Final Results

RNS Number : 0523W

Henderson Opportunities Trust PLC

06 February 2017

 

HENDERSON OPPORTUNITIES TRUST PLC

Annual Financial Report for the year ended 31 October 2016

This announcement contains regulated information

Investment Objective

The Company's objective is to achieve above average capital growth from investment in a portfolio of predominantly UK listed companies.

Chairman's Comment

"Although the Company has outperformed its benchmark over 3 and 5 years, there was disappointing underperformance in the year under review. This significantly reflected the UK bias of our portfolio and, in particular, its heavy bias towards small cap stocks, which were out of favour in the months preceding and following the Brexit vote. Since the start of the new financial year to 31 January 2017 our NAV has increased by 11.9% outperforming the FTSE All-Share which was up 2.4%."

Total Return Performance to 31 October

	1 year %	3 years %	5 years %
NAV¹	0.4	17.9	113.7
Share price²	-7.5	7.5	128.1
Sector Average NAV³	2.7	15.5	77.5
Benchmark4	12.2	16.8	57.4

Sources: Morningstar for the AIC, Datastream

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

2 Share price total return using mid-market closing price

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

4 FTSE All-Share Index total return

Performance Highlights

	Year ended 31 October 2016	Year ended 31 October 2015
NAV per share at year end	997.2p	1,012.5p
NAV total  return1	0.4%	13.5%
Share price at year end	823.0p	910.3p
Share price total return2	-7.5%	6.3%
Total return per share	3.2p	122.6p
Dividend for year3	19.0p	18.0p
Dividend yield4	2.3%	2.0%
Discount at year end5	17.5%	10.1%
Net gearing at year end	14.0%	18.3%
Net assets	£79.8m	£81.0m
Ongoing Charge6	0.94%	1.02%
Number of investments at year end	88	92

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

2 Share price total return using mid-market closing price

3 This represents an interim dividend of 5.5p and a proposed final dividend of 13.5p.

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

5 Calculated using published daily NAVs including current year revenue

6 Ongoing charge excludes performance fee. Ongoing charge including performance fee is 0.94% (2015: 1.96%)

A glossary of terms is available on page 23

Sources: Morningstar for the AIC, Henderson, Datastream

CHAIRMAN'S STATEMENT

Review of Performance

The Net Asset Value (NAV) total return for the year ended 31 October 2016 was 0.4%, while the FTSE All-Share, our benchmark, returned 12.2%. In common with many other Investment Trusts, our discount to NAV widened significantly over the course of the year, to stand at 17.5% at the year end. Market nervousness in the aftermath of the Brexit vote contributed to this trend, and our vulnerability to Brexit sentiment has probably been exacerbated by the UK focus of many of our investments and the fact that the Company did not enjoy much of the benefits of foreign currency movements.  NAV was also adversely impacted by the weighting in the portfolio of small-cap stocks which have generally underperformed against our benchmark, with market uncertainty encouraging a flight towards the perceived security and liquidity of larger cap stocks. In the Attribution Analysis we show the major stock contributors and detractors and how the largest 20 holdings performed. It can be seen from this that certain smaller companies contributed substantially to the underperformance although some of these were also largely responsible for the strong outperformance during the previous year. Over longer periods than one year, the bias to small companies has led to a better return than from the index:

	3 Years	5 Years
FTSE All-Share (total return)	16.8	57.4
NAV (total return)	17.9	113.7
Share price (total return)	7.5	128.1

The portfolio is positioned very differently to the weightings of the index so the performance will usually be different from year to year. Over time we believe this will add value and produce very worthwhile returns for our shareholders.

Earnings & Dividends

The revenue return was 20.45p, compared with 22.51p last year.  There were more special dividends received in the prior year. The final dividend of 13.50p will be payable, subject to shareholder approval, on 24 March 2017 to shareholders on the Register of members on 17 February 2017. The shares will be marked ex-dividend on 16 February 2017. The total dividend for the year is 19.00p an increase of 5.6% on the previous year. The focus in the investment approach is not necessarily on companies that pay dividends but often successful 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.

Fees & Expenses

Unlike last year when we outperformed the benchmark index, the underperformance this year means that there will be no performance fee. The ongoing charge for the year is 0.94% of the daily average net assets over the year. This is lower than last year as Henderson and the Board agreed a reduced fee from 1 November 2015. The base management fee is now charged at a rate of 0.55% of net assets per annum (previously 0.60% per annum on the first £100 million of net chargeable assets and 0.50% per annum thereafter). If a performance fee is earned, fees are capped at 1.5% of the average net assets over the year.

Continuation Vote

There will be a continuation vote at the AGM on 16 March 2017 in line with our three year cycle.  The Board's recommendation is for shareholders to vote for a continuation of the Company. The NAV since the last continuation vote on 29 April 2014 to 31 January 2017 has risen 18.0%, while the FTSE All-Share has risen 6.6%. The Fund Managers believe there is considerable upside potential in the stocks held and consequently the Directors intend to vote their own shares, amounting to 27,740, in favour. If the continuation vote is affirmative, there will be another one in 2020.

