Annual Financial Report

RNS Number : 3995B

Henderson Eurotrust PLC

30 September 2022

 

JANUS HENDERSON FUND MANAGEMENT UK LIMITED

HENDERSON EUROTRUST PLC

LEGAL ENTITY IDENTIFIER:  213800DAFFNXRBWOEF12

30 September 2022

HENDERSON EUROTRUST PLC

Annual Financial Results for the year ended 31 July 2022

This announcement contains regulated information

Investment objective

Henderson EuroTrust plc ("the Company") aims to achieve a superior total return from a portfolio of European (excluding the UK) investments where the quality of the business is deemed to be high or significantly improving.

Performance highlights

Total return performance to 31 July 2022
	1 year %	3 years %	5 years %	10 years %
NAV1	-13.9	16.2	32.2	203.6
Share price2	-19.6	10.3	17.2	200.3
Benchmark3	-7.0	14.5	26.8	162.8
Peer group NAV4	-12.5	18.5	34.5	194.3

	Year ended 31 July 2022	Year ended 31 July 2021
NAV per share at year end5	142.1p	167.4p
Share price at year end5	120.5p	152.5p
Dividend for year5,6	3.8p	2.5p
Dividend yield7	3.2%	1.6%
Ongoing charge8, 11	0.75%	0.78%
Gearing at year end (% of NAV)	£7.3m (2.5%)	£nil (0.0%)
Number of investments at year end9	41	40
Discount at year end10	15.2%	8.9%
Net assets	£301.0m	£354.7m

1 Net asset value ("NAV") per ordinary share total return (including dividends reinvested)

2 Share price total return (including dividends reinvested)

3 FTSE World Europe (ex UK) Index

4 Association of Investment Companies (" AIC") Europe Sector (based on cumulative fair net asset value returns)

5 Comparative figures for the period ended 31 July 2021 have been restated due to the sub-division of each ordinary share of 5p into ten ordinary shares of 0.5p each on 22 November 2021

6 Including the 0.8p interim dividend paid on 22 April 2022 and the 3.0p final dividend which will be put to shareholders for approval at the Annual General Meeting ("AGM") on 17 November 2022

7 Based on the share price at the year end

8 Calculated using the methodology prescribed by the AIC

9 Excluding the nil value position in OW Bunker (2021: excluding OW Bunker)

10 Calculated using the mid-market closing price

11 Calculated using the methodology prescribed by the AIC

Sources: Morningstar Direct, Janus Henderson, Refinitiv Datastream

CHAIRMAN'S STATEMENT

Summary:

·	The year has been a tough one for the Company's investment portfolio; both NAV and share price have fallen in absolute terms and are behind their benchmark index
·	The backdrop has been of recovery from COVID-19, war in Ukraine and a resurgence of global inflation, and in a time of disruptive change companies with recovery prospects and low valuations have tended to outperform the types of company we own, especially in the early part of the year
·	Our Fund Manager continues to seek companies with sustainable competitive advantage which can prosper over the long term

To make our Annual Report easier to digest we have decided to shorten the Chairman's Statement and the Fund Manager's Report and to provide summaries of the key points. I hope you find this helpful.

Performance

Our thirtieth year - the year to 31 July 2022 - has generally been a tough one for investors, and especially so for investors in Europe. The previous year was an exceptionally strong one for equities, due to hopes of a strong post COVID bounce-back. Since then, the global economic and political environment has dramatically changed, and nowhere more so than in Europe. Even before the shocking invasion of Ukraine by Russia in February 2022 there were already concerns over inflation due to disrupted supply chains. The war within Europe, the extraordinary rises in energy prices, in Europe especially, as well as other factors such as the zero COVID policy in China have led to the highest inflation figures in Europe for at least 40 years. The conditions which dictated an ultra-low or even negative interest rate environment have finally come to an end, and many forecasters expect a recession in 2023.

In the year to 31 July 2022, net asset value total return fell by 13.9%. This compared with a total return of -7.0% for the benchmark index (FTSE World Europe (ex UK)) and -12.5% for the AIC peer group. Due to an increase in the discount to net asset value over the year, from 8.9% to 15.2%, the share price total return for the Company was -19.6%.

As Jamie Ross, the Fund Manager, has described in his report, the dramatic switch towards companies benefiting from COVID re-opening and a recovering economy, particularly in the first half of our year, did not generally favour the types of companies held in our portfolio. With interest rates rising through the period, the more 'Value' areas of the market have materially outperformed the index whilst 'Growth' and 'Quality' companies have underperformed. As you would expect from a trust with a focus on 'Growth, Quality and Consistency', this has been a difficult environment for performance. The more positive news has been that this environment has enabled the Fund Manager to buy more of the type of companies we focus on, whilst they have been out of favour.

There are those who believe that investment trusts should always use their ability to borrow, and that it adds to long-term returns. We delegate the decision to gear, to the Fund Manager; he uses borrowing facilities when he sees sufficiently attractive stock specific opportunities to justify this.        

Over the last year, the amount of borrowing (or occasionally small cash holdings) has been very modest and the net impact of gearing has been zero. This seems to us a good outcome in a year of negative returns.

Dividend

We have proposed a final dividend of 3.0p, which brings the total dividend for the year ended 31 July 2022 to 3.8p.  Subject to shareholder approval the dividend will be paid on 23 November 2022 to shareholders on the register as at 21 October 2022.  The shares will be quoted ex-dividend on 20 October 2022.

Perhaps surprisingly, 2022 has been a strong year for dividend income, due partly to the ability of banks Bawag and UniCredit to resume dividend payments prohibited due to COVID-related restrictions in 2021, but also increases in dividends by many of the companies in the portfolio.

