiple than one which is more established and growing at a slower, but more consistent, rate. For this reason we have divided the portfolio into separate classifications.

The core of the portfolio will always be 'small and mid-cap compounders' and 'growth small cap'. The portfolio as it stands has a high allocation to 'growth' small cap as we are finding a number of exciting early stage companies on AIM that could, in our view, become some of the large UK companies of the future. The path to becoming a large company will not, however, always be smooth and it was this 'growth' area that performed particularly poorly in October. This weakness was not, in our view, a result of any changes to the fundamentals of these businesses but rather reflected that in some cases share prices had moved too far too fast, and a retrenchment was necessary.

The recovery classification is currently a small portion of the portfolio at 8%. Recovery and value investing has been difficult in recent years, while growth and quality investing has performed well. As Fund Managers we need to recognise when a style is proving unsuccessful and therefore we have been quite constrained in value purchases. We will, however, continue to be active in the area and, if we see a compelling opportunity, we will add in small size.

The portfolio is divided into the seven classifications below. There is naturally a degree of subjectivity in these classifications but we find the classifications help us to ensure the portfolio remains diverse:

Classification	Description	Indicative Range %	Exposure %	Top 3 Holdings
Small and Mid-cap Compounders	Quality companies with strong management. Long term returns can be compounded as the company grows. Usually established companies.	20-40	24	RWS Ricardo Assura
Growth Small Cap	Quality companies, however earlier stage with correspondingly higher growth rates.	20-40	32	Blue Prism Tracsis Learning Technologies
Growth Large Cap	These stocks are usually familiar to all investors.  They are ballast for the portfolio but as individual companies we believe they remain long term growth stores that are genuinely good in some of their operations.	10-30	15	HSBC Johnson Matthey Rolls-Royce
Early Stage / University Spin-outs	Early-stage companies and prospects largely uncorrelated to wider market moves.	0-20	7	4D Pharma IP Group Oxford Biodynamics
Natural Resources	Exposure to cyclical stocks adding diversity to portfolio. Positioning depends on commodity cycle.	5-15	12	Serica Energy Faroe Petroleum Rio Tinto
Recovery	Companies viewed as contrarian value opportunities.	0-20	8	Vertu Motors Character Oxford Instruments
Special Situations	One-off investments often driven by a catalyst for change.	0-10	2	IDOX Redcentric

Data: as at 26 November 2018

 

Performance 

The portfolio does not reflect the make-up of the benchmark index. It is believed that the approach will create more value over time by not being heavily benchmark influenced. It has achieved this over time with the ten year NAV total return up 351.2%, while the FTSE All-Share Index total return is up 156.7%. However, over shorter periods there will be periods of underperformance. The year under review the NAV (on a total return basis) underperformed by 4.1%.

The UK market was weaker than other major markets as UK earnings were treated with caution by investors. The reason for this underperformance was uncertainty surrounding Brexit and the possibility a recession would result. Smaller companies generally have a larger exposure to the UK economy than the major companies in the index so they were relatively weaker and this impacted the portfolio.

Portfolio Activity

We were quite active during the year, adding 22 new positions and selling out completely in 34. We were cautious with adding new holdings and therefore sales (totalling £38.7m) were larger than purchases (£30.8m). The number of holdings at 31 October 2018 had been reduced to 85 companies (not including any written down to zero) compared to 98 as at the end of the previous year.

Top five purchases:

Zoo Digital (new position)

Zoo Digital provides dubbing and subtitling services to content producers (such as Netflix and Disney). These content producers want to distribute their content quickly across global markets. Zoo Digital has technology that allows dubbing into multiple different languages in a quicker (and more cost effective way) than traditional dubbing studios. The technology enables freelance actors to record dubbing in their own home using Zoo Digital's software, rather than having to use a more expensive recording studio. Zoo

Digital is seeing good demand for its dubbing services, which are of much higher value than their subtitling services. This is causing revenues to rise materially, and we are hopeful that sales can continue to grow strongly as more content producers begin using Zoo Digital's dubbing services.

Boku (new position)

Boku has a mobile payments technology that allows, for example, Spotify to charge for its services via the customer's mobile phone bill. Boku then take a percentage of the overall transaction value. The advantage of having this option for companies such as Spotify and Apple is that some customers may not have a credit card or a PayPal account, so this allows companies to gain customers that they may otherwise have lost. For a relatively small company, Boku is already profitable with a strong list of customers.

Next Fifteen Communications (new position)

Next Fifteen Communications is a digital marketing and PR agency that have an impressive list of customers including Facebook and Amazon. It has a strong track record of both organic growth and of undertaking supplementary acquisitions.

