JANUS HENDERSON FUND MANAGEMENT UK
LIMITED
HENDERSON EUROTRUST PLC
LEGAL ENTITY IDENTIFIER:
213800DAFFNXRBWOEF12
21 March 2024
HENDERSON EUROTRUST
PLC
Unaudited results for the half year
ended 31 January 2024
This announcement contains regulated
information.
Performance
During the period, the Company
outperformed the benchmark3 by 0.3%, having delivered
NAV2 per share total return of 4.5% compared to a total
return from the benchmark3 of 4.2%.
|
(Unaudited)
Half year
ended
31 January
2024
|
(Unaudited)
Half
year
ended
31
January
2023
|
(Audited)
Year
ended
31
July
2023
|
NAV per
share
|
165.2p
|
156.3p
|
161.3p
|
Share
price
|
142.3p
|
133.8p
|
139.5p
|
Net
assets
|
£350.0m
|
£331.1m
|
£342.0m
|
Revenue
return per share
|
0.2p
|
0.3p
|
3.2p
|
Discount1
|
13.9%
|
14.4%
|
13.5%
|
Total return performance to 31 January 2024
|
6 months
|
1
year
|
3
years
|
5
years
|
|
%
|
%
|
%
|
%
|
NAV2
|
4.5
|
8.4
|
15.8
|
67.0
|
Benchmark3
|
4.2
|
8.8
|
29.5
|
60.8
|
Share price4
|
4.3
|
9.7
|
10.4
|
61.6
|
Peer group NAV5
|
4.2
|
9.6
|
23.7
|
65.6
|
1. Calculated using the
mid-market closing price
2. Net Asset Value
("NAV") per ordinary share total return (including dividends
reinvested)
3. FTSE World Europe (ex
UK) Index in Sterling
4. Share price total return
(including dividends reinvested)
5. Association of Investment
Companies ("AIC") Europe sector (based on cumulative fair net asset
value returns)
Sources: Morningstar Direct, Janus
Henderson, LSEG Datastream
Interim Management Report
Chairman's Statement
Shareholders will have seen the
announcement on 14 March 2024 of the proposed merger of interests
between the Company and Henderson European Focus Trust plc ("HEFT")
to form Henderson European Trust plc, an enlarged flagship European
investment trust to be managed by Janus Henderson Investors. The
proposed merger will be effected by way of a scheme of
reconstruction and winding up of the Company under section 110 of
the Insolvency Act 1986, and the associated transfer of the
Company's assets to HEFT in exchange for the issue of new shares by
HEFT under the recommended scheme of reconstruction (the
"Proposals"). As set out in the announcement, the portfolio for the
continuing company will be managed jointly by our portfolio
manager, Jamie Ross, and his counterpart at HEFT, Tom O'Hara,
supported by Janus Henderson Investors' nine other European
equities specialists. If approved by shareholders in general
meetings currently expected to be held in June and July 2024, the
intention is that the larger combined company will bring together
the portfolio managers' respective expertise and proven track
records of benchmark outperformance under a single mandate, i.e. to
maximise total return by investing in companies predominately
listed in Europe (excluding the UK).
The Company and HEFT have over 50% of
common holdings by value and the majority of Henderson European
Trust plc's portfolio is expected to comprise assets currently held
by at least one of the companies.
The combined company is anticipated
to have net assets of circa £750 million (based on valuations as at
29 February 2024) and will benefit from a lower management fee and
reduced ongoing charge ratio which is expected to be less than
0.70%, compared to the Company's current ongoing charge ratio of
0.79%.
Performance
In the period from our year end on 31
July 2023 to 31 January 2024, the Company
outperformed its benchmark, the FTSE World
Europe (ex UK) Index, by 0.3%, having
delivered a NAV total return of 4.5% compared to the Company's
benchmark and to the peer group, the AIC Europe sector, which both
returned 4.2%. The share price had increased by 4.3%; the discount
to NAV increased to 13.9% from 13.5%.
Over the twelve months to 31 January
2024, the NAV total return was 8.4% and the share price total
return was 9.7%. The NAV was slightly behind the benchmark index
total return of 8.8% and also behind the peer group average NAV of
9.6%; however, the share price total return of 9.7% was ahead of
both the benchmark and peer group.