The Company's dividend approach is broadly to pay out the level of actual income received. This approach is consistent with the Company's focus on capital growth. As I explained in my Chairman's Statement of October 2020, as the Company had a significant revenue reserve when this policy was put in place, the Board proposed to pay out the majority of this reserve over the next three to four years. The dividend for those years was expected to be the sum of two components: an ongoing "normal" payout of substantially all of the income generated by the companies held by the Company, combined with an additional payout of a portion of the revenue reserve.

In the year to 31 July 2021, the level of dividends received was unexpectedly low, largely due to a small number of companies which were not permitted to pay dividends for COVID-related reasons. We paid out all the net revenue (£3.5 million), plus a portion (£1.8 million) of the revenue reserve. In the latest year, the resurgence in dividend income has enabled us to pay a dividend up a substantial 52% without using any of the remaining revenue reserve. It remains our objective to run down the revenue reserve over the next two years and then to pay out broadly the level of income received.

Our shareholders

We continue to develop our web-based communications keeping investors up to date on the portfolio and the thinking behind it, and to seek out opportunities to speak in person to current and potential investors whenever practical.  There are many innovative companies in the portfolio and the best way to understand the portfolio is to hear from the Fund Manager talking about why he holds them.

It is inherently more difficult to communicate with individuals than professional investors but the Board is committed to reaching shareholders of all sizes .   If you would like to get in touch with me to discuss any topics please do not hesitate to do so.  In the first instance I can be reached through the corporate secretary by email on [e-mail].

The Board is aware that one of the barriers to investing in the Company is the relatively limited liquidity in the Company's own shares, despite the highly liquid underlying portfolio. We believe this is one factor in the high discount to Net Asset Value. Last year we undertook a share split to remove any possible adverse impact of a high price for an individual share. We are committed to reducing any barriers to shareholders, whether small or large, who wish to build a holding in the Company.

Board changes

Having reached my ninth anniversary as a Director of the Company on 1 September 2022, I intend to retire from the Board at the Annual General Meeting in November 2023, in line with best practice governance requirement for director term limits. Succession for my role is underway but is not yet completed.  We have taken this opportunity to undertake an external evaluation of the Board. One recommendation was that there was a good case for a five-person board to be the norm for the Company. We have adopted the recommendation to give the Board an even wider range of skills and expertise. We announced on 20 September 2022 that Stephen White will be joining the Board.  Stephen is a former investment manager.  He has more than 35 years' experience of managing investment portfolios, most notably twenty years as head of European equities at F&C Asset Management.  Stephen is currently chairman of Brown Advisory US Smaller Companies plc, a director of Polar Capital Technology Trust plc and audit committee chairman of BlackRock Frontiers Investment Trust plc.  We look forward to welcoming Stephen to the Board on 1 December 2022.

Environmental, Social and Governance ("ESG") Policy

The Company converted to Article 8 under the Sustainable Financial Disclosure Regulations on 1 January 2022. The Board and the Fund Manager believe that an investment focus on long-term growth should give a portfolio a bias towards sustainability and this is the intention of the Fund Manager. More information relating to the Company's approach to ESG can be found in the Annual Report.

Annual General Meeting ("AGM" or "Meeting")

Our AGM will be held on Thursday 17 November 2022 at 2.30pm at Janus Henderson Investors' offices at 201 Bishopsgate, London EC2M 3AE. I hope as many shareholders as possible will be able to attend to take the opportunity to meet the Board and to hear a presentation from the Fund Manager. However, if you are unable to attend in person, you can watch the Meeting live by visiting www.janushenderson.com/trustslive . Full details are set out in the Notice of Meeting which has been sent to shareholders with this report and both are also available online at www.hendersoneurotrust.com .

Outlook

It is said that, in war, all plans are useless but planning is essential. Our "plan" is to seek to identify companies which have sustainable competitive advantage or are taking credible steps to be in such a position, and to construct a suitably diversified portfolio of such companies. The war in Ukraine and resulting impact on emerging inflation and supply chain problems is an example of a disruptive event of great consequence, both economically and politically. Such events challenge the majority of companies, albeit offering opportunities to some; our Fund Manager seeks to invest in companies strong enough to survive well in tough times and to prosper in the long term.

Whilst it was disappointing to see underperformance relative to the benchmark in the year to 31 July 2022, switchbacks in market sentiment can be sharp.  Active share remains high and the largest driver of performance continues to be stock specific factors more than style, country or sector. We expect this to continue to be the case with the aim of growing value for our shareholders.

Nicola Ralston

Chairman

30 September 2022

FUND MANAGER'S REPORT

Summary:

·	This has been a difficult period for growth and quality focused strategies and we have underperformed our index
·	Although this is disappointing, the sell-off in some high-quality businesses has enabled us to initiate some new holdings at attractive valuations
·	We will continue to focus our attentions on high quality companies able to maintain impressive levels of return on invested capital, or those companies where we think that return on invested capital should improve over time

Markets and macro

From an investment perspective, the past year has been dominated by two partially linked themes. As the world exited from the acute stage of COVID-19 restrictions, a diverse array of supply bottlenecks emerged which acted to obstruct economic activity whilst simultaneously triggering inflationary pressure. Then, Russia's increasingly aggressive rhetoric against Ukraine turned into tragic action as they launched their invasion in February 2022. This further complicated global supply chains, caused a notable drop-off in consumer and business confidence, and added to the already growing inflationary environment. Taken together, these two themes resulted in a market where, from a factor perspective, Value significantly outperformed Growth and, within Value, defensive companies significantly outperformed cyclical companies. From a sector perspective, areas such as Energy and Tobacco saw the strongest performances and areas such as Luxury Goods, Technology and Industrials significantly lagged the market. We have struggled to perform well in this environment and over the year, against an index decline of 7.0%, the Company's NAV fell 13.9% and the share price retreated by 19.6%.