Buy-Backs and Share Issuance

There were no buy-backs carried out during the year nor were any shares issued.

AGM

Our Annual General Meeting will be held at 2.30pm on Thursday 16 March 2017 at the registered office, 201 Bishopsgate, London EC2M 3AE.  The Notice of Meeting is set out in the separate circular to shareholders that 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 shareholders support all the resolutions.

In addition to the formal business of the meeting, the Fund Managers, James Henderson and Colin Hughes, 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 substantial 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 therefore offer greater potential for performance in the longer term.

Your Board believes that a clear focus on stocks rather than on making macro-economic calls is the way to add value for shareholders. The Fund Managers therefore spend a great deal of time researching and meeting with investment companies, which include 400-500 face-to-face meetings each year.

Gearing

The Board believes that a reasonable level of borrowings will help grow the NAV over time. However, the Managers for tactical purposes may vary the gearing. The gearing was reduced after the Brexit vote, from 18% to 13% as uncertainty about the outlook for some companies increased. The market strengthened thereafter largely as a result of currency weakness, and our reduction in gearing consequently contributed to underperformance. Gearing had risen to 14% at the year end and 15% at the end of December.  Given the bias of the portfolio is to small companies, we monitor the relative liquidity of the portfolio to ensure that gearing levels can be quickly adjusted when necessary.

Outlook

The political background was transformed in 2016, with the UK's vote to leave the EU and the election of Donald Trump in the US which will have ramifications for companies and investors that are at this stage difficult to predict. The Fund Managers and the Board believe it would be unwise to base investment decisions on speculation about the consequences of these election results. Our strategy is to seek to ensure that the companies in the portfolio not only have sound business models but factors that truly differentiate them from their competitors. Such businesses should thrive over time regardless of the economic and political backdrop.  The Board believes that there are holdings in the portfolio that will over the coming years become substantially bigger companies than they are today, and that the methodology of the Fund Managers will continue to uncover good investment opportunities. Since the start of the new financial year to 31 January 2017 our NAV has increased by 11.9% outperforming the FTSE All-Share which was up 2.4%.

Peter Jones

Chairman

FUND MANAGERS' REPORT

Portfolio Review

It was a disappointing year in terms of performance. The Company's portfolio diverges very significantly from the index and though we believe that this adds value over time this will be at the expense of volatility, as shown by the returns over the last five years.

	2016	2015	2014	2013	2012
NAV (total return)	0.4	13.5	3.4	47.1	23.2
FTSE All-Share (total return) (Benchmark)	12.2	3.0	1.0	22.8	9.8
Outperformance (+) Underperformance (-)	-11.8	+10.5	+2.4	+24.3	+13.4

Smaller companies underperformed larger ones in the year to 31 October 2016 as weaker sterling disproportionately favoured larger companies. This has led to undemanding valuations for many smaller companies so we now expect this underperformance to reverse. Some of our most successful investments, such as Senior, gave back ground this year despite continued positive trading news but we believe that they will add value in the future.

Even after the fall since mid 2015, the share price still stands at three times our purchase cost and we have taken some profits along the way. Over time Senior has added and should continue to add considerable value to the Company even though it has hurt us in the last 18 months. We believe that it remains a quality company which will benefit from new civil aerospace programmes coming on stream and from a pick-up in demand for trucks in the US.

Investment Background

The UK economy has continued to grow steadily. The vote to leave the EU precipitated a fall in sterling which, while helping exporting businesses, means companies importing goods into the UK will have to raise prices or see their margins contract. Inflation is likely to go up as a result and interest rates may follow.

The larger companies in the FTSE 100, which are more exposed to the global economy, are thought to be better placed and so have outperformed over the year but this does not alter their characteristics of being typically low growth, mature businesses.

Performance

Investment Approach

As long term investors, we spend a considerable amount of time researching and meeting companies in which we may or may not invest on your behalf. This long term approach is reflected in a holding period of typically between three to five years though we do remain alive to shorter term opportunities. Our typical holding period also reflects an appreciation that the cycle for any business to grow and mature is not easily reconciled with the volatility of a stock market which is subject to external shocks as well as its own cycle of fads and fashions.

The portfolio is a mixture of large, medium and small companies. We employ a number of valuation techniques but are not slavishly reliant upon any one methodology in arriving at our portfolio selections. We enjoy building relationships with the senior executive teams of our portfolio companies and will meet with them a number of times during the course of a typical year. This will include formal results presentations as well as informal discussions and site visits where appropriate. Over the course of the last three years we have had in excess of 1,250 face-to-face meetings and company visits.