The share price ended the period
close to the high for both the year and the half year to 31 January
2024, despite major geo-political events including the continuing
war in Ukraine and the conflict in the Middle East. EU inflation
fell to 2.8% in January 2024 compared with 10.0% a year
earlier. Although there are still concerns over inflation it
seems likely that 2024 will see cuts in interest rates. This has
been a broadly supportive background for companies and stock
markets. Nonetheless, there have been some quite big swings
in sentiment: for example in the latter part of 2023, cyclical
stocks gathered momentum in anticipation of interest rate cuts in
2024. Despite the macro-economic background, appropriately
for a stock-driven "bottom-up" portfolio such as that of the
Company, stock selection - as opposed to sector allocation - has
been responsible for the majority of the relative return over the
interim period. The Fund Manager's report contains more detailed
information on performance, together with market
commentary.
Gearing
The portfolio has been geared
throughout the interim period, up to 5.1%, but at 31 January 2024
the portfolio had net gearing of 1.4%. The decision to use
gearing is taken by the Fund Manager and is driven by his views on
the individual holdings rather than a judgement on the short-term
direction of the market. Gearing contributed marginally to the
total return in the interim period.
Dividend
In line with the policy set out in
our Annual Report for 2023, the Board intended not to pay any
interim dividend but only to pay a final dividend. If,
however, the Proposals are approved, a pre-liquidation dividend
will be paid prior to the Proposals becoming effective. Details of
this are expected to be announced in May 2024.
Outlook
Despite the Company's strong
long-term performance, of 158.8% over ten years (NAV total return
as at 31 January 2024), we have been frustrated by the Company's
shares trading at a persistent discount versus their Net Asset
Value.
Your Board has considered the factors
affecting the discount and has concluded that investment
performance alone cannot address this issue. We are therefore
pleased to recommend the proposed merger with HEFT, which brings
together two investment trusts with excellent long-term performance
and highly regarded portfolio managers. We strongly believe this
combination will create a single company which stands to be much
more than the sum of its parts: enhanced scale resulting in reduced
ongoing charges and improved market liquidity; recognised
investment prowess backed by deep resources within the European
team at Janus Henderson; structured at no cost of combination to
ongoing shareholders.
In my last report to shareholders, I
stated my intention to retire from the Board by the 2024 AGM in
November. Following the announcement, I intend to remain as
Chairman until either the conclusion of the Proposals (likely July
2024) or the AGM in November 2024. This is an exciting new
chapter for our Company and I would like to thank shareholders for
their support on this journey.
Nicola Ralston
Chairman
20
March 2024
Fund
Manager's Report
On 14 March 2024, the Board announced
a proposed merger with HEFT. I see this as being in the best
interests of shareholders and I am very excited at the prospect of
combining with Tom O'Hara to co-manage Henderson European Trust
plc.
This has been a positive period for
performance on both an absolute and relative basis. The FTSE World
Europe (ex-UK) Index rose 4.2% in total return terms whilst our NAV
increased by 4.5%. There was a significant shift in the
macro-economic environment in the final months of 2023. At the
start of the period, interest rates were rising whilst economic
sentiment was weakening. By the end of 2023, investors were
anticipating rate cuts and the global economy appeared to be
heading for a 'soft landing'. These shifts in sentiment have
contributed to the positive performance from equity
markets.
Our moderate outperformance was
driven by stock specific factors. The most significant driver of
performance was our exposure to obesity, through our positions in
Novo Nordisk and
Zealand Pharma, both Danish
businesses. Since the early part of the 20th century, Novo Nordisk,
alongside the US company Eli Lilly, has been at the forefront of
drug development for diabetes and, more recently, for obesity. Over
the last hundred years, these two companies have commercialised
insulin production, have developed novel treatments including a
drug class known as GLP-1 and, as a result, have saved innumerable
lives. We are now in the foothills of another wave of drug adoption
that will transform millions of lives across the world. Once again,
Novo Nordisk and Eli Lilly are leading the way. Obesity is one of
the greatest health issues in developed countries. Societal
factors, including ageing populations, more sedentary lifestyles
and the widespread consumption of ultra-processed-food have all had
their role to play. Novo Nordisk, through the commercialisation of
their weight-loss drug Wegovy, offers a way of reducing the
prevalence and impact of obesity. We first invested in Novo Nordisk
in 2017 and although it has performed well since, it has only
really been in recent months that the market has truly started to
appreciate the company's long-term potential. We maintain a large
position.