Performance attribution

From a sector perspective, our underperformance during the year was concentrated in two main areas: Consumer Discretionary and Information Technology. Within the Consumer Discretionary sector, our position in Delivery Hero was the most significant detractor from performance, although Adidas and Auto1 also contributed negatively. Delivery Hero, the takeaway delivery platform business, had seen a very strong share price performance during the period of the most intense COVID-19 restrictions, due to a boom in people ordering food to be delivered to their homes. However, as the world 'reopened', investors speculated that activity levels on the platform would slow and although there has only been limited evidence that this has been, or will be, the case, the share price has suffered as a result. Although we have not added to the position we remain confident in the company's long-term prospects and have maintained our holding. Within the Information Technology sector, our positions in the payment providers Nexi and Worldline came under some pressure during the period; this subsector is experiencing a period of rapid technological advancement and competition from newer business models is proving to be disruptive to the established players, we decided to sell both of these positions during the period. It is also worth mentioning Kion, the warehouse automation business, which was our biggest detractor in the Industrials sector. In a way, the underperformance of Kion during the period has similarities to our experience with Delivery Hero. Again, Kion was a big beneficiary of the period of COVID-19 restrictions, with stay-at-home consumer behaviour driving a splurge in spending on warehouse capital expenditure from a wide range of ecommerce companies. This capital expenditure spending has now slowed from very elevated levels and Kion's shares have come under some pressure; we have maintained our holding.

We had success with some of our Health Care positions during the year. This was especially the case with our large and longstanding position in Novo Nordisk. We have often used Novo Nordisk as an example of a company where consistent and focused capital allocation has resulted in strong long-term return on invested capital. Over the past twelve months, the company has started to reap the rewards of a multi-year research and development spending program focused on obesity.

For many years, Novo Nordisk have understood that an important side-effect of their diabetes-focused molecule Semaglutide has been weight-loss in patients. They have now found a way to harness this attractive property in a prescription drug aimed at patients suffering from obesity. Although they have had some teething problems in ramping up the production of this new drug, early demand has been much greater than expected and the long-term potential looks exciting.

Another strong-performing position worthy of mention is Bawag, another long-standing holding for us, which combines the rare attributes of being a bank with being a company capable of consistently generating an attractive return on equity, well above its cost of capital. As with Novo Nordisk, one of the key attractions of Bawag is a management team focused on long-term returns above all else. They run a lean cost structure, lend in a conservative fashion and have allocated capital exceptionally well over time: this has resulted in a business whose share price performance has significantly outperformed its sector over time.

	Average portfolio weight (%)			Attribution Analysis 1
	Company	Index	Relative	Sector allocation effect	Stock selection effect	Total effect
Communication Services	6.8	3.8	3.0	0.1	-0.9	-0.8
Consumer Discretionary	15.6	11.9	3.7	-0.7	-1.7	-2.4
Consumer Staples	12.3	10.6	1.7	0.1	-1.0	-0.9
Energy	2.3	3.2	-1.0	-0.3	0.0	-0.3
Financials	19.2	16.0	3.1	0.2	-1.1	-0.9
Health Care	15.8	15.2	0.6	0.1	1.5	1.6
Industrials	10.1	16.4	-6.3	0.3	-1.1	-0.8
Information Technology	7.3	10.1	-2.8	0.5	-2.7	-2.2
Materials	7.6	6.5	1.1	-0.1	0.7	0.6
Real Estate	0.0	1.6	-1.6	0.4	0.0	0.4
Utilities	3.1	4.6	-1.5	-0.2	-0.1	-0.3
Cash	-0.1	0.0	-0.1	0.0	0.0	0.0
Total	100.0	100.0	0.0	0.4	-6.5	-6.1

1 Estimates are based on a daily buy and hold approach, gross of all fees and costs. Attribution displayed is a two factor Brinson attribution with effects quoted in the base currency of the Company

Source: Factset

Portfolio activity

We have been through a tough twelve months, where the environment has not been conducive to our style of investment, which tends to focus on high-quality growth companies. However, there is a silver lining to this: we have been able to buy more of these types of company at lower share prices and valuations. This includes adding to existing favoured holdings and bringing in a select number of new positions. Below I have given three examples of new positions that we have brought into the portfolio in recent months.

The first example is Airbus. We are of the view that the civil aerospace industry represents an area of the market that is only part-way through a natural post-COVID recovery. We already have an investment in Safran (engines) and have now also added the position in Airbus. Airbus operates in a global oligopoly with Boeing and it has a substantial multi-year backlog of aircraft orders which should provide it with revenue visibility. Given its above-average return on invested capital and strong balance sheet, it trades on far too cheap a valuation in our view.

Second, we bought a position in Besi, which is a high quality but highly cyclical semi-conductor equipment company. We initiated a position after the shares had fallen by more than 50% from their peak due to concerns over the cycle. We see this as a solid opportunity to start to increase our semi-conductor exposure via one of the best companies in the sector (the other one being ASML, which we already own). People often confuse cyclicality with 'value' or 'low quality'. Besi is cyclical but is a fantastically managed business with well-entrenched market positions in a structural growth sector.