Vodafone (addition to existing position)

Vodafone is a global telecoms company. Shares have performed poorly due to pricing competition in markets such as Spain and Italy and concerns around the level of indebtedness. In hindsight we added to the shares too early and these concerns have lingered. There is, however, the potential for the company to take more costs out of the business than the market is expecting and for revenues to inflect (marginally) as customers use more data.

Mirriad Advertising (new position)

Mirriad Advertising was an IPO during the year that was spun out of one of our existing holdings (IP Group). It has a technology that allows advertising to be retrospectively placed into existing content in a seamless manner. Therefore content producers can sign up to Mirriad Advertising and allow their back catalogue of content to be scanned for advertising opportunities that can then be sold on (with Mirriad Advertising taking a revenue share). The shares have performed poorly since IPO as sales have not risen as fast as hoped. There has since been a management change and Mirriad Advertising has signed contracts with good quality media owners such as NBC in the US and RTL in Germany.

Top five sales:

All five of the holdings described below were sold completely from the portfolio. In a demonstration of the low turnover approach (approximately 20% per year), all positions had been held for over five years.

Clinigen

Clinigen provides a range of services for the pharmaceutical industry including clinical trial services (for example providing comparator drugs for use in trials) and speciality pharmaceuticals (buying niche, often end of life, products from pharmaceutical companies and extending their usage across geographies). Clinigen had been a strong performer since purchase in 2012 and had re-rated substantially; therefore we sold the position as it had reached what we considered to be fair value.

Senior

Senior is a specialist engineer, providing components for the aerospace and automotive industries. It had been a large position in the portfolio and last year was in the top 20 holdings. Following a difficult 2015 and 2016, in which margins came under pressure, the shares had in recent years performed strongly. As a result the valuation was, in our view, factoring in a significant recovery in margin (which is now starting to come through).

Royal Dutch Shell

The position in Royal Dutch Shell was sold following a sharp rise in the oil price to over $80 a barrel in early October 2018. This strong oil price meant that Royal Dutch Shell shares had performed well and had re-rated to a point where the dividend yield was below 5.5% (below the long term average dividend yield). We have maintained the position in the smaller exploration and production companies (including Serica Energy and Faroe Petroleum, both of which are now in the top 10 holdings). We are better placed to add value in these smaller, less well known, oil exploration and production companies.

ITV

ITV had been a long held position in the portfolio having been originally purchased in 2012. The business is well managed and is taking sensible steps by investing in its own content; however we sold the position due to increasing structural concerns. ITV's earnings are at risk of coming under pressure due to more intense competition for advertising revenue (both across a huge number of TV channels and also from online platforms such as YouTube).

Micro Focus

Micro Focus is a software company that had grown successfully via acquisitions over many years, purchasing legacy software businesses and taking out costs. This culminated in the acquisition of the software segment of Hewlett Packard Enterprise in 2016. This large acquisition ran into integration problems and this made us question the sustainability of the 'roll-up' business model now that the business is of FTSE 100 scale.

Attribution

The ten largest positive contributors have certain common themes. Of the top ten, three are oil exploration companies and technology stocks are also well represented. The oil exploration sector, after a period of being out of investor favour came back to prominence on a rise in the oil price and in selective cases good drilling results. Certain technology shares saw potential sales growth being turned into reality.

The largest detractor was Conviviality, which went into administration due, primarily, to weak financial controls and was written off as a result. There was no one theme with the detractors but rather that the companies encountered individual problems that had not been envisaged. In the majority of cases we continue to see value in the detractors and in some cases, such as clothing retailer Quiz, have added to the holdings.

Top 10 contributors to absolute performance
	Share price return %	Contribution to NAV %
Serica Energy	+325.1	+3.3
Blue Prism	+24.0	+1.1
GRC International	+150.5	+0.9
Learning Technologies	+74.1	+0.9
Faroe Petroleum	+46.1	+0.7
Keystone Law	+124.8	+0.6
Aveva	+65.0	+0.6
Ubisense	+50.0	+0.6
Eland Oil & Gas	+56.1	+0.5
Gym Group	+34.6	+0.4

Source: Janus Henderson

Serica Energy is a North Sea oil and gas producer. Following the oil price fall in 2014 and 2015, oil majors such as BP looked to reduce capital expenditure substantially and this led to them divesting a number of smaller fields at attractive prices. Serica Energy was one of the acquirers of some of these divested assets.

The share price chart (see chart in the Annual Report) demonstrates the benefits of having a relatively long list of holdings within the portfolio. Serica was a small position for a number of years. For example as at the end of October 2015 it was only 0.6% of the portfolio and the share price had moved little since purchase. As the table above shows, this year it has been a strong contributor to performance.