In addition to our position in Novo
Nordisk, we initiated a position in Zealand Pharma at the start of
the period. Zealand Pharma is approaching the same problem through
a slightly different drug-pathway and its drug development is at a
much earlier stage than Novo Nordisk's. Nonetheless, we can see
Zealand Pharma having a role to play in the obesity market in the
future. If excitement around the drug class continues to build,
there is a chance that Zealand Pharma may not be able to remain
independent for long.
Beiersdorf has been another
successful investment. This German company, which owns the skincare
brand Nivea, has long been seen as inferior to its French peer
L'Oréal. Nivea hasn't attracted the same levels of demand growth as
the key L'Oréal brands, Beiersdorf has been slow to fully adopt the
ecommerce channel, and has not engaged with the all-important
Chinese middle-classes. In addition, family ownership has long
attracted accusations of the poor treatment of minority
shareholders. However, when we invested in Beiersdorf a few years
ago, we considered that we were on the cusp of change. A new CEO
(ex-P&G and L'Oréal) came in with a clear message; he has
reinvested behind the core Nivea brand, increasing investment
behind ecommerce and seems to have had some success in persuading
the family that M&A can be done in a measured way, with room
for additional dividends and buybacks for shareholders. Over the
past six months, the Nivea brand performed well and Beiersdorf has
outperformed L'Oréal whilst also delivering strong absolute share
price performance.
Finally, our position in UniCredit, the Italian bank, has
performed well. As with Beiersdorf, UniCredit has been a story of
change. I have owned UniCredit for the entire five-year period that
I have managed the Company's portfolio and it has outperformed the
market by a very significant margin. UniCredit is a transformed
business compared to ten years ago. It lends in a more conservative
way, its balance sheet is far less leveraged, it has too much
rather than too little capital and it is managed for profit rather
than for pure lending-volume growth. Results continue to be
strong.
The largest detractors from
performance have included Pernod
Ricard, SIG and
Grifols.
Pernod Ricard has underperformed for
much of the past six months. The North American market is
slowing down and undergoing some wholesaler destocking after an
exceptionally strong period of growth under Covid conditions,
whilst the key Chinese market is not experiencing the strong
recovery that was expected on the lifting of Covid restrictions. We
are willing to look through these issues and focus on the
longer-term picture. China and India are two huge markets that
remain extremely underpenetrated by Western-style spirits. The
opportunity presented by those and other markets will mean that
Pernod should be able to see strong revenue growth over the medium
to long term. We also see a significant margin opportunity as the
company pays more attention to cost efficiency.
We have owned SIG, the Swiss
aseptic-packaging company, since IPO in 2018 and it has been a good
investment. However, in recent months, investors have become
concerned that growth in their food and beverage end markets is
slowing at a time when SIG has increased leverage following an
acquisition. We share these concerns, to an extent, but take a more
sanguine view on long-term prospects than on short-term
oscillations in demand. We expect steady market growth in the long
term and we see an opportunity for SIG to gain share over
time.
Grifols, the Spanish blood-plasma
company, has detracted value and we have sold the position during
the half year. The business struggled with plasma collections
during Covid; this hit their earnings and their ability to pay down
debt, resulting in heightened leverage just at the time when
interest rates have been rising. In January 2024 a well-known short
seller, Gotham City, released a report detailing several
accounting-based accusations as well as observations on the
relationship between Grifols and a private family-owned business
called Scranton. Although we were already aware of most of the
issues raised, there is a high hurdle for maintaining a position in
these circumstances and we decided to sell our entire
position.
In addition to our sale of Grifols,
our most notable trades were complete sales in Brenntag and Delivery Hero alongside new purchases
in Kone, the Finnish
elevator company, and Infineon, the German semiconductor
company.
We had purchased Brenntag at an
opportune moment in 2022, just after the company had
controversially approached its US peer Univar. Part of our
investment thesis had been the potential that the new management
team would end up splitting the business into two parts: a
specialty distribution business and a bulk distribution business.
At the time of our purchase, the 'split' in our view would have
created a lot of value, but since our investment, the shares have
gone up materiality whilst peer companies' shares have gone down,
and the maths of the split therefore became much less compelling.
For these reasons, we sold this position and locked in the
profits.
Delivery Hero has been a poor
investment for us and appears to be suffering from slowing growth
across its core markets. In a post-Covid world, there is little
growth in food delivery, which leads us to question whether and
when a satisfactory return on capital can be achieved. The position
was therefore sold.