The number of holdings was slightly reduced to 88 during the year, including one unlisted investment. Over the last six years, the number of holdings has ranged from 77 to 92. We believe that this range is about right for a fund of this size, providing enough diversification to mitigate risk but also sufficient concentration to take the contribution from each winner material. Our exposure to market capitalisation stocks in the FTSE 100 and FTSE 250 increased slightly from 29.6% to 31.4%. Our exposure to stocks with over £1 billion of market capitalisation fell slightly from 26.8% to 25.8% but this comfortably exceeds our typical gearing levels of 10-20%. This means that we can quickly reduce borrowings by selling from the most liquid part of the portfolio, as we did from the upper end of our range immediately after the Brexit vote. Gearing had edged up from around 13% to 14% by the year end.

Portfolio Activity

During the year, we were active in 78 companies, starting new positions in 17 and selling out completely in 20. Our new investments included 10 Initial Public Offerings (IPOs), the same number as last year. We have continued to focus our attention on smaller IPOs and have avoided many of the high profile larger offerings where we simply did not see value or growth. We continue to hold all but one of this year's IPOs.

Our top ten holdings at year end represented 28.1% of the portfolio compared to 29.1% the year before. There were five new entrants to the list, three of which we have held for a number of years. They are RWS (patent translation services), Micro Focus (enterprise software), and Tracsis (logistics software). We have taken some profit in the materials sector, having invested early in the new up-cycle, but otherwise our sector themes favouring industrial and technology remain unchanged. Our portfolio of emerging technologies or services companies, including healthcare, accounted for 12.6% of the portfolio at year end against 16.3% last year as we banked some more profit in 4D Pharma and suffered a setback in Oxford Pharmascience. The companies in this part of the portfolio are not yet sustainably cash generative but have robust and highly differentiated intellectual property.

Disposals: top five

Our largest sale of the year was Johnson Services, the textile rental and dry cleaning company, which we had held for a number of years as a recovery stock. This has been a very rewarding investment but the recovery is now complete, the growth potential within the business streams is now well appreciated by the market and so we sold.

We were early buyers of Glencore, the FTSE 100-listed natural resources and trading company, supporting its subsequent fundraising. We have now sold out, perhaps rather too early in hindsight, but we believed that the share price had run ahead of the underlying recovery and had significant profits to realise.

We also sold our position in St.Modwen Properties, the FTSE 250-listed property development company, as we believed that the significant developments underway in the Nine Elms area of south London would not be as profitable as was once hoped. Since we sold, the shares have fallen, partly due to the Brexit vote, and we may revisit the shares in due course.

Barclays, the global banking group, has been a difficult investment for us as optimism that the various issues thrown up by the financial crisis of 2008/09 were being resolved were dashed by a continuing stream of problems. We sold at a loss, although the shares have performed well subsequently.

We first invested in Jupiter Fund Management, the UK based asset manager, soon after the IPO in 2010 but sold during the year having doubled our money as we were concerned that unpredictable stock markets would constrain clients from further investment.

Purchases: top five

Our largest purchase this year has been Standard Chartered, the FTSE 100-listed emerging markets bank. Following recent meetings, we were reassured that their de-risking process was near an end and that a return to growth was likely. With a valuation at just 0.6x book, there is also material scope for a re-rating of the shares.

International Consolidated Airlines, the parent of British Airways, Iberia, and Aer Lingus has suffered from the fall of sterling and a recovery in oil prices. Whilst we do not expect this to be a straightforward story we believe that the management team lead by Willie Walsh are equal to the challenges. They have set out clear targets focused around free cash flow and return on investment which, if achieved, should result in good returns.

Workspace, the FTSE 250-listed developer of short tenancy flexible workspace, suffered in the Brexit-related weakness of the property sector. While other investors worry about the outlook for short tenancies held by small businesses, we believe that the market is hugely resilient, flexible and diverse. Buying on 0.7x NAV and with a growing dividend stream should prove rewarding.

The only IPO of size that we participated in was Metro Bank, the new retail bank rolling out branches across the UK. We liked their customer-centered focus and believed that this would attract new retail customers. The growth of the client base has not disappointed but we sold out on relative valuation grounds as Metro's premium to other challenger banks seemed too high to justify. This has not stopped the share price from continuing to perform well.

We also bought Van Elle, a UK ground engineering company serving the housing and transport infrastructure markets, on its IPO on AIM. This company came to market in the aftermath of the Brexit vote but has many of the attributes we like; a clean trading history, a long serving management team and both clear and achievable growth aspirations.

Portfolio Attribution Analysis

The Attribution Analysis lays out the top five and bottom five contributors to the Company's absolute performance in NAV. When we question management teams we like to start with the problems first before moving on to their successes. So we do the same here and start with our biggest losers.

Bottom five

Oxford Pharmascience, a drug development company, specialises in the application of proprietary formulations to make existing approved drugs more tolerable with lower side effects. The focus has been on the over the counter pain relief market. Initial trials delivered promising results so the company has had numerous discussions with large pharma about out licensing deals. However, it has become clear that the trials process will be much longer and more costly before the hoped-for deal can be signed. The company is well funded but timelines have shifted materially out. We decided to sell part of our position to recycle the money into better ideas.