Top 10 detractors from absolute performance
	Share price return %	Contribution to NAV %
Conviviality	-100.0	-2.5
4D Pharma	-58.9	-1.7
Clinigen	-26.0	-0.8
Micro Focus	-49.7	-0.8
Mirriad Advertising	-68.6	-0.7
Luceco	-83.4	-0.7
Quiz	-74.2	-0.7
Quantum Pharma	-56.1	-0.7
Safestyle	-61.3	-0.6
Be Heard	-59.1	-0.6

Source: Janus Henderson

(see chart in the Annual Report)

4D Pharma was purchased at IPO in 2014 for £1. It is an early stage pharmaceutical company, aiming to develop drugs targeting a wide range of (large) end markets including Crohn's disease, cancer and IBS. The novel aspect of 4D relative to other pharmaceutical companies is that it is using bacteria that naturally occur in the gut as a drug. In theory this should mean a better safety profile because the bacteria are already in the gut of healthy individuals.

Shortly after IPO there was a lot of excitement in the area and the shares performed strongly. However, drug development often takes longer than expected and the shares have pulled back. The fundamentals of the company remain encouraging in our view. Clinical trials, where they have reported, have looked promising and 4D recently signed a development agreement with Merck for their cancer product. On share price strength we reduced the position so our 'entry cost' (combining IPO, a placing and a recent addition on weakness) is £1.9m and we have taken £2.2m out of the position so far. The remaining value of the holding at year end was £1.7m.

Outlook

There is a convergence of reasons for making investor sentiment bearish. Actual company announcements do not correspond with the degree of macro gloom. The cautious will say this is because the companies have not yet caught up with the economic problems but that they will in time. There is a general attempt to impose generalities onto what is actually a very diverse picture of industrial activity. Some businesses are moving forward and some moving back, with the quoted company sector maybe doing better than general UK Plc because of overseas earnings and more exports in their turnover. They therefore should be helped by Sterling weakness. The investment approach is to use any undue weakness to keep refreshing the portfolio.

James Henderson and Laura Foll

Fund Managers

25 January 2019

 

PRINCIPAL RISKS AND UNCERTAINTIES

The Board, with the assistance of the Manager, has carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency and liquidity. The principal risks and uncertainties facing the Company relate to investing in the shares of companies that are listed in the United Kingdom, including small companies. Although the Company invests almost entirely in securities that are listed on recognised markets, share prices may move rapidly, whether upwards or downwards, and it may not be possible to realise an investment at the Manager's assessment of its value. Falls in the value of the Company's investments can be caused by unexpected external events. The companies in which investments are made may operate unsuccessfully, or fail entirely, such that shareholder value is lost. The Company is also exposed to the operational risk that one or more of its contractors or sub-contractors may not provide the required level of service.

The Board considers regularly the principal risks facing the Company in order to mitigate them as far as practicable. The Board has drawn up a risk map which identifies the substantial risks to which the Company is exposed. The Board has also put in place a schedule of investment limits and restrictions, appropriate to the Company's investment objective and policy. These principal risks fall broadly under the following categories:

Risk	Controls and Mitigation
Investment activity and strategy	The Manager provides the Directors with management information including performance data reports and portfolio analyses on a monthly basis. The Board monitors the implementation and results of the investment process with the Fund Managers, who attend all Board meetings, and reviews regularly data that monitors risk factors in respect of the portfolio. The Manager operates in accordance with investment limits and restrictions determined by the Board; these include limits on the extent to which borrowings may be used. The Board reviews its investment limits and restrictions regularly and the Manager confirms its compliance with them each month. The Board reviews investment strategy at each Board meeting. An inappropriate investment strategy (for example, in terms of asset allocation, stock selection, failure to anticipate external shocks or the level of gearing) may lead to a reduction in NAV, underperformance against the Company's benchmark index and the Company's peer group; it may also result in the Company's shares trading on a wider discount to NAV. The Board seeks to manage these risks by ensuring a diversification of investments through regular meetings with the Fund Managers with measurement against performance indicators and by reviewing the extent of borrowings.
Financial instruments and the management of risk	By its nature as an investment trust, the Company is exposed in varying degrees to market risk, interest rate risk, liquidity risk, currency risk and credit and counterparty risk. Market risk arises from uncertainty about the future prices of the Company's investments. An analysis of these financial risks and the Company's policies for managing them are set out in the Annual Report.
Operational	Disruption to, or failure of, the Manager's accounting, dealing or payment systems or the Custodian or the Depositary's records could prevent the accurate reporting and monitoring of the Company's financial position. The Manager has contracted some of its operational functions, principally those relating to trade processing, investment administration, accounting and cash management, to BNP Paribas Securities Services. Details of how the Board monitors the services provided by the Manager and its other suppliers, and the key elements designed to provide effective internal control, are explained further in the internal controls section of the Corporate Governance Statement in the Annual Report.
Accounting, legal and regulatory	In order to qualify as an investment trust the Company must comply with section 1158 of the Corporation Tax Act 2010 ('section 1158'), to which reference is made in the Annual Report under the heading 'Status'. A breach of section 1158 could result in the Company losing investment trust status and, as a consequence, capital gains realised within the Company's portfolio would be subject to corporation tax. The section 1158 criteria are monitored by the Manager and the results are reported to the Directors at each Board meeting. The Company must comply with the provisions of the Companies Act 2006 ('the Act') and, as the Company's shares are listed for trading on the London Stock Exchange, the Company must comply with the UK Listing Authority's Listing Rules ('UKLA Listing Rules'). A breach of the Act could result in the Company and/or the Directors being fined or becoming the subject of criminal proceedings. Breach of the UKLA Rules could result in the suspension of the Company's shares which would in turn lead to a breach of section 1158. The Board relies on Henderson Secretarial Services Limited, its Corporate Secretary and its professional advisers to ensure compliance with the Act and the UKLA Listing Rules.
Liquidity	In line with the Company's investment strategy the Fund Managers can invest on an unconstrained basis across the whole range of market capitalisations. This includes investing in smaller, early stage development companies. The market for these shares is less liquid than for those stocks which have a larger market capitalisation. The Board monitors the Company's exposure to these smaller companies on a monthly basis and reviews this in detail at Board meetings. The liquidity of the whole portfolio is also considered at Board meetings.
Net gearing	The ability to borrow money for investment purposes is a key advantage of the investment trust structure. A failure to maintain a bank facility would prevent the Company from gearing. A breach of the Company's borrowing covenants or the gearing range determined by the Board could lead to the Company becoming a forced seller of shares with possible losses for shareholders. The Board reviews the level of net gearing at each Board meeting in light of the liquidity of the portfolio and ensures that it is well within the covenants so that this risk is very unlikely to arise.
Failure of Janus Henderson	A failure of the Manager's business, whether or not as a result of regulatory failure, cyber risk or other failure could result in the Manager being unable to meet its obligations and its duty of care to the Company. The Board meets regularly with representatives of the Manager's Investment Management, Risk, Compliance, Internal Audit and Investment Trust teams and reviews internal control reports from the Manager on a quarterly basis. The failure of the Manager would not necessarily lead to a loss of the Company's assets, however, this risk is mitigated by the Company's ability to change its investment manager if necessary, subject to the terms of its management agreement.

BORROWINGS

The Company has an unsecured loan facility in place which allows it to borrow as and when appropriate. £20 million (2017: £20 million) is available under the facility. Net gearing is limited by the Board to 25% of net assets. The maximum amount drawn down in the period under review was £18.1 million (2017: £19.6 million), with borrowing costs for the year totalling £229,000 (2017: £200,000). £7.0 million (2017: £14.6 million) of the facility was in use at the year end. Net gearing at 31 October 2018 was 6.7% (2017: 13.3%) of net asset value.

VIABILITY STATEMENT

The Company is normally 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 the Board believes to be investors' horizons, taking account of the Company's current position and the potential impact of the principal risks and uncertainties as documented in the Strategic Report contained in the Annual Report.

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

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

The Directors do not expect there to be any significant change in the current principal risks and adequacy of the mitigating controls in place. Also the Directors do not envisage any change in strategy or objectives or any events that would prevent the Company from continuing to operate over that period as the Company's assets are liquid, its commitments are limited and the Company intends to continue to operate as an investment trust. Only a substantial financial crisis affecting the global economy could have an impact on this assessment. Whilst there is currently uncertainty in the markets due to the UK's negotiations to leave the European Union, the Board does not believe that this will have a long term impact on the viability of the Company and its ability to continue in operation.

Based on this assessment, the Board has a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next five year period.

RELATED PARTY TRANSACTIONS

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

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

STATEMENT OF DIRECTORS' RESPONSIBILITIES

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

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

·       the Strategic Report and Financial Statements include a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

For and on behalf of the Board

Peter Jones

Chairman

25 January 2019

Twenty Largest Holdings at 31 October 2018

The stocks in the portfolio are a diverse mix of businesses operating in a wide range of end markets.

