Final Results

RNS Number : 0881D

Henderson Opportunities Trust PLC

26 January 2018

 

HENDERSON INVESTMENT FUNDS LIMITED

HENDERSON OPPORTUNITIES TRUST PLC

LEGAL ENTITY INDENTIFIER (LEI):  2138005D884NPGHFQS77

26 January 2018

HENDERSON OPPORTUNITIES TRUST PLC

Annual Financial Report for the year ended 31 October 2017

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 %
NAV¹	29.5	47.7	124.6
Share price²	32.3	30.1	143.0
Sector Average NAV³	21.2	46.2	103.6
Benchmark4	13.4	31.0	62.5

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

Sources: Morningstar for the AIC, Datastream

	Year ended 31 October 2017	Year ended 31 October 2016
NAV per share at year end	1,269.9p	997.2p
NAV total  return1	29.5%	0.4%
Share price at year end	1,066.0p	823.0p
Share price total return2	32.3%	-7.5%
Total return per share	292.2p	3.2p
Dividend for year3	20.0p	19.0p
Dividend yield4	1.9%	2.3%
Discount at year end5	16.1%	17.5%
Net gearing at year end	13.3%	14.0%
Net assets	£101.6m	£79.8m
Ongoing Charge6	0.89%	0.94%
Number of investments at year end	100	88

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 6.0p and a proposed final dividend of 14.0p.

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 1.91% (2016: 0.94%)

A glossary of terms is available in the Annual Report

Sources: Morningstar for the AIC, Janus Henderson, Datastream

CHAIRMAN'S STATEMENT

Review of Performance

I am pleased to report that the Net Asset Value (NAV) total return for the year ended 31 October 2017 was 29.5%, while the FTSE All-Share, our benchmark, returned 13.4%. This strong outperformance more than recovered the shortfall in the preceding year, in which the NAV total return was 0.4% whereas the benchmark total return was 12.2%. Since just 20% of the portfolio is invested in the FTSE 350, and over 50% is held in AIM stocks, divergence of performance against the FTSE All-Share is inevitable. However, over time our outperformance has been significant, and the following table illustrates that the NAV total return was 50% better than the benchmark over three years and 99% better over five years:

	1 Year %	3 Years %	5 Years %
NAV (Total Return)	29.5	47.7	124.6
Share Price (Total Return)	32.3	30.1	143.0
FTSE All-Share (Total Return)	13.4	31.0	62.5

During the year the share price discount to the NAV reduced marginally from 17.5% to 16.1%. The share price total return for the year was 32.3%.  In the Annual Report we show the major stock contributors and detractors and how the largest 20 holdings performed. This demonstrates that certain smaller companies contributed substantially to the portfolio's outperformance.  The outperformance was achieved notwithstanding the uncertainties which tended to dominate political and economic commentary in the UK.  Steady continuing growth in the global economy provided a helpful backdrop and the strength of companies within the portfolio, many of which delivered good results and improved valuations, was undoubtedly another key factor.

Earnings & Dividends

The revenue return was 21.8p, compared with 20.5p last year. The final dividend of 14.0p to be paid from revenue will be payable, subject to shareholder approval, on 23 March 2018 to shareholders on the Register of Members on 16 February 2018. The shares will be marked ex-dividend on 15 February 2018. The total dividend for the year is 20.0p an increase of 1.0p 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

Reflecting the excellent results and strong outperformance against benchmark in the year under review, the maximum performance fee of £0.9m is to be paid, whereas no performance fee was paid in respect of the previous year.  The combined management and performance fees are capped at 1.5% of the average net assets (calculated quarterly) during the year. The cap meant the performance fee was £0.2m lower than it would have been without the cap. As was noted in last year's Annual Report Janus Henderson and the Board agreed a reduced fee from 1 November 2015 and a full explanation of fees can be found in the Annual Report.

Continuation Vote

There was a continuation vote at the AGM on 16 March 2017 which was passed by a vote in favour of 99.3%. The next continuation vote will be in March 2020 following the three year cycle.