Vertu Motors, the UK's 5th largest motor retailer, was in our top 10 last year. We subscribed to a share issue early in the year to fund the acquisition of another dealership. The company has traded well but the market is concerned that an economic slow-down would reduce consumer confidence and that the fall in sterling would hit demand for imported vehicles and squeeze margins. But though the demand for new cars is economically sensitive, changes in car financing in the last ten years mean that motor retailers make most of their money from servicing and second hand sales. Vertu is very well financed so has the capacity to weather any storm.

hVIVO, previously Retroscreen Virology, a provider of bio-medical services, was also a top 10 position last year. It saw its underlying market retract as large pharma clients diverted resources to tackle the Ebola outbreak. It shifted its strategy to encompass more investment in its own product portfolio and this has raised the annual cash burn. We have reduced our exposure.

We had great hopes for Lakehouse, the asset and energy support services company, which had an IPO in 2014. It had the opportunity to consolidate a fragmented sector but the management team behind the IPO proved to be not up to the job. The company took on business in areas it had little experience of and inevitably paid the price. Forecasts were not met and management left. Bob Holt, previously the CEO of Mears plc and its current Chairman, is now CEO and we are hopeful that this effective operator can focus Lakehouse back on its strengths and return it to growth.

IP is a long term holding which partners with universities to exploit innovations coming out of their research departments. It had a disappointing year in share price terms as the hoped-for IPO of its largest investment, Oxford Nanopore, has not yet happened and investors have become more averse to risk. IP is well-funded and has an exciting future so we are holding this position for the long term.

Top five

In a difficult year for IPO's we invested in Blue Prism, a small software developer involved in the emerging market for robotic process automation. Their business model is cash generative once scale is reached and contracts are typically for 3 to 5 years, having started with a small pilot. Growth rates have been strong and recent moves into the USA have been well received. The share price has more than trebled since the float so we have taken some profit but it continues to be a core position.

Micro Focus is now a FTSE 100 company and is at the other end of the maturity curve. Legacy enterprise software may not have any growth, but, managed in the right way it is highly cash generative with very loyal clients. Acquisitions have been a key feature of the company's growth, the latest being the largest yet, the acquisition of HP Software, which includes what is left of the old Autonomy business. This transaction will complete later in 2017 so we expect the shares to consolidate until the significant potential benefits are more visible.

As mentioned earlier, we sold out of Glencore, which performed very well for us, but it was still our third largest contributor in the year.

RWS, the patent translation services company, listed on the AIM market in 2003 and we have been a long term investor. The company has an unbroken record of profitable organic growth supplemented by astute acquisitions which have broadened and diversified the business. Most recently, it bought CTi, a US based market leader in life sciences translation and linguistic validation. The company generates cash and has grown dividends materially over time. We view this stock as a core holding.

Lastly, Keywords Studios is a global leader in services to the video games industry. It has grown rapidly in the last two years both organically and by acquisition. The range of services has been extended since the float in 2013, which was poorly received but our faith in the management has been vindicated. This year has seen good earnings upgrades and a significant rise in the rating. We have taken some profit but see the longer term opportunity as very large.

Outlook

The future direction of the UK economy is as uncertain as ever, with the Brexiters and the Remainers generally holding opposite views. For all the noise of the debate, the reality is that economic growth has held up better than expected and sterling fell around 15%, though it has since recovered some of the fall. Inflation will consequently be higher and this could be a factor in pushing up interest rates.

In recent months, company directors we meet have adopted a more cautious approach, at least for the near term. Capital spending is being pushed out and the focus is on cash generation but what may seem sensible for individual companies means a broader lack of investment and thereby lower demand for goods and services in the economy as a whole. Extra care is needed in looking at domestic UK investment opportunities. On the positive side, higher interest rates may actually be beneficial for equities if it is the consequence of higher investment and real growth. Export orientated UK companies and those with earnings from overseas should benefit from lower sterling and there are a number of these, such as e2v Technologies, in the portfolio.

Our universe of quoted UK companies on the main market and AIM contains well over 1,000 companies and we chose less than 10% of these to invest in. Regardless of the economic background, there will be plenty of successful businesses. We invest in a diverse range of businesses, and we seek to spread our risk without limiting the potential for real long term growth.

James Henderson and Colin Hughes

Fund Managers

Attribution Analysis

The table below shows the top five active contributors to and the bottom five detractors from the Company's performance.