Third, we initiated a new position in Sartorius. We are very excited by the prospects for Sartorius: a high quality, fast growing bio-pharma equipment company that had significantly derated between October 2021 and when we bought a position. We have long admired Sartorius, but have never managed to invest at a reasonable multiple until now.

All three companies described above have strong pricing power, healthy market shares, attractive growth drivers and deliver above average return on invested capital through the economic cycle.

Largest New Investments			Largest Divestments
Company name	Position size at year end (% of the portfolio)		Company name	Position size at start of year (% of the portfolio)
Sanofi	4.04		Stellantis	4.48
TotalEnergies	3.79		Worldline	3.14
Safran	3.09		Nexi	2.78
LVMH Möet Hennessy Louis Vuitton	3.03		Prosus	2.60
ABB	2.59		Faurecia	2.57
Deutsche Börse	2.41		RWE	2.47
Pernod Ricard	2.31		Vestas Wind Systems	2.23
Sartorius	2.18		IAG	1.65
Universal Music	2.04		Telecom Italia	1.62
SAP	2.02		Embracer	1.59

Outlook

Although we have endured a tough period for our quality-growth focused strategy, I remain resolute in my belief that investing in high return on invested capital companies, or those where I foresee a significant improvement in returns, is the best way to make money for our shareholders over the long term. We will continue to focus on this strategy and if the environment continues to run counter to this style of investing, we will look to deploy more capital to take advantage of the long-term opportunities that present themselves. Now is not the time to lose faith in our long-standing investment approach.

	% of portfolio1
	Compounders2	Improvers3
Q4 2018	65%	35%
Q1 2019	62%	38%
Q2 2019	61%	39%
Q3 2019	61%	39%
Q4 2019	59%	41%
Q1 2020	60%	40%
Q2 2020	57%	43%
Q3 2020	56%	44%
Q4 2020	48%	52%
Q1 2021	52%	48%
Q2 2021	58%	42%
Q3 2021	57%	43%
Q4 2021	58%	42%
Q1 2022	64%	36%
Q2 2022	62%	38%
Financial year end	63%	37%

¹ Cash and gearing are not included in the analysis

² Compounders - high return businesses

³ Improvers - companies whose return profile should materially improve over time

Source: Janus Henderson, desk estimate

Classification of holdings as at 31 July 2022

	Compounders Average	Improvers Average	Company Average	Index Average
Market Capitalisation (£m)	102,302	30,078	75,473	72,210
Price/book (x)	3.0	1.6	2.3	1.8
Trailing 12 month dividend yield (%)	2.4	3.0	2.6	3.0
Trailing 12 month price/earnings (x)	20.9	16.7	19.1	12.0
Forward 2023 price/earnings (x)	16.2	11.6	14.1	12.5
Historical 3-year earnings per share growth per annum (%)	12.0	5.2	9.5	10.4
Return on equity (%)	28.7	15.9	24.0	21.2
Operating margin (%)	26.5	11.5	20.9	18.1
Long term debt to capital (%)	31.4	36.7	33.4	32.9
Number of securities	25	16	41	516
Weight (%)1	64.7	38.2

Fundamentals are based on weighted averages at the stock level, excluding net cash/gearing.

¹ The weight of percentages of Compounders and Improvers are shown including net cash/gearing.

OW Bunker is not included in the analysis.

Net cash/gearing was -2.9% at 31 July 2022

Source: Factset/Fundamentals in Sterling

Top ten contributors to and bottom detractors from absolute performance

Data illustrating the top ten contributors to absolute performance is set out below:

	%
Novo Nordisk	1.87
Nestlé	0.60
Sanofi	0.52
Sartorius	0.51
Koninklijke KPN	0.48
TotalEnergies	0.47
SIG	0.41
RWE	0.33
EDP Renovaveis	0.31
Deutsche Börse	0.22

Data illustrating the bottom ten detractors from absolute performance is set out below:

	%
Stellantis	-0.69
Partners Group	-0.77
Adidas	-0.78
Grifols	-0.81
Prosus	-0.84
Nexi	-0.97
Allfunds	-1.08
Worldline	-1.09
Delivery Hero	-1.34
Kion	-1.52

Jamie Ross

Fund Manager

30 September 2022

PRINCIPAL RISKS AND UNCERTAINTIES

Managing our risks

The Board, with the assistance of the Manager, has carried out a robust assessment of the principal risks and uncertainties facing the Company, including those that would threaten its business model, future performance, solvency and liquidity.

With the assistance of the Manager, the Board has drawn up a risk register facing the Company and has put in place a schedule of investment limits and restrictions, appropriate to the Company's Investment Objective and Policy, in order to mitigate these risks as far as practicable. The Board monitors the Manager, other suppliers and the internal and external environments in which the Company operates to identify new and emerging risks. The Board's policy on risk management has not materially changed from last year. The principal risks which have been identified and the steps taken by the Board to mitigate these are as follows:

Risk	Trend	Mitigation
Investment activity and performance An inappropriate investment strategy (for example, in terms of stock or sector attribution or the level of gearing) may result in underperformance against the Company's benchmark index and the companies in its peer group.	↔	The Board monitors investment performance at each Board meeting and regularly reviews the extent of its borrowings. The Board receives monthly updates from the Fund Manager.
Portfolio and market Although the Company invests almost entirely in securities that are quoted on recognised markets, share prices may move rapidly. The companies in which investments are made may operate unsuccessfully, or fail entirely. Significant economic, political or environmental changes in Europe and globally may impact investment returns. A fall in the market value of the Company's portfolio would have an adverse effect on shareholders' funds.	↑	The Board reviews the portfolio at each meeting, regularly considers relevant political, economic and environmental changes and mitigates risk through diversification of investments in the portfolio.
Regulatory A breach of Section 1158 could lead to a loss of investment trust status, resulting in capital gains realised within the portfolio being subject to corporation tax. A breach of the FCA's Listing Rules could result in suspension of the Company's shares, while a breach of the Companies Act 2006 could lead to criminal proceedings, or financial or reputational damage.	↔	The Manager is contracted to provide investment, company secretarial, administration and accounting services through qualified professionals. The Board receives internal controls reports produced by Janus Henderson on a quarterly basis, which confirm regulatory compliance.
Operational and cyber Disruption to, or failure of, the Manager's accounting, dealing or payment systems or the Custodian's records could prevent the accurate reporting and monitoring of the Company's financial position. The Company is also exposed to the operational risk that one or more of its service providers may not provide the required level of service. The Company may also be exposed to the risk of cyber attack on its service providers.	↑	The Board monitors the services provided by the Manager and its other suppliers and receives reports on the key elements in place to provide effective internal control. During the year the Board received reports on the Manager's approach to information security and cyber attack defence. The Board considers the loss of the Fund Manager as a risk but this is mitigated by the experience of the Equities team at Janus Henderson.
ESG The Company has transitioned to Article 8 status under SFDR. Decisions on ESG matters can be subjective and criteria may change as knowledge, technology and science evolves. There is a risk that an investment, assessed as  appropriate at a point in time, subsequently does not meet ESG criteria, and exposes the Company to reputational risk.	New	For those companies with a high or severe Sustainalytics risk  rating, the Board requires the Manager to formally explain the rationale for the potential improvement of the Sustainalytics risk rating to a minimum of 'medium' within three years. See the Annual Report for more detail. The Company's ESG criteria are considered to be sufficiently clear and measurable. These criteria and the Company's adherence to them are monitored and reviewed on a regular basis. Should the Board or the Manager consider it appropriate to review or alter the criteria, this would be considered on a case by case basis against known factors prevailing at the time.

Details of how the Board monitors the services provided by Janus 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 report of the 2022 Annual Report. Further details of the Company's exposure to market risk (including market price risk, currency risk and interest rate risk), liquidity risk and credit and counterparty risk and how they are managed are contained in the Notes to the Financial Statements within the Annual Report.

VIABILITY STATEMENT AND GOING CONCERN

The Company is a long-term investor. The Board believes it is appropriate to assess the Company's viability over a five year period in recognition of the Company's long-term horizon and what the Board believes to be investors' horizons, taking account of the Company's current position and the potential impact of the principal risks and uncertainties as documented in the Strategic Report within the Annual Report.

The Directors do not expect there to be any significant change in the current principal risks and adequacy of the mitigating controls in place. In addition, 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. In coming to this conclusion, the Board has considered the potential impact of the principal risks and uncertainties facing the Company, in particular the impact of the rise in inflation, COVID-19, the risks arising from the wider ramifications of the conflict between Russia and Ukraine, investment strategy and performance against benchmark (whether from stock or sector attribution or the level of gearing) and market risk, materialising in severe but plausible scenarios, and the effectiveness of any mitigating controls in place.

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

The Directors consider it appropriate to adopt the going concern basis of accounting in preparing the Financial Statements (see note 1(b) for further details).

BORROWINGS

The Company has in place an unsecured loan facility of £25 million (2021: £25 million) which allows it to borrow as and when appropriate. The maximum amount drawn down in the year under review was £12.8 million (2021: £17.3 million), with borrowing costs for the year totalling £84,000 (2021: £103,000). £12.6 million of the facility was in use at the year end (2021: none). Actual gearing at 31 July 2022 was 2.5% (2021: 0.0%) of NAV. The Board has delegated responsibility for day to day gearing levels to the Fund Manager. The Fund Manager expects to maintain some level of gearing in most conditions and the normal level of gearing is expected to be between 2% and 6% of NAV, but at times it may be above or below these levels. The Fund Manager does not use gearing in an attempt to time prospective market moves. Instead, the Company's gearing will increase when the Fund Manager sees attractive, stock specific, opportunities to deploy capital and will reduce gearing when the Fund Manager is a net seller of existing positions, again for stock specific reasons.

RELATED PARTY TRANSACTIONS

The Company's transactions with related parties in the year were with its 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 2022 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 facilitation of marketing activities with third parties, there have been no material transactions with the Manager affecting the financial position of the Company during the year under review. More details on transactions with the Manager, including amounts outstanding at the year end, are given in the Notes to the Financial Statements within 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:

(a)	the Company's Financial Statements, which have been prepared in accordance with UK Accounting Standards, give a true and fair view of the assets, liabilities, financial position and profit of the Company; and
(b)	the Annual 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.

The Directors consider that the Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's performance, business model and strategy.