Rank 2018 (2017)	Company	% of Portfolio	Approximate Market Capitalisation	Valuation 2017 £'000	Net purchases / (sales) £'000	Appreciation/ (depreciation) £'000	Valuation 2018 £'000
1 (1)	Blue Prism1	4.9	£910m	5,066	(1,398)	1,361	5,029
2 *	Serica Energy1	4.7	£350m	1,070	96	3,586	4,752
3 (2)	RWS¹	4.4	£1.4bn	4,604	(439)	255	4,420
4 (12)	Loopup1	2.8	£200m	2,138	485	221	2,844
5 (13)	Tracsis1	2.7	£170m	1,971	496	283	2,750
6 (15)	Faroe Petroleum¹	2.6	£590m	1,799	42	786	2,627
7 (5)	HSBC	2.6	£134bn	2,979	-	(363)	2,616
8 *	Learning Technologies¹	2.5	£630m	1,305	84	1,114	2,503
9 (3)	Keyword Studios¹	2.4	£750m	4,394	(1,668)	(260)	2,466
10 (14)	Johnson Matthey	2.3	£5.6bn	1,860	953	(435)	2,378
11 *	Rolls Royce	2.1	£15.7bn	1,459	1,046	(407)	2,098
12 (10)	Ricardo	2.0	£380m	2,290	-	(302)	1,988
13 (16)	Rio Tinto	1.9	£62.6bn	1,774	-	128	1,902
14 *	The Gym Group	1.8	£410m	1,310	110	447	1,867
15 (20)	Assura	1.8	£1.3bn	1,661	421	(254)	1,828
16 *	Redde¹	1.7	£530m	1,517	-	241	1,758
17 *	Eland Oil & Gas¹	1.7	£240m	1,119	-	627	1,746
18 (4)	4D Pharma¹	1.7	£86m	2,985	459	(1,721)	1,723
19 *	Workspace	1.6	£1.6bn	1,327	223	87	1,637
20 *	Prudential	1.5	£40.2bn	926	781	(137)	1,570
Total		49.7		43,554	1,691	5,257	50,502

At 31 October 2018 these investments totalled £50,502,000 or 49.7% of the portfolio.                                    

^{* Not in the top 20 largest investments last year}

^{1 Quoted on the Alternative Investment Market ('AIM')}

Portfolio by Sector

As a percentage of the investment portfolio excluding cash

	31 October 2018 %	31 October 2017 %
Basic Materials	4.7	5.1
Consumer Goods	3.8	6.0
Consumer Services	10.8	18.7
Financials	14.5	11.7
Health Care	4.6	7.3
Industrials	22.1	25.0
Oil & Gas	11.7	6.7
Technology	25.2	19.0
Telecommunications	1.8	0.5
Utilities	0.8	0.0
	100.0	100.0

Portfolio by Index

As a percentage of the investment portfolio excluding cash

	31 October 2018 %	31 October 2017 %
FTSE 100	14.0	18.6
FTSE 250	8.3	10.2
FTSE Small Cap	9.9	14.3
FTSE Fledgling	0.5	1.0
FTSE AIM	63.3	50.7
Other1	4.0	5.2
	100.0	100.0

^{1 Other also includes AIM investments outside the FTSE AIM Index and shares listed on the main market which are not included in the FTSE All-Share Index}

Market capitalisation of the portfolio at 31 October 2018

	Portfolio Weight %	Benchmark Weight %
Greater than £2bn	15.8	88.9
£1bn - £2bn	13.5	5.2
£500m - £1bn	14.1	3.2
£200m - £500m	20.0	2.3
£100m - £200m	18.2	0.4
£50m - £100m	11.2	0.0
Less than £50m	6.8	0.0
Other	0.4	0.0
	100.0	100.0

Source: Janus Henderson, Datastream

AUDITED INCOME STATEMENT

		Year ended 31 October 2018			Year ended 31 October 2017
		Revenue return £'000	Capital return £'000	Total £'000	Revenue return £'000	Capital return £'000	Total £'000
Notes
2	(Losses)/gains on investments held at fair value through profit or loss	-	(6,669)	(6,669)	-	23,029	23,029
3	Income from investments held at fair value through profit or loss	2,097	-	2,097	2,246	-	2,246
4	Other interest receivable and other income	74	-	74	14	-	14
		---------	----------	----------	---------	----------	----------
	Gross revenue and capital (losses)/gains	2,171	(6,669)	(4,498)	2,260	23,029	25,289
5	Management and performance fee	(165)	(386)	(551)	(148)	(1,257)	(1,405)
	Other administrative expenses	(319)	-	(319)	(302)	-	(302)
		-----------	----------	----------	-----------	----------	----------
	Net return/(loss) before finance costs and taxation	1,687	(7,055)	(5,368)	1,810	21,772	23,582
	Finance costs	(69)	(160)	(229)	(60)	(140)	(200)
		-----------	----------	----------	-----------	----------	----------
	Net return/(loss) before taxation	1,618	(7,215)	(5,597)	1,750	21,632	23,382
	Taxation	(2)	-	(2)	(5)	-	(5)
		-----------	----------	----------	-----------	----------	----------
	Net return/(loss) after taxation	1,616	(7,215)	(5,599)	1,745	21,632	23,377
		----------	----------	----------	----------	----------	----------
6	Net return/(loss) per ordinary share - basic and  diluted	20.20p	(90.18p)	(69.98p)	21.81p	270.37p	292.18p
		======	=======	======	======	=======	======

The total columns of this statement represent the Profit and Loss Account of the Company. The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies. All revenue and capital items in the above statement derive from continuing operations. The Company had no recognised gains or losses other than those disclosed in the Income Statement.