Top five contributors to performance			Top five detractors from performance
	Share price return %	Contribution to NAV %		Share price return %	Contribution to NAV  %
Blue Prism	+293.6	+1.4	Oxford Pharmascience	-60.4	-1.4
Micro Focus	+74.9	+1.2	Vertu Motors	-41.6	-1.3
Glencore	+66.0	+1.2	hVIVO	-35.8	-1.1
RWS	+69.7	+1.1	Lakehouse	-64.6	-0.8
Keywords Studios	+105.5	+1.0	IP	-36.7	-0.8

Twenty Largest Holdings at 31 October 2016

Rank 2016 (2015)	Company	% of Portfolio	Valuation 2015 £'000	Purchases £'000	Sales £'000	Appreciation/ (depreciation) £'000	Valuation 2016 £'000
1 (1)	4D Pharma1	6.7	6,385	-	(418)	163	6,130
2 (2)	Ricardo	2.8	2,987	-	(373)	(23)	2,591
3 (3)	HSBC	2.8	2,792	-	(699)	407	2,500
4 #	RWS	2.7	1,462	-	-	960	2,422
5 (4)	e2v Technologies	2.5	2,704	-	(190)	(218)	2,296
6 #	Micro Focus	2.4	1,292	-	-	910	2,202
7 (14)	Rio Tinto	2.3	1,769	-	-	361	2,130
8 (20)	Tracsis1	2.0	1,494	34	(53)	332	1,807
9 #	Standard Chartered	2.0	-	1,442	-	338	1,780
10 (10)	Redde1	1.9	1,858	-	(102)	14	1,770
11 (19)	Conviviality Retail1	1.8	1,583	-	(343)	427	1,667
12 #	Atlantis1	1.8	534	456	-	664	1,654
13 #	Keywords Studios1	1.8	792	-	-	821	1,613
14 (7)	Vertu Motors1	1.8	2,284	438	-	(1,117)	1,605
15 #	Clinigen1	1.7	1,345	258	(323)	274	1,554
16 #	Blue Prism1	1.6	-	412	(91)	1,166	1,487
17 (16)	Royal Dutch Shell 'B' shares	1.6	1,700	-	(634)	415	1,481
18 (5)	hVIVO1	1.6	2,641	-	(302)	(899)	1,440
19 #	Faroe Petroleum1	1.5	803	460	-	137	1,400
20 (15)	Senior	1.5	1,701	-	-	(394)	1,307
			----------	-----------	--------	---------	----------
Total			36,126	3,500	(3,528)	4,738	40,836
			======	======	=====	======	======

At 31 October 2016 these investments totalled £40,836,000 or 44.8% of the portfolio.                                             

^{# Not in the top 20 largest holdings last year}

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

Portfolio by Sector

	31 October 2016 %	31 October 2015 %
Financials	13.0	15.3
Consumer Services	20.3	20.2
Industrials	22.3	25.1
Technology	12.9	7.9
Health Care	11.2	14.1
Oil & Gas	7.5	5.9
Basic Materials	5.5	6.8
Consumer Goods	6.7	4.2
Telecommunications	0.6	0.5
	-------	-------
	100.0	100.0
	=====	=====

Portfolio by Index

	31 October 2016 %	31 October 2015 %
FTSE 100	21.6	16.3
FTSE 250	9.8	13.3
FTSE SmallCap	13.1	17.8
FTSE Fledgling	2.6	2.4
FTSE AIM	45.7	39.0
Other1	7.2	11.2
	-------	-------
	100.0	100.0
	=====	=====

^{1 Other also includes AIM investments outside the FTSE AIM Index}

Market capitalisation of the portfolio at 31 October 2016

	FTSE All-Share Index %	Portfolio %
Greater than £2bn	88	21
£1bn - £2bn	6	4
£500m - £1bn	3	12
£200m - £500m	2	28
£100m - £200m	1	18
£50m - £100m	0	8
Less than £50m	0	5
Other1	0	4
	--------	--------
	100.0	100.0
	======	======

^{1 Other also includes AIM investments outside the FTSE AIM Index}

PRINCIPAL RISKS AND UNCERTAINTIES

The Board, with the assistance of Henderson, has carried out a robust assessment of the principal risks facing the Company including those that would threaten its business model, future performance, solvency 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 Henderson'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 cardinal risks to which the Company is exposed. These principal risks fall broadly under the following categories:

Risk	Controls and Mitigation
Investment activity and strategy	Henderson provides the Directors with management information including performance data reports and shareholder 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. Henderson 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 Henderson 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, Henderson'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. Henderson 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 Henderson and its other suppliers, and the key elements designed to provide effective internal control, are explained further in the internal controls section of the Corporate Governance Statement 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. 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 Henderson 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 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 Company Secretary and its professional advisers to ensure compliance with the Act and the UKLA Rules.
Liquidity	In line with the Company's investment strategy the Fund Manager can invest in a concentrated portfolio of shares 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.
Failure of Henderson	A failure of Henderson's business, whether or not as a result of regulatory failure, cyber risk or other failure could result in Henderson being unable to meet their obligations and their duty of care to the Company. The Board meets regularly with representatives of Henderson's Investment Management, Risk and Assurance, Compliance and Investment Trust teams and reviews internal control reports from Henderson on a quarterly basis. The failure of Henderson 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 investment management agreement.