Onto the two new positions I
mentioned above. We like the fundamentals of Kone's business model:
it has "sticky customers"- a razor/razor blade business model - and
a global oligopoly position. The company has been held back in
recent years by a collapse in new build activity in China, but the
issues in this market are now well understood and have also
diminished in importance, now representing around 15% of the
business compared to over one third a few years ago. Infineon is a
semi-conductor manufacturer. We have had success in our investments
in semi-conductor equipment companies over the past year, but have
taken profit in these shares and have now redistributed some of the
proceeds into Infineon. Infineon is exposed to auto and industrial
markets and is benefitting from the shift to digitalisation in
industrial end markets and to electrification in auto markets. The
shares are currently inexpensive due the short-term softness being
seen in these end markets.
In an environment of benign economic
conditions and falling interest rates, equity markets should be
well positioned to perform strongly. We have and will maintain our
quality bias, but in recent months, we have made some moves to
increase our exposure to some more cyclical growth areas of the
market, such as semi-conductors, as mentioned above, to benefit
from this environment. We are confident in our positioning and will
remain focused on delivering an attractive long term total return
to our shareholders.
Jamie Ross
Fund
Manager
20
March 2024
PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks and uncertainties
associated with the Company's business can be divided into the
following main areas:
•
Investment activity and performance
•
Portfolio and market
•
Regulatory
•
Operational and cyber
•
ESG
Information on these risks and how
they are managed is given in the Annual Report for the year ended
31 July 2023. In the view of the Board, these principal risks and
uncertainties continue to apply and are as applicable to the
remaining six months of the financial year (whilst also
acknowledging the going concern and material uncertainty statement
below) as they were to the six months under
review.
Going Concern and Material Uncertainty
The Board announced a proposed
combination of the assets of the Company with the assets of HEFT,
subject to shareholder approval, through a tax efficient scheme of
reconstruction under section 110 of the Insolvency Act 1986 (the
"Proposals"). More detail can be found in the Chairman's Statement
and in the RNS announcement dated 14 March 2024.
The Board believes that the
Proposals are in the best interests of shareholders as a whole and
recommends that shareholders vote in favour of the resolutions
required to effect the Proposals. The Proposals will be effected by
way of a scheme of reconstruction and winding up of the Company's
under section 110 of the Insolvency Act 1986, and the associated
transfer of the Company's assets to HEFT in exchange for the issue
of new shares by HEFT under the recommended scheme. This would
result in the voluntary liquidation of the Company. Due to the
requirement for the Proposals to receive approval from the
shareholders of both the Company and HEFT there remains material
uncertainty as to the future of the Company.
However, should the Proposals not
receive the necessary shareholder approvals or any of the other
conditions to the Proposals not be satisfied, the Board believes
that the Company would remain a going concern. Accordingly, the
Board has prepared the financial statements in this report
for the half year ended 31 January 2024
("Half Year Report") on a going concern
basis.
DIRECTORS' RESPONSIBILITY STATEMENT
The Directors (as listed in note 12)
confirm that, to the best of their knowledge:
(a)
|
the condensed financial statements
for the half year ended 31 January 2024 have been prepared in
accordance with FRS 104 Interim Financial Reporting and give a true
and fair view of the assets, liabilities, financial position and
profit or loss of the Company;
|
(b)
|
the interim management report and
condensed financial statements include a fair review of the
information required by Disclosure Guidance and Transparency Rule
4.2.7R (indication of important events during the first six months
and description of principal risks and uncertainties for the
remaining six months of the year (whilst also
acknowledging the going concern and material uncertainty statement
below and that the Company may be placed into voluntary liquidation
before 31 July 2024)); and
|
(c)
|
the interim management report
includes a fair review of the information required by the
Disclosure Guidance and Transparency Rule 4.2.8R (disclosure of
related party transactions and changes therein).