Buy - Backs and Share Issuance

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

MiFID II

MiFID II is a fundamental overhaul of the regulatory rules for financial services in Europe. It came into force on 3 January 2018 and, amongst a plethora of other rule changes, places restrictions on how investment firms pay for third-party research. The Company's Investment Manager, Janus Henderson, decided that from 3 January 2018, it will pay directly for third-party research for its European fund ranges and for client portfolios managed in the EU. This includes research used in managing our investment portfolio and this change will reduce the costs borne by the Company. Access to high quality research is integral to the investment process at Janus Henderson and we are confident that the Fund Managers will continue to have the access required to develop the investment insights which should hopefully maintain superior investment performance.

AGM

Our Annual General Meeting will be held at 2.30pm on 15 March 2018 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 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 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 way to add value for shareholders. The Fund Managers therefore spend a great deal of time researching and meeting with investment companies, which will normally include around 400 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 Fund Managers may vary the gearing for tactical purposes. Over the year the gearing expressed as a percentage of NAV reduced marginally from 14.0% last year to 13.3% this year. Since the half year the gearing has been reduced from 15.9%. The absolute level of borrowings increased from £11.8m to £14.6m over the year. The makeup of the borrowings is shown in the Annual Report. 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 if necessary.

The Board

As part of the Board's succession plan, Peter May will not stand for re-election as a Director at the AGM, having now served more than 13 years as a Board member.  Throughout his tenure as Director and Audit Committee Chairman, Peter has devoted a great deal of time and energy to the Company, contributing significantly to its success.  The Board would like to extend its thanks and best wishes for the future to Peter.  Following the AGM Frances Daley, who has been a member of the Board and of the Audit Committee since June 2015, will succeed as Chair of the Audit Committee.

Auditors' Appointment

The Company put the audit out to tender during the year.  Following conclusion of the audit tender process the appointment of BDO LLP will be put to shareholders at the AGM in March.  We extend our thanks to PricewaterhouseCoopers LLP for their many years of good service.

Outlook

The ongoing Brexit negotiations continue to cause uncertainty regarding the near-term outlook and it is still too early to determine with any certainty the impact it will have on the economy.  However, the performance during this financial year demonstrates that good quality companies can produce strong results in challenging markets. The Fund Manager's task is to identify such companies and make them count in the portfolio, and your Board believes that the relatively unconstrained multi-cap approach to investment in your portfolio should allow the Manager the best opportunity for success.

Peter Jones

Chairman

26 January 2018

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. 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. 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 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 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 and Assurance, 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 (2016: £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 £19.6 million (2016: £16.34 million), with borrowing costs for the year totalling £200,000 (2016: £213,000). £14.6 million (2016: £11.8 million) of the facility was in use at the year end. Net gearing at 31 October 2017 was 13.3% (2016: 14.0%) 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 Annual Report.

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

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

The Directors do not expect there to be any significant change in the current principal risks and adequacy of the mitigating controls in place. Also the Directors do not envisage any change in strategy or objectives or any events that would prevent the Company from continuing to operate over that period as the Company's assets are liquid, its commitments are limited and the Company intends to continue to operate as an investment trust. Only a substantial financial crisis affecting the global economy could have an impact on this assessment. Whilst there is currently uncertainty in the markets due to the UK's negotiations to leave the European Union following the June 2016 referendum result, 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 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

FUND MANAGERS' REPORT

Portfolio Review

The portfolio comprises 100 holdings in companies of varying sizes with the composition determined not by the benchmark but by the search for holdings that, together, can provide strong growth without being unduly volatile.  Over half the portfolio by value is in companies listed on AIM which therefore do not qualify for inclusion in our benchmark, the FTSE All-Share Index.  Some of these are of a size that, were they listed on the main market, would qualify them for the FTSE 250 Index rather than the FTSE Small Cap Index. We seek returns from a diverse range of companies so that there is less concentration risk coming from any sector or theme.  This is illustrated in the broadly-spread attribution for the year. 

This diversity is important as the political and economic backdrop is as unpredictable as ever, with long term planning having become difficult.  For example, a "hard" Brexit leading to World Trade Organisation tariffs could have serious consequences for some businesses, while others who are selling products in the UK may benefit as some European goods become less competitive.  There remain plenty of good opportunities for companies in the UK.