VIABILITY STATEMENT

The Company is a long-term investor; the Directors believe it is appropriate to assess the viability of the Company over a five year period. The Directors believe a five year period best balances the Company's long-term objective and economic conditions affecting the Company and its shareholders.

The Board recognises that there is a continuation vote that is due to take place at the 2017 Annual General Meeting. 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 assessment. However, if such a vote were not passed, the Directors would follow the necessary provisions relating to the winding up of the Company and the realisation of its assets.

The viability assessment considered the impact of the likelihood of the principal risks and uncertainties facing the Company, in particular Investment and strategy, market, liquidity, gearing and financial risks, in severe but plausible scenarios, and the effectiveness of any mitigating controls in place.

The Directors took into account the liquidity of the portfolio and the gearing 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 loan facilities and how a breach of the loan facility covenants could impact on the Company's net asset value and share price.

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 major financial crisis substantially affecting the global economy could have an impact on this assessment. The Directors conducted this review for a period of five years because they consider this to be an appropriate period over which they do not expect there to be any significant change in the current principal risks and adequacy of the mitigating controls in place. 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 years.

RELATED PARTY TRANSACTIONS

The Company's transactions with related parties in the year were with the Directors, and Henderson. There have been no material transactions between the Company and its Directors during the year other than the amounts paid to them which were in respect of expenses and remuneration. 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 Henderson, other than fees payable by the Company in the ordinary course of business and the provision of sales and marketing services there have been no material transactions with Henderson affecting the financial position of the Company during the year under review.

STATEMENT OF DIRECTORS' RESPONSIBILITIES (under DTR 4.1.12)

Each of the Directors confirms that, to the best of their 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

INCOME STATEMENT

		Year ended 31 October 2016			Year ended 31 October 2015
		Revenue return £'000	Capital return £'000	Total £'000	Revenue return £'000	Capital return £'000	Total £'000
Notes
2	(Losses)/gains from investments held at fair value through profit or loss	-	(941)	(941)	-	9,340	9,340
3	Income from investments held at fair value through profit or loss	2,099	-	2,099	2,302	-	2,302
4	Other interest receivable and other income	25	-	25	14	-	14
		---------	----------	----------	---------	----------	----------
	Gross revenue and capital (losses)/gains	2,124	(941)	1,183	2,316	9,340	11,656
5	Management and performance fee	(124)	(291)	(415)	(173)	(1,168)	(1,341)
	Other administrative expenses	(300)	-	(300)	(272)	-	(272)
		-----------	----------	----------	-----------	----------	----------
	Net return/(loss) on ordinary activities before finance charges and taxation	1,700	(1,232)	468	1,871	8,172	10,043
	Finance costs	(64)	(149)	(213)	(70)	(164)	(234)
		-----------	----------	----------	-----------	----------	----------
	Net return/(loss) on ordinary activities before taxation	1,636	(1,381)	255	1,801	8,008	9,809
	Taxation	-	-	-	-	-	-
		-----------	----------	----------	-----------	----------	----------
	Net return/(loss)on ordinary activities after taxation	1,636	(1,381)	255	1,801	8,008	9,809
		----------	----------	----------	----------	----------	----------
6	Return per ordinary share -
	basic and  diluted	20.45p	(17.26p)	3.19p	22.51p	100.09p	122.60p
		======	=======	======	======	=======	======

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.

 

STATEMENT OF CHANGES IN EQUITY

Year ended 31 October 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 November  2015	2,000	14,838	2,431	59,298	2,440	81,007
Ordinary dividends paid (note 9)	-	-	-	-	(1,480)	(1,480)
Net return/(loss)  on ordinary activities after taxation	-	-	-	(1,381)	1,636	255
	--------	----------	----------	----------	-----------	---------
At 31 October 2016	2,000	14,838	2,431	57,917	2,596	79,782
	=====	======	======	======	======	=====

Year ended 31 October 2015	Called up share capital £'000	Share premium account £'000	Capital redemption reserve £'000	Other capital reserves £'000	Revenue reserve £'000	Total £'000
At 1 November  2014	2,000	14,838	2,431	51,290	1,743	72,302
Ordinary dividends paid  (note 9)	-	-	-	-	(1,104)	(1,104)
Net return on ordinary activities after taxation	-	-	-	8,008	1,801	9,809
	--------	----------	----------	----------	-----------	---------
At 31 October 2015	2,000	14,838	2,431	59,298	2,440	81,007
	======	======	======	======	=====	=====