On behalf of the Board

Nicola Ralston

Chairman

30 September 2022

TWENTY LARGEST HOLDINGS AS AT 31 JULY 2022

	Company		Country	Sector	Market Value 2022 £'000	Percentage of Portfolio 2022
1	Novo Nordisk		Denmark	Pharmaceuticals and Biotechnology	14,391	4.67
2	Roche		Switzerland	Pharmaceuticals and Biotechnology	14,052	4.56
3	Nestlé		Switzerland	Food Producer	13,974	4.53
4	Koninklijke DSM		Netherlands	Specialist Nutrition and Materials Supplier	13,090	4.24
5	Sanofi		France	Pharmaceuticals and Biotechnology	12,461	4.04
6	TotalEnergies		France	Oil, Gas and Coal	11,701	3.79
7	Munich Re.		Germany	Insurance	11,549	3.74
8	Bawag		Austria	Banks	11,040	3.58
9	Hermès		France	Luxury Goods	10,387	3.37
10	ASML		Netherlands	Technology Hardware and Equipment	10,292	3.34
Top 10					122,937	39.86
11	Cellnex	Spain		Mobile Telecommunications	9,852	3.19
12	Safran	France		Aerospace and Defence	9,530	3.09
13	Koninklijke KPN	Netherlands		Fixed Line Telecommunications	9,396	3.05
14	LVMH Möet Hennessy Louis Vuitton	France		Personal Goods	9,341	3.03
15	Partners Group	Switzerland		Private Equity Asset Manager	8,064	2.61
16	ABB	Switzerland		Electronic and Electrical Equipment	7,979	2.59
17	UniCredit	Italy		Banks	7,966	2.58
18	Deutsche Börse	Germany		Financial Services	7,424	2.41
19	Pernod Ricard	France		Beverages	7,119	2.31
20	Sartorius	Germany		Medical Equipment and Services	6,718	2.18
Top 20					206,326	66.90

Market capitalisation (excluding cash) of the portfolio by weight at 31 July 2022

Market cap	% Portfolio weight	% Benchmark weight
>€20bn	70.0	68.9
€10bn - €20bn	11.4	15.8
€5bn - €10bn	9.0	9.9
€1bn - €5bn	8.9	5.4
€0bn - €1bn	0.6	0.0

Performance drivers over the year ended 31 July 2022

	%
Benchmark Return	(7.0)
Sector Allocation	0.9
Stock Selection	(7.3)
Currency Movements (relative to index)	0.3
Effect of Cash and Gearing	0.0
Effect of Ongoing Charge	(0.8)
Residual (due to timing and rounding)	0.0
NAV Total Return	(13.9)

Source: Morningstar Direct, Janus Henderson

AUDITED INCOME STATEMENT

	Year ended 31 July 2022			Year ended 31 July 2021
	Revenue return £'000	Capital return £'000	Total return £'000	Revenue return £'000	Capital return £'000	Total return £'000
(Losses)/gains on investments held at fair value through profit or loss (note 2)	-	(54,923)	(54,923)	-	63,090	63,090
Investment income (note 3)	9,298	-	9,298	4,996	-	4,996
Other income	1	-	1	-	-	-
	---------	----------	---------	---------	----------	---------
Gross revenue and capital gains	9,299	(54,923)	(45,624)	4,996	63,090	68,086
Management fee	(410)	(1,642)	(2,052)	(430)	(1,718)	(2,148)
Other administrative expenses	(553)	-	(553)	(467)	-	(467)
	---------	----------	---------	---------	----------	---------
Net (loss)/return before finance costs and taxation	8,336	(56,565)	(48,229)	4,099	61,372	65,471
Finance costs	(17)	(67)	(84)	(21)	(82)	(103)
	---------	----------	---------	---------	----------	---------
Net (loss)/return before taxation	8,319	(56,632)	(48,313)	4,078	61,290	65,368
Taxation on net return	(69)	(11)	(80)	(613)	-	(613)
	---------	----------	---------	---------	----------	---------
Net (loss)/return after taxation	8,250	(56,643)	(48,393)	3,465	61,290	64,755
	=====	=====	=====	=====	=====	=====
(Loss)/return per ordinary share (basic and diluted)1 (note 4)	3.9p	(26.7p)	(22.8p)	1.7p	28.9p	30.6p
	=====	=====	=====	=====	=====	=====

¹ Comparative figures for the period ended 31 July 2021 have been restated due to the sub-division of each ordinary share of 5p into ten ordinary shares of 0.5p each on 22 November 2021.

The total return column of this statement represents the Income Statement of the Company.

All revenue and capital items in the above statement derive from continuing operations. 

The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the AIC. 

The Company had no recognised gains or losses other than those disclosed in the Income Statement.

AUDITED STATEMENT OF CHANGES IN EQUITY

Year ended 31 July 2022	Called up share capital £'000	Share premium account £'000	Capital redemption reserve £'000	Capital reserves £'000	Revenue reserve £'000	Total shareholders' funds £'000
At 1 August 2021	1,060	41,032	263	307,722	4,633	354,710
Net (loss)/return after taxation	-	-	-	(56,643)	8,250	(48,393)
Costs relating to sub-division of shares	-	-	-	(14)	-	(14)
Final dividend paid in respect of the year ended 31 July 2021 (paid 24 November 2021)	-	-	-	-	(3,602)	(3,602)
Interim dividend paid in respect of the year ended 31 July 2022 (paid 22 April 2022)	-	-	-	-	(1,695)	(1,695)
Refund of unclaimed dividends over 12 years old	-	-	-	-	4	4
	----------	-----------	----------	-----------	----------	------------
At 31 July 2022	1,060	41,032	263	251,065	7,590	301,010
	======	======	======	=======	======	=======

Year ended 31 July 2021	Called up share capital £'000	Share premium account £'000	Capital redemption reserve £'000	Capital reserves £'000	Revenue reserve £'000	Total shareholders' funds £'000
At 1 August 2020	1,060	41,032	263	246,335	6,463	295,153
Net return after taxation	-	-	-	61,290	3,465	64,755
Final dividend paid in respect of the year ended 31 July 2020 (paid 25 November 2020)	-	-	-	-	(3,602)	(3,602)
Interim dividend paid in respect of the year ended 31 July 2021 (paid 23 April 2021)	-	-	-	-	(1,695)	(1,695)
Refund of unclaimed dividends over 12 years old	-	-	-	-	2	2
Refund of unclaimed zero dividend preference shares redemption proceeds	-	-	-	97	-	97
	----------	-----------	----------	-----------	----------	------------
At 31 July 2021	1,060	41,032	263	307,722	4,633	354,710
	======	======	======	=======	======	=======