	2017 %	2016 %	2015 %	2014 %	2013 %
NAV (total return)	29.5	0.4	13.5	3.4	47.1
FTSE All-Share (total return)	13.4	12.2	3.0	1.0	22.8
Outperformance(+)/ Underperformance(-)	+16.1	-11.8	+10.5	+2.4	+24.3

Performance

Investment Approach

As long-term investors, we spend a considerable amount of time researching and meeting companies in whom we may or may not invest on your behalf. This long-term approach is reflected in a holding period of typically three to five years with our recent trend being towards the upper end of that range. We do, however, remain alive to shorter term opportunities. Our typical holding period reflects our appreciation that the cycle for any business to grow and mature is not easily reconciled with the volatility, fads and fashions of the stock market, or with the general economic background.

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 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, which includes one unlisted investment, is at the top end of the 70 to 100 range that has applied over the last seven years. We believe that this range is about right for a fund of this size, providing enough diversification to mitigate risk but also enough concentration to make the contribution of individual winners significant. Our exposure to stocks in the FTSE 100 and FTSE 250 reduced slightly from 31.4% to 29.1% as a result of superior performance from some of our AIM listed companies. Exposure to stocks with over £1 billion in market capitalisation has risen from 25.8% to 33.8% of the portfolio, due to strong performance across the market so that our typical gearing levels are comfortably covered by the most liquid part of the portfolio.

Portfolio Activity

During the year we have been active in 66 companies, starting new positions in 20 and selling out completely in 9. Our new investments included 13 IPOs (Initial Public Offering), slightly up on last year. We have generally focused our attention on smaller IPOs and this has continued to be a worthwhile hunting ground. We have avoided many of the high profile larger offerings where we simply did not see value or growth. We continued to hold all but one of this year's IPO's at the year end. Our top ten holdings represented an unchanged 28.1% of the portfolio. There have been five new entrants to our top ten list, all of which we have held for a number of years. They are Blue Prism, Keyword Studios, Conviviality Retail, XP Power and Clinigen. Our Early Stage Development Companies of emerging technologies or services, including healthcare, which are not yet sustainably cash generative but have robust and highly differentiated intellectual property, accounted for 6.1% of the portfolio, against 12.6% last year. This area of the market suffered some high profile disappointments and prices generally declined whether or not progress in the technology of that company was made. Also, some of the holdings were reduced.

Top Five Sales

The largest was that of e2v technologies, the developer and manufacturer of high technology electronic components, was acquired by Teledyne Technologies in an agreed all cash deal at 275p per share, a premium of over 50% to the share price at the start of the year.

While Keyword Studios has been a significant outperformer this year we have, despite our long term belief in the outstanding prospects for the business, taken profits to manage our exposure to single investments. We also took profits in another new entrant to our top ten, Blue Prism. We have been careful in both cases not to be too aggressive in selling as the momentum in both businesses has been both real and sustainable. By the end of the year Blue Prism was our largest holding and Keyword Studios our third.

In the immediate post Brexit stock market mayhem we added to our position in International Consolidated Airlines, the parent company of British Airways and Spain's Iberia. Having nearly doubled our money from that low point, we reduced our position back towards our original holding.

Lastly, we participated in the IPO of Accrol, a manufacturer of tissue paper, in June 2016, and saw the stock rise to a 40% premium to the issue price. However, we became increasingly concerned about the targeted growth prospects and decided to sell out. This proved fortuitous as the shares were subsequently suspended following a major profit warning and a shortfall in short term funding.

Top Five Purchases

With the oil price stabilising, we decided to be bold and purchased a holding in Eland Oil & Gas, an emerging producer in the Niger delta. Eland listed on the market in 2012 with the target of bringing back on stream various wells in that troubled region. This has proved much harder than first thought, taking nearly five years longer than anticipated. Now, however, oil is flowing and production is building swiftly. Cash flow next year could match the current market capitalisation.

UP Global is an Oldham based developer and designer of branded products focused on the homewares market, selling into the rapidly growing discount retail marketplace. After tracking this company prior to its IPO on the main market, we decided that the structural growth potential of this portion of the retail market was very attractive. The stock rose sharply from float at 128p to a peak of 228p but, despite producing results ahead of market expectations, the current trading environment has seen a sharp downturn in customer orders so profits for the next two years will not match earlier expectations. We took immediate action to limit our exposure, but have retained a smaller position as the structural growth story remains compelling once consumer confidence has recovered.