STATEMENT OF FINANCIAL POSITION

	31 October 2016 £'000	31 October 2015 £'000
Investments held at fair value through profit or loss
Listed at market value	45,570	50,984
Listed on AIM at market value	45,174	45,327
Unlisted at market value	333	333
	------------	------------
	91,077	96,644
	------------	------------
Current assets
Investment held at fair value through profit or loss	2	2
Debtors	201	265
Cash at bank and in hand	605	508
	------------	------------
	808	775
Creditors: amounts falling due within one year	(12,103)	(16,412)
	-----------	-----------
Net current liabilities	(11,295)	(15,637)
	-----------	-----------
Total assets less current liabilities	79,782	81,007
Net assets	79,782	81,007
	=======	=======
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	57,917	59,298
Revenue reserve	2,596	2,440
	------------	------------
Total shareholders' funds	79,782	81,007
	=======	=======
Net asset value per ordinary share (basic and diluted)	997.2p	1,012.5p
	=======	=======

STATEMENT OF CASH FLOWS

	Year ended 31 October 2016	(Restated) Year ended 31 October 2015
	£'000	£'000
Cash flows from operating activities
Net return on ordinary activities before taxation	255	9,809
Add back: finance costs	213	234
Add/(less): losses/(gains) on investments held at fair value through profit or loss	941	(9,340)
Decrease/(increase) in debtors	76	(12)
(Decrease)/increase in creditors	(748)	563
	----------	-----------
Net cash inflow from operating activities	737	1,254
	----------	-----------
Cash flows from investing activities
Purchase of investments	(18,772)	(25,616)
Sale of investments	23,386	21,184
	------------	-------------
Net cash inflow/(outflow) from investing activities	4,614	(4,432)
	------------	------------
Cash flows from financing activities
Equity dividends paid (net of refund of unclaimed distributions and reclaimed distributions)	(1,480)	(1,104)
Net loans (repaid)/drawn down	(3,551)	3,525
Interest paid	(223)	(225)
	-----------	-----------
Net cash (outflow)/inflow from financing activities	(5,254)	2,196
	-----------	-----------
Net increase/(decrease) in cash and cash equivalents	97	(982)
Cash and cash equivalents at start of year	508	1,490
Effect of foreign exchange rates	-	-
	----------	----------
Cash and cash equivalents at end of year	605	508
	----------	-----------
Comprising:
Cash at bank	605	508
	-----------	---------
	605	508
	=====	=====

The Statement of Cash Flows previously reported has been restated to comply with the new disclosure requirements of FRS 102.

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 (which is effective for periods commencing on or after 1 January 2015) and with the Statement of Recommended Practice: Financial Statements of Investment Trust Companies and Venture Capital Trusts ('the SORP') issued in November 2014. The date of transition to FRS 102 was 1 November 2014. The Company has early adopted the amendments to FRS 102 in respect of fair value hierarchy disclosures as published in March 2016. The principal accounting policies applied in the presentation of these financial statements are set out below. These policies have been consistently applied to all the years presented. Following the application of the revised reporting standards there have been no significant changes to the accounting policies compared to those set out in the Company's Annual Report for the year ended 31 October 2015. There has been no impact on the Company's Income Statement, Statement of Financial Position (previously called the Balance Sheet) or Statement of Changes in Equity (previously called the Reconciliation of Movements in Shareholders' Funds) for periods previously reported. The Cash Flow Statement previously reported has been restated to comply with the new disclosure requirements of the revised reporting standard. 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 and in 2014 were duly passed. The next triennial continuation resolution will be put to the Annual General Meeting in 2017. The assets of the Company consist almost entirely of securities that are listed (or listed on AIM) 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. 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 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 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'. Transaction costs incurred on the purchase and disposal of investments are included within the cost or deducted from the proceeds of investments. 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					2016 £'000	2015 £'000
	Gains on the sale of investments based on historical cost					1,202	8,397
	Revaluation gains recognised in previous years					(1,729)	(3,786)
	(Losses)/gains on investments sold in the year based on carrying value at previous statement of financial position date					(527)	4,611
	Revaluation (losses)/gains on investments held at 31 October					(414)	4,729
						(941)	9,340
3.	Income from investments held at fair value through profit or loss					2016 £'000	2015 £'000
	UK:
	Dividends from listed investments					1,394	1,617
	Dividends from AIM investments					523	471
						-------	-------
						1,917	2,088
	Non-UK:
	Dividends from listed investments					182	214
						-------	-------
						2,099	2,302
						====	====
4.	Other interest receivable and other income					2016 £'000	2015 £'000
	Underwriting commission (allocated to revenue)					25	14
						====	====
	During the year the Company was not required to take up shares; no commission was taken to capital (2015: same).
5.	Management and performance fee
	2016				2015
		Revenue return £'000	Capital return £'000	Total £'000	Revenue return £'000	Capital return £'000	Total £'000
	Management fee	124	291	415	173	403	576
	Performance fee	-	-	-	-	765	765
		--------	----------	----------	--------	----------	----------
		124	291	415	173	1,168	1,341
		--------	----------	----------	--------	----------	----------
	The basis on which the management fee is calculated is set out on in the Strategic Report. The allocation between revenue return and capital return is explained in the Annual Report.