AUDITED STATEMENT OF CHANGES IN EQUITY

Year ended 31 October 2018	Called up share capital £'000	Share premium account £'000	Capital redemption reserve £'000	Other capital reserves £'000	Revenue reserve £'000	Total shareholders' funds £'000
At 1 November 2017	2,000	14,838	2,431	79,549	2,781	101,599
Ordinary dividends paid	-	-	-	-	(1,640)	(1,640)
Net (loss)/return after taxation	-	-	-	(7,215)	1,616	(5,599)
	--------	----------	----------	----------	-----------	---------
At 31 October 2018	2,000	14,838	2,431	72,334	2,757	94,360
	=====	======	======	======	======	=====

Year ended 31 October 2017	Called up share capital £'000	Share premium account £'000	Capital redemption reserve £'000	Other capital reserves £'000	Revenue reserve £'000	Total shareholders' funds £'000
At 1 November 2016	2,000	14,838	2,431	57,917	2,596	79,782
Ordinary dividends paid	-	-	-	-	(1,560)	(1,560)
Net return after taxation	-	-	-	21,632	1,745	23,377
	--------	----------	----------	----------	-----------	---------
At 31 October 2017	2,000	14,838	2,431	79,549	2,781	101,599
	=====	======	======	======	======	=====

AUDITED STATEMENT OF FINANCIAL POSITION

	31 October 2018 £'000	31 October 2017 £'000
Fixed Assets
Investments held at fair value through profit or loss
Listed at market value	35,971	54,693
Quoted on AIM at market value	65,319	61,119
Unlisted at market value	400	400
	------------	------------
	101,690	116,212
	------------	------------
Current assets
Investment held at fair value through profit or loss	2	2
Debtors	147	1,089
Cash at bank and in hand	707	1,123
	------------	------------
	856	2,214
Creditors: amounts falling due within one year	(8,186)	(16,827)
	-----------	-----------
Net current liabilities	(7,330)	(14,613)
	-----------	-----------
Total assets less current liabilities	94,360	101,599
Net assets	94,360	101,599
	=======	=======
Capital and reserves
Called up share capital	2,000	2,000
Share premium account	14,838	14,838
Capital redemption reserve	2,431	2,431
Other capital reserves	72,334	79,549
Revenue reserve	2,757	2,781
	------------	------------
Total shareholders' funds	94,360	101,599
	=======	=======
Net asset value per ordinary share (basic and diluted)	1,179.4p	1,269.9p
	=======	=======

AUDITED STATEMENT OF CASH FLOWS

	Year ended 31 October 2018	Year ended 31 October 2017
	£'000	£'000
Cash flows from operating activities
Net (loss)/return before taxation	(5,597)	23,382
Add: finance costs	229	200
Add: losses/(gains) on investments held at fair value through profit or loss	6,669	(23,029)
Withholding tax on dividends deducted at source	(1)	(11)
Decrease/(increase) in other debtors	62	(14)
(Decrease)/increase in creditors	(899)	885
	----------	----------
Net cash inflow from operating activities	463	1,413
	----------	----------
Cash flows from investing activities
Purchase of investments	(30,932)	(15,650)
Sale of investments	39,550	13,702
	------------	------------
Net cash inflow/(outflow) from investing activities	8,618	(1,948)
	------------	------------
Cash flows from financing activities
Equity dividends paid	(1,640)	(1,560)
Net loans (repaid)/drawn down	(7,624)	2,814
Interest paid	(233)	(201)
	-----------	-----------
Net cash (outflow)/inflow from financing activities	(9,497)	1,053
	-----------	-----------
Net (decrease)/increase in cash and cash equivalents	(416)	518
Cash and cash equivalents at start of year	1,123	605
	----------	----------
Cash and cash equivalents at end of year	707	1,123
	----------	----------
Comprising:
Cash at bank	707	1,123
	-----------	-----------
	707	1,123
	=====	=====