We also took the opportunity to start a position in Learning Technologies, an e-learning company, as part of its' funding for the acquisition of Net Dimensions. This acquisition adds geographical reach, and greater exposure to highly regulated sectors, thereby completing a full service e-learning offer. Organic growth is being complemented by highly effective integration and loss elimination. The chairman and a major shareholder here is Andrew Brode, who is also chair at RWS, another of our top ten companies.

Redcentric, a provider of managed services supporting corporate IT departments, had a significant profit warning and re-statement of results in late 2016. We purchased our position after this fall. Now that the historic position has been clarified, the company can once again face forward in what is a sector subject to consolidation. Importantly, no clients or service lines were affected by this internal issue so the book of business remains solid.

Lastly, we supported the IPO on AIM of Oxford Biodynamics, a drug and technology company using novel epigenetic biomarkers to aid drug discovery. Their platform, EpiSwitch, has recently shown a high degree of accuracy in identifying all four stages of breast cancer. If further trials are successful, this will allow oncologists to make significantly better informed decisions for their patients' future treatment regimes. The shares have performed well since IPO.

Portfolio Attribution Analysis

The table below shows the top five contributors to the Company's absolute performance in NAV and their contribution relative to benchmark.

Top 5 contributors to performance
	Share price return %	Contribution to NAV %
Blue Prism	+356.0	+4.6
Keyword Studios	+266.2	+4.1
Conviviality Retail	+115.0	+1.8
RWS	+60.2	+1.7
XP Power	+112.5	+1.4

Source: Janus Henderson

Top Five

Blue Prism enables robotic process automation, notably in mundane semi-automated tasks such as in call centres. By automating large elements of routine logic based functions, it releases the operative to carry out higher value functions. Since floating on AIM in 2016 at 78p the shares have risen more than tenfold, owing to very strong demand and the rapid internationalising of the offer through partner channels without undue financial strain. Cash is received upfront and revenue for 2017 has risen to £24m from original forecasts of £9m with 2018 now set to achieve £40m against original forecasts of £12m. The pace of growth shows no sign of slacking and, though the valuation is high, it remains a core holding.

Keyword Studios is a global leader in services to the video games industry.  Shortly after its IPO in 2013 at 123p, two major console developers Sony (PlayStation) and Microsoft (Xbox) threw the support industry into turmoil by changing at short notice the launch dates for their new models. This put a dent in Keyword Studios' short term profit forecasts. We did not panic at this external event but continued to believe in material medium term growth. The share price has since risen more than tenfold on a combination of organic growth and complementary acquisitions. These have moved the company from a project driven outsourcer to a strategic partner to all the leading global games developers. Given its rapid growth in a highly fragmented industry, it remains another core holding.

Conviviality Retail, an alcoholic beverage wholesaler and supplier to franchise convenience stores, has seen the promise of the benefits of the Matthew Clark and Bibendum acquisitions materialise ahead of expectations, while evidence of growth emerged in the underlying trading of franchisees. This has driven a share re-rating but the cash generation of the stock is strong and the dividend is growing. With the quality of the team that CEO Diana Hunter has assembled around her, we look forward to seeing the strategy evolve further.

RWS, through its most recent acquisition of Moravia, has moved well beyond its original patent translation roots and has been a long-term favourite of ours. A potent combination of growth, cash-flow and dividends has made a compelling story for the last ten years. A new bolder phase this year saw two major acquisitions. Moravia is a leading provider of localisation services to the world's technology giants and adds a new fast growing client base. Earlier this year, RWS acquired Luz, a west coast USA based language service provider to the life sciences market. These acquisitions have diversified sector and client risk materially without diluting growth or cash generation. It remains a core position.

XP Power, the designer and manufacturer of electrical power supplies, has been in the portfolio for more than ten years. It has again delivered good growth in profits as it continues to take market share through design and new product innovation, leading to new product wins with targeted original equipment manufacturers. These design wins, principally in medical and industrial technology markets, secure participation for the life of the product, typically around six to seven years. This has improved visibility for the future.