6.	Return per ordinary share
	The total return per ordinary share is based on the total return attributable to the ordinary shares of £256,000 (2015: £9,809,000) and on 8,000,858 ordinary shares (2015: 8,000,858) being the weighted average number of shares in issue during the year.
	The total return can be further analysed as follows:
			2016 £'000		2015 £'000
	Revenue return		1,636		1,801
	Capital (loss)/return		(1,381)		8,008
			----------		----------
	Total  return		255		9,809
			----------		----------
	Weighted average number of ordinary shares		8,000,858		8,000,858
			2016		2015
	Revenue return per ordinary share		20.45p		22.51p
	Capital (loss)/return per ordinary share		(17.26p)		100.09p
			-----------		-----------
	Total  return per ordinary share (basic and diluted)		3.19p		122.60p
			======		======
7.	Net asset value per ordinary share (basic and diluted)
	The net asset value per ordinary share at the year end was 997.2p (2015: 1,012.5p). The net asset value per ordinary share is based on the net assets attributable to the ordinary shares of £79,782,000 (2015: £81,007,000) and on the 8,000,858 ordinary shares in issue at 31 October 2016 (2015: 8,000,858).                                                                                                                                                                                                                                                            The movements during the year of the assets attributable to the ordinary shares were as follows:
		2016 £'000		2015 £'000
	Total net assets at 1 November	81,007		72,302
	Total net return	255		9,809
	Dividends paid in the year	(1,480)		(1,104)
		-----------		-----------
	Total net assets at 31 October	79,782		81,007
		======		======
8.	Called up share capital	2016 £'000		2015 £'000
	Allotted and issued ordinary shares of 25p each
	8,000,858 (2015: 8,000,858)	2,000		2,000
		======		======

9.	Dividends	2016 £'000	2015 £'000
	Amounts recognised as distributions to equity holders in the year:
	Final dividend for the year ended 31 October 2015 of 13.0p (2014: 8.8p)	1,040	704
	Interim dividend for the year ended 31 October 2016 of 5.5p (2015: 5.0p)	440	400
		-----------	-----------
		1,480	1,104
		======	======

	The final dividend of 13.0p per ordinary share in respect of the year ended 31 October 2015 was paid on 24 March 2016 to shareholders on the register of members at the close of business on 12 February 2016.                                                            The interim dividend of 5.5p per ordinary share in respect of the year ended 31 October 2016 was paid on 23 September 2016 to shareholders on the register of members at the close of business on 19 August 2016.                                                                            Subject to approval at the Annual General Meeting, the proposed final dividend of 13.5p per ordinary share will be paid on 24 March 2017 to shareholders on the register of members at the close of business on 17 February 2017.                                                                          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 2016	Year ended 31 October 2015
		£'000	£'000
	Revenue available for distribution by way of dividends for the year	1,636	1,801
	Interim dividend for the year ended 31 October 2016: 5.5p (2015: 5.0p)	(440)	(400)
	Proposed final dividend for the year ended 31 October 2015: 13.0p (based on the 8,000,858 ordinary shares in issue at 31 January 2017) (2015: 13.0p on 8,000,858 ordinary shares)	(1,080)	(1,040)
		-----------	-----------
	Undistributed revenue for section 1158 purposes	116	361
		=======	=======
	Undistributed revenue comprises 5.5% of income from investments (2015: 14.2%) All dividends have been or will be paid out of revenue profit.
10.	2016 Annual Report
	The figures and financial information for the year ended 31 October 2016 are extracted from the Company's annual financial statements for that period and do not constitute statutory accounts.  The Company's annual financial statements for the year to 31 October 2016 have been audited but have not yet been delivered to the Registrar of Companies.  The Auditors' report on the 2016 annual 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 Section 498 of the Companies Act 2006.
11.	2015 Report and Financial Statements           The figures and financial information for the year ended 31 October 2015 are compiled from an extract of the published accounts for that year and do not constitute statutory accounts.  Those accounts have been delivered to the Registrar of Companies and included the report of the Auditors which was unqualified and did not contain a statement under Sections 498(2) or 498(3) of the Companies Act 2006.
12.	Annual Report The Annual Report for the year ended 31 October 2016 will be posted to shareholders in February 2017 and will be available on the Company's website www.hendersonopportunitiestrust.com or in hard copy format from the Company's Registered Office, 201 Bishopsgate, London EC2M 3AE.
13.	Annual General Meeting The Annual General Meeting will be held on Thursday 16 March 2017 at 2.30pm at 201 Bishopsgate, London EC2M 3AE.

For further information, please contact:

Peter Jones Chairman Henderson Opportunities Trust plc Telephone: [phone]		James de Sausmarez Head of Investment Trusts Henderson Global Investors Telephone: [phone]
James Henderson Fund Manager Henderson Opportunities Trust plc Telephone: [phone]	or	Sarah Gibbons-Cook Investor Relations and PR Manager Henderson Global 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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