NOTES TO THE FINANCIAL STATEMENTS

1.	Accounting policies
	(a) Basis of accounting The Company is a registered investment company as defined in section 833 of the Companies Act 2006 and is incorporated in the United Kingdom. It operates in the United Kingdom and is registered at 201 Bishopsgate, London EC2M 3AE. The Financial Statements have been prepared in accordance with the Companies Act 2006, FRS 102 - The Financial Reporting Standard applicable in the UK and Republic of Ireland and with the Statement of Recommended Practice: Financial Statements of Investment Trust Companies and Venture Capital Trusts (the 'SORP') issued in November 2014 and updated in February 2018 with 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 of 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.
	(b) Going concern The Company's Articles of Association require that at the Annual General Meeting of the Company held in 2008, and every third year thereafter, an ordinary resolution be put to approve the continuation of the Company. The resolutions put to the Annual General Meetings in 2011, 2014 and in 2017 were duly passed. The next triennial continuation resolution will be put to the Annual General Meeting in 2020. The assets of the Company consist almost entirely of securities that are listed (or quoted on AIM) and are readily realisable. Accordingly, the Directors believe that the Company has adequate resources to continue in operational existence for at least twelve months from the date of approval of the financial statements. Having assessed these factors, the principal risks 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.
	(c) Significant judgements and areas of estimation uncertainty There have been no significant judgements or estimations applied to the Financial Statements.
	(d) Investments held at fair value through profit or loss Listed investments, including quoted AIM stocks, are held at fair value through profit or loss and accordingly are valued at fair value, deemed to be bid prices or the last trade price depending on the convention of the exchange on which the investment is quoted. Unlisted investments are held at fair value through profit or loss and are valued by the Directors with regard to the International Private Equity and Venture Capital Guidelines ('IPEV') using primary valuation techniques such as recent transactions and net assets. Where fair value cannot reliably be measured the investment will be carried at the previous reporting date value unless there is evidence that the investment has since been impaired, in which case the value will be reduced. Changes in the value of investments held at fair value through profit or loss and gains and losses on disposal are recognised in the Income Statement as 'gains or losses on investments held at fair value through profit or loss'. Also included within this caption are transaction costs in relation to the purchase or sale of investments, including the difference between the purchase price of an investment and its bid price at the date of purchase. All purchases and sales are accounted for on a trade date basis.
2.		(Losses)/Gains on investment held at fair value through profit or loss	2018 £'000	2017 £'000
		Gains on the sale of investments based on historical cost	11,464	5,321
		Revaluation gains recognised in previous years	(11,325)	(1,665)
			----------	--------
		Gains on investments sold in the year based on carrying value at previous Statement of Financial Position date	139	3,656
		Revaluation (losses)/gains on investments held at 31 October	(6,808)	19,373
			----------	--------
			(6,669)	23,029
			======	=====

 

3.	Income from investments held at fair value through profit or loss							2018 £'000	2017 £'000
	UK:
	Dividends from listed investments							1,176	1,284
	Dividends from AIM investments							719	713
								-------	-------
								1,895	1,997
	Non-UK:
	Dividends from listed investments							202	249
								-------	-------
								2,097	2,246
								====	====
4.	Other interest receivable and other income							2018 £'000	2017 £'000
	Deposit interest							3	-
	Stock lending commission							49	-
	Underwriting commission (allocated to revenue)							22	14
								-------	-------
								74	14
								====	====
	At 31 October 2018, the total value of securities on loan by the Company for stock lending purposes was £11,683,000 (2017: £nil). The maximum aggregate value of securities on loan at any one time during the year ended 31 October 2018 was £13,465,000 (2017: £nil). The Company's agent holds collateral at 31 October 2018, with a value of £14,079,000 (2017: £nil) in respect of securities on loan, the value of which is reviewed on a daily basis and comprises CREST Delivery By Value ('DBVs') and Government Bonds with a market value of 121% (2017: nil) of the market value of any securities on loan. During the year the Company was not required to take up shares in respect of underwriting commission; no commission was taken to capital (2017: same).
5.	Management and performance fee
	2018				2017
		Revenue return £'000	Capital return £'000	Total £'000	Revenue return £'000		Capital return £'000		Total £'000
	Management fee	165	386	551	148		344		492
	Performance fee	-	-	-	-		913		913
		--------	----------	----------	--------		----------		----------
		165	386	551	148		1,257		1,405
		--------	----------	----------	--------		----------		----------
	The basis on which the management fee is calculated is set out in the Strategic Report in the Annual Report. The allocation between revenue return and capital return is explained in the Notes to the Financial Statements within the Annual Report.