Bottom Five

The table below shows the bottom five detractors from the Company's absolute performance in NAV and their contribution relative to benchmark.

Top 5 detractors from performance
	Share price return %	Contribution to NAV  %
4D Pharma	-51.3	-3.6
hVIVO	-67.7	-1.0
Atlantis Resources	-44.4	-1.0
Ilika	-53.6	-0.5
NAHL	-31.6	-0.5

Source: Janus Henderson

4D Pharma, which harnesses bacteria in a revolutionary new class of medicines called live biotherapeutics, saw its share price fall earlier in the year as a lack of meaningful news flow weighed on the shares. This is expected to change dramatically over the next 9 - 15 months as human trials in cancer and asthma commence and study results from phase I in Paediatric Crohn's are released. 2018 could be a pivotal year.

Last year hVIVO, was again among our bottom performers. The change in strategy to focus on its own product pipeline rather than being just a services provider to the pharma industry has not produced the results hoped for with initial trial results in two programmes not meeting the primary endpoints required. The company is husbanding cash resources as further trial results are awaited in influenza and malaria vaccines.

The developer of renewable tidal energy projects, Atlantis Resources, commissioned the first phase of its MeyGen scheme off the north coast of Scotland and power is now being produced and sold into the national grid. Phase 1A will produce 6 megawatts but when the project is completed, output should deliver 350 megawatts. The shares have been hit however, by Government procrastination over the funding of tidal power and its place within a broader framework of renewable sources. This is itself under pressure from falling subsidies.

Ilika, a developer of novel materials, was spun out of  the School of Chemistry at the University of Southampton in 2004.The current lead product is a solid state miniaturised battery targeted for use in medical devices, emerging "wearable" technologies and as a remote power source for the "internet of things". There has been no overtly negative news but we are still waiting for a breakthrough announcement and the stock market is losing patience.

A common feature of the above has been they are all early stage companies trying to make the transition from the ownership of promising technology to full commercialisation. Stock markets are not yet giving them the benefit of the doubt. They have all seen share price declines of 45 to 70%.

In the autumn 2016 budget statement, the Chancellor announced potential changes to the level of claims in the small claims court relating to road traffic accidents. This has necessitated some fundamental changes at NAHL, who provide marketing leads to the legal profession. The period of doubt persisted for much of the last year but the path to restoration of peak profitability has become clearer and pilot trials of the new business model have gone well. We have added to our position and remain encouraged for the future.

Outlook

The big issue for markets internationally in 2018 is how quantitative easing ends and what are the consequences. In addition in the UK we face the added complication of trying to achieve a "good" Brexit deal.

The excess money created by nearly ten years of quantitative easing has to some extent encouraged asset price bubbles most notably in domestic house prices and bonds. Elsewhere, for instance in modern art, bloodstock and vintage cars, prices are often eye watering. It is still early days in the adjustment to a more normalised period of monetary policy from central banks but they are keenly aware that a false move, or two, could be negatively interpreted by the markets and cause unnecessary harm. In such a scenario equity markets would be impacted as well. But it would be wrong to be too dogmatic since the steady tightening of monetary policy in the US has been benign for financial markets. Real growth in profits, cash and dividends are being created by the best companies and it remains our task to find them for you. We remain committed to the market, will keep the disciplines that have served you well but realise we will need to live with higher valuations than in the recent past.