|
On
behalf of the Board
Nicola Ralston
Chairman
20
March 2024
Investment portfolio at 31 January
2024
Investment
|
Country
|
Sector
|
Valuation
£'000
|
% of
portfolio
|
Novo Nordisk
|
Denmark
|
Pharmaceuticals & Biotechnology
|
26,210
|
7.4
|
TotalEnergies
|
France
|
Oil & Gas
Producers
|
18,689
|
5.3
|
Nestlé
|
Switzerland
|
Food
Producers
|
16,778
|
4.7
|
Roche
|
Switzerland
|
Pharmaceuticals & Biotechnology
|
16,693
|
4.7
|
ASML
|
Netherlands
|
Technology Hardware and Equipment
|
15,763
|
4.4
|
Sanofi
|
France
|
Pharmaceuticals & Biotechnology
|
13,857
|
3.9
|
SAP
|
Germany
|
Software & Computer Services
|
12,818
|
3.6
|
Safran
|
France
|
Aerospace &
Defence
|
11,524
|
3.3
|
SGS
|
Switzerland
|
Support
Services
|
11,513
|
3.2
|
Airbus
|
France
|
Aerospace &
Defence
|
10,589
|
3.0
|
Top
10
|
|
|
154,434
|
43.5
|
Schneider Electric
|
France
|
Electronic & Electrical
Equipment
|
10,186
|
2.9
|
LVMH Moët Hennessy Louis
Vuitton
|
France
|
Personal
Goods
|
10,149
|
2.9
|
Beiersdorf
|
Germany
|
Personal
Goods
|
9,910
|
2.8
|
Munich Re.
|
Germany
|
Insurance
|
9,646
|
2.7
|
DSM Firmenich
|
Switzerland
|
Food
Producer
|
9,579
|
2.7
|
UniCredit
|
Italy
|
Banks
|
9,322
|
2.6
|
Deutsche Börse
|
Germany
|
Financial
Services
|
8,861
|
2.5
|
Amundi
|
France
|
Bank and Asset
Manager
|
7,777
|
2.2
|
BNP Paribas
|
France
|
Banks
|
6,865
|
1.9
|
Infineon Technologies
|
Germany
|
Technology Hardware and Equipment
|
6,561
|
1.8
|
Top
20
|
|
|
243,290
|
68.5
|
Hermès
|
France
|
Luxury Goods
|
6,552
|
1.8
|
Alcon
|
Switzerland
|
Health Care Equipment & Services
|
6,440
|
1.8
|
Euronext
|
Netherlands
|
Financial
Services
|
6,384
|
1.8
|
Moncler
|
Italy
|
Luxury Goods
|
6,228
|
1.8
|
Pernod Ricard
|
France
|
Beverages
|
6,173
|
1.7
|
Allfunds
|
Netherlands
|
Finance and Credit
Services
|
5,770
|
1.6
|
ASM International
|
Netherlands
|
Technology Hardware and Equipment
|
5,422
|
1.5
|
Universal Music
|
Netherlands
|
Media
|
5,417
|
1.5
|
Partners Group
|
Switzerland
|
Private Equity Asset
Manager
|
5,328
|
1.5
|
Cellnex
|
Spain
|
Mobile
Telecommunications
|
5,297
|
1.5
|
Top
30
|
|
|
302,301
|
85.0
|
Metso
|
Finland
|
Industrial
Engineering
|
5,291
|
1.5
|
Heineken
|
Netherlands
|
Beverages
|
5,175
|
1.5
|
SIG
|
Switzerland
|
Containers and
Packaging
|
4,950
|
1.4
|
Danone
|
France
|
Food
Producer
|
4,937
|
1.4
|
Bawag
|
Austria
|
Banks
|
4,876
|
1.4
|
EDP Renovaveis
|
Portugal
|
Alternative
Energy
|
4,093
|
1.2
|
Arkema
|
France
|
Chemicals
|
4,060
|
1.1
|
Kone
|
Finland
|
Industrial
Engineering
|
3,601
|
1.0
|
Besi
|
Netherlands
|
Technology Hardware and
Equipment
|
3,386
|
1.0
|
Brockhaus Capital
Management
|
Germany
|
Financial
Services
|
2,778
|
0.8
|
Top
40
|
|
|
345,448
|
97.3
|
Sartorius
|
Germany
|
Medical Equipment and
Services
|
2,561
|
0.7
|
Adidas
|
Germany
|
Personal
Goods
|
2,413
|
0.7
|
Zealand Pharma
|
Denmark
|
Pharmaceuticals & Biotechnology
|
2,096
|
0.6
|
Puma
|
Germany
|
Personal
Goods
|
1,662
|
0.5
|
Industrie De Nora |
Italy |
Electronic & Electrical
Equipment |
803
|
0.2
|
Total
|
|
|
354,983
|
100.0
|
In addition to the above, the Company
has a nil value position in OW Bunker. OW Bunker is
unquoted.