6.	Net return/(loss) per ordinary share - basic and diluted
	The total loss per ordinary share is based on the total loss attributable to the ordinary shares of £5,599,000 (2017: total return of £23,377,000) and on 8,000,858 ordinary shares (2017: 8,000,858) being the weighted average number of shares in issue during the year. The (loss)/return per ordinary share can be further analysed as follows:
		2018 £'000	2017 £'000
	Revenue return	1,616	1,745
	Capital (loss)/return	(7,215)	21,632
		----------	----------
	Total (loss)/return	(5,599)	23,377
		----------	----------
	Weighted average number of ordinary shares	8,000,858	8,000,858
		2018	2017
	Revenue return per ordinary share	20.20p	21.81p
	Capital (loss)/return per ordinary share	(90.18p)	270.37p
		-----------	-----------
	Total (loss)/return per ordinary share (basic and diluted)	(69.98p)	292.18p
		======	======

7.	Net asset value per ordinary share (basic and diluted)
	The net asset value per ordinary share at the year end was 1,179.4p (2017: 1,269.9p). The net asset value per ordinary share is based on the net assets attributable to the ordinary shares of £94,360,000 (2017: £101,599,000) and on the 8,000,858 ordinary shares in issue at 31 October 2018 (2017: 8,000,858). There are no dilutive securities so the basic and diluted net asset value per ordinary share are the same. The movements during the year of the assets attributable to the ordinary shares were as follows:
		2018 £'000	2017 £'000
	Total net assets at 1 November	101,599	79,782
	Total net (loss)/return	(5,599)	23,377
	Dividends paid in the year	(1,640)	(1,560)
		-----------	-----------
	Total net assets at 31 October	94,360	101,599
		======	======
8.	Called up share capital	2018 £'000	2017 £'000
	Allotted and issued ordinary shares of 25p each
	8,000,858 (2017: 8,000,858)	2,000	2,000
		======	======
	During the year the Company made no purchase of its own issued ordinary shares (2017: none).  Subsequent to the year end 69,510 ordinary shares were bought back to be held in treasury at a cost of £640,000.

9.	Ordinary dividends paid	2018 £'000	2017 £'000
	Amounts recognised as distributions to equity holders in the year:
	Final dividend for the year ended 31 October 2017 of 14.0p (2016: 13.5p)	1,120	1,080
	Interim dividend for the year ended 31 October 2018 of 6.5p (2017: 6.0p)	520	480
		-----------	-----------
		1,640	1,560
		======	======

	The final dividend of 14.0p per ordinary share in respect of the year ended 31 October 2017 was paid on 23 March 2018 to shareholders on the register of members at the close of business on 16 February 2018. The interim dividend of 6.5p per ordinary share in respect of the year ended 31 October 2018 was paid on 21 September 2018 to shareholders on the register of members at the close of business on 17 August 2018. Subject to approval at the Annual General Meeting, the proposed final dividend of 14.5p per ordinary share will be paid on 22 March 2019 to shareholders on the register of members at the close of business on 15 February 2019.  The shares will be quoted ex-dividend on 14 February 2019. 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:
		Year ended 31 October 2018	Year ended 31 October 2017
		£'000	£'000
	Revenue available for distribution by way of dividends for the year	1,616	1,745
	Interim dividend for the year ended 31 October 2018: 6.5p (2017: 6.0p)	(520)	(480)
	Proposed final dividend for the year ended 31 October 2018: 14.5p (based on the 7,931,348 ordinary shares in issue at 25 January 2019) (2017: 14.0p on 8,000,858 ordinary shares)	(1,150)	(1,120)
		-----------	-----------
	Transferred (from)/to revenue reserve1	(54)	145
		=======	=======
	1There is no undistributed revenue in the current year (2017: 6.5%) All dividends have been or will be paid out of revenue profit and the revenue reserve.
10.	2018 Financial Information
	The figures and financial information for the year ended 31 October 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 October 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.
11.	2017 Financial Information The figures and financial information for the year ended 31 October 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 October 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.
12.	Annual Report and Annual General Meeting The Annual Report for the year ended 31 October 2018 will be posted to shareholders in February 2019 and will be available on the Company's website www.hendersonopportunitiestrust.com or from the Corporate Secretary at the Company's Registered Office, 201 Bishopsgate, London EC2M 3AE. The Annual General Meeting will be held at the registered office on Thursday 14 March 2019 at 2.30pm. The Notice of the Annual General Meeting will be posted to shareholders with the Annual Report.

 

For further information, please contact:

James Henderson Fund Manager Henderson Opportunities Trust plc Telephone: [phone]		Laura Foll Fund Manager Henderson Opportunities Trust plc Telephone: [phone]
Laura Thomas Investment Trust PR Manager Janus Henderson Investors Telephone: [phone]		James de Sausmarez Director and Head of 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

 

 

FR LLFEILVIEFIA