James Henderson and Colin Hughes

Fund Managers

26 January 2018

Twenty Largest Holdings at 31 October 2017

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

Rank 2017 (2016)	Company	% of Portfolio	Valuation 2016 £'000	Purchases £'000	Sales £'000	Appreciation/ (depreciation) £'000	Valuation 2017 £'000
1 (16)	Blue Prism1	4.4	1,487	-	(818)	4,397	5,066
2 (4)	RWS1	4.0	2,422	626	-	1,556	4,604
3 (13)	Keyword Studios1	3.8	1,613	-	(1,069)	3,850	4,394
4 (1)	4D Pharma1	2.6	6,130	-	-	(3,145)	2,985
5 (3)	HSBC	2.6	2,500	-	-	479	2,979
6 (11)	Conviviality Retail1	2.3	1,667	-	(551)	1,598	2,714
7 #	XP Power	2.2	1,275	-	-	1,345	2,620
8 (6)	Micro Focus	2.2	2,202	-	-	318	2,520
9 (15)	Clinigen1	2.1	1,554	-	-	918	2,472
10 (2)	Ricardo	2.0	2,591	-	-	(301)	2,290
11 (20)	Senior	1.9	1,307	-	-	855	2,162
12 #	Loopup1	1.8	900	-	-	1,238	2,138
13 (8)	Tracsis1	1.7	1,807	308	(75)	(69)	1,971
14 #	Johnson Matthey	1.6	1,194	579	-	87	1,860
15 (19)	Faroe Petroleum1	1.5	1,400	-	-	399	1,799
16 (7)	Rio Tinto	1.5	2,130	-	(816)	460	1,774
17 (17)	Royal Dutch Shell 'B' Shares	1.5	1,481	-	-	214	1,695
18 (14)	Vertu Motors1	1.5	1,605	-	-	85	1,690
19 #	Tarsus	1.4	1,163	218	-	301	1,682
20 #	Assura	1.4	1,274	313	-	74	1,661
Total			37,702	2,044	(3,329)	14,659	51,076

At 31 October 2017 these investments totalled £51,076,000 or 44.0% of the portfolio.                                             

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

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

Portfolio by Sector

	31 October 2017 %	31 October 2016 %
Financials	11.7	13.0
Consumer Services	18.7	20.3
Industrials	25.0	22.3
Technology	19.0	12.9
Health Care	7.3	11.2
Oil & Gas	6.7	7.5
Basic Materials	5.1	5.5
Consumer Goods	6.0	6.7
Telecommunications	0.5	0.6
	100.0	100.0

Portfolio by Index

	31 October 2017 %	31 October 2016 %
FTSE 100	18.6	21.6
FTSE 250	10.2	9.8
FTSE SmallCap	14.3	13.1
FTSE Fledgling	1.0	2.6
FTSE AIM	50.7	45.7
Other1	5.2	7.2
	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 2017

	Benchmark Weight %	Portfolio Weight %
Greater than £2bn	89.4	19.1
£1bn - £2bn	5.3	14.7
£500m - £1bn	2.9	16.0
£200m - £500m	2.0	20.0
£100m - £200m	0.4	15.6
£50m - £100m	-	10.9
Less than £50m	-	3.4
Other	-	0.3
	100.0	100.0

INCOME STATEMENT

		Year ended 31 October 2017			Year ended 31 October 2016
		Revenue return £'000	Capital return £'000	Total £'000	Revenue return £'000	Capital return £'000	Total £'000
Notes
2	Gains/(losses) from investments held at fair value through profit or loss	-	23,029	23,029	-	(941)	(941)
3	Income from investments held at fair value through profit or loss	2,246	-	2,246	2,099	-	2,099
4	Other interest receivable and other income	14	-	14	25	-	25
		---------	----------	----------	---------	----------	----------
	Gross revenue and capital gains/(losses)	2,260	23,029	25,289	2,124	(941)	1,183
5	Management and performance fee	(148)	(1,257)	(1,405)	(124)	(291)	(415)
	Other administrative expenses	(302)	-	(302)	(300)	-	(300)
		-----------	----------	----------	-----------	----------	----------
	Net return/(loss) on ordinary activities before finance costs and taxation	1,810	21,772	23,582	1,700	(1,232)	468
	Finance costs	(60)	(140)	(200)	(64)	(149)	(213)
		-----------	----------	----------	-----------	----------	----------
	Net return/(loss) on ordinary activities before taxation	1,750	21,632	23,382	1,636	(1,381)	255
	Taxation	(5)	-	(5)	-	-	-
		-----------	----------	----------	-----------	----------	----------
	Net return/(loss) on ordinary activities after taxation	1,745	21,632	23,377	1,636	(1,381)	255
		----------	----------	----------	----------	----------	----------
6	Net return/(loss) per ordinary share -
	basic and  diluted	21.81p	270.37p	292.18p	20.45p	(17.26p)	3.19p
		======	=======	======	======	=======	======