AUDITED STATEMENT OF FINANCIAL POSITION

	As at 31 July 2022 £'000	As at 31 July 2021 £'000
Fixed assets Fixed asset investments held at fair value through profit or loss
Listed at market value - overseas	308,398	344,803
	----------	----------
Current assets
Debtors	6,192	1,797
Cash and cash equivalents	2,482	9,776
	----------	----------
	8,674	11,573
Creditors: amounts falling due within one year	(16,062)	(1,666)
	----------	----------
Net current ( liabilities )/assets	(7,388)	9,907
	----------	----------
Total assets less current liabilities	301,010	354,710
	----------	----------
Net assets	301,010	354,710
	======	======
Capital and reserves
Called up share capital	1,060	1,060
Share premium account	41,032	41,032
Capital redemption reserve	263	263
Capital reserves	251,065	307,722
Revenue reserve	7,590	4,633
	-----------	-----------
Total shareholders' funds	301,010	354,710
	======	======
Net asset value per ordinary share (basic and diluted)1	142.1p	167.4p
	======	======

¹ Comparative figures for the period ended 31 July 2021 have been restated due to the sub-division of each ordinary share of 5p into ten ordinary shares of 0.5p each on 22 November 2021.

NOTES TO THE FINANCIAL STATEMENTS

1 .	Accounting policies
(a)	Basis of preparation
	The Company is a registered investment company as defined in Section 833 of the Companies Act 2006 and is incorporated in the United Kingdom. It operates in the United Kingdom and is registered at 201 Bishopsgate, London EC2M 3AE. The Financial Statements have been prepared in accordance with the Companies Act 2006, FRS 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland" and with the Statement of Recommended Practice: Financial Statements of Investment Trust Companies and Venture Capital Trusts (the "SORP") issued in April 2021. 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. 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 July 2021. As an investment company the Company has the option, which it has taken, not to present a cash flow statement. A cash flow statement is not required when an investment company meets all the following conditions: substantially all of the entity's investments are highly liquid, substantially all of the entity's investments are carried at market value, and the entity provides a statement of changes in equity. The Directors have assessed that the Company meets all of these conditions. The Financial Statements have been prepared under the historical cost basis except for the measurement at fair value of investments. In applying FRS 102, financial instruments have been accounted for in accordance with Section 11 and 12 of the standard. All of the Company's operations are of a continuing nature. The preparation of the Company's Financial Statements on occasion requires the Directors to make judgements, estimates and assumptions that affect the reported amounts in the primary Financial Statements and the accompanying disclosures. These assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in the current and future periods, depending on circumstance. The Directors do not believe that any accounting judgements or estimates have been applied to this set of Financial Statements that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year.
(b)	Going concern The assets of the Company consist of securities that are primarily readily realisable and, accordingly, the Directors believe that the Company has adequate resources to continue in operational existence for at least 12 months from the date of approval of the Financial Statements. Having assessed these factors and the principal risks, as well as considering the impact of the rise in inflation, COVID-19 and the risks arising from the wider ramifications of the conflict between Russia and Ukraine, the Directors consider it appropriate to adopt the going concern basis of accounting in preparing the Financial Statements.
2.	(Losses)/gains on investments held at fair value through profit or loss
				2022 £'000		2021 £'000
	Gains on sale of investments based on historical cost			4,271		44,090
	Less: Revaluation gains recognised in previous years			(32,176)		(25,585)
				------------		------------
	(Losses)/gains on investments sold in the year based on carrying value at previous statement of financial position date			(27,905)		18,505
				------------		------------
	Revaluation of investments held at 31 July			(27,108)		44,860
	Exchange gains/(losses) 1			90		(275)
				----------		----------
				(54,923)		63,090
				======		======
	1 Includes exchange losses of £20,000 (2021: £204,000) on bank loans
3.	Investment income			2022 £'000		2021 £'000
	Overseas dividend income			9,298		4,996
				----------		----------
				9,298		4,996
				=====		=====
4.	(Loss)/return per ordinary share (basic and diluted)
	The total return per ordinary share is based on the net loss attributable to the ordinary shares of £48,393,000 (2021: return £64,755,000) and on 211,855,410 ordinary shares (2021: 211,855,4101), being the weighted average number of shares in issue during the year. The total return can be further analysed as follows:
				2022 £'000		2021 £'000
	Revenue return			8,250		3,465
	Capital return			(56,643)		61,290
				----------		----------
	Total (loss)/return			(48,393)		64,755
				======		======
	Weighted average number of ordinary shares 1			211,855,410		211,855,410
				2022 Pence		2021 Pence
	Revenue return per ordinary share 1			3.9		1.7
	Capital return per ordinary share 1			(26.7)		28.9
				----------		----------
	Total (loss)/return per ordinary share 1			(22.8)		30.6
				======		======
	1 Comparative figures for the period ended 31 July 2021 have been restated due to the sub-division of each ordinary share of 5p into ten ordinary shares of 0.5p each on 22 November 2021.
	The Company has no securities in issue that could dilute the return per ordinary share. Therefore the basic and diluted return per ordinary share are the same.
5.	Dividends on ordinary shares
		Register date	Payment date		2022 £'000			2021 £'000
	Final dividend (1.7p1) for the year ended 31 July 2020	23 October 2020	25 November 2020		-			3,602
	Interim dividend (0.8p1) for the year ended 31 July 2021	9 April 2021	23 April 2021		-			1,695
	Final dividend (1.7p1) for the year ended 31 July 2021	22 October 2021	24 November 2021		3,602			-
	Interim dividend (0.8p) for the year ended 31 July 2022	8 April 2022	22 April 2022		1,695			-
	Refund of unclaimed dividends over 12 years old				(4)			(2)
					-----------			----------
					5,293			5,295
					=======			=======
	1 Comparative figures for the period ended 31 July 2020 and 31 July 2021 have been restated due to the sub-division of each ordinary share of 5p into ten ordinary shares of 0.5p each on 22 November 2021.
	The proposed final dividend of 3.0p per share for the year ended 31 July 2022 is subject to approval by shareholders at the AGM and has not been included as a liability in these Financial Statements. The final dividend will be paid on 23 November 2022 to shareholders on the register of members at the close of business on 21 October 2022. The shares will be quoted ex-dividend on 20 October 2022. All dividends have been paid or will be paid out of revenue profits and revenue reserves. The total dividends payable in respect of the financial year which form the basis of Section 1158 of the Corporation Tax Act 2010 are set out below:
					2022 £'000			2021 £'000
	Revenue available for distribution by way of dividend for the year				8,250			3,465
	Interim dividend of 0.8p (2021: 0.8p1) paid 22 April 2022 (2021: 23 April 2021)				(1,695)			(1,695)
	Proposed final dividend for the year ended 31 July 2022 of 3.0p (2021:1.7p1) (based on 211,855,410 ordinary shares in issue at 30 September 2022 (2022: 211,855,4101))				(6,356)			(3,602)
					-----------			----------
	Transfer to/(from) revenue reserve2				199			(1,832)
					=======			=======
	1 Comparative figures for the period ended 31 July 2021 have been restated due to the sub-division of each ordinary share of 5p into ten ordinary shares of 0.5p each on 22 November 2021. 2 There is £199,000 of undistributed revenue in the current year (2021: £1,832,000 was paid from revenue reserves).
6 .	Net asset value per ordinary share (basic and diluted)
	The net asset value per ordinary share of 142.1p (2021: 167.4p 1 ) is based on the net assets attributable to ordinary shares of £301,010,000 (2021: £354,710,000) and on 211,855,410 (2021: 211,855,410 1 ) ordinary shares in issue at the year end. There were also 200,000 shares held in Treasury at the year end (2021: 200,0001). 1 Comparative figures for the period ended 31 July 2021 have been restated due to the sub-division of each ordinary share of 5p into ten ordinary shares of 0.5p each on 22 November 2021. The movements during the year of the assets attributable to the ordinary shares were as follows:
					2022 £'000			2021 £'000
	Net assets attributable to the ordinary shares at start of year				354,710			295,153
	Net return after taxation				(48,393)			64,755
	Costs relating to sub-division of shares				(14)
	Dividends paid on ordinary shares in the year				(5,297)			(5,297)
	Refund of unclaimed dividends over 12 years old				4			2
	Refund of unclaimed zero dividend preference shares redemption proceeds				-			97
					-----------			----------
	Total net assets attributable to the ordinary shares at 31 July				301,010			354,710
					=======			=======