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 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 on ordinary activities after taxation		-	-	-	21,632	1,745	23,377
		--------	----------	----------	----------	-----------	---------
At 31 October 2017		2,000	14,838	2,431	79,549	2,781	101,599
		=====	======	======	======	======	=====

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 shareholders' funds £'000
At 1 November  2015	2,000	14,838	2,431	59,298	2,440	81,007
Ordinary dividends paid	-	-	-	-	(1,480)	(1,480)
Net (loss)/return  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
	=====	======	======	======	======	=====

STATEMENT OF FINANCIAL POSITION

	31 October 2017 £'000	31 October 2016 £'000
Investments held at fair value through profit or loss
Listed at market value	54,693	45,570
Listed on AIM at market value	61,119	45,174
Unlisted at market value	400	333
	------------	------------
	116,212	91,077
	------------	------------
Current assets
Investment held at fair value through profit or loss	2	2
Debtors	1,089	201
Cash at bank and in hand	1,123	605
	------------	------------
	2,214	808
Creditors: amounts falling due within one year	(16,827)	(12,103)
	-----------	-----------
Net current liabilities	(14,613)	(11,295)
	-----------	-----------
Total assets less current liabilities	101,599	79,782
Net assets	101,599	79,782
	=======	=======
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	79,549	57,917
Revenue reserve	2,781	2,596
	------------	------------
Total shareholders' funds	101,599	79,782
	=======	=======
Net asset value per ordinary share (basic and diluted)	1,269.9p	997.2p
	=======	=======

STATEMENT OF CASH FLOWS

	Year ended 31 October 2017	Year ended 31 October 2016
	£'000	£'000
Cash flows from operating activities
Net return on ordinary activities before taxation	23,382	255
Add back: finance costs	200	213
(Less)/Add: (gains)/ losses on investments held at fair value through profit or loss	(23,029)	941
Withholding tax on dividends deducted at source	(11)	-
(Increase)/decrease in debtors	(14)	76
Increase/(decrease) in creditors	885	(748)
	----------	----------
Net cash inflow from operating activities	1,413	737
	----------	----------
Cash flows from investing activities
Purchase of investments	(15,650)	(18,772)
Sale of investments	13,702	23,386
	------------	------------
Net cash (outflow)/inflow from investing activities	(1,948)	4,614
	------------	------------
Cash flows from financing activities
Equity dividends paid (net of refund of unclaimed distributions and reclaimed distributions)	(1,560)	(1,480)
Net loans drawn down/(repaid)	2,814	(3,551)
Interest paid	(201)	(223)
	-----------	-----------
Net cash inflow/(outflow) from financing activities	1,053	(5,254)
	-----------	-----------
Net increase in cash and cash equivalents	518	97
Cash and cash equivalents at start of year	605	508
	----------	----------
Cash and cash equivalents at end of year	1,123	605
	----------	----------
Comprising:
Cash at bank	1,123	605
	-----------	-----------
	1,123	605
	=====	=====

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 and updated in January 2017 with consequential amendments. 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 2016. 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 listed 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 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.		Gains/(losses) on investment held at fair value through profit or loss							2017 £'000	2016 £'000
		Gains on the sale of investments based on historical cost							5,321	1,202
		Revaluation gains recognised in previous years							(1,665)	(1,729)
		Gains/(losses) on investments sold in the year based on carrying value at previous Statement of Financial Position date							3,656	(527)
		Revaluation gains/(losses) on investments held at 31 October							19,373	(414)
									23,029	(941)
3.		Income from investments held at fair value through profit or loss							2017 £'000	2016 £'000
		UK:
		Dividends from listed investments							1,284	1,394
		Dividends from AIM investments							713	523
									-------	-------
									1,997	1,917
		Non-UK:
		Dividends from listed investments							249	182
									-------	-------
									2,246	2,099
									====	====
4.		Other interest receivable and other income							2017 £'000	2016 £'000
		Underwriting commission (allocated to revenue)							14	25
									====	====
		During the year the Company was not required to take up shares; no commission was taken to capital (2016: same).
5.		Management and performance fee
		2017				2016
			Revenue return £'000	Capital return £'000	Total £'000	Revenue return £'000		Capital return £'000		Total £'000
		Management fee	148	344	492	124		291		415
		Performance fee	-	913	913	-		-		-
			--------	----------	----------	--------		----------		----------
			148	1,257	1,405	124		291		415
			--------	----------	----------	--------		----------		----------
		The basis on which the management fee is calculated is set out in the Strategic Report. The allocation between revenue return and capital return is explained in the Annual Report.

6.	Net return/(loss) per ordinary share - basic and diluted
	The total return per ordinary share is based on the total return attributable to the ordinary shares of £23,377,000 (2016: £255,000) and on 8,000,858 ordinary shares (2016: 8,000,858) being the weighted average number of shares in issue during the year.
	The return per ordinary share can be further analysed as follows:
		2017 £'000	2016 £'000
	Revenue return	1,745	1,636
	Capital return/(loss)	21,632	(1,381)
		----------	----------
	Total return	23,377	255
		----------	----------
	Weighted average number of ordinary shares	8,000,858	8,000,858
		2017	2016
	Revenue return per ordinary share	21.81p	20.45p
	Capital return/(loss) per ordinary share	270.37p	(17.26p)
		-----------	-----------
	Total return per ordinary share (basic and diluted)	292.18p	3.19p
		======	======

7.	Net asset value per ordinary share (basic and diluted)
	The net asset value per ordinary share at the year end was 1,269.9p (2016: 997.2p). The net asset value per ordinary share is based on the net assets attributable to the ordinary shares of £101,599,000 (2016: £79,782,000) and on the 8,000,858 ordinary shares in issue at 31 October 2017 (2016: 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:
		2017 £'000	2016 £'000
	Total net assets at 1 November	79,782	81,007
	Total net return	23,377	255
	Dividends paid in the year	(1,560)	(1,480)
		-----------	-----------
	Total net assets at 31 October	101,599	79,782
		======	======
8.	Called up share capital	2017 £'000	2016 £'000
	Allotted and issued ordinary shares of 25p each
	8,000,858 (2016: 8,000,858)	2,000	2,000
		======	======

9.	Ordinary dividends paid	2017 £'000	2016 £'000
	Amounts recognised as distributions to equity holders in the year:
	Final dividend for the year ended 31 October 2016 of 13.5p (2015: 13.0p)	1,080	1,040
	Interim dividend for the year ended 31 October 2017 of 6.0p (2016: 5.5p)	480	440
		-----------	-----------
		1,560	1,480
		======	======

	The final dividend of 13.5p per ordinary share in respect of the year ended 31 October 2016 was paid on 24 March 2017 to shareholders on the register of members at the close of business on 17 February 2017.                                                            The interim dividend of 6.0p per ordinary share in respect of the year ended 31 October 2017 was paid on 22 September 2017 to shareholders on the register of members at the close of business on 18 August 2017.                                                                            Subject to approval at the Annual General Meeting, the proposed final dividend of 14.0p per ordinary share will be paid on 23 March 2018 to shareholders on the register of members at the close of business on 16 February 2018.                                                                          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 2017	Year ended 31 October 2016
		£'000	£'000
	Revenue available for distribution by way of dividends for the year	1,745	1,636
	Interim dividend for the year ended 31 October 2017: 6.0p (2016: 5.5p)	(480)	(440)
	Proposed final dividend for the year ended 31 October 2017: 14.0p (based on the 8,000,858 ordinary shares in issue at 25 January 2018) (2016: 13.5p on 8,000,858 ordinary shares)	(1,120)	(1,080)
		-----------	-----------
	Undistributed revenue for section 1158 purposes	145	116
		=======	=======
	Undistributed revenue comprises 6.5% of income from investments (2016: 5.5%) All dividends have been or will be paid out of revenue profit.
10.	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 but have not yet been 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.
11.	2016 Financial Information The figures and financial information for the year ended 31 October 2016 are extracted from the Company's Annual Report and 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 2016 have been audited and delivered to the Registrar of Companies. The Independent Auditors' Report on the 2016 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 2017 will be posted to shareholders in February 2018 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 15 March 2018 at 2.30pm. The Notice of the Annual General Meeting will be posted to shareholders with the Annual Report.

For further information, please contact:

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

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

 

END

 

 

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