7 .	Called up share capital
			Number of shares entitled to dividend	Total number of shares		Nominal value of shares £'000
	Allotted and issued ordinary shares of 0.5p each at the end of the year ended 31 July 20211		211,855,410	212,055,410		1,060
			-----------------	----------------		----------
	At 31 July 2022		211,855,410	212,055,410		1,060
			=========	=========		=====
	During the year the Company issued no shares (2021: none). During the year the Company repurchased no shares (2021: none). Shares held in treasury (2022: 200,000; 2021: 200,0001) are not entitled to receive a dividend. There is a single class of ordinary share. Reserves that can be distributed as a dividend are detailed in the Annual Report. Since 31 July 2022, no shares have been repurchased or issued. 1 Comparative figures for the period ended 31 July 2021 have been restated due to the sub-division of each ordinary share of 5p into ten ordinary shares of 0.5p each on 22 November 2021.
8.	2022 financial information
	The figures and financial information for the year ended 31 July 2022 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 July 2022 have been audited but have not yet been delivered to the Registrar of Companies. The Independent Auditor's Report on the 2022 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.
9 .	2021 financial information
	The figures and financial information for the year ended 31 July 2021 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 July 2021 have been audited and delivered to the Registrar of Companies. The Independent Auditor's Report on the 2020 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.
10.	Annual Report and Annual General Meeting
	The Annual Report for the year ended 31 July 2022 will be posted to shareholders in October 2022 and copies will be available from the Corporate Secretary at the Company's Registered Office, 201 Bishopsgate, London EC2M 3AE. The Company's Annual General Meeting ('AGM' or 'Meeting') is currently scheduled to take place at the registered office at 2.30pm on Thursday 17 November 2022. The Notice of the AGM will be posted to shareholders with the Annual Report and will be available on the Company's website.
11.	Website This document, and the Annual Report for the year ended 31 July 2022, will be available on the following website: www.hendersoneurotrust.com .
For further information please contact:
Jamie Ross Fund Manager Henderson EuroTrust plc  Telephone: [phone]		Dan Howe Head of Investment Trusts Janus Henderson Investors Telephone: [phone]
Harriet Hall Investment Trust PR Manager Janus Henderson Investors Tel: [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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